CBD Up Close

Cutting through the CBD hype

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Is the CBD Industry Overheating?

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We have talked at length about the upside in the CBD industry since our inception a few months ago. A lot of people agree and a lot of money is flowing into this industry… but is that a smart move?

Here’s a clear picture of the current CBD investment psychology:

“Leading cannabis researchers BDS Analytics and Arcview Market Research, project that the collective market for CBD sales in the U.S. will surpass $20 billion by 2024.

“The convention-goers were more keyed on this figure, and less worried about potential push back from anyone looking to enforce state law or agencies like the Food and Drug Administration.”

Depending on your appetite for risk, this sentiment either makes perfect sense or is a clear sign that the CBD industry is going through something of a mania. What do I think?

I think there will be some pure startup winners all along the vertical but that most of the pure startups will end up failing (this is normal for startups in every industry but I think that the failure rate here will be higher than most industries. Those that are able to survive can realize huge returns on investment, more so than in many other industries.). I still think that the industry will go through an aggressive consolidation phase over the next few years, as can be seen from our story earlier about HeavenlyRx.

Going back to the point of this post, the reported sentiment at that convention does give me pause for concern. There are a lot of people who have no consumer product, much less CBD industry, experience getting into the industry. That’s a risk from an investment standpoint. Some of these CBD companies started by neophytes will work but I think the vast majority of them will fail.

The lack of clarity on regulations is also a risk. Sure, everyone, including us, thinks that the writing is on the wall and that CBD products will be legalized across the board… eventually. In the meantime, we’re not sure what the FDA will do and who knows what each state will do when it comes to regulating CBD products.

A few days ago, the FDA sent a shot across the bow to CBD company Curaleaf telling them that they have 15 days to get in line with FDA requests, including changing their medical claims, or else.

“As a result of this warning letter, which will require Lusardi’s response to correct these deficiencies within 15 days, Curaleaf lost its topical partnership with pharmacy giant CVS Health (NYSE: CVS). As a reminder, CVS Health announced in March that it would carry Curaleaf’s topical products in roughly 800 of its stores in eight states, with CBD expected to be a means for low-margin pharmacy chains to drum up foot traffic to their stores. It’s unclear if CVS will look elsewhere for its CBD supplies, especially with Walgreens Boots Alliance and Rite Aid following suit with cannabis products in their own stores shortly after CVS.”

Scott Gottlieb, a former commissioner at the FDA, has suggested a pathway forward for the FDA regulating the CBD industry:

“The FDA could put the onus on manufacturers to bring forward petitions to demonstrate that CBD can be safely added to products such as food. These submissions can take the form of new dietary ingredient notifications or food additive petitions, which would include toxicity studies to evaluate the safety of CBD. These are the same standards any new food ingredients are held to. Congress can help by passing language saying that the FDA doesn’t need to issue a broad regulation on CBD and can instead rely on petitions filed by individual, prospective producers.”

It’s entirely possible, maybe even likely, that the FDA will do something along those lines. They could punt this issue, allowing limited ways to sell, and wait for clinical studies. Remember, the FDA has no incentive to act quickly here, they only look bad if they approve something that turns out to be unsafe.

Taking all this into consideration, I think you can make a good argument that entrepreneurs and investors are getting a little overly optimistic. I still think that there is tremendous upside in this industry but if the FDA throws a wrench in the machinery then you can kiss those projections goodbye.

CBD Beverage Startup Sweet Reason – A Lesson In Branding

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Sweet Reason is a CBD beverage startup that recently closed a $2.5MM seed round to fund its early stage growth. According to an article on TechCrunch, Sweet Reason has had to deal with some growth pains navigating the evolving regulatory environment. For starters, they thought that they could launch in cannabis-friendly Canada but that was a nonstarter thanks to changing laws. From there, they changed their launch strategy to focus on America.

Starting sales in New York they have expanded out to other states through online sales and are doing well enough to have raised a round from some heavy hitters. They are doing very well and there are important lessons you can learn from their experience.

CBD Consumer Product Launch Expenses

Hilary McCain, the Chief Executive and founder of Sweet Reason, is a pro in the food industry having been a consultant at Boston Consulting Group. What she and other veterans of that industry know is that it costs a decent amount of money to launch a consumer product. Hilary started Sweet Reason with a couple hundred thousand dollars of her own money and that money went towards “market research, brand development and the creation of her CBD-infused concoctions.”

That’s what it costs for someone who knows what they are doing so, if you’re thinking that you want to start a consumer product CBD company, keep that in mind. It will cost more than you think.

CBD Branding – Sweet Reason

There are many different directions to take it and Sweet Reason looks like their branding is directed towards a younger demographic. If you look at their site, or the screen grab below, Sweet Reason is focusing its brand on natural products. Their sparkling water comes in glass bottles, has clean and clear labeling, and they don’t overdo it. It’s straightforward packaging that communicates value.

The color palette throughout their website and their social media mostly centers around pastels and women who are living happy, healthy lives. Their Instagram feed is a combination of black and white portraits of women enjoying life, inspirational quotes, and every post is artistically done.

Their Instagram bio speaks to how they are positioning their brand not as a CBD-infused sparking water company but as a part of a great life: “CBD-infused sparkling water made to help you slow down, relax, and pursue a life well-lived.”

Price is also a way to communicate your brand and they have priced their products in a way that positions them as a upper scale company. There is definitely psychology in play here because price certainly communicates quality for most people. Maybe purchasing this product can also serve as a status symbol for some people.

Their bottles are made of glass and are on the shorter size. Looking at the Instagram post below, even though the Sweet Reason bottles are not in an optimal location, well below a person’s eye line, their bottles still stand out. The bottles with the large labels are probably cheaper to produce but they are communicating the message that they’re hiding something. The aluminum cans communicate a lower value. Sweet Reason’s packaging, on the other hand, communicate freshness and quality.

CBD Consumer Products Lessons Learned

Launching consumer products is an expensive endeavor. You need to clearly identify what demographic you are going to target and then lean into that. Sweet Reason has seemingly determined that their demographic is younger, upwardly mobile, and mostly women. At least their branding seems to indicate that.

When launching a consumer product you will be faced with many choices. Do you want to go up market or down market? How will you price your products? How many products will you offer? How will you distribute your products? How will you market your products? How will you package your products? And the list goes on.

The best takeaway from this is that you need to clearly answer one straightforward question: Why will people purchase my products?

Sweet Reason started out like most other companies, they wanted to make money and that is a very good reason to start a business; if you’re a devotee of Milton Freedman then that is the primary reason to start a business. But you have to take it a step further and figure out why people are going to care enough about your products to part with their hard earned money to purchase your product.

For Sweet Reason, they determined that customers will purchase their products because Sweet Reason’s products accentuate their customers’ lifestyles. There are already other CBD water options in the marketplace and there will be only more options as time goes on. Sweet Reason has identified a niche and they are leaning into it. You should do the same.

Can CBD Prevent My Dog’s Anxiety Over 4th of July Fireworks?

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Fireworks are a great part of every 4th of July celebration. Whether you’re watching the safe and sane fireworks you buy at the local fireworks shack or mortars bombing overhead, they’re fun to watch. But the sounds can freak dogs out (cats don’t seem to care so much) and cause anxiety problems in your best friend. Can CBD help? Based off of the dog owners we know, CBD can definitely help!

Here are a couple of the highest rated CBD products on Amazon for you to try:

PremiumCare Calming Treats for Dogs

PremiumCare Calming Treats for Dogs

PremiumCare Calming Treats for Dogs comes in a 120 count jar and claims to “reduce symptoms of anxiety such as excessive scratching, barking, chewing, licking and salivating.”Having received hundreds of reviews, this product is highly rated and is a great choice for helping to relieve anxiety.

Link to purchase PremiumCare Calming Treats for Dogs

CeeBeeDoo Dog Treats with Hemp Oil for Pain Relief & Anxiety

This product from CeeBeeDoo has many customer reviews, has a rating of 4.6 stars and comes in multiple sizes and flavors. The most cited benefit in the comments was that it helps relieve anxiety, so give it a try!

Link to purchase CeeBeeDoo Dog Treats with Hemp Oil for Pain Relief & Anxiety

CBD May Be Solution to Drug Resistant Infections

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This story is from WebMD and, if the best case scenario turns out to be true, it would be pretty great. The basic gist of the article is that CBD may prove useful in fights against drug resistant infections, also known as “superbugs”.

And there is research being done on this. It’s still very early days for this research but, according to Mark Blaskovich PhD, one of the researchers, “The first thing we looked at is CBD’s ability to kill bacteria. In every case, CBD had a very similar potency to that of common antibiotics.”

How CBD Industry Should Treat Early Stage Research

Tout it but don’t make it a central piece of marketing. The 100% no bullshit truth is that, with one key exception, we just don’t know what CBD can do. It certainly looks like it can help with anxiety and normal aches and pains but, beyond that, we just don’t know.

So, by all means, link to these studies, talk about them, but make sure that you aren’t making any claims off of them just yet.

Facebook CBD Ad Ban

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According to an article on The Verge, if you try to advertise your CBD products on Facebook you are likely to get your ad account disabled (and maybe even your business page completely deleted). For many businesses, that would be a serious blow, so it’s not worth testing the Facebook ad police unless your whole business is about CBD.

And, according to at least one account from The Verge article, Facebook deleted one person’s entire business account: “I tried to log into Facebook, and my entire account was deleted. Like I didn’t just lose ads. They deleted my entire business account — like hit the delete button,” Rudis says. “No warning, no email. No, ‘you’ve screwed up,’ no 30-day slap on the hand, literally hit the delete button, and my entire business account was gone.”

Again, unless your whole business is about selling CBD products, then don’t buy ads on Facebook to promote CBD products. In fact, even if your whole business is about CBD, it still does not make sense to try placing ads on Facebook that have anything to do with CBD. You are better off waiting for Facebook to come around to the times and allow for the advertising of CBD products on its platform. My best guess is that they will enact that change later this year; maybe it will be quick thanks to pressure from bad coverage from places like The Verge or maybe they will make a change to coincide with new regulations from the FDA.

You might be thinking “Why wouldn’t Facebook allow for CBD ads on its platform?” The short answer is that it is making so much money from selling ads that it isn’t going to be hurt by not allowing CBD ads on its platform. Furthermore, since they are under the regulatory microscope, they may be loathe to try anything that might even be the smallest bit out of line. Instead of risking the wrath of a renegade senator who has some personal issue with CBD and happens to also sit on a committee that has some power over Facebook, Facebook would rather wait back until the point when it is 100% legal (at least federally) before opening up the ad flood gates for CBD.

It’s a very conservative move but, again, the upside for Facebook at this time is rather limited while the downside, which would be increased scrutiny from politicians and regulators (especially those politicians and regulators who already have an axe to grind when it comes to Facebook, which is just about everyone these days) that could lead to some fairly dire consequences for Facebook.

The downside of this strategy is that because they had uneven enforcement of this “no-CBD ads” policy before, they have opened themselves up to litigation from (one so far) companies that had their accounts disabled for trying to promote CBD. Still, even if they have to pay out tens of millions of dollars to these companies whose accounts they disabled that would be better than having to worry about pissing of someone who might be the deciding vote as to whether or not Facebook should be broken up. And, to be 100% clear, I don’t think Facebook will end up losing much money in any litigation brought forth by a disgruntled company that had their Facebook ads account disabled. It’s better for Facebook to just sit back and wait for 100% clear rules when it comes to CBD.

What can CBD marketers do?

Amazon is an option. You can market and sell your products there. Savvy marketers will make sure to encourage their customers to leave good reviews on Amazon, which is vitally important for these companies since their Amazon page is likely the only way they will communicate with their customers before they buy.

YouTube (currently) allows videos about CBD. While it’s possible for you to create a popular YouTube channel that discusses all of the wonderful things that CBD can do for people, the more useful route would be to work with existing influencers on YouTube to promote your CBD brand. Influencers, for the uninitiated, are people or brands, which is basically the same thing nowadays, who have sway over their niche audience. For example, you can approach a YouTuber with 100,000 followers who gives makeup tips for adults suffering from acne (yes, it can get that niche) and see if you can get them to promote your products. You will probably need to pay those influencers who have a big enough reach but the rewards can be substantial.

An alternative to the YouTube marketing strategy would be to work directly with an influencer with a large enough audience to create a bespoke brand for them. That way, it will be their brand and you would be responsible for fulfillment and all of the other business activities.

Besides Amazon and YouTube, there are other options. Even though Facebook is banning people for buying ads about CBD on their platform, you could still post on its platform. Ditto for Instagram.

And there are also offline marketing strategies as well. End caps are those displays at the end of a grocery store aisle (trust us, they work). You can also pay for placement where people checkout. Another option would be to give talks at senior living centers about the benefits of your CBD products and take orders while you are there.

In other words, just because Facebook is lowering the boom on companies that are advertising CBD products that doesn’t mean there aren’t other, maybe even better, options for advertising CBD products out there. You just have to be a little creative and you will find success.

Major Health Retailers That Currently Sell CBD Products

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The lack of clarity surrounding the legality of CBD appears to be a non-issue to some major retailers, like CVS, who are currently selling CBD-infused products.

Two other major health retailers Walgreens and RiteAid jumped on the bandwagon, with Walgreens committing to giving shelf space to CBD products in 1,500 U.S. locations and RiteAid planning to sell it in their Oregon and Washington stores. CVS will sell CBD or hemp oil products in 800 stores across eight states.

Ulta Beauty is another retailer diving into the cannabidiol craze. The company will sell skin care products from Cannuka made with a CBD manuka honey blend (which sounds delicious, but is most definitely not edible in the form of a skin lotion). Ulta can sell these products in every state except for Idaho, Nebraska, and South Dakota where the CBD laws are stricter.

GNC is now in the CBD game, most likely focusing on the performance or recovery aspect. We’re probably not that far from a CBD protein powder product! CBD definitely makes sense for this brand.

Urban Outfitters is selling CBD products from brand CBD for Life, and will obviously focus on the youth market. High-end retailer Neiman Marcus is stocking cannabidiol products at five of its locations and online, with most of the products landing in the beauty/wellness niche, which makes sense. It will be interesting to see how these products sell in the super high end market that Neiman Marcus represents. It wouldn’t surprise me if this is a money maker for the company since its target demographic has plenty of disposable income for personal beauty.

One of the things that jumps out to me about retailers like GNC, Ulta and Neiman Marcus is that these are stores where you typically ask the salesperson questions about products and look for recommendations. I don’t see a CVS pharmacist recommending a CBD tincture for a skin rash, but I do see a sales clerk at Ulta raving about a new CBD manuka honey based product that promotes soft skin or a GNC jock mentioning that CBD aids in muscle rejuvenation after a hard workout. This type of “popular” retailer is going to make a difference in this market and how CBD is seen by the world at large.