SKU’d Thoughts 37: How is CBD impacting CPG?
Cannabidiol (CBD) is all the rage in consumer goods. The safe non-addictive, non-psychoactive, therapeutic cannabis extract can be found in beverages, cosmetics, over-the-counter drugs and beyond. When Casper, the direct-to-consumer mattress company, got into the CBD gummies space last month, I asked myself: is CBD the new cryptocurrency? I remember a couple of years ago, it felt the most random companies were issuing initial coin offerings (ICO) to ride the cryptocurrency technology fad. In 2017, online discount retailer Overstock’s shares jumped almost 20% with the news that it will develop an alternative ICO token trading platform.
Back to CBD. So, what is driving this rush into the cannabis extract? For starters, the U.S. CBD market is projected to reach $20 billion in the next 5 years. Even though regulations around the use of CBD have softened with the latest version of the Farm Bill, they are not exactly clear. As a result of the expected growth in market size, it’s no surprise some CPG companies are positioning themselves to take a share of the space. This is happening through partnerships with cannabis companies based in Canada which legalized the use of cannabis for recreational purposes in 2018.
In the food and beverage sector, we have already seen large companies making acquisitions or investments into CBD.
Constellation Brands, makers of Corona and other alcohol brands, acquired a 38% stake in Canopy Growth, a Canadian cannabis company, with the hopes of developing and marketing cannabis-infused beverages.
Molson Coors took controlling interest of the Hydropothecary Corporation, Canada’s largest cannabis grower and recently announced it will soon distribute CBD-infused drinks: Sparkling CBD, a line of hemp-derived CBD sodas and sparkling beverages in Colorado.
Unilever-owned Ben and Jerry’s has plans to produce CBD-infused frozen treats once regulations are a bit clearer; a move that is right in line with how the brand operates.
Another CPG sector projected to be infiltrated by CBD is cosmetics/personal care. Jefferies Group, an investment firm, estimates that globally CBD “will amass 15 percent of the total skincare market”. This trend within cosmetics is spurred by consumers expressing more interest in wellness, natural ingredients, and medicinal benefits. Some examples of large cosmetics companies who have already taken the leap into the CBD space:
Estee Lauder’s Origins Hemp Mask
Unilever’s Murad’s Hemp Serum
Keihl’s Cannabis Serum from L’Oreal.
Jefferies went on to note that the overall cosmetics/personal care space will grow if “prescriptions for dermatological products are replaced by over-the-counter CBD goods”.
As evident by the companies who have actively invested in adding CBD in their product roadmap, it is clear Big CPG is aware of the wellness benefits of using CBD as an ingredient. However, due to the unclear regulations, many CPG incumbents are taking the wait and see approach. Coca-Cola and Pepsico are excellent examples of this. In 2018, Coca-Cola was rumored to be entering the cannabis space through a partnership with Aurora Cannabis Inc., Canada’s third-largest marijuana company, to produce drinks infused with CBD. But Coca-Cola has since publicly shut down any CBD plans. CEO James Quincey told analysts, “We’ve got no plans in the cannabis or marijuana or CBD space at this moment. I don’t see that as something that we’ll be getting into any time soon. It’s just not something we’re interested in.” PepsiCo, on the other hand, publicly stated that it will look critically at investing in CBD. For beverage giants, CBD and other health and wellness offerings seem like a logical next step to offset declining sales of their traditionally sugary portfolio.
Consumer goods startups are certainly not shy about entering the CBD space and it works well if it aligns with their overall brand vision; like in the case of Casper. The brand choosing to expand its portfolio to include CBD gummies, in partnership with edible startup Plus, is on-brand with helping customers get blissful sleep.
When companies are integrating cannabis products into existing portfolios or launching new products altogether, there is bound to be an impact on brand perception and reputation. To offset any perception of phoniness, established CPG companies should take an on-brand approach when entering the CBD space so it doesn’t feel like they are simply riding a wave. As an example, a household company like Coca-Cola can introduce CBD-infused products through already existing health and wellness portfolio brands.
Cross posted on Medium