CBD: Worth the $16 Billion Hype?

$16 Billion isn't a small number after all.

That's the size expected in this report for the global CBD market. For context, right now we are sitting at close to $600MM in annual sales… quite the jump. 

If you were to ask why the market is going to be so big, this is how we think about it:

Right now our biggest crops in the US are corn and soybeans, as any drive through Indiana will show you. The growth of Hemp (now allowed through the Farm Bill) has led to an explosion of growers, distributors and users of hemp and CBD. This could be due to the over 25,000 purported uses of hemp/cbd. You can utilize hemp/CBD for paper, clothing, beauty products, medicine, carpet, food, and the list goes on. This is probably why 41 states have started figuring out a way to grow Hemp. Given CBD is currently infused into about every type of food, beauty, and wellness product you can think of, perhaps they are on to something.

In fact 7% of Americans are estimated to use CBD on a regular basis. Think about that. JUUL was used by 4.2% of Americans and at its height it was worth $38 billion. 

If you are invested in Entourage Effect Capital you get access to this growth through our portfolio companies who sell products derived from hemp such as: Harvest which sells the branded products, or Sunderstorm a CPG and distribution company (Their sunrise product is 100% pure CBD if you get an itch to try). As well as a few others we can't yet disclose but believe are game changers.

As you look at shelf space inside of Californian dispensaries you may be surprised to find an increasing allotment to CBD brands such as Select, Lord Jones, LEEF etc. While these can also be sold at Nordstrom's or CVS, many consumers come to dispensaries to be educated on this new product set. 

Why use CBD?

Given its recent federally illegal status the science hasn't caught up with the market. That said, early studies show potential effectiveness for pain, cancer, neurodegenerative diseases, autoimmune conditions and specifically epilepsy. The only FDA approved drug related to cannabis is Epidiolex which is derived from CBD. However, we doubt it'll be the last as many of the large Pharma companies have early stage trials themselves. I personally am a fan of the topicals for inflammation and drops for my coffee which help this perpetually high strung investor cool it a bit.  More resources on the space:

• Harvard weighs in: https://www.health.harvard.edu/blog/cannabidiol-cbd-what-we-know-and-what-we-dont-2018082414476
• Healthline: https://www.health.harvard.edu/blog/cannabidiol-cbd-what-we-know-and-what-we-dont-2018082414476

Where can you get it? 

Right now CBD is available online, at health stores, a plethora of independent grocery stores, delivery platforms, dispensaries varying by state and pharmacies. If you want to visit one of our portfolio companies dispensaries check out:

• Urbn Leaf
• NorCal
• Holistic
• Harborside
• Acreage

For those who want to go deep into the use cases: 

Bulletproof is a leader in bio-hacking and speaks about using CBD --> Bulletproof piece.

For those who know the pain of high heels:

If this actually works, I'm buying it --> Actress uses CBD oil to stop high heel pain.

Before you think my rose colored glasses are firmly entrenched. There is much caution to take in this industry and subsector, here are two of them:

CAVEAT #1:

When companies start making claims such as this cures x, this solves y, the FDA comes in and if those claims are not substantiated they will fine and close those companies down. Thus, watch for FDA shutdowns of sloppy companies making unsubstantiated claims. Such as here --> https://www.fda.gov/news-events/press-announcements/fda-warns-company-marketing-unapproved-cannabidiol-products-unsubstantiated-claims-treat-cancer

CAVEAT #2:

It is unclear what are the full use cases and benefits of CBD, vs CBD from hemp, vs CBD from cannabis, vs CBD that is organic, vs CBD without THC etc. There are a plethora of snake oils being sold and the mark up differs wildly between products. Charlotte's Web sells one tincture for $150, while on Amazon you can buy the same size from another brand for $12.99. How do consumers denote the difference? Thus we are very cautious on investing only in companies that benefit from one single cannabinoid like CBD.

CAVEAT #3:

If you go to buy CBD online on Amazon you can choose from over 3,000 results. That's astounding to have thousands of results and the delta (difference) between the pricing on these products can be anywhere from 20% to 1000% markups. Thus, I am very cautious on how brands are actually able to differentiate themselves and become industry leaders. There is no doubt that CBD is a crowded trade.

That said here is my closing thought on those who don't get curious about new innovation:

 "This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us." - Western Union internal memo, 1876 

Oops... Western Union, that's embarrassing.  

Codie Sanchez

Managing Director

Entourage Effect Capital