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Equity Research
Cannabis
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FEBRUARY 25, 2019
11 Cowen analysts across consumer, health
care, industrials, and regulatory offer a
comprehensive view of the global CBD
opportunity.
Nearly 7% of adults in our proprietary U.S.
survey (n = ~2,500) reported using CBD as a
supplement, far higher than we expected.
We believe U.S. CBD can conservatively
generate sales of $16 bn by 2025. We offer
detailed analysis at the sub-category level, as
well as company-specific discussions, including
Outperform rated WEED, TLRY, and TPB.
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Cowen Research
646 562 1330
cowen.research@cowen.com
Vivien Azer
646 562 1351
vivien.azer@cowen.com
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COWEN
COLLABORATIVE INSIGHTS February 25, 2019
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COWEN.COM
COLLABORATIVE INSIGHTS
February 25, 2019
■ Cannabis
COWEN RESEARCH
EQUITY RESEARCH
Cowen Research
646 562 1330
cowen.research@cowen.com
Vivien Azer
646 562 1351
vivien.azer@cowen.com
John Blackledge
646 562 1359
john.blackledge@cowen.com
Andrew M. Charles, CFA
646 562 1332
andrew.charles@cowen.com
Oliver Chen, CFA
646 562 1424
oliver.chen@cowen.com
John Kernan, CFA
646 562 1324
john.kernan@cowen.com
Phil Nadeau, Ph.D.
646 562 1336
phil.nadeau@cowen.com
Charles Neivert
646 562 1370
charles.neivert@cowen.com
Jeffrey Osborne
646 562 1391
jeffrey.osborne@cowen.com
Charles Rhyee
646 562 1376
charles.rhyee@cowen.com
Doug Schenkel
617 946 3918
doug.schenkel@cowen.com
COWEN WASHINGTON RESEARCH GROUP
MACRO POLICY
Eric Assaraf
202 868 5304
eric.assaraf@cowen.com
Any portion of this report prepared
by a member of Cowen Washington
Research Group is intended as
commentary on political, economic
or market conditions and is not
intended as a research report as
defined by applicable regulation.
COLLABORATIVE INSIGHTS
COWEN'S COLLECTIVE VIEW OF CBD - AHEAD
OF THE CURVE SERIES
THE COWEN INSIGHT
In a collaboration featuring 11 analysts spanning Cowen's consumer, health care, industrials
and regulatory teams, we offer a deep dive on the global cannabis market, with a particular
emphasis on the U.S. For consumer goods, we believe the U.S. CBD market could represent
a $16 bn opportunity by 2025.
$16 bn Consumer Opportunity (Azer, Blackledge, Charles, Chen & Kernan)
In our monthly proprietary consumer survey (n = ~2,500) we were surprised to see that
nearly 7% of respondents in January 2019 reported using CBD as a supplement. This strong
consumer interest is validated by the growing number of brands and form factors that are
now available through increasingly diverse retail channels, including Amazon, Sephora and
Neiman Marcus. That said, consumption of CBD on-premise will likely take longer, given
regulatory uncertainty. And, while our analysis primarily focuses on consumer staples
applications for CBD, it is interesting to see a growing number of specialty apparel brands
embrace hemp as a sustainable textile.
Retail sales of CBD consumer products in 2018 have been estimated between ~$600 mm
and $2 bn. By 2025, we believe CBD offerings could conservatively generate $16 bn in retail
sales (assuming a ~40% increase in consumer incidence, to 10%, and spend of less than $2 /
day). Our bottom-up analysis anticipates a diverse category, that is still led by traditional
health & wellness form factors (e.g., $6.4 bn in nutraceuticals, and $4 bn in topicals). And,
while likely smaller, we also expect categories like food, beverages, beauty and vapor to all
generate sales between ~$1-2.5 bn by 2025.
Herein, we offer a detailed look at category brand and pricing architecture in the U.S.
CBD market today, as well as detailed discussions of 21 public and private operators that
currently have exposure to the category, including Outperform rated Canopy Growth, Tilray
and Turning Point Brands, which have all announced plans to enter the U.S. CBD market.
The Science of CBD (Nadeau)
Cannabis’s therapeutic potential is attributable to the valuable overlap between
phytocannabinoids (i.e. plant-derived cannabinoids) and the endogenous cannabinoid
system in humans, termed a “therapeutic handshake.” While THC's activity in the body is
fairly well elucidated, CBD’s pharmacokinetics are less well understood (no specific receptor
for CBD has been identified). Clinical trial results to date demonstrate few adverse effects
from oral CBD doses of up to 1500 mg/day or up to 30mg IV. The scientific understanding
of CBD’s clinical effects is based mostly on studies in specific indications, like epilepsy. GW
Pharma’s Epidiolex (highly potent, pure formulation of CBD) was approved by the FDA in
2018 for the treatment of seizures associated with Lennox-Gastaut syndrome and Dravet
syndrome, and other companies (Tilray, MMJ Phytotech, Insys) have clinical trials underway
in seizure disorders as well.
CBD Hemp Cultivation (Neivert)
According to the National Conference of State Legislatures, 41 states have set up cultivation
and production programs to regulate the production of hemp. There is little research on
CBD hemp cultivation methods as hemp cultivation research historically has focused on
fiber and grain/seed. This lack of research, combined with a number of variables that affect
hemp for CBD yield, makes hemp for CBD cultivation much more art than science at this
point. That said, no other crop in the U.S. offers the type of return of the CBD Plasticulture
Model, and we would thus expect the country's two largest crops, corn and soybeans, to
lose some acreage to CBD hemp.
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Please see pages 100 to 106 of this report for important disclosures.
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COLLABORATIVE INSIGHTS February 25, 2019
Synthetic Biology Provides Alternative Cannabinoid Production Method; Life Science Tools
Well Positioned To Benefit From QA/QC Testing Opportunity (Schenkel)
As an alternative to cultivation-based methods, cannabinoids can be produced using either
chemical or synthetic biology approaches. Synthetic biology methods, which harness
fermentation to produce cannabinoids, are particularly attractive considering they can
potentially produce a variety of cannabinoids while being highly scalable, efficient, and
environmentally friendly.
While QA/QC testing standards for CBD currently vary greatly by state (if any exist
at all), we expect Life Science Tools companies to benefit from this nascent market
opportunity as testing regulations are implemented and standardized. Similar to medical/
recreational cannabis testing, instruments such as mass spectrometers and liquid/gas
chromatographs are utilized to analyze CBD samples. Key vendors for mass spectrometry
and chromatography instruments include Agilent, Danaher (SCIEX), PerkinElmer, Shimadzu,
Thermo Fisher, and Waters Corporation.
CBD From a Retailer and Payor Perspective (Rhyee)
Healthcare: Drug Retailer Perspective: CBD products appear to be gaining traction with
independent pharmacies, many of whom are already selling or planning to sell CBD oils.
Independent pharmacies likely find the high-margin profile of CBD oils attractive, which
we suspect is similar to those of more traditional over-the-counter drugs, as well as the
differentiation it affords independents relative to larger chain pharmacies. For those selling
CBD oils today, the focus is on quality, particularly as it relates to bioavailability. Large
pharmacy chains, such as CVS and Walgreens, don’t currently sell CBD oil, but WBA noted it
is monitoring the CBD market.
Healthcare: Payor Perspective: Generally speaking, managed care does not cover OTC
products, with the same being true for Medicare and Medicaid. Based on our conversations
with a number of payors, whether CBD oils will be covered as a medical benefit by
government sponsored health programs is determined by the Center for Medicare and
Medicaid Services (CMS) and state governments. Currently, CBD products are not a covered
benefit, or an extra benefit, that has been approved by CMS or states, and it isn’t known
at this time whether CMS or states governments are considering reimbursement for CBD
products. Separately, Payors noted three factors complicating commercial coverage of
CBD oils, including (1) legal issues, as CBD oils derived from THC (cannabis) isn’t legal if
it contains equal to or more than 0.3% THC; (2) lack of regulation by the FDA; and (3) its
availability as an OTC medication.
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COLLABORATIVE INSIGHTS February 25, 2019
Global Landscape (Azer)
While the global regulatory landscape varies, the CBD category outside of the U.S. has
been evolving rapidly, with more change likely to come with the WHO's current evaluation
of CBD, as well as its recent addition to the EU's Novel Food Catalogue. In Europe, CBD
products are now widely available in markets like the U.K., Italy and Switzerland, though
regulations vary with Italy allowing for "cannabis light" products, with allowable THC of as
much as 0.6%, while in Switzerland CBD products can have as much as 1% THC, and are
classified as a tobacco substitute. In Latin America, hemp has been in production since the
1500s is also rapidly expanding their regulatory frameworks around marijuana and hemp.
Canadian licensed producers have been actively entering the market in Latin America to
capitalize on this evolving opportunity, including Canopy Growth, Tilray, Aurora and Cronos.
Regulatory Outlook (Eric Assaraf - Cowen Washington Research Group)
The 2018 Farm Bill declassifies industrial hemp as a Schedule I substance, shifts regulatory
authority from the DEA to the Department of Agriculture, and provides autonomy for
states to regulate the industry. However, the new law does not change the FDA's oversight
authority over CBD products and FDA Commissioner Scott Gottlieb has made it clear that
his agency will continue to step in when certain health claims are made. Additionally, FDA
has stated that CBD cannot be added to food products sold across state lines or marketed
as a dietary supplement, regardless of whether it is hemp-derived. The FDA will explore
new pathways for CBD to be sold legally; however, it seems clear that there will be a period
of regulatory uncertainty over CBD products at the state and federal level.
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COLLABORATIVE INSIGHTS February 25, 2019
TABLE OF CONTENTS
Consumer Products Market Sizing (Azer) ................................................................................................................................................................................. 8
The Science Of CBD (Nadeau) .................................................................................................................................................................................................... 10
CBD Hemp Cultivation (Neivert)................................................................................................................................................................................................ 11
Synthetic Cannabis (Schenkel) .................................................................................................................................................................................................. 17
Life Science Tools Participation In The Legal Cannabis Market (Schenkel) .................................................................................................................. 22
Consumer Products Opportunities (Azer) .............................................................................................................................................................................. 24
Nutraceuticals ............................................................................................................................................................................................................................ 28
Topicals ........................................................................................................................................................................................................................................ 35
Beverages .................................................................................................................................................................................................................................... 38
Bottled Water ............................................................................................................................................................................................................................ 39
Energy Drinks ............................................................................................................................................................................................................................. 40
Beer ............................................................................................................................................................................................................................................... 41
Beauty .......................................................................................................................................................................................................................................... 44
Food (Confections) .................................................................................................................................................................................................................... 49
Vapor ............................................................................................................................................................................................................................................ 51
The CBD Competitive Landscape – Public/Private Company Discussions (Azer) ....................................................................................................... 54
Publicly Traded Companies .................................................................................................................................................................................................... 54
Canadian LP Commentary on CBD ....................................................................................................................................................................................... 57
Benchmarking ............................................................................................................................................................................................................................ 58
Private Companies .................................................................................................................................................................................................................... 61
Health Care: Drug Retailer Perspective (Rhyee)................................................................................................................................................................... 63
Health Care: Payor Perspective (Rhyee)................................................................................................................................................................................. 64
Health Care: Provider Perspective (Rhyee)............................................................................................................................................................................ 64
eCommerce To Be A Key Consumer Distribution Channel Long Term (Blackledge)................................................................................................... 65
Cannabidiol (CBD) Entrance Into Mass Retail May Start In Beauty Before Entering Broadlines (Chen)............................................................... 69
Growing Application For Hemp And CBD Within The Apparel & Footwear Market (Kernan) ................................................................................. 70
We Would Expect Starbucks To Be First Under Our Active Coverage To Pilot CBD Oil, Though Not In Near Term Plan (Charles) .............. 74
Regulatory Considerations For CBD (Assaraf – Washington Research Group) ........................................................................................................... 75
Global CBD Landscape (Azer)..................................................................................................................................................................................................... 79
European Landscape ................................................................................................................................................................................................................ 80
Latin American Landscape ..................................................................................................................................................................................................... 84
Additional Applications / Implications (Nadeau & Osborne) ............................................................................................................................................. 87
Epilepsy & Psychiatric Conditions (Nadeau) ...................................................................................................................................................................... 87
Industrial Hemp And Sustainable Bioproducts (Osborne) ............................................................................................................................................. 94
Appendix .......................................................................................................................................................................................................................................... 96
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COLLABORATIVE INSIGHTS February 25, 2019
COWEN’S COLLECTIVE VIEW OF CBD
In a collaboration featuring 11 analysts across Cowen’s consumer, health care,
industrials and regulatory teams, herein we offer our outlook for the global CBD market,
with a particular focus on the U.S. While little science exists supporting medical efficacy
of CBD (with the exception of seizures, which GWPharma was able to prove with
Epidiolex for Dravet syndrome and Lennox-Gastaut syndrome, as discussed in more
detail herein), the popularity of CBD products seems to be growing exponentially in the
U.S. Indeed, our consumer survey work suggest that close to 7% of adults in the U.S.
already use CBD as a supplement.
With the category gaining increasing interest from consumers we have seen a swell in
product innovation. And, the opportunity is increasingly drawing the attention of larger
competitors (where for instance, WEED announced that they would consider spending
as much as $500 mm in U.S. hemp / CBD). By 2025, we estimate that the U.S. CBD
market could approach $16 bn (from $600 mm -$2 bn in 2018).
Herein, we offer our views of:
1. Consumer Products Market Sizing (Azer)
2. The Science of CBD (Nadeau)
3. The Hemp / CBD Supply Chain: From Cultivation to Extraction (Neivert & Schenkel)
4. Consumer Products Opportunities (Azer)
5. The CBD Competitive Landscape - Public and Private Company Discussions (Azer)
6. Consumer Discretionary Retail and Brand Opportunities Across:
a. Pharmacy (Rhyee)
b. E-Commerce (Blackledge)
c. Broader Retail (Chen)
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d. Specialty Brands (Kernan)
7. On-Premise Consumption Opportunities (Charles)
8. U.S. Regulatory Outlook (Assaraf, Krueger, Seiberg & Weissenstein)
9. Global CBD Landscape (Azer)
10. Additional Potential Opportunities for Hemp / CBD, Including
a. Pharmaceutical Applications (Nadeau)
b. Industrial Applications (Osborne)
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COLLABORATIVE INSIGHTS February 25, 2019
Consumer Products Market Sizing (Azer)
In our proprietary Cowen consumer survey (~2,500, 18+ respondents), we found that in
January 2019 close to 7% of respondents indicated that they use CBD as a supplement.
While this is only the first month’s reading of the data (which can fluctuate from month
to month), this initial response piqued our interest considerably, as it was much higher
than we would have suspected. Indeed, to put the 6.9% incidence rate in context, that
compares to JUUL use of 4.2%, and 19.6% of consumers that consider themselves a
current tobacco user, per our survey.
From a user perspective, category engagement not surprisingly skews younger, with use
among 18-24 and 25-34 year olds at over 9%, while it is below 4% for consumers 55+.
Figure 1 CBD Use Over-Indexes to Consumers Aged 18-34
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
6.9%
Do You Use CBD as a Supplement?
9.2% 9.5%
7.8%
6.4%
3.7%
Total 18-24 25-34 35-44 45-54 55+
Source: Cowen Survey, n=~2500, January 2019
While the category remains nascent (with revenue estimates ranging from $600 mm to
$2 bn in 2018) it seems clear that the abundance of choice, which we discuss in more
detail herein, has been a key driver of that consumer engagement. In particular, we
were surprised to see that beverages already account for close to 20% of reported form
factor use, given that this segment is among the newer offerings in the market place.
Meanwhile, tinctures, which were arguably one of the original delivery systems, has a
dominant 44% share.
Figure 2 Tinctures Are the Most Popular Delivery Mechanism
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CBD Form Factor Use
Other, 20.9%
Beverages, 19.2%
Capsules, 22.1%
Tinctures, 43.6%
Topicals, 26.2%
Source: Cowen Survey, n=~2500, January 2019
Note: Users had the option to choose multiple form factors
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 3 We Believe CBD Can Be a $16 BN Revenue Opportunity in the U.S. by 2025
While we are keen to gain more insights into the evolving use of CBD in the coming
months from our survey work, this initial snapshot offers a framework for sizing the
ultimate CBD opportunity. With growing consumer awareness, we conservatively
believe that CBD use can grow to 10% of adults in the U.S., or ~25 mm consumers (using
current population) by 2025. If we assume that the average consumer ultimately spends
$640 per year (or less than $2 / day), that would imply a $16 bn market opportunity for
CBD. We would note that using the U.S. Census 18+ population projection in 2025, a
10% incidence rate would equate to just over $590 in annual spend to achieve $16 bn.
Conversely, holding the $640 in spend constant with the U.S. Census forecasted
population would result in over $17 bn in revenues by 2025.
That said, we view this estimate as somewhat conservative, as we can envision a
scenario where a consumer that uses a CBD tincture or capsule, may also be inclined to
convert his or her beauty regimen to include CBD (e.g., CBD infused beauty products),
and or use a topical for targeted relief as well. Our $16 bn estimate assumes the
following category contributions:
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Note: $ in mm unless otherwise stated.
Source: Cowen and Company
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COLLABORATIVE INSIGHTS February 25, 2019
The Science Of CBD (Nadeau)
The Endocannabinoid System
Cannabis’ therapeutic potential is due to this valuable overlap between
phytocannabinoids (i.e. plant-derived cannabinoids) and the endogenous cannabinoid
system in humans, termed a “therapeutic handshake.” However, though THC’s activity in
the body has been fairly well elucidated (it acts through G-protein coupled cannabinoid
receptor 1 and cannabinoid receptor 2), CBD’s pharmacokinetics are less well
understood (no specific receptor for CBD has been identified).
The scientific understanding of CBD’s clinical effects is based mostly on studies in
specific indications, like epilepsy. GW Pharma’s Epidiolex (highly potent, pure
formulation of CBD) was approved by the FDA in 2018 for the treatment of seizures
associated with Lennox-Gastaut syndrome and Dravet syndrome, and other companies
(Tilray, MMJ Phytotech, Insys) have clinical trials underway in seizure disorders as well.
Additional possible indications for CBD products include autism spectrum disorders,
psychiatric conditions, diabetic neuropathy pain, fibromyalgia, chronic pain, and back
pain; clinical trials in these indications are underway.
Clinical trial results to date demonstrate few adverse effects from oral CBD doses of up
to 1500 mg/day or up to 30mg IV. Specifically, CBD studies have not reported effects on
blood pressure, heart rate, or respiratory rate, and no negative changes in mood or
psychomotor slowing. Some studies (such as GW’s in Epidiolex) have shown side effects
resulting from high doses of CBD (~2g/day) inhibiting hepatic drug metabolism,
prompting increased blood levels of some background medications. Additionally, in vitro
studies have shown CBD to be pro-apoptotic in lymphocytes and to inhibit IL8 and IL10
production, suggesting that it may suppress the immune system. However, though
unknowns remain, the summation of pre-clinical and clinical data suggest that the
compound is safe at typical doses seen in over the counter products (5-10mg).
Additionally, other cannabinoids (found in CBD distillate) have been discovered that may
have differentiated pharmacological effects. For example, cannabidivarin (CBDV) may
have differentiated anticonvulsant effects, tetrahydrocannabivarin (THCV) may have
anti-diabetic and appetite suppressant effects, cannabidiol-acid (CBDA) may have antinausea
effects, and bannabigerol (CBG) may have anti-cancer effects. Further research
is needed to elucidate the clinical effects of these compounds.
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COLLABORATIVE INSIGHTS February 25, 2019
CBD Hemp Cultivation (Neivert)
2018 Farm Bill Legalizes Commercial Cultivation of Hemp: The 2018 Farm Bill legalized
industrial hemp at the federal level removing it from schedule I status under The
Controlled Substance Act. The bill defines industrial hemp as a variety of cannabis with a
THC concentration of </=0.3% and allows farmers to grow and sell hemp under state
regulation. According to the National Conference of State Legislatures, 41 states have
set up cultivation and production programs to regulate the production of hemp. (CT, ID,
SD, IA, OH, TX, LA, MS and GA do not currently allow hemp cultivation.)
Hemp is currently being grown under state Industrial Research Pilot Programs. Once
USDA rules are released, pilot programs may end in favor of USDA rules and rules of
state programs approved by the USDA.
Prior to the 2018 Farm Bill, the 2014 Farm Bill allowed universities and state
departments of agriculture to conduct hemp research under Agricultural Pilot Programs
in an effort to evaluate industrial hemp as a commercial crop. The bill allowed states to
begin research on best methods for hemp cultivation.
Cultivation Practices Of Hemp Dependent On Intended Harvestable Component
Hemp is grown for fiber, grain/seed and floral materials with different varieties of hemp
planted for each component. Fibers are used in rope and textiles, grain is used in human
food (not legal for animal feed), pressed seed oil from grain is used like sunflower seed
oil, and oils, including CBD, are removed from floral materials for health supplements.
Cultivation practices differ for fiber, grain/seed and CBD in an effort to maximize the
yield of the desired harvestable component. U.S. states have conducted pilot programs
in recent years to help gain a better understanding of best practices.
Limited Research Available On CBD Hemp Cultivation
There is little research on CBD hemp cultivation methods as hemp cultivation research
historically has focused on fiber and grain/seed. This lack of research, combined with a
number of variables that impact hemp for CBD yield, makes hemp for CBD cultivation
much more art than science at this point. Cultivation methods have been described as all
over the map. That being said, we detail methods from recent academic research studies
and conversations with industry participants below. (The University of Kentucky and
University of Vermont have both conducted research in CBD hemp cultivation in recent
years but further research is needed for conclusions regarding proper production
techniques.)
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Hemp CBD Cultivation Steps:
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Obtain a license. Growers must obtain a grower license from their state
department of agriculture for the specific type of hemp they want to grow.
Find a buyer/processor. Growers then need to find a buyer/processor for their
harvest as crops can only be sold to licensed processors.
Source seeds or clones. The grower must acquire seeds or transplants. Clones
(rooted cutting of a plant) can be used instead of seeds. The key factor in
selecting seeds or clones is understanding which strains produce flowers with
high CBD concentrations while keeping THC at </=0.3% since CBD and THC are
positively correlated which caps the CBD level. (A crop that exceeds 0.3% THC
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COLLABORATIVE INSIGHTS February 25, 2019
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will be destroyed.) Seeds that are certified (sold by domestic and international
hemp seed distributors) contain </=0.3% THC or produce hemp with </= 0.3%
THC.
CBD is more concentrated in female flowers (3%-6%) compared to male
flowers making male seeds unwanted. Unfertilized female flowers have been
found to produce higher CBD levels than female flowers fertilized by male
plants making male seeds unwanted in a production field. We note that seed
mix (male and female) costs are significantly lower than feminized seed costs
(incremental work is needed to increase the supply of feminized seeds).
Conversations with industry participants indicate that clones (first grown in a
greenhouse and then transplanted to the field) are becoming more common as
they provide a cheaper path to all female flowers in the field. Retail clones can
cost $4-$7 each and can be produced for $3 each with access to a greenhouse.
Test soil for contaminants. We note soil that has been used for corn production
has been cited as supportive for maximizing hemp yields.
Water System Installation. A drip irrigation is most effective way to water
hemp as it allows roots to breathe and conserves the most water.
Pesticides: Currently, pesticides are illegal for industrial hemp cultivation
which makes plastic mulch an important step. So far, disease pests and insects
have not been found to significantly impact yields.
Fertilizer. Fertilizer requirements similar to wheat are considered adequate
with nitrogen the most critical.
Planting. Adequate soil moisture and temperature (>/=50°F), which influences
timing for planting, is recommended for successful germination. Industrial
hemp can be planted in late April in Kentucky and late June in Vermont.
Planting depth for seeds should be ~0.50 inches.
Female seedlings, started in a greenhouse approximately 6 weeks prior to
planting, or transplanted female clones (planted with root structure), can be
planted into black plastic outdoors to control weeds. 5 ft x 5 ft plant spacing
has been found to be ideal and results in a population of 1,742 plants per acre.
Harvest. Average time to harvest a 6 inch clone is 90-120 days, Flower buds
from outdoor plants are removed by hand or using a debudder machine after
using a chainsaw or lopper to cut the plant down. Flower bud harvest is labor
intensive and can take ~30 hours per acre. Flower buds in a UVM study were
dried at 80°F for 18-36 hours until dry enough for storage without molding.
Indoor storage requirements creates a production challenge. As with most
crops, variations in yield can result from variations in genetics (variety), soil,
weather, and other growing conditions.
Testing. State Departments of Agriculture conduct field and greenhouse
inspections for THC levels, which is the only way to separate hemp from illegal
cannabis. Crops that test >0.3% THC will be destroyed.
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COLLABORATIVE INSIGHTS February 25, 2019
Wide Range Of Returns On CBD
There is little data on economics for hemp CBD cultivation given wide range of outcomes
that can result on the seed vs clone decision (CBD levels vary for each and will impact
cost), as well as the type of production model used. The University of Kentucky (College
of Agriculture) recently published six budget models for industrial hemp producers. Four
of the six budgets address CBD hemp, with a separate budget for grain and another for
fiber. We highlight the University of Kentucky’s CBD Plasticulture budget model below
since it is the most profitable and will likely be the most commonly implemented. We
note all four of the CBD hemp models indicate a positive return above variable costs per
acre while hemp grain and hemp fiber do not reach breakeven due to low pricing for
both harvestable components..
University Of Kentucky’s Budget Assumptions For CBD Plasticulture:
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Dry matter yield per acre: UK estimates 1,200 lbs of dry matter yield produced
per acre based on 1,500 plants per acre (recall 5 ft. 5ft. allows for up to 1,742
plant per acre) and 0.8 lb of dry matter yield per plant (yield per plant can
range from 0.5 lb-1.5 lbs).
Gross return per acre: CBD concentration and price per % are the factors that
determine the price of dry matter yield/lb. In the below example, 6% CBD% *
$5.00 per % = $30/lb. Gross return per acre is then calculated by multiplying
dry matter yield/lb by dry matter yield/acre (1,200).
Variable cost per acre: 72% of variable cost per acre is for clone transplants for
1,500 plants at $5.00 each. Other notable costs include planting, plastic to
protect against weeds, drip line for water, harvesting costs, cash rent and
application/test fees. We note clones currently can range from $3.50-$5.50
per plant. Clones have become more common than seeds in Kentucky as they
offer an easy way to produce female plants. A seed mix may be cheaper but
would include male seeds than can potentially pollinate female seeds and
negatively impact CBD concentration which influences pricing for dry matter
yield. Feminized seeds are an option but will likely be the most expensive
option. We note that the model assumes outdoor production rather than
greenhouse production since a greenhouse is efficient for clone production
(then transplanted to the field) but prohibitive for plant production.
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 4 – CBD Plasticulture Model – University of Kentucky
Source: hemp.ca.uky.edu, Cowen and Company
Sensitivity Analysis For CBD Plasticulture Model. As shown below, there is a significant
change in return for every $1 change in price per CBD%. A deterioration of this pricing
with no corresponding change in cost would impact CBD production. Breakeven for the
model above is ~$9/lb for dry matter yield compared to the $30/lb used to calculate the
margin over variable cost per acre used. While price % CBD can fluctuate, the second
factor determining the dry matter yield/lb price is CBD%.
Figure 5 – Sensitivity Analysis
Quantity Unit Price Total
CBD% 6% - - -
Price per % $5.00 - - -
Dry Matter Yield 1,200 lb $30 $36,000
Gross Returns Per Acre - - - $36,000
Transplants (clone) 1,500 plants $5.00 $7,500
Fertilizer
-Nitrogen (urea) 100 unit $0.47 $47
-Phosphorus (P2O5) 30 unit $0.60 $18
-Potassium (P2O) 45 unit $0.38 $17
Planting/Setting 1,500 plants $0.20 $300
Black Plastic/Drip Line 1 acre $515 $515
Harvest Cost 32.4 hrs $12.50 $405
Cash rent 1 acre $300 $300
Application & License Fee 1 per year $400 $400
Lab Test 1 - $300 $300
Other - - - $669
Total Variable Cost Per Acre - - - $10,471
Margin Over Variable Cost Per Acre - - - $25,529
Price per % CBD Total Revenue Returns Above Variable Costs
$6 $43,200 17,671
$5 $36,000 10,471
$4 $28,800 3,271
$3 $21,600 -3,929
$2 $14,400 -11,129
$1 $7,200 -18,329
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Source: hemp.ca.uky.edu, Cowen and Company
CBD Hemp Clearly An Attractive Option For Growers. No other crop in the U.S. offers
the type of return of the CBD Plasticulture Model. We would expect the two largest
crops in the U.S.: corn and soybeans to lose some acreage to CBD hemp, though given
corn and soybean area planted was 89.1M and 89.2M acres respectively in 2018. (Total
planted acres in the U.S. is ~320M acres.)
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 6 – 2017 Production Less Operating Costs Per Acre (Cash Grower Margin/Acre)
Source: USDA, Cowen and Company
Figure 7 – Kentucky Department of Agriculture Industrial Hemp Research Pilot Program
Production Year
Approved
Processors
Approved
Growers
Approved
Acres
per acre Corn Soybeans
Gross Value of Production $620 $455
Operating Costs
Seed $99 $58
Fertilizer $116 $25
Chemicals $35 $27
Other Operating Costs $85 $48
Total Operating Costs $335 $158
Cash Grower Margin $285 $297
Kentucky Hemp Growth Provides An Indication For Near-Term Acceleration
Figure 7 shows hemp production in Kentucky under Kentucky Department of
Agriculture (KDA) Industrial Hemp Research Pilot Program. The figure shows the
increase in planted acres in 2018 (Sept) as well as the shift toward CBD as a percentage
of total hemp (planted acres for CBD rising to 4,121 acres in 2018 from 864 in 2017). In
2018, there were 158 greenhouses in Kentucky representing 764,000 sq. ft., which is
included in the 2018 acreage below. (Note 1 acre = 43,560 sq. ft.)
On January 22, 2019, the Kentucky Department of Agriculture approved 1,035
applications to cultivate up to 42,086 acres of industrial hemp in 2019, up from 16,100
acres in 2018 and 33 acres in 2014, which was the first growing year. (67 acres of
greenhouse space was also approved for hemp cultivation.) We note that of the 16,100
acres approved in 2018, less than half (6,700) was planted.
Planted
Acres
Harvested
Acres
% of Grain
or Seeds % Fiber % CBD
% CBD &
Grain
% Grain &
2014 9 20 - 33 - 47% 32% 21% 0% 0%
2015 29 99 1,742 922 500 47% 6% 47% 0% 0%
2016 45 137 4,600 2,300 2,000 34% 6% 60% 0% 0%
2017 49 204 12,800 3,200 2,300 36% 5% 27% 32% 0%
2018 (Sept) 72 210 16,100 6,700 TBD 18% 4% 62% 14% 2%
2019 N/A N/A 42,086 N/A N/A N/A N/A N/A N/A N/A
Fiber
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Source: kyagr.com/hemp, Cowen and Company
Outlook For Growth
The expected growth for hemp is supported by the economics offered. However, there
are limitations related to required cultivation methods.
Conversations with industry experts estimate planted hemp acres in 2019 could reach
200,000, up from 78,176 in 2018. The growth is supported by expansion like Kentucky’s
and new states entering the market (only 23 states participated in 2018).
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 8 – U.S. Planted Hemp Acres – 2017 and 2018
State 2017 2018
Montana 542 22,000
Colorado 9,700 21,578
Oregon 3,469 7,808
Kentucky 3,271 6,700
Tennessee 200 3,335
North Carolina 965 3,184
North Dakota 3,020 2,778
New York 2,000 2,240
Nevada 417 1,881
Wisconsin 0 1,850
Vermont 575 1,820
Minnesota 1,205 710
Pennsylvania 36 580
Maine 30 550
Oklahoma 0 445
South Carolina 0 256
West Virginia 14 155
Washington 175 142
Virginia 87 135
Massachusetts 0 21
Indiana 5 5
Hawaii 1 2
Nebraska 1 1
Total 25,713 78,176*
* Includes 232 acres of greenhouse or indoor cultivation
Source: votehemp.com, State Departments of Agriculture, Cowen and Company
Challenges For Growth
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We see several issues that we expect will moderate growth of hemp CBD in years to
come. As a commodity, we see economics diminishing as CBD supply rises with
increased acres along with higher costs for seed from increased seed demand. We also
see a lack of best practices for cultivation, storage restrictions and uncertainty about
the consistency of seeds/clones available increasing the probability that yields are
compromised.
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COLLABORATIVE INSIGHTS February 25, 2019
Synthetic Cannabis (Schenkel)
The Broad Spectrum Of Cannabinoids
Figure 9 Approved & Potential Medicinal Roles Of Selected Phytocannabinoids
Cannabinoid
Tetrahydrocannabinol
(THC)
Cannabidiol
(CBD)
Tetrahydrocannabivarin
(THCV)
Cannabigerol
(CBG)
Cannabichromene
(CBC)
Source: Cowen and Company
Percent Of Total
Cannabinoid Content
Cannabinoids fall into three main types: (1) endogenous cannabinoids, which are
produced naturally in the bodies of humans and animals; (2) phytocannabinoids, which
are isolated from plants; and (3) synthetic cannabinoids, which are produced in the
laboratory and may have some structural deviations from the naturally occurring
molecules.
Of the three types, phytocannabinoids have garnered a lot of interest because of their
therapeutic and recreational potential. For example, Marinol and Syndros, which the
FDA cleared for the treatment of anorexia associated with weight loss in AIDS patients,
include the active ingredient dronabinol, a synthetic delta-9- tetrahydrocannabinol
(THC) which is considered the psychoactive component of marijuana. In June 2018, the
FDA approved an oral formulation of cannabidiol (CBD), Epidiolex, which GW
Pharmaceuticals PLC developed for the treatment of seizures associated with two rare
and severe forms of epilepsy in children.
In addition to THC and CBD, more than 100 other phytocannabinoids have been
identified from the cannabis plant. This includes lesser-known compounds such as
tetrahydrocannabivarin (THCV), cannabigerol (CBG), and cannabichromene (CBC).
The broad spectrum of phytocannabinoids can bind to a range of different receptors in
the human body and induce a wide variety of pharmacological responses. However, due
to the limited research into these varying effects, a full understanding of the role of each
cannabinoid compound is still poorly understood. With that said, some of the most
studied roles are listed in the table below.
Role
15-35% � Psychotropic
�
�
FDA-approved as appetite stimulant for people with AIDS and antiemetic for people
receiving chemotherapy
Alleviates neuropathic pain, spasticity, overactive bladder, and other symptoms
1-12% � FDA-approved for treating rare seizure disorders
�
�
Chronic pain treatment
<1% � Potential anxiety relief
�
Being studied for treatment of anxiety, post-traumatic stress disorder, pain, schizophrenia,
Parkinson’s disorder and Huntington’s disorder
Potential appetite suppressant
<1% � Potential anti-inflammatory
�
Potential anti-cancer
<1% � Potential anti-inflammatory
�
�
Potential anti-cancer
Potential GI motility modulator
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COWEN.COM 17
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COLLABORATIVE INSIGHTS February 25, 2019
Need For Alternative Methods To Produce Cannabinoids
Cannabis plants can exhibit wide variation in the quantity and type of cannabinoids they
produce. However, cannabinoids are only produced in limited quantities regardless of
the strain; in total, cannabinoids account for <1% of the dry weight of the cannabis
plant.
Selective breeding has led to strains of the cannabis plant that produce relatively large
amounts of the intermediary forms of THC and CBD. While THC content varies
substantially among cannabis strains, it generally represents 15-35% of the cannabinoid
content of the plant, and CBD is typically 1-12%. The relative abundance of these
compounds have allowed them to be well studied and their diversity of applications
have created a large commercial market.
After THC and CBD, the remaining cannabinoids are found only in trace amounts in the
plant. Compounds such as THCV, CBG, and CBC have elicited therapeutic interest, but
because they are only present in minute amounts they have been difficult to extract and
purify and impossible to produce at commercial scale. This has limited their study up to
this point.
Alternative Methods For Producing Cannabinoids
To combat the limited availability of cannabinoids using cultivation-based methods,
alternative approaches have been developed that use chemical and biotechnological
synthesis to produce cannabinoids.
Chemical Synthesis
Chemical synthesis methods use organic chemistry to produce cannabinoids; however,
the process has several drawbacks. Chemical methods have largely failed to be cost
effective for commercial scale cannabinoid production because of the complexity
required to produce the cannabinoid molecules, and extensive purification is needed to
obtain a high quality product. Commercial chemical synthesis also generates large
amounts of organic waste, takes several weeks to produce kilogram quantities, and is
expensive. As such, practical methods for the chemical synthesis of many cannabinoid
molecules has not been developed.
Biotechnological Synthesis (Synthetic Biology)
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An emerging alternative to traditional cultivation and chemical synthesis is the use of
biotechnology-based approaches to produce cannabinoids. These synthetic biology
approaches produce cannabinoids through modifying the metabolism of genetically
engineered organisms. This converts the organism into a biological factory, producing
the desired cannabinoid in large quantities.
Compared to chemical methods, biosynthesis methods are more cost effective, scalable,
and environmentally friendly.
Compared to traditional methods, biosynthesis of cannabinoids is potentially more
sustainable, more reliable, faster, and less expensive. Biosynthesis does not require as
much water or energy input, is not subject to weather or other exogenous factors, takes
~3-5 days to yield an end product vs. traditional methods taking up to 4 months, and is
theoretically less expensive. Additionally, growing cannabis often involves using several
hard-to-remove impurities (e.g., pesticides), that could potentially create significant
safety issues and other undesirable dynamics. Furthermore, purity and regulatory
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 10 Selected Synthetic Biology Cannabinoid Companies
Company
Cellibre
Ginkgo Bioworks
Hyasynth Biologicals
InMed Pharmaceuticals
Librede
Renew Biopharma
Teewinot Life Sciences
Amyris
Source: Cowen and Company
Notes
controls can be implemented when producing compounds with a biosynthesis method
similar to the processes in place for pharmaceutical regulation.
The many perceived advantages of synthetic cannabinoid creation have led to a series of
companies entering the market, as described below.
Cellibre is a next-generation cellular agriculture company. Employing an organism-agnostic approach, Cellibre turns cells
into specialized, sustainable factories for the manufacture of globally significant products at scale.
Ginkgo is a Boston-based company that designs custom microbes for customers across multiple markets, developing new
organisms that replace technology with biology.
Located in Montreal, Hyasynth Biologicals uses the technologies from traditional and modern biology combined with
computational analysis to develop organisms at the fastest possible speed.
InMed Pharmaceuticals is a biopharmaceutical company that specializes in the discovery and development of novel,
cannabinoid-based therapeutics for the treatment of diseases with high unmet medical need.
Librede has developed a yeast-based cannabinoid production and drug discovery platform to create chemical compounds
that target the endocannabinoid system. Librede’s modular technology enables large scale production of natural
cannabinoids in a more economic and environmentally sustainable way
Renew Biopharma harnesses the biological pathway to produce natural and novel cannabinoids that cross the blood
brain barrier and target specific receptors associated with neuroinflammation and chronic pain.
Tampa-based Teewinot combines its biosynthetic processes with sophisticated chemical synthesis to produce proprietary
cannabinoid analogs and prodrugs at commercial scale.
Amyris is an industrial biotechnology company that has used sugarcane fermentation to create hydrocarbon molecules
and produces an array of specialty ingredients and consumer products.
Producing Cannabinoids Using Synthetic Biology
Synthetic biology methods use fermentation to produce cannabinoids with identical
chemical structures to those found in plants.
Biocatalytic Cannabinoid Pathways
The first step of the synthetic cannabinoid production requires identification and
extraction of the desired cannabinoid biosynthetic pathways from a cannabis varietal.
The biosynthesis of cannabinoid molecules in a microbe could require four or more
cannabinoid metabolic pathways. When the pathways are selected, their corresponding
DNA sequences need to be cloned from the cannabis varietal and spliced into the
microbial DNA.
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Cannabinoids could be produced biocatalytically using the following mechanism:
i. In the first pathway, glucose is converted into G3P and pyruvate via glycolysis.
These two compounds are then utilized to produce the precursors geranyl
pyrophosphate (GPP), and/or neryl pyrophosphate (NPP).
ii. Glycolysis of glucose also produces Acetyl CoA, which can catalyze biosynthesis
of the second group of precursors: olivetolic acid (OA) and divarinic acid (DVA).
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COLLABORATIVE INSIGHTS February 25, 2019
iii. Various combinations of the aforementioned precursors then combine in the
third pathway to yield parent cannabinoid molecules (e.g., cannabigerolic acid
or CBGA).
iv. These parent cannabinoids are then modified in the fourth pathway to produce
cannabinoids such as tetrahydrocannabinolic acid (THCA) and cannabidiolic acid
(CBDA). These acids can be transformed into a non-acid form using synthases,
producing the terminal cannabinoid form.
Figure 11 Biosynthetic Cannabinoid Production Pathways
Source: Cowen and Company
Cannabinoid Production Using Fermentation
To power the aforementioned pathways, water and glucose (or a cannabinoid substrate)
are added to the microbe (e.g., yeast) in a bioreactor. Under fermentation, the yeast will
consume the glucose and produce the desired cannabinoid.
This culture is incubated for ~3-5 days to produce sufficient cannabinoid intermediaries.
Afterwards, the fermentation mixture is separated and combined with a non-toxic
solvent to extract and purify the cannabinoids.
Recent Cannabinoid Partnerships In Synthetic Biology
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With the recent legalization of cannabis in several countries and U.S. states and growing
acceptance of its utility, many recent notable partnerships have been created on the
potential of synthetic cannabinoid production. We highlight two such agreements from
the past few months below.
Amyris / Undisclosed Partner (February 2019; Valued Up to $255MM)
In February 2019, Amyris announced that it has signed an agreement for cannabinoid
development, licensing, and commercialization in a partnership valued at up to $255MM
(not including royalties for commercial products) with an undisclosed partner. The
$255MM in payments include an upfront payment and the remainder is linked to
milestones that are expected over the next 12-36 months. The partner is expected to
provide initial, lab-based and later commercial-scale milestone cash payments in
tranches for the development and scaling of technology to produce CBD.
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COLLABORATIVE INSIGHTS February 25, 2019
Cronos Group / Ginkgo Bioworks (September 2018; Valued Up to $122MM)
Cronos Group is a vertically integrated Canadian cannabis company that operates two
licensed producers. In addition, the company has developed an assortment of cannabis
varietals and has amassed an extensive database on various cannabinoids and their
properties. Boston-based Ginkgo Bioworks is a synthetic biology company that has
developed a cutting edge, automated platform for biological engineering and
fermentation. Using synthetic DNA to modify yeast and other organisms, the company
endeavors to produce large amounts of various rare strains through this more efficient,
lower-cost, novel process. Indeed, as we asserted in the MO/CRON note (link), we
believe that this strategic partnership was integral in informing the entry of the largest
tobacco player in the U.S., into the legal global cannabis market.
By way of background, in September 2018, Cronos and Ginkgo announced an
agreement to produce cultured cannabinoids. Ginkgo is tasked with developing strains
of yeast that can produce eight target cannabinoids. Cronos would then handle large
scale production and distribution of those cultured cannabinoids. The total agreement is
valued at $122MM; this includes $22MM to fund R&D, and up to $100MM of CRON
common shares in tranches in accordance with production milestones. More specifically,
the tranches will be issued once each of the target cannabinoids can be produced for
less than $1,000/kg of pure cannabinoids at a scale of >200 liters as follows: THC (20%),
CBD (15%), THCV (15%), CBC (10%), CBG (10%), CBGV (10%), CBDV (10%), and CBCV
(10%). Cronos and Ginkgo expect to reach the milestone for these eight strains within
three years.
Figure 12 Cronos and Ginkgo Partnership to Produce Eight Targeted Cannabinoids at Scale
Milestone Shares Issued
Target Cannabinoid Shares %
THC(A) 2,934,981 20%
CBD(A) 2,201,235 15%
CBC(A) 1,467,490 10%
CBG(A) 1,467,490 10%
THCV(A) 2,201,235 15%
CBGV(A) 1,467,490 10%
CBDV(A) 1,467,490 10%
CBCV(A) 1,467,490 10%
Total 14,674,903 100%
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Source: Cowen and Company
COWEN.COM 21
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COLLABORATIVE INSIGHTS February 25, 2019
Life Science Tools Participation In The Legal Cannabis Market (Schenkel)
Life science tools companies currently participate in the cannabis market primarily
through providing instruments and equipment that: (1) extract active cannabis
ingredients from leaves and seeds and (2) analyze cannabis products for potency and
contaminants. According to one of our consultants who runs a cannabis testing
laboratory, separations instrumentation including liquid chromatography (LC) and gas
chromatography (GC), and mass spectrometry (primarily single quadrupoles, triple
quadrupoles, and inductively coupled plasma mass spectrometers) are the primary
technologies used in cannabis testing. We note that the cannabis testing opportunity is
not limited to LC, GC, and mass spec technologies – other technologies including genetic
analysis tools (DNA sequencers, microarrays, and PCR) could have a greater role in the
cannabis industry in the future.
Cannabis Testing Details
There are three major categories of tests used to measure and monitor the quality of
recreational and medicinal cannabis products: potency testing, terpene profiling, and
contaminant testing. Contaminant testing typically includes testing for the following: (1)
pesticides; (2) residual solvents; (3) heavy metals; (4) moisture content; (5) mycotoxins;
and (6) microorganisms.
For the most part, standards and regulations for cannabis potency and contaminants
testing are still in the infancy stage and vary widely by state – accordingly, testing of
cannabis products vary greatly by locality. The aforementioned tests (also in Figure 13)
are the most commonly performed tests. These tests are primarily performed using
separations instruments and mass spectrometry (see pages 22-23 for details on these
instruments and a list of vendors). Figure 13 lists commonly used instruments
associated with a specific cannabis test.
Figure 13 Overview Of Cannabis Testing Technologies
Test
Potency
Terpene Profile
Pesticides
Common Analytical Instrument(s)
Used
LC (HPLC or UHPLC), GC
GC-MS, LC-UV detector
LC-MS (triple quad), GC-MS (single or
triple quad)
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Residual Solvents
Heavy Metals
Moisture Content
Mycotoxins
Microorganisms
Actives Extraction
GC-MS
ICP-MS
Moisture balances, weight loss
methods
LC-MS (triple quad) or
immunoassays
Mostly culturing, some PCR, few
MALDI-TOF
Supercritical Fluid Extraction (SFE)
Source: The Analytical Scientist and Cowen and Company
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Millions
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Background On Separations Technology And Market
Figure 14 Overall Chromatography Market ($MM)
$9,400
$9,200
$9,000
$8,800
$8,600
$8,400
$8,200
$8,000
$7,800
$7,600
2014 2015 2016 2017 2018E
Liquid Chromatography And Gas Chromatography – How Does It Work?
LC instrumentation is generally composed of: (1) solvent delivery system, (2) sample
injector, (3) separation column, (4) detector, and (5) data acquisition unit. The solvent
delivery unit pumps the solvent through the LC system while the sample injector
introduces the sample into the solvent flow (known as the mobile phase). The
chromatography column then separates the sample into its components for analysis by
the detector, which measures the presence and amount of constituents. The data
acquisition unit then records and stores the information from the detector. The
underlying principles of GC are similar to those of LC, with the key difference being that
the mobile phase is a gas instead of a liquid.
LC Is Often Combined With Mass Spec
To obtain the mass spectrum of a single compound in a mixture, the individual
components must be separated prior to MS analysis. Separation is necessary for
unambiguous identification because multiple compounds present simultaneously create
an overlapping or mixed spectrum. The most common separation techniques used in
combination with MS are gas chromatography (GC) and liquid chromatography (LC). LC
and MS from different vendors can be combined. LC is more commonly used as high
temperatures required for GC make it incompatible with the compounds under analysis -
this is a key reason why some cannabis testing labs prefer testing THC using liquid
chromatography (to be clear, analysis using gas chromatography requires heating THC
which changes its properties).
Chromatography Market Estimates
Figure 15 Chromatography Market Shares
Other, 36%
Shimadzu, 8%
Merck KGaA/
Sigma Aldrich,
10%
Agilent, 17%
Waters, 16%
Thermo Fisher,
13%
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Source: Company reports and Cowen and Company
Source: Company reports and Cowen and Company
Figure 16 Chromatography Market by Configuration
Market H/UPLC GC IC LPLC Flash Other
Market Share 100% 60-65% 22% 6% 6% 1% 4%
Growth Rate 3-4% 4% 3% 4% 5% 3% 3%
Market Leaders WAT A TMO GE Teledyne
A Shimadzu Metrohm BIO Biotage
Source: Company reports and Cowen and Company
COWEN.COM 23
5/1/2016
8/7/2016
11/13/2016
2/19/2017
5/28/2017
9/3/2017
12/10/2017
3/18/2018
6/24/2018
9/30/2018
1/6/2019
2/16/2014
4/20/2014
6/22/2014
8/24/2014
10/26/2014
12/28/2014
3/1/2015
5/3/2015
7/5/2015
9/6/2015
11/8/2015
1/10/2016
3/13/2016
5/15/2016
7/17/2016
9/18/2016
11/20/2016
1/22/2017
3/26/2017
5/28/2017
7/30/2017
10/1/2017
12/3/2017
2/4/2018
4/8/2018
6/10/2018
8/12/2018
10/14/2018
12/16/2018
5/1/2016
8/7/2016
11/13/2016
2/19/2017
5/28/2017
9/3/2017
12/10/2017
3/18/2018
6/24/2018
9/30/2018
1/6/2019
5/1/2016
8/7/2016
11/13/2016
2/19/2017
5/28/2017
9/3/2017
12/10/2017
3/18/2018
6/24/2018
9/30/2018
1/6/2019
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Consumer Products Opportunities (Azer)
In 2018, the CBD market in the U.S. has been estimated to have generated revenues
ranging from ~$600 mm to as much as $2 bn. In our 2019 global cannabis outlook
report (here), we had believed the CBD purchases in the U.S. likely skewed to the lowerend
of that range. However, with new survey data from Cowen’s proprietary consumer
survey, we can see that among our ~2,500 respondents (18+) in January 2019 nearly 7%
reported using CBD as a supplement. Coupled with the diverse form factors reportedly
being used (including close to 20% for beverages, which was surprising to us), we are
now inclined to size the current market at closer to $2 bn.
Indeed, looking at Google search trends, we can see that interest looks to have climbed
steadily in 2016 and 2017, and accelerated meaningfully in 2018, which has continued
into 2019.
Figure 17 CBD Interest Has Been Increasing
100
80
60
40
20
0
Source: Google Trends and Cowen and Company
U.S. Google Trends: CBD
Encouragingly, interest has been rising consistently among different form factors,
ranging from supplements like CBD gummies, to topicals and oils. The rising interest and
popularity in this broad range of CBD offerings should support a diverse category and
multiple competitors that cater to a large base of consumers with different needs,
requiring various applications.
Figure 18 Interest Broad Based from Edibles… Figure 19 …to Topicals… Figure 20 …To Oil
This report is intended for michael.cella@cowen.com. Unauthorized redistribution of this report is prohibited.
100
80
60
40
20
0
U.S. Google Trends: CBD
Gummies
100
80
60
40
20
0
U.S. Google Trends: CBD
Cream
U.S. Google Trends: CBD Oil
100
80
60
40
20
0
Source: Google Trends and Cowen and Company Source: Google Trends and Cowen and Company Source: Google Trends and Cowen and Company
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COWEN.COM
Total
< $50K
$50K-$100K
Total
18-34
35-54
55+
> $100K
Total
Caucasian
Hispanic
Asian
African American
1/23/2013
6/23/2013
11/23/2013
4/23/2014
9/23/2014
2/23/2015
7/23/2015
12/23/2015
5/23/2016
10/23/2016
3/23/2017
8/23/2017
1/23/2018
6/23/2018
11/23/2018
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 21 Over 20K Hemp Oil SKUs Offered by Amazon Today...
Source: Amazon and Cowen and Company
Figure 23 CBD Over-Indexes with Low-
Income…
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
# of Hemp Oil Products on Amazon
Date # of Products Date # of Products
1/23/2013 4,975 11/8/2014 11,587
2/1/2013 5,039 2/7/2015 12,370
1/10/2014 8,507 3/2/2015 12,430
2/10/2014 9,642 3/20/2015 12,741
8/10/2014 11,694 7/7/2015 13,963
10/12/2014 11,904 1/2/2019 > 20,000
% Using CBD As A Supplement
6.9%
7.4%
6.5%
5.6%
To further reinforce how CBD has been gaining interest over time, we analyzed the
historical number of hemp oil products offered by Amazon (AMZN, John Blackledge),
where we can see a continued increase in the number of products sold. Indeed, six years
ago, Amazon had been offering roughly 5,000 products, which has quadrupled to over
20,000 products today.
Figure 22 …Which Has Increased 4-Fold Over the Past 6 Years
Source: Amazon and Cowen and Company
With reported CBD use skewing toward younger consumers, it is perhaps not surprising
to see that CBD also over-indexes to lower-income consumers (where younger
consumers generally have lower household incomes). What is more, CBD seems to be
the most popular among Caucasians, following by Hispanic / Latino consumers.
Meanwhile, CBD use is slightly more popular among women (7.0% incidence), vs. men
(6.7% incidence).
Figure 24 ...Young Consumers (Ages 18-34)…
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
% Using CBD As A Supplement
6.9%
9.4%
25,000
20,000
15,000
10,000
5,000
7.2%
0
3.7%
# of "Hemp Oil" Products on Amazon
Figure 25 …And Caucasians
8.0%
6.0%
4.0%
2.0%
0.0%
% Using CBD As A Supplement
6.9% 7.3% 6.8%
5.6%
4.4%
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Source: Cowen Survey, N=~2500, January 2019 Source: Cowen Survey, N=~2500, January 2019 Source: Cowen Survey, N=~2500, January 2019
COWEN.COM 25
# of Posts in January
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 26 Instagram Analysis Reflects Competition From Emerging Brands
100
Blue Ridge Hemp
80
Pure Hemp Shop
60
40
20
0
Kush Queen
CBDFX
CWHemp
Hemp Bombs
Green Roads
Recess
Papa & Barkley
Given increasing interest, younger consumer demographic trends, and a lack of paid
advertising within the space, below we offer a snapshot of the Instagram landscape as a
proxy for current company social media activity. We would caveat that this is not an
exhaustive list, nor does the below chart factor in the impact of influencer marketing,
which is a popular trend in order for these companies to drive brand momentum. That
said, we believe the below chart reflects the competitive nature of the category as we
are already starting to see momentum from less known, emerging brands.
Of the companies analyzed, the below chart reflects the top 17 brands by absolute
Instagram followers, while also providing data on the absolute number of posts over the
month of January, as well as the average number of likes per post.
Absolute Followers. As it currently stands, three companies have an Instagram
following of over 100K people, with CBDFX leading the pack at 181K. Kush Queen and
GT’s Kombucha also look to be well positioned with 168K and 145K followers,
respectively.
# of Posts. Blue Ridge Hemp was the most active over the month of January with 84
posts, followed closely by Hemp Bombs (79 posts) and Pure Hemp Shop (57 posts).
Across the competitive set, the average number of posts for the month of January was
32.
Avg Likes Per Post. In addition to having one of the largest number of absolute
followers, GT’s Kombucha also led the way in average likes per post (1,863). This was
followed by super premium CBD company, Lord Jones, with 1,318 average likes per
post. Not Pot rounded out the top three with 1,257 average likes per post.
We would note that while we consider the below analysis useful in terms of analyzing
social media activity, it should not be used as a proxy for market leadership. Publicly
traded companies such as Charlotte’s Web, CV Sciences and Elixinol have established
themselves as market leaders within CBD, based on distribution / market penetration,
consumer awareness, and brand equity.
Top CBD Companies by Instagram Followers
Credo
Beboe
Sunday Scaries
Not Pot
Lord Jones
GT's
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-20
cbdMD NuLeaf Naturals
0 250 500 750 1,000 1,250 1,500 1,750 2,000
Avg # of Likes In January
CBDFX Kush Queen GT's Credo Lord Jones Beboe
CWHemp Blue Ridge Hemp Green Roads NuLeaf Naturals Sunday Scaries cbdMD
Papa & Barkley Pure Hemp Shop Hemp Bombs Not Pot Recess
Source: Instagram and Cowen and Company
Note: Bubble size reflects relative number of Instagram followers
26
COWEN.COM
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
From a consumer staples perspective, we see innovation across a host of form factors.
To analyze the category’s potential, we focused on six specific consumer product
categories, including:
i. Nutraceuticals (tinctures, capsules, sprays, and gummy vitamins)
ii. Topicals (for targeted pain relief, like Tiger Balm)
iii. Beverages (water, energy drinks and beer)
iv. Food (including confections and bars)
v. Vapor
vi. Beauty (including skin care, serums, lotions, and bath products)
While our analysis was far from exhaustive, below we:
i. Break down the above product categories by sub-segment to benchmark
pricing, which we define as value, main, premium and super-premium,
ii. Forecast run rate revenues by vertical over the next two years,
iii. Offer company-specific detail on numerous private and public companies as
part of our research on the CBD opportunity (primarily in the U.S.).
Figure 27 Beauty Products Carry the Most Premium Pricing, While Tinctures and Gummies Offer the Best Value Proposition in Terms of Price / MG of CBD
Tinctures
Gummies
Vape
Confections
Bath Bombs
Capsules
Bars
Topicals
Body Lotion
$0.09
$0.12
$0.14
$0.10
$0.16
$0.19
$0.19
$0.17
$0.20
$0.28
$0.24
$0.23
$0.20
$0.24
$0.30
$0.38
$0.19
$0.31
CBD Form Factor Price Per MG
$0.47
$0.33
$0.41
$0.30
$0.21
$0.46
$0.52
$0.43
$0.38
$0.24
$0.60
$0.57
$0.54
$0.41
$0.70
$0.71
$0.58
$0.75
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Body Oil
$0.27
$0.45
$0.62
$0.80
Beverages
$0.29
$0.56
$0.83
$1.10
Mask
$0.36
$0.61
$0.85
$1.10
Balm
$0.50
$0.95
$1.40
$1.85
Face Cream
$0.82
$1.43
$2.05
$2.67
Face Serum
$0.91
$1.60
$2.30
$3.00
$0.00 $0.25 $0.50 $0.75 $1.00 $1.25 $1.50 $1.75 $2.00 $2.25 $2.50 $2.75 $3.00 $3.25
Value Main Premium Super Premium
Note: Price boxes represent the high-end of the form factor’s respective price segment.
Source: Company Websites and Cowen and Company
COWEN.COM 27
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2019E
2020E
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Nutraceuticals
Figure 29 Mass Market Makes Up ~17% of Herb Retail Sales
Given robust consumer interest in CBD products, we estimate that over the next two
years, the nutraceuticals category (which includes tinctures, capsules, gummy vitamins,
etc.) can generate revenues of $2.4 bn. Uncertainty around the timing of this revenue
ramp reflects a lack of clarity on how quickly retailers, in particular mass market
retailers, will begin to stock the products following the passage of the 2018 Farm Bill.
Figure 28 We Estimate CBD Nutraceuticals Can Generate ~$2.4 BN in Sales Going Forward
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Source: Cowen and Company
U.S. CBD Nutraceutical Sales ($ in mm)
$1,100
$1,800
$2,400
2018 2019E 2020E
Our $2.4 bn estimate is benchmarked against the herbal supplement market in the U.S.
According to the American Botanical Council, herbal supplement retail sales were $6.4
bn in 2014, posting the 11 th year of consecutive growth. Between 2004-2014, the
herbal supplement category grew its revenues at a ~4.2% CAGR. Extrapolating that
growth out to 2019 would imply a total herbal supplement market of ~$8 bn over the
next two years. Our $2.4 bn estimate for the CBD market would imply almost a 30%
share of this market by 2020. The importance of retail adoption is reflected in the
category makeup of the herbal supplement market, where we can see that over 17% of
sales come from mass market retailers.
Figure 30 Herb Retail Sales To Exceed ~$8 BN Assuming 4.2% CAGR
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U.S Herb Retail Sales by Channel (2014)
Natural &
Health
Foods
34%
Mass
Market
17%
Source: American Botanical Council and Cowen and Company
Direct Sales
49%
U.S. Herb Retail Sales (All Channels, $ in mm)
$8,222
$8,500
$7,894
$8,000
$7,500
$7,000
$6,500
$6,441
$6,000
$5,500
$5,000
$4,500
$4,000
Source: American Botanical Council and Cowen and Company
28
COWEN.COM
Lord Jones
Medix CBD
Diamond CBD
Green Roads
baceae
bella
Premium Jane
CV Sciences
Mary's Medicinals
Mary's Nutritionals
Pure Kana
Sunday Scaries
Highline
Papa & Barkley
Veggimins
Hemp Bombs
Isodiol
Elixinol
gronCBD
Endoca
Canna Hemp
Charlotte's Web
Reliva
cbdMD
Curaleaf Hemp
Green Mountain
Lazarus
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 31 Notable Competition Within Tinctures Segment
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00
Tinctures are the market leading form factor within CBD, which is reflected in the
absolute number of companies that play across different price segments. On a price /
mg CBD basis, Lord Jones leads the pack on premium pricing, with its tincture priced at
$0.24 per mg of CBD. Lazarus falls at the opposite end of the price spectrum at $0.04
per mg of CBD. The vast number of price points throughout this segment reflects an
abundance of choice for the consumer, providing options for all income cohorts.
$0.24 $0.23 $0.22 $0.20
$0.17 $0.17 $0.17 $0.16 $0.16 $0.16 $0.16 $0.15 $0.14 $0.13 $0.11 $0.11 $0.11 $0.11 $0.10 $0.09 $0.08 $0.08 $0.08 $0.08 $0.07
$0.05 $0.04
Super Premium
( > $0.19)
Source: Company Websites and Cowen and Company
Premium
($0.15-$0.19)
CBD Tinctures by Price Segment
Note: Reflects price per mg of CBD; For companies with multiple SKUs, we used a straight line average
Figure 32 Tinctures Are The Most Popular Form Factor
Main
($0.09-$0.14)
Value
( < $0.09)
In our consumer survey, of respondents who use CBD, 44% of people use tinctures as a
form factor, which looks to be equally popular among both male and females.
Interestingly, tincture use looks to be the most prevalent form factor among older
consumers, as two-thirds of respondents within this cohort indicated use of a tincture.
Tinctures look to be the most popular form factor across all income demographics, with
over 50% of people using within the $50K-$100K segment.
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70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
CBD Tincture Use 66.7%
56.4%
43.6% 43.4% 43.8%
47.2%
37.4%
38.9%
31.5%
Total Male Female 18-34 35-54 55+ <$50K $50K-$100K >$100K
Gender Age Income
Source: Cowen Survey, N=~2500, January 2019
COWEN.COM 29
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 33 Lord Jones Price Point Reflects Premium Positioning
Source: Company Reports
Figure 35 Papa & Barkley Currently Offer Tinctures Only
Figure 34 CV’s Plus CBD Oil Competitively Positioned Within Premium
Source: Company Website
Figure 36 Reliva Tinctures Compete On Value
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Source: Company Website
Source: Company Website
30
COWEN.COM
Mary's Medicinals
Mary's Nutritionals
Sagely Naturals
Hemp Bombs
CWHemp
Green Roads
CV Sciences
Premium Jane
Pure Kana
Lord Jones
Canna Hemp
Try The CBD
Elixinol
cbdMD
Curaleaf Hemp
Lazarus
Green Mountain
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 37 Capsules Competitively Priced On Value
$0.75
$0.60
$0.45
$0.30
$0.15
$0.00
$0.60
S. Prem.
( >
$0.46)
$0.43
Prem.
($0.34-
$0.46)
Source: Company Websites and Cowen and Company
Along with tinctures, capsules represent one of the more mature form factors within
CBD. Mary’s looks to be squarely positioned as the most premium brand across all
companies analyzed, in particular for their Elite capsule line, which offers 150 mgs of
CBD and retails for $90. For context, the closest price point to Mary’s comes from
Sagely Naturals at $0.17 per mg. Brands look to be very competitively priced in terms of
value, with seven of the brands coming in at $0.10 or below.
CBD Capsules by Price Segment
$0.17 $0.14 $0.12 $0.12 $0.12 $0.12 $0.12 $0.11 $0.10 $0.09 $0.09 $0.07 $0.05 $0.05 $0.05
Note: Reflects price per mg of CBD; For companies with multiple SKUs, we used a straight line average
Figure 38 Capsule CBD Use Over-Indexes To Males And Skews Younger And Lower Income
30.0%
25.0%
22.1%
27.7%
Value
( < $0.19)
Utilizing our proprietary consumer survey, CBD capsule use looks to over-index with
males, which shows over a 10 pt delta relative to women. In addition, on a relative basis
to other form factors, CBD capsule use is more popular with younger, lower-income
consumers, which perhaps explains the notable competition seen within the value
segment.
CBD Capsule Use
24.7%
22.2%
23.2%
21.8%
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20.0%
15.0%
16.9%
14.8%
16.7%
10.0%
5.0%
0.0%
Total Male Female 18-34 35-54 55+ <$50K $50K-$100K >$100K
Gender Age Income
Source: Cowen Survey, N=~2500, January 2019)
COWEN.COM 31
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 39 Mary’s Capsules Are Priced At A Premium
Source: Company Reports
Figure 41 Elixinol Offers Differentiated Packaging
Figure 40 CWeb is One Of The More Well Known CBD Capsule Providers
Source: Company Website
Figure 42 Lazarus Competes At The Low-End of Value
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Source: Company Reports
Source: Company Website
32
COWEN.COM
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 43 Almost Half Of The Brands Analyzed Fall Into The Value Segment
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00
$0.24
CV
Sciences
Super
Premium
( > $0.20)
$0.20 $0.20
Reliva
Sunday
Scaries
For gummies, we analyzed 30 SKUs across 13 brands. Our analysis shows that CV
Sciences’ CBD Oil Gummies are the most premium priced at an average $0.24 per mg of
CBD. CV Sciences offers two SKUs with their 30 capsule bottle providing 150 mgs of
CBD for $39.95, while their second SKU offers a slightly better value proposition, with a
60 count bottle providing 300 mgs of CBD for $64.95 ($0.22 per mg).
Hemp Bombs had the largest number of SKU’s relative to the other brands analyzed (7),
while also having the highest absolute price point ($139.99 for a 60 gummy bottle with
1,500 mgs of CBD), though the average price per mg of CBD positioned the brand within
the main segment.
Similar to its tincture offering, we would note that Highline falls broadly in the middle of
its peers, as their direct-to-consumer business model allows the company to offer
competitive pricing across its portfolio.
Almost half of the brands analyzed fell into the value segment, all priced at $0.10 per
mg of CBD or lower. Across all 30 SKUs, average retail price was ~$50 per offering, with
an average 450 mgs of CBD offered per bottle.
$0.18 $0.17
Green
Roads
Premium
($0.17-$0.20)
Source: Company Websites and Cowen and Company
CBD Gummies by Price Segment
Medix
CBD
$0.12 $0.12
Hemp
Bombs
Main
($0.12-$0.16)
Note: Reflects price per mg of CBD; For companies with multiple SKUs, we used a straight line average
$0.10 $0.10 $0.09 $0.08 $0.08 $0.08
Highline CTFO cbdMD Premium
Jane
Value
( < $0.12)
Pure Kana Diamond
CBD
Just CBD
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COWEN.COM 33
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 44 CV Sciences Gummies Are Priced At A Premium Figure 45 Green Roads’ 300 MG Gummies Retail For $55
Source: Company Website
Source: Company Website
Figure 46 Highline Is Priced Competitively
Figure 47 cbdMD Offers Two 30 Count SKUs (300 mgs and 750 mgs)
This report is intended for michael.cella@cowen.com. Unauthorized redistribution of this report is prohibited.
Source: Company Website
Source: Company Website
34
COWEN.COM
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Topicals
Figure 48 U.S. Topical Category Generates ~$13 BN In Revenue
$14.0
$12.0
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0
U.S. Addressable Topical Market ($ in bn)
$12.8 $12.8 $12.8
2018 2019E 2020E
Source: Company Reports and Cowen and Company
Outside of nutraceuticals, we expect the topical CBD market to provide the largest
contribution to industry sales. We believe the non-ingestible nature of the product
makes it more attractive to consumers looking to experiment in CBD and can provide a
source of trial into the category. While the CBD market clearly needs more clinical
research into the benefits of the cannabinoid, it has been suggested that two of the
primary benefits are anti-inflammation and muscle recovery, which can cater to a large
and diverse consumer base.
Over the next two years, we expect the topical CBD market to grow to $1.5 bn (almost
$1 bn less than our outlook for nutraceuticals). We estimate that in 2018, the total
addressable U.S. topical market, which includes both OTC and rx offerings was ~$12.8
bn. If we assume no growth in the category base, a $1.5 bn CBD category by 2020
would imply a ~12% share of the market, the largest market share among all of the
categories analyzed, excluding nutraceuticals.
Figure 49 We Believe CBD Topicals Could Be A $1.5 BN Market in 2 Years
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
$500
Source: Cowen and Company
U.S. CBD Topicals ($ in mm)
$1,000
$1,500
2018 2019E 2020E
Our below scenario analysis provides a wider incremental range of market share
outcomes relative to other categories. We can see that every 5 pts of market share
capture is worth over $600 mm in revenues. While our analysis contemplates a 2% share
of the topical market, we believe that this is unlikely and view the floor at ~7%, which
would imply almost $900 mm in revenues by 2020. Given the number of companies
providing topical solutions, coupled with what we expect to be robust consumer
demand, a market share between 12-17% is not unrealistic.
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Figure 50 Topicals Expected To Be a Major Contributor to CBD
2020 Market Share Scenario Analysis
Market Share 2% 7% 12% 17% 22%
Absolute Sales ($ in mm) $220 $860 $1,500 $2,140 $2,780
Source: Cowen and Company
COWEN.COM 35
Sagely Naturals
CTFO
Mary's Nutritionals
Credo
Curaleaf Hemp
Kush Queen
Mazz Hanna
Vertly
RX CannaCare
Mary's Medicinals
Green Roads
Hemp Bombs
Highline
LEEF Organics
Medix CBD
Sopris
gronCBD
Canna Hemp X
Bee's Knees
Wildflower
Pure Kana
Canna Hemp
Premium Jane
Try the CBD
lovebud
cbdMD
Reliva
Green Mountain
Lazarus
Myaderm
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Benchmarking across the topical market, we would highlight the absolute number of
brands offering a product, which while not exhaustive, provides context on the
popularity of the form factor. Similar to most other verticals, Mary’s topicals fall into the
super-premium segment, which we define as anything above $0.54 per mg of CBD. Of all
the SKUs analyzed, the premium segment looks to be the narrowest, while mainstream
and value segments are the most popular price point among the competitive set.
Figure 51 Popularity in Topicals Are Reflected In The Overall Number Of Brands Playing Within The Segment
$0.80
$0.70
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
$0.71
$0.62$0.61$0.60
Super Premium
( > $0.54)
$0.45 $0.40
$0.32$0.32$0.30
$0.26$0.25$0.25$0.23$0.23$0.22 $0.19$0.17$0.16$0.15$0.15$0.14$0.12$0.11$0.10$0.10$0.08$0.07$0.05$0.05$0.05
Premium
($0.38-
$0.54)
Source: Company Websites and Cowen and Company
CBD Topicals by Price Segment
Main
($0.21-$0.38)
Note: Reflects price per mg of CBD; For companies with multiple SKUs, we used a straight line average
Figure 52 Topical Use Is More Prevalent Among Younger, Lower Income Consumers
Value
( < $0.21)
According to our proprietary Cowen consumer survey, of respondents who use CBD,
26.2% of people use topicals as a form factor, which is the highest level seen after
tinctures. Usage among men and women look to be similar, though younger, lower
income use looks to be more prevalent when benchmarking to older, higher income
cohorts. Similar to capsules, this could reflect the large number of brands we see playing
in the value segment.
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35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
CBD Topical Use
26.2% 26.5% 25.8%
30.1%
27.8%
29.3%
21.8% 22.2%
11.1%
Total Male Female 18-34 35-54 55+ <$50K $50K-$100K >$100K
Gender Age Income
Source: Cowen Survey, N=~2500, January 2019
36
COWEN.COM
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 53 Mary’s Provides A Range Of Topicals, Including Muscle Freeze Figure 54 Curaleaf Hemp Lotion Priced On The Premium Side
Source: Company Report
Source: Company Website
Figure 55 Highline Positioned Within Mainstream Figure 56 Reliva’s Pain Cream Retails For $19.99
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Source: Company Website
Source: Company Website
COWEN.COM 37
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Beverages
Over the next two years, we believe that the beverage category can grow to a $900 mm
revenue opportunity. Our conviction in this category is underscored by our proprietary
consumer survey, which shows that almost 20% of CBD users consume beverages,
which we view as an encouraging sign. For 2019, we are forecasting a notable
acceleration in growth, with revenues more than doubling to $600 mm. Assuming
growth moderates in 2020 (to 50%), we believe revenues will approach the $1 bn mark.
Figure 57 Sales for Beverages Can Approach $1 BN Over the Next Two Years
$1,000
$800
$600
$400
$200
$0
Source: Cowen and Company
Total Beverage CBD Sales ($ in mm)
$240
$36
$48
$156
$600
$90
$120
$390
$135
$180
$585
2018 2019 2020
Bottled Water Energy Drinks Beer
$900
Below we provide a sub-segment build by category, where we believe CBD water will
represent the lion’s share of sales at 65%. Energy drinks have been focused on health
and wellness and we believe that CBD-infused energy drinks will represent a niche
segment in a category that continues to see more competition. We expect CBD beer to
have a place in the category, though should admittedly be smaller in scale, given less
interest from a lack of THC.
Figure 58 CBD Water Should Have An Outsized Contribution On Category Sales
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CBD Sales Mix by Sub-Category
Beer
15%
Energy Drinks
20%
Bottled Water
65%
Source: Cowen and Company
38
COWEN.COM
2016-01
2016-04
2016-07
2016-10
2017-01
2017-04
2017-07
2017-10
2018-01
2018-04
2018-07
2018-10
2019-01
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Bottled Water
Figure 59 Bottled Water Should Be The Most Popular CBD Beverage
Source: Cowen and Company
Figure 61 A 2% Share Implies Over $500 MM In Revenues
$700
$600
$500
$400
$300
$200
$100
2020 Market Share Scenario Analysis
Market Share 0.6% 1.1% 1.6% 2.1% 2.6% 3.1% 3.6%
Absolute Sales ($ in mm) $159 $301 $443 $585 $727 $869 $1,011
U.S. CBD Water Sales ($ in mm)
$156
$390
Consumer interest in CBD continues to gain momentum. For beverages, in particular
water, this is evidenced by analyzing current Google Trends, where interest rose
considerably over the course of 2018 and looks to still be achieving new highs, which is
not surprising, given the recent passage of the U.S. Farm Bill.
Figure 60 Increasing Interest Reflected In Google Search Trends
100
80
60
40
20
0
U.S. Google Trends (CBD Water)
Source: Google Trends and Cowen and Company
Over the next 2 years we believe that the U.S. CBD water category can generate close to
$600 mm in revenues. In Nielsen, U.S. bottled water generated just over $13 bn in 2018.
Assuming Nielsen channels account for 50% coverage of the category implies total
revenues of over $26 bn. Applying the 4.2% CAGR the category has grown over the last
3 years and extrapolating out results in total revenue surpassing $28 bn by 2020. Our
estimates are premised on CBD water achieving a ~1.5% market share in 2019 and a
conservative ~2% market share of the U.S. bottled water category in 2020. We would
note that a ~2% share of the bottled water category compares to a ~3% share for
coconut water. With the amount of consumer interest and potential functional benefits
that come along with CBD, we believe that a modest 2% share of the category is
reasonable, in particular if multiple larger players within the beverage space enter the
category and drive distribution. Above, we provide a scenario analysis on the revenue
opportunity assuming different market share levels.
$585
Figure 62 Bottled Water Category Growth Remains Healthy
$30
$25
$20
$15
$10
$5
U.S. Bottled Water Sales ($ in bn)
$23
$24 $25
$26 $27
$28
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$0
Source: Cowen and Company
2018 2019E 2020E
$0
2015 2016 2017 2018 2019E 2020E
Source: The Nielsen Company and Cowen and Company
Note: Assumes 50% coverage in Nielsen
COWEN.COM 39
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Energy Drinks
Figure 63 Almost $200 MM In Revenues Assuming 1% Share By 2020
$200
$150
$100
$50
$0
$48
Source: Cowen and Company
U.S. CBD Energy Drink Sales ($ in mm)
$120
Energy is another beverage category that we feel is ripe for CBD inclusion, as it
continues to expand towards health and wellness propositions. This has been reflected in
consistent strong growth from MNST’s Ultra line, which offers functional benefits
without the sugar, Muscle Monster, which is high in protein, as well as the emergence of
Bang, which contains BCAA. At their recent Analyst Day, MNST indicated that they will
be launching a new product called Reign, which will offer 5x the amount of BCAA as
Bang. As the lines between core energy drinks and health and wellness offerings
continue to blur, we would expect all of the major players to come to market with
offerings that contain CBD and provide incremental functional benefits (such as muscle
recovery).
We believe that by 2020 it is reasonable for CBD’s share of the energy category to reach
~1%, which we view as conservative as it is below the current market share run rate that
Bang has already been able to achieve. A 1% share would imply revenues of ~$180 mm
for the CBD segment, assuming that the category continues to grow at the same 4.3%
CAGR it has delivered over the past three years. We can see below that implied category
revenues for total energy would grow by over $1 bn over the next two years to ~$17 bn.
$180
2018 2019E 2020E
Figure 64 Extrapolating 4.3% CAGR Results In Category Revenues
Surpassing $17 BN In 2 Years
$18
$16
$14
$12
$10
$8
$6
$4
$2
$0
$14
U.S. Energy Drink Sales ($ in bn)
$14 $15
$16 $16
$17
2015 2016 2017 2018 2019E 2020E
Source: The Nielsen Company and Cowen and Company
Note: Assumes 75% coverage in Nielsen
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Below we provide a scenario analysis on CBD energy revenues associated with market
share gains. We would note that a 0.3% share by 2020 would be at the low-end of our
expectations and result in revenues of ~$50 mm. As a point of reference, recall that
Mutant, which did not perform to expectations and has essentially been de-prioritized by
MNST, has a current market share of ~0.2%.
Figure 65 Blurred Lines Between Core Energy And H&W Make CBD Ripe For Entry Into Category
2020 Market Share Scenario Analysis
Market Share 0.3% 0.6% 0.8% 1.1% 1.3% 1.6% 1.8%
Absolute Sales ($ in mm) $52 $95 $137 $180 $223 $265 $308
Source: Cowen and Company
40
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COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Beer
Figure 66 Hard Seltzer Achieved A 1% Dollar Share In 2018
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
U.S. Hard Seltzer $ Share
0.1%
0.3%
We believe CBD infused beer can serve as a niche segment in a rapidly evolving beer
category. With core beer under pressure, a continued theme from the key manufacturers
within the space has been a focus on innovation, as well as a move away from alcohol
into low and no-alcohol offerings (ABI is targeting 20% of portfolio to be low / no alcohol
by 2025).
On the innovation front, hard seltzer looks to be resonating with consumers, which we
believe is sticky, as it offers consumers a new product and opportunity to drive
incremental drinking occasions, while checking the box from a health and wellness
standpoint. In 2018, the hard seltzer category achieved a 1% market share of the
combined beer category, which includes, core beer, cider and FMBs. If we assume that
CBD-infused beer is able to capture a modest fifth of that amount of share by 2020 (~20
bps), that could result in a revenue opportunity of over $130 mm. We have been hearing
growing interest in companies looking to combine CBD in alcoholic beer to offer potential
hangover relief.
1.0%
2016 2017 2018
Source: The Nielsen Company and Cowen and Company
Figure 67 Assuming ~20 Bps Of Share For CBD Beer = $135 MM
$150
$100
$50
$0
U.S. CBD Beer Sales ($ in mm)
$36
$90
$135
2018 2019E 2020E
Source: Cowen and Company
These estimates are benchmarked to a category that has grown sales at a 1.6% CAGR
over the past three years. If we assume Nielsen provides 50% coverage of the total
category and extrapolate that growth out, total off-premise revenues should approach
$72 bn by 2020. We provide a sensitivity analysis below on the 2020 revenue
opportunity based on different levels of market share capture. We estimate every 5 bps
of share is worth $36 mm.
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Figure 68 1.6% Growth Should Result In Category Revs Of ~$72 BN
Figure 69 Each 5 bps Of Share Is Worth $36 MM In Revenue
$74
$72
$70
$68
U.S. Combined Beer Sales ($ in bn)
$71
$70
$69
$68
$67
$72
2020 Market Share Scenario Analysis
Market Share 0.09% 0.14% 0.19% 0.24% 0.29%
$66
Absolute Sales ($ in mm) $63 $99 $135 $171 $207
$64
$62
2015 2016 2017 2018 2019E 2020E
Source: The Nielsen Company and Cowen and Company
Note: Assumes 50% coverage in Nielsen; off-premise sales only
Source: Cowen and Company
COWEN.COM 41
CBD Living
Cannaki
Root Origins
Isodiol
Quantum
Aurora Elixers
Vybes
Endo Brands
Recess
Mountjoy
Diamond CBD
Kickback
CBDFX
Willie's
Cannabinoid
Creations
EVERx Nutrition
Sprig
Hemp Bombs
GT's
Reliva
Rocky Mountain
High
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
There are a solid amount of beverage companies currently playing within the space,
largely price positioned within the mainstream and value segments of the market. We
would highlight that on a price per mg basis, beverages skew higher across the board,
relative to tinctures, capsules and gummies.
Figure 70 Beverage Price Points Are Premium Relative To Tinctures, Capsules, Gummies, And Topicals
$1.25
$1.00
$0.75
$0.50
$0.25
$0.00
$1.10 $1.00 $1.00 $0.80 $0.63 $0.53 $0.53 $0.50 $0.50 $0.46 $0.42 $0.40 $0.35 $0.34 $0.26 $0.25 $0.21 $0.20 $0.16 $0.12
Super Premium
( > $0.83)
Premium
($0.57-
$0.83)
Source: Company Websites and Cowen and Company
CBD Beverages by Price Segment
Main
($0.29-$0.56)
Note: Reflects price per mg of CBD; For companies with multiple SKUs, we used a straight line average
Figure 71 Popularity Among Younger Consumers Can Result In A Waterfall Effect Over Time
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
19.2%
20.5%
18.0%
Value
( < $0.29)
Based on our survey, of respondents that use CBD, 19.2% use beverages as a form
factor, which is admittedly higher than we would’ve expected given the nascent stage of
the category. Similar to both capsules and topicals, beverage use is a more popular
choice among younger, lower income consumers (by a wider margin relative to other
age cohorts compared to the other categories). This leaves us optimistic on the future
prospects of the category as a waterfall effect can result in an increase in category mix.
CBD Beverage Use
28.8%
15.3%
Total Male Female 18-34 35-54 55+ <$50K $50K-$100K >$100K
3.7%
22.2%
16.4%
11.1%
$0.01
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Gender Age Income
Source: Cowen Survey, n=~2500, January 2019
42
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COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 72 Recess Offers Impressive Packaging
Source: Company Reports
Figure 74 Shots May Overlap with Energy Over Time
Figure 73 Sprig Offers A Variety Of Flavor Options
Source: Company Website
Figure 75 Willie’s Recently Came to Market with a Coffee
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Source: Company Website
Source: Company Website
COWEN.COM 43
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Beauty
The U.S. beauty category, which is inclusive of skin care, cosmetics, haircare, fragrance,
bath & body, salon styling tools, and other toiletries, is a ~$87 bn industry according to
Euromonitor International and IBIS World Inc. Within mass beauty, the prestige segment
grew 6%, accounting for almost $19 bn in revenue in 2018 according to NPD. If we
extrapolate the 6% growth in prestige beauty out through 2020, that would result in
segment revenues surpassing $21 bn over the next two years.
Figure 76 Total U.S. Beauty Is A ~$87 BN Industry Figure 77 Prestige Can Grow To Over $21 BN By 2020
$100
$80
$60
$40
$20
$0
Total U.S. Beauty Industry Sales ($ in bn)
$59
$65
$71
$74
$81
$87
2013 2014 2015 2016 2017 2018
Source: Company Reports and Cowen and Company
Figure 78 CBD Beauty Sales Can Surpass $400 MM By 2020
$500
$400
U.S. CBD Beauty Sales ($ in mm)
$420
$22.0
$21.0
$20.0
$19.0
$18.0
$17.0
$16.0
U.S. Prestige Beauty Industry Sales ($ in bn)
$17.7
$18.8
$19.9
$21.1
2017 2018 2019E 2020E
Source: NPD and Cowen and Company
We expect that CBD beauty will become more of a focus for consumers, as large-scale
manufacturers and retailers begin to roll out more products, which will presumably
generate positive mix and result in a step-change in market share capture. As such, we
believe that a ~1% share of the prestige market is achievable in 2019, doubling to 2% in
2020, which would equate to over $400 mm in sales. The below analysis provides a
scenario of revenue outcomes based on share capture, ranging from ~$200 mm to over
$600 mm.
Figure 79 Each 50 bps Of Share Is Worth Over $100 MM In Revenue
2020 Market Share Scenario Analysis
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$300
$240
Market Share 1.0% 1.5% 2.0% 2.5% 3.0%
$200
$100
$0
$60
2018 2019E 2020E
Absolute Sales ($ in mm) $209 $314 $420 $526 $631
Source: Cowen and Company
Source: Cowen and Company
44
COWEN.COM
Cannabliss Organic
CTFO
Mary's Nutritionals
Pureblis Naturals
Crave of 40 Winks
Code of Harmony
Skin Dope
Joy Organics
Ildi Pekar
bella
Dragonfly Botanicals
Saint Jane
Hora
Veggimins
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 80 Beauty Facial Products Command Meaningfully Higher Price Points
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
$2.67
Cannabliss
Organic
$2.55
CTFO
Super Premium
( > $2.05)
Source: Company Websites and Cowen and Company
$1.70
imbue
botanicals
Beauty products, and face treatments in particular, command price points notably
above other form factors across the space, which will presumably offer by far the
highest gross margins. Among high-end face creams, Cannabliss Organic and CTFO
provide 30 mgs and 20 mgs of CBD respectively, while commanding price points ranging
from $50-$80.
$1.50
RX
CannaCare
Premium
($1.44-$2.05)
CBD Face Cream by Price Segment
$1.13
Mary's
Nutritionals
Main
($0.82-$1.43)
Note: Reflects price per mg of CBD; For companies with multiple SKUs, we used a straight line average
Figure 81 Face Serums Are The Most Expensive On A Price/MG Basis
$3.75
$3.00
$2.25
$1.50
$0.75
$0.00
$3.00 $2.80
$0.71
$0.36 $0.25 $0.25 $0.20
Sopris bella Dragonfly
Botanicals
Value
( < $0.82)
Myaderm
American
Shaman
Face serums look to be even more expensive across all segments, with price points from
mainstream through super-premium ranging from over $1 to $3 per mg of CBD.
CBD Face Serum by Price Segment
$1.90 $1.67 $1.33 $1.13 $0.78 $0.67 $0.59 $0.36 $0.34 $0.25 $0.22 $0.21
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Super Premium
( > $2.30)
Premium
($1.61-$2.30)
Main
($0.91-$1.60)
Value
( < $0.91)
Source: Company Websites and Cowen and Company
Note: Reflects price per mg of CBD; For companies with multiple SKUs, we used a straight line average
COWEN.COM 45
Mary's Nutritionals
Lord Jones
Blue Ridge Hemp
bella
Vertly
Cannuka
Canna Hemp
imbue botanicals
Sopris
RX CannaCare
cbdMD
CWHemp
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 82 Body Lotions More Moderately Priced Relative To Facial Beauty Products
$0.90
$0.75
$0.60
$0.45
$0.30
$0.15
$0.00
$0.75
$0.60
Super Premium
( > $0.58)
$0.40 $0.38
Source: Company Websites and Cowen and Company
Body lotions offer more value per mg of CBD, relative to facial beauty products, with
Mary’s and Lord Jones positioned at the high-end of the competitive set. To segment
from the broad topicals market, we would note that we classified beauty creams as
products offering soothing and moisturizing characteristics (as opposed to targeted pain
relief).
CBD Body Lotion by Price Segment
Main
($0.24-$0.41)
Note: Reflects price per mg of CBD; For companies with multiple SKUs, we used a straight line average
Figure 83 Bath Bombs Are A Niche Segment
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
$0.52
$0.48
$0.32 $0.28 $0.23 $0.18 $0.14 $0.14
Value
( < $0.24)
$0.08 $0.07
Bath products are not surprisingly the most reasonably priced within beauty. We would
note that cosmetics are still a niche category within CBD, which is reflected in the lower
number of products and SKUs currently offered. That said, we believe the multiple subcategories
offering CBD products will appeal to a broad range of consumer
demographics.
CBD Bath Bombs by Price Segment
$0.26 $0.25 $0.24
$0.11 $0.10
Kush Queen bella Pure Kana Blue Ridge Hemp Mary's Nutritionals lovebud cbdMD
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Super Premium
( > $0.41)
Main
($0.20-$0.31)
Value
( < $0.20)
Source: Company Websites and Cowen and Company
Note: Reflects price per mg of CBD; For companies with multiple SKUs, we used a straight line average
46
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COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 84 Mary’s Offers Multiple Beauty Products
Source: Company Reports
Figure 85 Through its Recently Announced JV With Dixie Brands, Khiron Will Eventually Roll Out Its Kuida Line In The U.S.
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Source: Company Website
COWEN.COM 47
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 86 Lord Jones Packaging Reflects Premium Nature Of The Brand
Source: Company Reports
Figure 88 CWEB Offers Creams…
Figure 87 In Addition To A Lotion, They Also Offer A Body Oil
Source: Company Reports
Figure 89 …And Balms
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Source: Company Website
Source: Company Website
48
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COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Food (Confections)
Figure 90 Confectionary CBD Sales Can Surpass 400 MM By 2020
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
$60
Source: Cowen and Company
U.S. CBD Confectionary Sales ($ in mm)
$200
The food category, which we classify as confections, including gum drops, chocolates,
baked goods, and bars, is expected to be one of the smaller revenue opportunities
relative to nutraceuticals, topicals and beverages. That said by 2020, we believe the
sales can surpass $400 mm, should the category increase its share of overall CBD to 7%
by 2020. In the U.S., we estimate that the confection category (chocolate, non-chocolate
and gum) grew to $25.5 bn in 2018, reflecting a 5.5% YoY growth rate. If we
extrapolate that growth out over the next 2 years, the total implied confection market
would surpass $28 bn. A $420 mm CBD food category would reflect just a 1.5% share of
the total confectionary industry.
$420
2018 2019E 2020E
Figure 91 Extrapolating 5.5% Growth Results In Category Revenues
Surpassing $28 BN In 2 Years
$29.0
$28.0
$27.0
$26.0
$25.0
$24.0
$23.0
$22.0
$24.1
Source: IRI and Cowen and Company
U.S. Confectionary Sales ($ in bn)
$25.5
$26.9
$28.3
2017 2018 2019E 2020E
Note: 2018 sales reflect latest 52 weeks ended 3/25/18
The below sensitivity contemplates the overall revenue opportunity based on CBD
confections share of the overall category. While we believe a 1.5% share is reasonable
and achievable, the revenue outcomes range from ~$100 mm to $700 mm based on the
level of market share gains achieved over the next two years.
Figure 92 We Believe Sales Can Range From Over $100 MM To ~$700 MM Based On Level Of Share
Capture
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2020 Market Share Scenario Analysis
Market Share 0.5% 1.0% 1.5% 2.0% 2.5%
Absolute Sales ($ in mm) $137 $278 $420 $562 $703
Source: Cowen and Company
COWEN.COM 49
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 93 Confections Are Broad Based
Source: Company Websites/Reports and Cowen and Company
Note: Reflects price per mg of CBD; For companies with multiple SKUs, we used a straight line average
Figure 94 CBD Bars Broadly Comprised Of Protein, Power, Energy And Granola Offerings
Confection products are diverse, which we classify as essentially any edible food falling
outside of gummy vitamins. Of the brands analyzed, super-premium brand, beceae
offered by far the most SKUs (15), which largely consist of chocolates and other baked
goods. We would caveat that although Lord Jones products fall into the premium
segment as part of this analysis, if we were to benchmark them against the broad
gummies category, they would’ve been at the top of the super-premium range.
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$0.80
$0.60
$0.40
$0.20
$0.70
$0.60
$0.53
$0.48
$0.40
CBD Bars by Price Segment
$0.34 $0.32 $0.32
$0.25 $0.25
$0.20 $0.19 $0.16
$0.00
Veggimins
Green
Monkey
Snaac
CBD
baceae Casa Luna Wise Bar Wayward Everhemp VeloBar
CBD
ShrediblesPure Vida
Mary
Gains Bar
Betty
Khronic
Super Premium
( > $0.57)
Premium
($0.44-$0.57)
Main
($0.30-$0.43)
Value
( < $0.30)
Source: Company Websites and Cowen and Company
Note: Reflects price per mg of CBD; For companies with multiple SKUs, we used a straight line average
50
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COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Vapor
While vapor remains the major market share gainer across adult use cannabis, CBD only
offerings are much smaller, but represent a solid growth segment. Over the next two
years, we believe the category can generate over $350 mm in revenues, with upside if
consumer adoption of this particular form factor resembles the adult use market for
THC, or the growing popularity of nicotine vapor. We benchmark the market
opportunity against the U.S. e-cigarette category, which we are forecasting to grow
~32% in 2019 and ~27% in 2020, resulting in revenues surpassing $11 bn in 2020. In
addition to e-commerce, we believe there will be distribution channel overlap with e-
cigs, with a focus on vape shops and convenience stores (as opposed to just
dispensaries). If vapor generates $360 mm in revenues in 2020, that would result in an
implied market share of 3.2%, roughly 10% of JUUL’s current U.S. market share.
Figure 95 Vapor Will Be Smaller, But Can Grow To Almost $400 MM Figure 96 Our E-Cig Model Assumes Revenues Of ~$11 BN By 2020
$400
$350
$300
$250
$200
$150
$100
$50
$0
$40
Source: Cowen and Company
U.S. CBD Vape Sales ($ in mm)
$160
$360
2018 2019E 2020E
$12.0
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0
$3.6
Source: Cowen and Company
U.S. E-Cigarette Sales ($ in bn)
$6.6
$8.7
$11.1
2017 2018 2019E 2020E
The below scenario analysis shows that every 50 bps of market share capture is worth
~$56 mm in revenues. While we are forecasting CBD vape to be ~3% of the market, we
believe there is upside to these numbers and that strong consumer adoption can result
in revenues surpassing $500 mm.
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Figure 97 $360 MM In Revenue Implies A ~3% Share Of The Category
2020 Market Share Scenario Analysis
Market Share 1.7% 2.2% 2.7% 3.2% 3.7% 4.2% 4.7%
Absolute Sales ($ in mm) $193 $249 $304 $360 $416 $471 $527
Source: Cowen and Company
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COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 98 Competition Expected to Heat Up Across Vapor
The below figure reflects the notable competition seen within vape as more companies
continue to enter the space. In addition to CBD only-focused companies, we are starting
to see crossover from adult-use / medical focused companies including Green Thumb
Industries and Curaleaf Hemp. Indeed, GTI recently announced the acquisition of Beboe,
which will offer a CBD vape pen with a focus on gaining distribution in high-end retail
stores. Curaleaf will offer their pen through its e-commerce platform and dispensaries.
Notably, crossover does not pertain solely to cannabis companies, as Turning Point
Brands recently announced a minority stake in CASH, a privately held CBD extraction
and production company. With a rapidly growing vapor infrastructure in place already
(from Vapor Beast, Vapor Shark and Vapor Supply), TPB has a number of avenues and
distribution points, both B2B and B2C, to introduce CBD vapor products to complement
its portfolio. As such, we look for new CBD product introductions from TPB over the
next year, with vapor as a logical entry point and key focus area.
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Source: Company Websites and Cowen and Company
Note: Reflects price per mg of CBD; For companies with multiple SKUs, we used a straight line average
52
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COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 99 Condensed Pricing Heat Matrix By Company And Category
The below chart provides a condensed visual snapshot on company pricing in the
preceding category discussions. We would highlight the broad number of categories
that multiple emerging private companies are actively competing in, which is expected
to increase as the category continues to gain momentum.
Below we provide company descriptions on some of the more notable public and private
companies currently competing within the space.
Tinctures Capsules Gummies Confections Balm Bath Bombs Topicals Vape Beverages
baceae $0.17 $0.47
Beboe $0.15
Canna Hemp $0.08 $0.10 $0.33 $0.12 $0.25
Casa Luna
cbdMD $0.08 $0.07 $0.10 $0.10 $0.08 $0.09
Charlotte's Web $0.08
CV Sciences $0.16 $0.12 $0.24 $0.62
Diamond CBD $0.22 $0.08 $0.20 $0.42
Elixinol $0.11 $0.09 $0.24
Green Roads $0.20 $0.12 $0.18 $0.25
Hemp Bombs $0.11 $0.14 $0.12 $0.17 $0.25 $0.17 $0.20
Highline $0.23
Lazarus $0.04 $0.05 $0.05 $0.05
Lord Jones $0.24 $0.11 $0.29
Mary's Medicinals $0.16 $0.60 $0.50 $0.24 $0.26
Mr. Moxey's $0.13
Papa & Barkley $0.13
Premium Jane $0.17 $0.12 $0.09 $0.11
Pure Kana $0.16 $0.12 $0.08 $0.26 $0.14 $0.30
Recess $0.50
Reliva $0.08 $0.20 $0.07 $0.12
Sprig $0.21
Sunday Scaries $0.15 $0.20
Veggimins $0.11
Willie's $0.34
Note: Blue highlight denotes higher price point, gray denotes lower price point. Balms and Bath Bombs for Mary’s Medicinals represent Mary’s Nutritionals.
Source: Company Websites and Cowen and Company
CBD Price/MG Summary Matrix
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COLLABORATIVE INSIGHTS February 25, 2019
The CBD Competitive Landscape – Public/Private Company Discussions
(Azer)
Publicly Traded Companies
1933 Industries. Publicly-traded 1933 Industries (CSE: TGIF; OTCQX: TGIFF) is a
vertically integrated cannabis company with operations in both the U.S and Canada.
1933 operates through three subsidiary companies which includes Alternative Medicine
Association (AMA), Infused MFG and Spire Global Strategy. AMA (91% ownership), is a
licensed medical and adult use cannabis cultivation facility. Infused MFG (91%
ownership) produces hemp-based CBD products and Spire Global Strategy (100%
Ownership) is an advisory firm offering due diligence, security and intelligence services.
The company was an early competitor having launched its first CBD brand in June 2017.
The two main brands are Canna Hemp and Canna Fuze, which are distributed across 600
retail locations across the U.S. (largely focused on dispensaries), with 15% of sales
coming from e-commerce. In 2018, 1933 delivered ~$12.6 mm in overall revenues, with
a gross margin of 49%. Infused MFG specifically contributed 34% to revenues (~$4.3
mm), while achieving a gross margin of 71%.
Canopy Growth (Outperform, C$82 PT). Canopy Growth is a leader in global cannabis,
with exposure to over a dozen countries spanning five continents. As the market share
leader in the nascent adult use market in Canada, WEED generated sales of $83 mm in
its most recent quarter. In addition, WEED was the first Canadian licensed producer to
partner with a major consumer packaged goods company. In October 2017, they
announced the initial relationship with Constellation Brands, which was meaningfully
expanded with a $4 bn investment announced in August 2018. The company has
announced its intention to invest $100-$150 mm in New York State (where STZ is
headquartered), to construct a hemp industrial park focused on extraction and product
manufacturing. More recently, management has noted a willingness to invest as much
as $500 mm against U.S. CBD with the expectation that this infrastructure could
ultimately be converted to capitalize on a U.S. adult use opportunity, when it
materializes.
Charlotte’s Web. Founded in 2013 and based in Boulder Colorado, Charlotte’s Web is a
publicly-traded, market leader within hemp-derived CBD (CSE: CWEB; OTCQX: CWBHF).
The company has a vertically integrated business model, consisting of cultivation,
manufacturing and distribution. Charlotte’s Web products are sold in 3,680 retail
locations, with an expanding channel footprint that includes national grocery, drug,
mass market, pet, and natural / specialty retailers. Despite being well distributed, 55%
of 9M18 revenue has been derived from the company’s direct to consumer e-commerce
model. Going forward, Charlotte’s Web will continue to drive innovation and will look to
improve their liquid delivery system to enhance efficacy, convenience and frequency of
use. What is more, they will offer botanical blends to target consumer need states (sleep
and cognitive function), upgrade bioavailability technology and focus on additional
isolated cannabinoid products. To drive sustained growth, the company will look to build
brand awareness through media events and social platforms, among others and
introduce new, differentiated botanical products in the form of tinctures, capsules,
powders, sports performance, topicals, cosmetics, beverages and pet products.
Charlotte’s Web will selectively pursue M&A to complement their current strengths and
will also look to expand internationally, with a near term focus on the EU, South America
and Asia. Through FY 9M18, Charlotte’s Web has delivered revenues of $48 mm (+75%),
with a gross margin of 77%.
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COLLABORATIVE INSIGHTS February 25, 2019
Curaleaf Hemp. Curaleaf (CSE: CURA; OTC: CURLF) is a vertically integrated U.S. multistate
operator (MSO), based in Massachusetts that focuses on selling Curaleaf branded
products in its company-owned dispensaries. In September, the company launched a
separate CBD focused line called Curaleaf Hemp, which is currently sold in 47 states.
Form factors currently offered include tinctures, capsules, topicals, patches, vape pens,
and pet treats. With both ingestible and topical CBD products currently offered in select
Wegman’s stores, Curaleaf Hemp is focused on expanding into more channels and
becoming a national CBD brand by the end of the year. Curaleaf Hemp products are midtier
priced, coming in above value offerings, but below what would be considered superpremium.
This allows them to competitively target pharmacy chains and grocery stores.
Curaleaf believes women represent an outsized opportunity within CBD and will focus
their efforts on positioning their products towards that specific cohort. This makes good
sense to us as our proprietary survey indicated that women slightly over-index to CBD
relative to men. Through FY9M18, Curaleaf has generated ~$45 mm in revenues
(including adult use and medical) reflecting a 247% YoY growth rate, while delivering a
gross margin of 57%.
CV Sciences. Headquartered in San Diego, CA, publicly traded CV Sciences (OTCQB: CVSI)
has two distinct operating divisions, consisting of consumer products and specialty
pharmaceuticals. Within consumer products, the company is engaged in the
development, manufacturing, marketing, and distribution of hemp-derived CBD
products, which are refined into its own PlusCBD Oil™ brand. Form factors are broad
based and include oils, capsules, sprays, balms, beauty products, and gummies, and are
distributed nationally in health food stores and health care provider offices through
select distributors and online. CV Sciences currently distributed to over 2,000 retail
locations. CV Sciences has generated ~$34 mm in revenues though the first nine months
of FY18, which reflects a 153% YoY growth rate. Over the comparable timeframe, the
company reported gross margin of 72%, reflecting over 300 bps of expansion.
Elixnol. Elixinol (ASX: EXL; OTCQX: ELLXF) has a global presence in the cannabis
industry, including hemp-derived CBD dietary supplements, food and wellness products,
as well as the cultivation and manufacturing of medicinal cannabis products. Business
segments include:
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Elixinol USA. Founded in 2014, Elixinol USA is a manufacturer and global
distributor of industrial hemp-based dietary supplements and skincare
products, with operations based out of Colorado.
Hemp Foods Australia. Founded in 1999, is a leading hemp foods wholesaler,
retailer, manufacturer and exporter of bulk ad branded raw materials and
finished products.
Elixinol Australia. Founded in 2014, to participate in the emerging Australian
medical cannabis market.
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In 2018, Elixinol revenues grew 121% YoY to ~$AUD 37mm (~$27 mm). The company’s
North America business contributes over 80% to total company revenues.
Green Thumb Industries (Beboe). As one of the more well-known U.S. multi-state
operators (MSOs), Green Thumb Industries (CSE: GTII; OTCQX: GTBIF) recently
announced the acquisition of Beboe, a premium cannabis brand, headquartered in
California. Beboe products are sold in over 125 California and Colorado retail locations,
and notably, the acquisition will give GTI access to the CBD market through Beboe’s
recently launched, direct-to-consumer line of hemp derived CBD products. Current CBD
products offered from Beboe include a vape pen, called Calming, which contains 500
mgs cannabis oil, as well as a beverage called Dirty Lemon. In order to maintain the
premium nature of the Beboe brand equity, GTI plans to ship the product into high-end
luxury stores (which currently includes Barney’s). In the first nine months of fiscal 2018,
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COLLABORATIVE INSIGHTS February 25, 2019
GTI has reported revenues of ~$41.7 mm (which includes adult use and medical),
reflecting a YoY growth rate of over 300% and gross margin of 45%. We would note
that on a pro-forma basis including the acquisition of Essence, in the most recent
quarter, GTI would have generated revenues of over $35 mm (vs. $17.1 mm reported).
Khiron Life Sciences Corp. Khiron is a publicly-traded (TSXV: KHRN; OTCQB: KHRNF),
vertically integrated cannabis company currently focused on Latin America. Priority
markets in the region include Colombia, Peru, Chile, Brazil, and Mexico. Earlier this year,
they announced a 50/50 JV with U.S.-based Dixie Brands, which will result in the
introduction of a full line of cannabis infused products to the Latin American market.
Importantly, as part of the agreement, Dixie will manufacture and distribute Khiron’s
Kuida brand of CBD-based cosmetics in the U.S., where they will target the growing
Hispanic population. Khiron will operate the JV from Bogota, Colombia, with a focus on
regulation, cultivation, manufacturing, and distribution. Dixie will contribute IP, including
its extensive brand portfolio, which includes over 100 SKUs spanning 15 different
categories. Khiron recently recognized first sales in October 2018.
Level Brands. Originally founded as a consumer products company in 2015, Level
Brands (NYSE American: LEVB) subsequently expanded into licensing and brand
management prior to initiating an IPO in 2017. Most recently in 2018, the company
completed the acquisition of cbdMD, a CBD consumer products brand with products
available online and in over 1,000 retail outlets across the U.S. cbdMD offers 60 skus, 24
of which come in the form of oils, while 12 SKUs come in the form of topicals.
Additionally, other cbdMD form factors offered include capsules, gummies, bath bombs,
and pet products. In its first year, cbdMD delivered $7.5 mm in sales, while achieving a
gross margin in excess of 70%. From a route to market perspective, 80% of revenues
come from e-commerce, though the company started to build out a sales team to drive
brick and mortar penetration.
Tilray (Outperform, $150 PT). Canadian-based Tilray (NASD: TLRY), is a licensed
producer and distributor of cannabis across Canada, as well as internationally. Through
the company’s strategic partnership with Privateer, TLRY licenses established U.S.
based cannabis brands including Marley Natural, Irisa, Goodship, Grail, and Dutchy. TLRY
has been active on the M&A front, with previously announced acquisitions /
partnerships with Novartis, Authentic Brands and AB-Inbev, among others. Most
recently, the company announced a C$419 mm acquisition of Manitoba Harvest, the
global leader in hemp-derived food products. The cash and stock deal gives TLRY access
to Manitoba Harvest’s broad range of food products that are currently distributed in
16,000 stores across North America.
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Turning Point Brands (Outperform, $45 PT). Based in Louisville, KY, Turning Point
Brands (NYSE: TPB) operates in the Other Tobacco Products (OTP) category and sells
and distributes a wide range of products. These products include MST, loose leaf
chewing tobacco, cigarette papers, cigar wraps, e-cigs, vaporizers, and herbal wraps.
TPB recently announced a minority stake in CASH, a privately held CBD extraction and
production company, which should complement its current infrastructure, which
includes Vapor Beast, Vapor Shark and Vapor Supply. Additionally, we would note that
TPB currently sits on the U.S. Hemp Roundtable Board of Directors. Through the first
nine months of fiscal 2018, TPB has reported $238.4 mm in revenues, which reflects a
YoY growth rate of over 12%. The company has achieved a run rate gross margin of
~44% over the comparable timeframe.
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COLLABORATIVE INSIGHTS February 25, 2019
Canadian LP Commentary on CBD
In addition to the public companies already actively involved in the hemp / CBD market,
we would note that all of the major Canadian public cannabis companies have been
vocal in terms of expressing their interest in the space, as reflected in the below
commentary.
Aphria (APH)
“Depending on the country, there is a lot of movement in Europe…with a CBD light. That
CBD, that source from hemp, and what we are contemplating in certain countries,
Portugal being one, Italy being one.” Chairman, CEO & President Victor Neufeld (1Q19
Earnings Call)
Aurora (ACB)
“I think the hemp industry, I tell a lot of the people here that I think it's going to be as
big or bigger than the cannabis industry.” Founder, CEO and Director Terry Booth (4Q18
Earnings Call)
“We've got -- obviously, we're first mover in the hemp space out of any other of our
competitors. And we'll enter when it's proper to enter and when it's legal to enter into
the United States market.” Founder, CEO and Director Terry Booth (2Q19 Earnings Call)
Canopy Growth (WEED, Outperform, C$82 PT)
“But CBD every day is moving through a progression where it's going to become part of
the normal course available ingredient set…and I think we're doing a very good job of
getting in front of that.” CEO Bruce Linton (1Q19 Earnings Call)
“[CBD is] going to come down to who gets the data to get the branded product that
actually works. And I think we're doing a very good job on that and I believe we have a
leadership position on that.” CEO Bruce Linton (2Q19 Earnings Call)
Cronos (CRON)
“At Cronos, we seek to build the world's most innovative cannabinoid company, where
we develop and research efficient processes to effectively produce and formulate the
full spectrum of cannabinoids, not just THC and CBD.” Chairman, President & CEO
Michael Gorenstein (3Q18 Earnings Call)
Emblem Corp (EMC)
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On 8/1/18, Emblem and GreenSpace announced a strategic partnership to develop and
commercialize CBD infused health and beauty products for the expected adult-use
cannabis market. (Press Release)
"Emblem's partnership with GreenSpace Brands is an industry first and represents an
incredible opportunity to capitalize on the growing CBD market in Canada.” CEO Nick
Dean (Press Release)
Emerald Health Therapeutics (EMH)
Emerald secured over 500 acres of hemp harvest in 2018 and has contracted for
approximately 1000 acres in 2019 to 2022, with the objective of extracting low-cost
cannabidiol (CBD). (Press Release)
On September 26, 2018 the Company entered into a long-term supply agreement to
obtain harvested hemp chaff, plant material consisting of mainly flower and leaf. The
supply agreement was signed with Emerald Health Hemp Inc. to purchase CBD
containing hemp biomass for extraction into CBD oil. (Press Release)
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COLLABORATIVE INSIGHTS February 25, 2019
The Green Organic Dutchman (TGOD)
“We are focused on becoming the Whole Foods of the cannabis industry and recognized
as pioneers in the THC/CBD infused beverage industry.” CEO Brian Athaide (Shareholder
Letter)
HEXO Corp (Hexo)
“With respect to the United States, we are in the process of assessing adequate supplies
for hemp-derived cannabinoids. Using our intellectual property, we believe we can offer
a large range of CBD-based experiences.” HEXO Prospectus (1/25/19)
Neptune Wellness Solutions (NEPT)
“CBD in the United States-and think about this for a moment where it was federally illegal
in the DEA perspective as well as not permitted from an FDA perspective, it is today larger
than the vitamin E sector, and it is on track to surpass the omega-3 supplement category
very soon.” President, CEO & Director James Hamilton (3Q19 Earnings Call)
Organigram (OGI)
On 1/21/19, OGI entered an agreement with 1812 Hemp, a New Brunswick base
industrial hemp research company to secure supply and support research and
development on the genetic improvement of hemp through breeding methods.
Benchmarking
Below we provide a distribution benchmarking analysis on some of the notable publicly
traded CBD companies, including Tilray’s recently announced acquisition of Manitoba
Harvest, which food products are distributed in 16,000 stores across the U.S. and
Canada. Among core CBD companies, Charlotte’s Web’s retail store count of 3,680
stores is almost double that of CV Sciences’ 2,000+ retail locations. Level Brands CBD
products are in over 1,000 retail locations, while 1933 has a retail footprint spanning
600 stores and counting.
Figure 100 Companies Will Focus on Building our Distribution Footprint
20,000
15,000
16,000
Retail Store Count
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10,000
5,000
3,680
2,000+
1,000+ 600
0
Tilray Charlotte's Web CV Sciences Level Brands 1933 Industries
Source: Company Reports and Cowen and Company; Note: TLRY reflects acquisition of Manitoba Harvest
From a revenue perspective, Charlotte’s Web is generating the most sales out of what
we would classify as core CBD-focused companies. Indeed, in the most recent quarter,
the company generated almost $18 mm, which was ~30% higher than number 2
positioned CV Sciences, while Elixinol delivered over $7 mm. We would highlight that for
the cross-over brands, Turning Point Brands is currently delivering the highest revenues
(consisting of OTP only), while reported revenues factor in adult use and medical sales
of THC-infused products, which clearly favor Curaleaf and GTI as two of the more wellknown
MSOs in the U.S. Tilray revenues of $10 mm are expected to ramp over the
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Charlotte's Web
(CWEB)
CV Sciences (CVSI)
Elixinol
Turning Point Brands
(TPB)
Curaleaf (CURA)
Green Thumb
Industries (GTI)
Tilray (TLRY)
1933 Industries
Level Brands (LEVB)
COWEN
COLLABORATIVE INSIGHTS February 25, 2019
Figure 102 Finished Goods CBD Producers…
$40.0
$36.0
$32.0
$28.0
$24.0
$20.0
$16.0
$12.0
$8.0
$4.0
$0.0
$13.8
MRQ Gross Profits (in $ mm)
$9.9
$36.2
$13.8
$8.5
coming quarters, driven by adult use legalization in Canada. 1933 and Level Brands are
smaller in scale but continue to post solid growth.
Figure 101 CWeb Leads Core CBD Companies; CBD Crossover Touches Multiple Industries
$90.0
$75.0
$60.0
$45.0
$30.0
$15.0
$0.0
$17.7 $13.6 $7.4
Most Recent Quarterly Revenues (in $ mm)
$78.7
CBD
$21.4 $17.2
CBD-Crossover/Other
$10.0 $4.6 $1.5
Note: 1933 = 1Q19 (ended 10/18), Level Brands = 4Q18 (ended 12/18), All others are 3Q18 (ended 9/18). AUD/USD =
0.72
Source: Company Reports and Cowen and Company
Nuances around different business models become increasingly apparent when
benchmarking gross margins. Charlotte’s Web and CV Sciences, which we would classify
as finished goods producers, command the highest margins, while Turning Point Brands’
unique positioning within OTP products generates margins lower than the level that
would be seen for traditional cigarette companies. Core cannabis companies have to
contend with being both vertically integrated and in many instances, servicing retail
stores, which are lower margin.
$3.1 $1.9 $0.8
CWEB CVSI TPB CURA GTI TLRY 1933 LEVB
Figure 103 …Command the Highest Gross Margin
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
MRQ Gross Profit Margin
78.0% 73.1%
64.5%
60.7%
49.6%
43.4%
41.9%
30.5%
CWEB CVSI TPB CURA GTI TLRY 1933 LEVB
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CBD
CBD-Crossover/Other
CBD
CBD-Crossover/Other
Note: 1933 = 1Q19 (ended 10/18), Level Brands = 4Q18 (ended 12/18), All others
are 3Q18 (ended 9/18). AUD/USD = 0.72
Source: Company Reports and Cowen and Company
Note: 1933 = 1Q19 (ended 10/18), Level Brands = 4Q18 (ended 12/18), All others
are 3Q18 (ended 9/18). AUD/USD = 0.72
Source: Company Reports and Cowen and Company
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COLLABORATIVE INSIGHTS February 25, 2019
As evidenced by the above chart, in addition to offering very strong revenue growth
prospects, CBD finished products are highly profitable. While it is still early days, both
Charlotte’s Web and CV Sciences are EBITDA positive, generating 30% margins in the
most recent quarter, which is an encouraging sign. This intersects at a period where
other companies across the broad cannabis landscape have been investing heavily in
SG&A, which includes but is not limited to headcount increases and R&D.
Figure 104 CWEB and CVSI Are Posting Strong EBITDA… Figure 105 ...With Margins Exceeding 30%
$15.0
$10.0
$5.0
$0.0
-$5.0
-$10.0
$5.4
MRQ Adj. EBITDA (in $ mm)
$13.8
$4.1
$0.4
-$0.9
-$5.5
-$7.4
CWEB CVSI TPB GTI 1933 CURA TLRY
CBD
CBD-Crossover/Other
Note: 1933 = 1Q19 (ended 10/18) (ended 12/18), All others are 3Q18 (ended 9/18).
AUD/USD = 0.72
Source: Company Reports and Cowen and Company
40.0%
20.0%
0.0%
-20.0%
-40.0%
-60.0%
-80.0%
30.5% 30.4%
20.9%
2.3%
-18.6% -25.7%
-73.3%
CWEB CVSI TPB GTI 1933 CURA TLRY
CBD
MRQ Adj. EBITDA Margin
CBD-Crossover/Other
Note: 1933 = 1Q19 (ended 10/18) (ended 12/18), All others are 3Q18 (ended 9/18).
AUD/USD = 0.72
Source: Company Reports and Cowen and Company
While Charlotte’s Web generated 172% growth last year, we can see that sales are
expected to remain robust. Charlotte’s Web is guiding for 2018 revenues to be between
$65-80 mm, which would represent ~81% growth at the midpoint of the range. For
2019, the company is guiding for $120-170 mm, which would represent 100% growth
at the midpoint. Looking out to 2020, current consensus estimates of $295 mm would
imply further robust growth at over 100%. With momentum in CBD expected to ramp
on a go-forward basis, we would look for these more established, well capitalized
companies such as Charlotte’s Web, CV Sciences and Elixinol to consolidate market
share in the form of distribution gains from new channels coming online as well as a
from considerable amount of consolidation.
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Figure 106 Charlotte’s Web’s Top-Line Outlook
$350
$300
$250
$200
$150
$100
$50
$0
YoY Growth:
2018 = ~81%
2019 = ~100%
2020 = ~103%
$40
Charlotte's Web Revenue Estimates (in $ mm)
$73
$145
$295
2017A 2018E 2019E 2020E
Source: Company Reports, Bloomberg
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COLLABORATIVE INSIGHTS February 25, 2019
Private Companies
Botanica. Best known for its portfolio of adult use edible brands, which includes Spot,
Journeyman and Mr. Moxey’s Mints, Botanica recently launched a CBD only line of Mr
Moxey’s Mints, following the passage of the 2018 Farm Bill. The products are currently
offered in the U.S. and the U.K. and are available in one package format consisting of 60
mints at 5 mgs per CBD each. In the U.S., the mints retail for ~$40 per tin and going
forward, the company will look to come to market with smaller / lower priced offerings
to help drive immediate point of sale consumption across brick and mortar retail
locations. Over time, management forecasts that ~40% of sales will come from e-
commerce, with the balance coming distribution.
GenCanna. Based in Kentucky, GenCanna is a cultivator of premium hemp-derived
CBD. Additionally, the company offers whole-plant hemp extracts in the form of full
spectrum or isolated crystalline cannabinoid CBD for wholesale, available to customers
in the form of powders and oils and can be prepared as a proprietary water dispersible
powder to support large scale manufacturing needs. Their powders have a CBD
concentration of 99.5%+, which is isolated using CO2 extraction and crystal precipitation
(as is their bulk oil). GenCanna also offers a full range of packaged goods including
bottled oil drops, capsules and topical creams. All GenCanna products are produced in
an FDA registered and inspected, food-grade, GMP-compliant facility and are tested by
third parties for safety and quality. In November 2018, MariMed (MRMD, not covered)
invested $30 mm in GenCanna, which established a long-term supply agreement
whereby GenCanna became MariMed’s global hemp CBD supplier.
Highline Wellness. Co-founded by former Cowen alum Chris Roth and his business
partner Chris D’Alberti, Highline Wellness is a NYC-based CBD company currently
offering tinctures, chews (gummies) and topicals (pain cream). Highline products are
manufactured in Florida and the company sells direct-to-consumer. According to the
company, this provides for competitive pricing relative to their peers (which we would
classify as broadly mainstream). While still early days, Highline has an active presence
on social media platforms including a loyal group of followers on Instagram, which has
resulted in top line momentum to start off the year.
Lazarus Naturals. Launched in 2014, Lazarus Naturals is an Oregon-based CBD
company, which offers products ranging from tinctures and capsules, to topical oils and
balms as well as isolates. Lazarus is value priced across the competitive set with one of
the lowest price/mg of CBD relative to the companies that we benchmarked against.
The company offers 60% discounts to veterans, individuals on long-term disabilities as
well as for low-income households. All sales primarily come from e-commerce and
products are shipped to all 50 states across the U.S.
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Lord Jones. Founded by Robert Rosenheck and Cindy Capobianco, Lord Jones
manufactures and distributes super-premium CBD infused products. The company
provides a broad array of product offerings, including tinctures, confections, capsules,
and skincare, among others. Clearly catered towards the premium-end of the market,
Lord Jones has announced several high-profile partnerships over the past couple of
years which includes collaborating with Equinox, partnering with luxury hotel group,
The Standard, and most recently, being the first CBD brand carried by Sephora.
Mary’s. Founded in 2013, Mary’s produces and sells cannabis and hemp-derived CBD
products across three main segments, which include:
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Mary’s Medicinals. Cannabinoid infused products for relief, available in 11 U.S.
states.
Mary’s Nutritionals. Hemp-derived CBD products for health & wellness, sold in
retailers and online in the U.S. and international markets
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COLLABORATIVE INSIGHTS February 25, 2019
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Mary’s Whole Pet. Whole plant CBD remedies for pets, sold in retailers and
online in the U.S. and international markets.
Mary’s is a high-end brand, focused on clean delivery methods through its transdermal
patches, topicals and patented gel pen technologies. In March 2018, Mary’s Nutritionals
was chosen as the preferred CBD vendor partner for all Ritz Carlton, Marriott, JW
Marriott, W, and St. Regis Locations.
Mile High Labs. Based in Colorado, Mile High Labs is the largest extractor of CBD in the
world. The company sources hemp from third party cultivation partners across four
states, which include Colorado, Oregon, New York, and Kentucky. Mile High Labs
extracts exclusively from industrial hemp flower material to create full spectrum
extract, distillate and isolate. Their full spectrum extract contains a full range of CBD
terpenes and over 60% CBD on average, making it useful for low concentration
formulations in holistic and wellness applications, including tinctures and capsules. Mile
High Labs distillate is refined using proprietary molecular distillation technology and
contains ~85% CBD on average, making it ideal for vape pen cartridges, tinctures and
other high potency formulations. The company’s isolate contains ~99% CBD and is used
as a main ingredient in bioceutical and nutritional product applications. Mile High offers
end-to-end certified GMP hemp CBD manufacturing. In October 2018, Mile High Labs
raised $35 mm in a Series A, which according to CEO Jason Roth represented a “recordbreaking
investment [which] is a reflection of the growth in demand for quality CBD
products and Mile High Labs’ unique ability to meet that demand.” CFO Jonathan Hilley
also recently noted that he believes “the CBD market is in the early stages of a 20-year
secular growth trend.”
Papa & Barkley. Papa & Barkley is based in California, with a diverse portfolio of
products and lines. The company’s Releaf line spans multiple form factors, including
tinctures, capsules, patches, and balms, among others, which are comprised of different
THC:CBD ratios. Papa & Barkley’s Essentials line is specifically focused on CBD, and as it
stands, they offer a tincture in both a 15 ml bottle (450 mg CBD) and 30 ml bottle (900
mg CBD) and will soon be rolling out capsules, as well as an extra strength pain balm.
The company is only in California currently, but is looking at going to market in three
other primary states, as well as three other secondary states.
Recess. Launched in October 2018, Recess is a wellness company currently specializing
in beverages which are infused with full spectrum hemp extract. The company has
positioned itself as a modern day lifestyle brand and daytime productivity enhancer that
offers a universal message and idea instead of being anchored specifically to CBD. This
strategy shares similarities with traditional CPG products, such as energy drinks and
soda, which are not marketed for the active ingredient, but instead as the solution.
While the current product portfolio includes sparkling beverages only, Recess plans on
rolling out a plain water, as well as powders, which will cater to on-premise
consumption occasions, such as coffee shops, juice shops and cocktail bars.
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Reliva CBD Wellness. Reliva is a CBD-focused company, which form factors include
tincures, shots, sprays, topicals, gummies, and pet care. The company is run by Miguel
Martin, who previously served as the President and GM of Logic Technology
Development, an e-cigarette manufacturer in the U.S. Reliva’s products are focused on
value from an absolute pricing perspective, as nothing sells for over $19.99 at retail. The
company is unique insofar as they do not offer e-commerce, nor do they make and
claims on efficacy or rely on testimonials or influencer marketing, which Martin believes
will create a narrative on responsibility. Reliva focuses on independent c-stores and
grocery channels and is expected to be in ~1,000 stores by the end of March, growing to
4,000-5,000 stores by the end of the summer with the goal of doubling that store count
to ~10,000 locations by year-end.
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 107 Boots - Cannabidiol & CBD Oil Offerings
Health Care: Drug Retailer Perspective (Rhyee)
CBD Products Gaining Traction With Independent Pharmacies
CBD products appear to be gaining traction with independent pharmacies, many of
whom are already selling or planning to sell CBD oils. We don’t find this surprising given
the high demand for and strong expected growth potential of CBD products, as well as
the differentiation it affords independents relative to larger chain pharmacies.
Independent pharmacies also likely find the high-margin profile of CBD oils attractive,
which we suspect is similar to those of more traditional over-the-counter drugs. OTC
drugs are a substantial profit driver for independent pharmacies. The greater
acceptance of and improving sentiment towards CBD products as a viable business for
independent pharmacies is evidenced by a panel held by the National Community
Pharmacists Association (NCPA) at its annual convention in October 2018, which served
to educate independent pharmacy owners of the legality, clinical uses, potential risks
and marketing tactics of CBD oils. For those independent pharmacies that have decided
to sell CBD oils, ensuring that they provide high-quality products is paramount, with a
focus on looking at the bioavailability of CBD. Additionally, independent pharmacies
emphasize the importance of patient education, in regards to treatment and potential
side effects. Anecdotally, reports note that many independent pharmacies have received
positive feedback from patients, attributing diminished opioid dependence and pain
relief to CBD oils.
Large Pharmacy Chains Don’t Appear As Quick To Offer CBD Oils
Large pharmacy chains, such as CVS Pharmacy and Walgreens, don’t currently sell CBD
oil. WBA management has noted that, while the company is monitoring the CBD market
and the potential to sell it, WBA currently has no public stance on whether it plans to
sell CBD products future. Interestingly, Boots, which is a pharmacy chain in the U.K.
owned by WBA, sells CBD oil in three different doses (Figure 107). As such, we wouldn’t
be surprised if WBA decides to sell CBD products in the future.
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Source: Boots.com and Cowen and Company
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COLLABORATIVE INSIGHTS February 25, 2019
Health Care: Payor Perspective (Rhyee)
Based on our conversations with managed care companies, whether CBD oils will be
covered as a medical benefit by government sponsored health programs is determined
by the Center for Medicare and Medicaid Services (CMS) and state governments.
Currently, CBD products aren’t a covered benefit or an extra benefit that has been
approved by CMS or states, and it isn’t known at this time whether CMS or states
governments are considering reimbursement for CBD products. That said, based on our
discussions with a number of payors, if a state government were to provide
reimbursement for CBD products under Medicaid, it would have to add CBD oils as a
covered benefit under the state plan, which may or may not require CMS approval. We
note that CMS and states do provide reimbursement for non-traditional treatments, if
they determine that there’s some benefit, such as issues around social determinants, As
such, we see the potential for CBD oils to become a covered benefit under CMS, even
without FDA approval.
On the commercial side of the market, payors we spoke with noted that CBD oils aren’t
eligible for coverage under commercial health plans because they’re not regulated by
the FDA. There are a couple of exceptions, such as GWPH’s Epidiolex, which is a
prescription pharmaceutical formulation of highly purified, plant-derived cannabidiol for
the treatment of seizures associated with Lennox-Gastaut syndrome (LGS), or Dravet
syndrome in patients two years of age or older. Epidiolex is covered by commercial
insurance as it is an FDA approved drug. Payors noted three factors complicating
commercial coverage of CBD oils, including (1) legal issues, as CBD oils derived from THC
(cannabis) aren’t legal if they contain equal to or more than 0.3% THC; (2) lack of
regulation by the FDA; and (3) their availability as OTC medications.
Health Care: Provider Perspective (Rhyee)
The certified use of medical marijuana appears to be gaining acceptance by the provider
community, as evidenced by the recent distribution of a memo by the chief physician
executive of Intermountain Healthcare, Utah’s largest health provider, to its network of
providers that the health system is lifting its prior directive that advised physicians not
to write letters recommending cannabis treatments. However, it’s difficult to assess
providers’ stance on recommending the use of CBD oils. With greater clinical evidence
supporting the efficacy in treating various conditions, we may very well see doctors
recommend CBD oils as well, which some claim to be effective in treating loss of
appetite in cancer patients, chronic pain, epilepsy, Huntington’s disease, sleep disorders,
multiple sclerosis symptoms, schizophrenia, and glaucoma.
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COLLABORATIVE INSIGHTS February 25, 2019
eCommerce To Be A Key Consumer Distribution Channel Long Term
(Blackledge)
A significant portion of the CBD products that are currently available fall into the
Personal Care / Beauty Products or Vitamins and Food Supplements verticals, both of
which are part of the larger Consumables category. Consumables continues to be a
highly under-penetrated eCommerce vertical in the midst of a progressive shift online,
and we see an opportunity for these CBD companies to expand online as secular
tailwinds continue to drive eCommerce growth for the larger Consumables market. For
context, we forecast overall US Consumables eCommerce sales of $51BN in ’18, or 11%
eCommerce penetration, rising to $111BN in ’23 or 19% eCommerce penetration.
Longer term, Consumables eCommerce market share, led by Amazon, should rise well
above our 19% penetration forecast in ’23, as the sector favors eCommerce vs. Brick &
Mortar, for multiple reasons, namely (1) changing consumption trends, particularly with
younger demographics, who would prefer to “Skip the Trip” for these high
replenishment factor goods; and (2) rising smart speaker penetration, like AMZN's
popular Echo device, driving gains in high replenishment re-ordering.
Figure 108 U.S. eCommerce Consumables Penetration ‘07-‘23E
25%
20%
15%
10%
5%
0%
3% 3% 3%
4% 4%
5%
6%
6%
7%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
8%
9%
11%
12%
14%
16%
17%
19%
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Source: Cowen and Company; U.S. Census Bureau
Due to the aforementioned macro factors, we view eCommerce as a major potential
customer distribution channel for CBD longer term as consumers’ spending habits
continue to shift, and purchasing of Personal Care Products, Vitamins & Food
Supplements and other Consumable items moves online at an accelerated rate. We
expect growth within the Consumables (Personal Care, HH Goods, etc) and Food &
Beverage verticals to consistently outpace overall eCommerce growth ’18-’23, resulting
in an increased share of U.S. eCommerce sales.
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 109 Share Of U.S. eCommerce Sales ’13 vs. ‘18E vs. ‘23E
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
3%
2%
3%
4%
3%
3%
4%
4%
3%
3%
3%
4%
7% 7%
6%
6%
9% 7%
8%
12%
10%
9%
5%
3%
8% 10% 11%
10% 11% 13%
19% 17%
19% 20% 19%
Source: Cowen and Company; U.S. Census Bureau
Analyzing Two Key Verticals for CBD Adoption
As part of our monthly survey of 2,500 US consumers, we ask Amazon.com purchasers
to indicate which categories (out of a list of 30) they purchased on Amazon in the past
30 days. Our data shows that Personal Care Products and Vitamins & Supplements were
more likely to be purchased (vs. the average across all categories) by both Prime and
Non-Prime members throughout 2018.
Taking a closer look at 4Q18, in each month (on average) 19% of all Amazon Prime
Purchasers bought at least one personal care product and 15% purchased a Vitamin or
Supplement, while the average purchase rate across all 30+ categories was only 12% of
Prime purchasers. We noted a similar trend among Non-Prime Purchasers in 4Q18, with
13% who bought Personal Care Products and 10% who bought Vitamin or Supplements,
compared to the average purchase rate across all categories of 8%.
16%
2013 2018E 2023E
Office Equip/Supplies
Garden Equip/Supplies
Toys
Sporting Goods
Other
Media
Auto
Food & Bev
Furniture & Home Furnishings
Consumables
Electronics & Appliances
Clothing & Accessories
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Figure 110 Prime Member Purchaser % By Vertical, 1Q18-4Q18
Figure 111 Non-Prime Purchaser % By Vertical, 1Q18-4Q18
25%
20%
15%
10%
23%
17%
21%
22%
18%
16%
11% 11% 11%
19%
15%
12%
16%
14%
12%
10%
8%
6%
14%
13% 13%
12%
11% 11% 10% 10%
7%
7% 7%
8%
5%
4%
2%
0%
1Q18 2Q18 3Q18 4Q18
0%
1Q18 2Q18 3Q18 4Q18
Personal Care Products Vitamins & Supplements Average Across All Categories
Personal Care Products Vitamins & Supplements Average Across All Categories
Source: Cowen proprietary Consumer Internet Survey, n=~2500, Dec ‘18 Source: Cowen proprietary Consumer Internet Survey, n=~2500, Dec ‘18
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COLLABORATIVE INSIGHTS February 25, 2019
Amazon Has A Modest But Expanding Physical Footprint
For CBD companies, expansion through Amazon’s retail locations and more importantly
Whole Foods’ expanding retail footprint are also attractive avenues for reaching new
customers (assuming CBD companies can convince Amazon and Whole Foods to carry
their products). While we currently lack insight into when CBD products may become
available in Whole Foods stores, or what a regional or national rollout might look like,
below we analyze Amazon’s physical footprint to highlight the potential for distribution.
Amazon’s expanding physical footprint is made up of a small number of Go Stores,
Amazon Fresh Grocery Pickup in Seattle, Amazon Branded Book Stores and most
notably its Whole Foods Market business. Whole Foods is a health focused supermarket
chain based out of Austin TX that operates ~470 US locations and was purchased by
Amazon in Aug ’17. Since acquiring Whole Foods, Amazon has deeply integrated it with
the company’s Prime offering. In combination with Amazon’s Prime Now platform,
Whole Foods is now offering 2-hour delivery on thousands of in-store items in 63 cities,
which account for over 50% of the US population and over 2/3rds of US GDP. Whole
Foods also offers curbside pickup in over 20 markets.
Figure 112 Amazon Prime Now & Same Day Delivery Top 50 US Metro Areas By 2017 GDP (%)
2017 GDP
Rank
U.S. Metropolitan Areas
% of '17
US GDP
% of '17 US
Population
Amazon Prime Now
Available
Amazon Prime Free Same-
Day Delivery
WFM Delivery via
Prime Now
1 New York-Newark-Jersey City, NY-NJ-PA 9.8% 6.2% P P P
2 Los Angeles-Long Beach-Anaheim, CA 5.9% 4.1% P P P
3 Chicago-Naperville-Elgin, IL-IN-WI 3.9% 2.9% P P P
4 Dallas-Fort Worth-Arlington, TX 3.1% 2.0% P P P
5 Washington-Arlington-Alexandria, DC-VA-MD-WV 3.0% 1.9% P P P
6 San Francisco-Oakland-Hayward, CA 2.9% 2.2% P P P
7 Houston-The Woodlands-Sugar Land, TX 2.8% 1.4% P P P
8 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 2.5% 1.9% P P P
9 Boston-Cambridge-Newton, MA-NH 2.5% 1.5% P P P
10 Atlanta-Sandy Springs-Roswell, GA 2.2% 1.7% P P P
11 Seattle-Tacoma-Bellevue, WA 2.0% 1.8% P P P
12 Miami-Fort Lauderdale-West Palm Beach, FL 2.0% 1.1% P P P
13 San Jose-Sunnyvale-Santa Clara, CA 1.6% 1.1% P P
14 Detroit-Warren-Dearborn, MI 1.5% 1.3% P
15 Minneapolis-St. Paul-Bloomington, MN-WI 1.5% 0.6% P P P
16 Phoenix-Mesa-Scottsdale, AZ 1.4% 1.0% P P P
17 San Diego-Carlsbad, CA 1.3% 1.4% P P P
18 Denver-Aurora-Lakewood, CO 1.2% 0.9% P P P
19 Baltimore-Columbia-Towson, MD 1.1% 0.9% P P P
20 Charlotte-Concord-Gastonia, NC-SC 1.0% 0.7% P P P
21 Portland-Vancouver-Hillsboro, OR-WA 1.0% 0.9% P P P
22 St. Louis, MO-IL 0.9% 0.7% P
23 Riverside-San Bernardino-Ontario, CA 0.9% 1.4% P
24 Austin-Round Rock, TX 0.8% 0.7% P P P
25 Pittsburgh, PA 0.8% 0.6% P
26 Tampa-St. Petersburg-Clearwater, FL 0.8% 0.9% P P P
27 Indianapolis-Carmel-Anderson, IN 0.8% 0.6% P P P
28 Cleveland-Elyria, OH 0.8% 0.7% P P
29 Cincinnati, OH-KY-IN 0.8% 0.6% P P P
30 Columbus, OH 0.8% 0.6% P P P
31 Nashville-Davidson--Murfreesboro--Franklin, TN 0.8% 0.7% P P P
32 Orlando-Kissimmee-Sanford, FL 0.8% 0.6% P P P
33 Kansas City, MO-KS 0.7% 0.7% P P
34 San Antonio-New Braunfels, TX 0.7% 0.6% P P P
35 Sacramento--Roseville--Arden-Arcade, CA 0.7% 0.7% P P P
36 Las Vegas-Henderson-Paradise, NV 0.6% 0.6% P P P
37 Milwaukee-Waukesha-West Allis, WI 0.6% 0.5% P P P
38 Bridgeport-Stamford-Norwalk, CT 0.6% 0.3%
39 Virginia Beach-Norfolk-Newport News, VA-NC 0.5% 0.5% P P
40 Hartford-West Hartford-East Hartford, CT 0.5% 0.4% P
41 Salt Lake City, UT 0.5% 0.4% P P
42 Raleigh, NC 0.5% 0.5% P P P
43 Providence-Warwick, RI-MA 0.5% 0.4% P
44 Richmond, VA 0.5% 0.4% P P P
45 New Orleans-Metairie, LA 0.5% 0.4% P
46 Jacksonville, FL 0.4% 0.4% P P
47 Louisville/Jefferson County, KY-IN 0.4% 0.4% P P
48 Oklahoma City, OK 0.4% 0.4% P P
49 Memphis, TN-MS-AR 0.4% 0.4% P
50 Urban Honolulu, HI 0.4% 0.4%
Total 72.6% 54.0% 34 40 46
Amazon Prime Now Markets 62.3% 44.8%
Amazon Same Day Delivery Markets 66.0% 48.6%
Whole Foods Delivery via Prime Now Markets 69.2% 50.9%
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Source: Company reports, Cowen and Company, US Bureau of Economic Analysis
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COLLABORATIVE INSIGHTS February 25, 2019
Competition From AMZN Private Label Could Be A LT Concern, Offset By CBD’s
Established Brands
Should the market for CBD products expand rapidly over the next several years, one
source for increased competition could be Amazon’s own first party (private label)
business. Amazon offers private label goods across the gamut of product verticals,
including consumables and vitamins.
Per industry participants that have discussed AMZN’s private label business with us,
Amazon’s approach is similar across most new product lines, most notably that the
company is now focusing less on heavy discounting to take share from competition. By
contrast, we believe that while any foray into CBD could start with a big push by AMZN
to gain share, if sales and reviews aren’t working, AMZN would likely reduce resources
quickly. Additionally, Amazon Private Label tends to replicate top sellers for goods that
are high replenishment, commodity-type products with undifferentiated branding, then
add secondary brands over time. Amazon private label has in some cases captured huge
market share early (anywhere from 25-40% market share by SKU within the first six
months).
AMZN also tends to have the most success in verticals where branding is less important
(a fact that could provide an advantage to more established CBD companies). The
widespread availability and acceptance by a retailer such as Amazon could also help to
drive mainstream adoption of CBD products and thus provide a benefit for the industry
as a whole.
Other Potential Platforms: EBAY Has The Reach To Make An Impact
There are other platforms that may be easier to break into than Amazon that would also
provide an avenue to reach a wide array of consumers. Ebay could be an alternative for
CBD companies to tap into. EBAY has been losing share in eCommerce over the last
several years, and developing a leading marketplace in a new product vertical such as
CBD products could be an incentive to become an early adopter. Ebay currently has
179MM active buyers on the platform worldwide, and the company generated over
$90BN in GMV in 2018.
Our survey indicates that unlike Amazon, EBAY has had less success in driving
consistent purchasing in areas like personal care and beauty as well as in vitamins and
supplements. Our data suggests that unlike Amazon, these two key verticals are
purchased at about the same rate as any other category, which suggests that there is an
opportunity for these verticals to grow meaningfully, in our view.
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Figure 113 EBAY Purchaser % By Vertical, 2Q17-4Q18
10%
8%
6%
8%
8%
7% 7%
7% 7% 7%
7%
6%
8%
9%
7%
7%
7% 7%
8%
8% 8%
7%
6%
7%
4%
2%
0%
2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18
Personal Care Products Vitamins & Supplements Average Across All Categories
Source: Cowen proprietary Consumer Internet Survey, n=~2500, Dec ‘18
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COLLABORATIVE INSIGHTS February 25, 2019
Cannabidiol (CBD) Entrance Into Mass Retail May Start In Beauty Before
Entering Broadlines (Chen)
Cowen’s take is that first movers may predominantly consist of independent operators,
followed by beauty, convenience, and other major chains. We believe that growth could
take on a barbell dynamic, with early adopters being both high-end luxury players
alongside lower-end local convenience shops, with middle-ground retailers including
WMT, TGT, and COST likely being the last to sell CBD products after a test-and-learn
phase is observed among the early adopters. We expect that CBD in beauty could be a
~$1bn opportunity within skincare specifically; the skincare category currently
comprises ~23% of the overall $87bn beauty products market.
Luxury Department Stores Are Early Adopters. A number of independent retail
operators have recently announced plans to expand their physical presence to
incorporate CBD. For example, luxury department store Barneys New York is adding a
300-square-foot cannabis store-within-store concept called “The High End” to its
flagship store in Beverly Hills, where it will sell CBD beauty products and vintage
paraphernalia. Neiman Marcus also announced its “Trending Beauty” initiative, which
includes carrying leading CBD brands (5 SKUs) online and within 5 of its 44 stores.
Another example is Green Growth Brands (CSE: GGB, not covered) recently announcing a
deal with DSW Inc. (DSW, not covered) to sell its Seventh Sense brand within 96 USbased
DSW stores; this announcement comes after a 10-week trial phase where 74.4%
of product presented on shelves was reportedly sold. GGB also announced it will open
108 stores within Simon Property malls (SPG, not covered), starting in March 2019.
Beauty Could Be First Major Distribution Channel. Cowen believes that the future of
beauty will increasingly emphasize clean, natural ingredients within products – in line
with the broader health and wellness movement that is permeating into various other
retail verticals. Therefore, we believe that beauty could be the first major distribution
channel to adopt CBD given the compound’s properties as a natural remedy to manage
pain, inflammation, and anxiety.
Sephora.com currently carries 3 SKUs with CBD dosages (Lord Jones and Josie Maran),
and a variety of hemp-based products. Meanwhile, ULTA only has hemp-based offerings
but could adopt a comparable line to Sephora within its Prestige assortment. Average
Unit Retail (AUR) for the three Sephora CBD SKUs is ~$70, or $1.85/mL, which supports
our view that adopters will skew toward Prestige-cosmetics-oriented retailers such as
specialty beauty players (Sephora, ULTA) and department stores (JWN, M), before Mass
cosmetics carriers like grocery stores, pharmacies or broadline retailers adopt it, as price
points are closer to $10/SKU.
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Historically, broadline retailers, including WMT, TGT, and COST have shied away from
entering controversial categories in their earlier innings, preferring to be last movers
and not create controversies. We do note, TGT has previously made small inroads into
CBD. According to AdAge, TGT briefly sold hemp and CBD oils in late 2017 before pulling
all the products. Also, we note, WMT’s website does sell several hemp oil products.
Figure 114 CBD Presence Is Limited In Mass Retail Outlets
Source: Cowen and Company, company websites; Note: Search “CBD oil, CBD, Cannabis, Cannabis Oil”
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COLLABORATIVE INSIGHTS February 25, 2019
Growing Application For Hemp And CBD Within The Apparel & Footwear
Market (Kernan)
With the changing tide on marijuana legalization and hemp cultivation, the use case for
and interest in CBD applications are rapidly expanding. We think there lies within this
fervor potential for greater utilization of hemp derived textiles in apparel, footwear and
accessories after largely being relegated to specialist brands with a few exceptions. The
Western Producer, a Western Canada weekly agriculture publication, commented that
“industrial hemp could reach whole crop utilization” in an article published on 1/10/19
“Revenue Streams Expand For Hemp Growers.” We think this compliments the
sustainability movement that is gaining ground in global apparel and footwear
production and among Millennial and Gen Z consumers. Western Producer quotes Jan
Slaski, senior researcher for InnoTech Alberta, that “textile applications have brought
[about] the development of hemp-based uniforms, socks, underwear and other
apparel…” as its properties, which Patagonia describes as “linen-like,” provide a “quality
suitable for fine textiles.”
Approximately $820MM worth of legal hemp products were sold in the U.S. in 2017 and
roughly 13% of those hemp-based products are textiles according to Entrepreneur’s
9/4/18 article, “The Hemp Business Is Booming.” The article’s author Rose Leadem cites
a history of the crop dating back “to the 1600s when growing hemp was encouraged for
use in sails, ropes and clothing.” This period was followed by years of back and forth
regulation that alternately banned and unbanned hemp cultivation in the U.S. While the
2014 U.S. Farm Bill allowed for heavily restricted industrial hemp cultivation, the more
recent 2018 U.S. Farm Bill, as described by the Brookings Instituted, offers a more
“expansive” cultivation of hemp.
Figure 115 Textiles Have Low Penetration Among Legal U.S. Hemp Products (2017)
Textiles, 13%
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Non Textiles,
87%
Source: Cowen and Company; Western Producer
To frame the market opportunity for greater hemp utilization as a textile in apparel and
footwear from what is likely a nascent penetration currently, the U.S. clothing and
accessories market reached store sales of $262 billion in 2017 as reported by the U.S.
government, with potential to grow to $275B in 2018. We note that there are some
global brands that offer hemp fiber, mostly but not all on a limited basis, in their clothing
and footwear assortment. These brands include Patagonia, Columbia Sportswear’s
prAna brand, Orvis, Thought Clothing, Toad&Co, Jungmaven, Eartheasy, Sanuk, Toms,
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 116 Patagonia Iron Forge Hemp
Canvas Ranch Jacket (55% Hemp)
Adidas and Nau. Nike offered a hemp-based SB Dunk Low sneaker in 2004, re-issuing
the shoe in 2016 around Earth Day. Patagonia, a $1B global brand that encompasses a
focus on the environment and social responsibility in its mission statement, views hemp
as a “natural fiber that’s cultivated with low impact on the environment.” The brand’s
assortment includes some hemp-based products made with 100% hemp, which it
imports from China, or blended with other fibers like recycled polyester, organic cotton,
and spandex.
Figure 117 prAna Sharla Sweater (55% Hemp)
Figure 118 Men’s (Hemp upper)
Source: www.patagonia.com Source: www.prana.com Source: www.sanku.com
There is also a growing market for apparel and footwear that provide recovery
attributes. For example, Under Armour has its Recovery line of apparel that includes
Celliant which is designed to “capture body heat and convert it to infrared light that is
returned to your body, boosting localized blood flow and upping the amount of oxygen
reaching your muscles.” Celliant is described as “utilizing a proprietary mineral matrix
that can be embedded into the core of a yarn or applied to a wide variety of fabrics.”
This demonstrates the ability to weave outside attributes into existing textiles to add
beneficial components beyond just providing an item of clothing. With CBD being
reported as having health and wellness properties, such as to combat inflammation,
there could be potential for CBD to be infused into textiles. Canada’s Fashion magazine
recently highlighted Devan Chemicals in its 1/4/19 article, “CBD Is Everywhere. Will
CBC-Infused Clothing Be Next?” Devan Chemicals is a Belgium-based company that has
“added CBD to their textile solutions portfolio.” The company’s “R Vital” fabric reflects a
weave of microcapsules of CBD that release when a person wears the clothing as
demonstrated in their website’s flow chart below. While still early stage, perhaps there
will be demand for widescale CBD infused textiles, although, as the article points out, it
is unclear how the “potency” holds up over time and after washing.
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COWEN.COM 71
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 119 Devan Chemical’s R-Vital – Flow Chart For A CBD-Infused Textile
Source: Cowen and Company; Devan Chemical
Tilray And ABG Sign Partnership
Privately held Authentic Brands Group (ABG) recently signed a deal with Tilray to
capitalize on the general wellness capabilities of CBD. ABG’s product portfolio includes
athletic based names such as Muhammad Ali, Shaquille O’Neal, Dr. J, Nautica and Prince.
The muscle recovery and wellness capabilities of CBD create branding opportunities
within these brands. CBD oil also has wellness characteristics beneficial for skin care
products. ABG’s Nine West Brand will offer wellness products containing CBD powered
by Tilray.
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Figure 120 Nine West Products Powered By Tilray
Source: Cowen and Company; Sourcingjournal.com
Tilray will also gain exposure to ABG’s 150MM followers through its micro-influencer
network, Winston. Tilray will have the ability to display its name on ABG cannabis
products. Tilray will initially pay ABG $100MM and up to $250MM in cash in stock. In
return ABG will pay TLRY 49% of revenues from any cannabis products with any ABG
brand name, with a minimum of $10MM/year for 10 years, essentially guaranteeing
TLRY will receive a return on its initial $100MM investment. This type of deal opens the
door for CBD products to partner with IP ownership to expand brands and CBD use
partnerships.
DSW And Green Growth Brands
Green Growth Brands’ CBD infused Seventh Sense products, including foot creams and
muscle balms, will be sold at 96 DSW stores nationwide out of DSW’s 500-store base.
As the sale of CBD wellness products become widely acceptable and stigma around once
illegal products subsides, opportunity should increase to move into other nationwide
retailers. Under our coverage universe, Dick’s Sporting Goods may have the potential to
offer wellness products containing CBD. DKS has a total of 864 stores nationwide. If
DKS were to offer products in a similar percentage of stores as DSW, this would provide
166 incremental distribution points for CBD wellness products.
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We Would Expect Starbucks To Be First Under Our Active Coverage To
Pilot CBD Oil, Though Not In Near Term Plan (Charles)
Under our active coverage, we would categorize Starbucks as the most forward thinking
with beverage innovation relative to Dunkin’, Tim Hortons and McDonald’s McCafe.
Starbucks has launched matcha and nitro cold brew on a widespread basis in recent
years, among other wellness-based offerings. During an interview with CNBC last
month, Starbucks CEO Kevin Johnson cited no plans to introduce CBD-based beverages
in the near term, but did not dismiss the notion of ultimately piloting the ingredient.
Despite early traction with craft/independent coffee shops, regulators in several states
recently banned CBD as an additive. The dynamics are fluid, likely delaying adoption
from major coffee players like Starbucks in the near term. That said, we acknowledge a
longer-term opportunity if coffee shops are able to properly measure and disclose the
CBD levels in their coffee, as bottled CBD beverages that disclose CBD oil levels in
packaging are not restricted under the current ban.
Should the regulation of CBD oil as an additive to food/beverage change or craft/
independent coffee shops find a way to comply with the existing regulation, we could
envision Starbucks ultimately piloting the ingredient. We believe Starbucks would need
to better understand the science behind the ingredient, in addition to the standard
evaluation of any new SKU around supply chain availability as well as meeting
Starbucks’ high speed of service standards. Furthermore, given Starbucks’ heavy
reliance on the drive-thru business at more than 50% of sales and 80%+ of ongoing
development, SBUX would need to gain clarity around potential liability this entails
around selling cannabis-infused beverages before introduction. We note in 2010,
Starbucks launched an Evenings program that sold beer and wine inside of participating
restaurants. The initiative ultimately scaled to over 400 locations before the program
was terminated in 2017.
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Any portion of this report prepared by a
member of Cowen Washington Research
Group is intended as commentary on
political, economic or market conditions
and is not intended as a research report as
defined by applicable regulation.
Regulatory Considerations For CBD (Assaraf – Washington Research
Group)
2018 Farm Bill
The Agricultural Improvement Act of 2018 (also known as the 2018 Farm Bill) was
signed into law by President Donald Trump on Dec. 20, 2018. The main CBD-related
changes in the law are that it: 1) declassifies industrial hemp as a Schedule I substance
under the Controlled Substances Act, 2) shifts regulatory authority over hemp from the
Drug Enforcement Administration to the Department of Agriculture, and 3) provides
autonomy for states to regulate the industry.
However, the 2018 Farm bill does not change the FDA's oversight authority over CBD
products intended for human consumption. The statutory language emphasizes that
"nothing in this subtitle shall affect or modify … the authority of the Commissioner of
Food and Drugs … under the Federal Food, Drug, and Cosmetic Act [FDCA] … to
promulgate Federal regulations and guidelines that relate to the production of hemp.”
FDA Implications
FDA Commissioner Scott Gottlieb issued a statement and FAQ immediately following
the signing of the 2018 Farm Bill, essentially reminding CBD manufacturers of FDA’s
continued regulatory authority over CBD products.
On the positive side, Gottlieb indicated that the FDA is open to engaging with industry
players early to clarify uncertainty and to help develop a clear and consistent pathway
for bringing legal CBD products to market. To that end, the FDA intends to hold a public
meeting “in the near future” to gather stakeholder input on CBD products, including the
perspectives of consumers and manufacturers. The FDA will use this meeting to inform
an “efficient regulatory framework for allowing product developers that meet the
requirements under [FDA] authorities to lawfully market these types of products."
On the other hand, Commissioner Gottlieb expressed concern over the proliferation of
CBD products making drug claims. According to Gottlieb, "the FDA requires a cannabis
product (hemp-derived or otherwise) that is marketed with a claim of therapeutic
benefit, or with any other disease claim, to be approved by the FDA for its intended use
before it may be introduced into interstate commerce. This is the same standard to
which we hold any product marketed as a drug for human or animal use. Cannabis and
cannabis-derived products claiming in their marketing and promotional materials that
they’re intended for use in the diagnosis, cure, mitigation, treatment, or prevention of
diseases (such as cancer, Alzheimer’s disease, psychiatric disorders and diabetes) are
considered new drugs or new animal drugs and must go through the FDA drug approval
process for human or animal use before they are marketed in the U.S."
Even before the passage of the Farm Bill, the FDA has kept a close watch on certain
health claims being made by CBD manufacturers. A simple web search on the FDA's
website turns up dozens of previous warning letters to CBD manufacturers making such
claims (see below for links to FDA warning letters). According to Gottlieb, “the FDA will
continue to evaluate and take action against products that are being unlawfully
marketed and create risks for consumers.”
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In his statement, Gottlieb also presented the following warning for CBD additives to
food and beverages:
"Additionally, it’s unlawful under the FD&C Act to introduce food containing added CBD
or THC into interstate commerce, or to market CBD or THC products as, or in, dietary
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supplements, regardless of whether the substances are hemp-derived. This is because
both CBD and THC are active ingredients in FDA-approved drugs and were the subject
of substantial clinical investigations before they were marketed as foods or dietary
supplements. Under the FD&C Act, it’s illegal to introduce drug ingredients like these
into the food supply, or to market them as dietary supplements. This is a requirement
that we apply across the board to food products that contain substances that are active
ingredients in any drug."
In response to Gottlieb’s statement, Sens. Ron Wyden (D-Ore.) and Jeff Merkley (D-Ore.)
sent a letter to the FDA on Jan. 15 urging the agency to update federal regulations
governing the use and interstate sale of certain hemp-derived ingredients in food,
beverages or dietary supplements. The two senators, who authored the 2018 Farm Bill’s
Hemp Farming Act provision, indicated that it was “Congress’ intent to ensure that both
U.S. producers and consumers have access to a full range of hemp-derived products,
including hemp-derived cannabinoids.” They requested feedback from FDA within 30
days on the agency’s specific plans regarding implementation of the 2018 Farm Bill.
Sample Of FDA Warning Letters On CBD Products:
https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm616278.htm
https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm583192.ht
m
https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm583197.ht
m
Notable State-Level Events
California
California has historically been more aligned with the FDA’s stance that industrial hempderived
CBD cannot be used in food or dietary supplements. However, that state does
permit the sale of food products with cannabis-derived CBD in licensed dispensaries.
The Food and Drug Branch of California Department of Public Health (CDPH) issued an
updated FAQ on CBD in food products in July 2018 indicating that its definition of “food”
does not include cannabis products like edibles, which are legal in California. CDPH also
technically bans the sale of CBD oil outside of licensed cannabis retailers, though it isn’t
always enforced.
Separately, California Governor Jerry Brown signed a law in late September 2018
(Assembly Bill 2914) that bans the addition of CBD or THC to any cocktail at a public
establishment. The new law “prohibit[s] an alcoholic beverage licensee from, at its
licensed premises, selling, offering, or providing cannabis or cannabis products, including
an alcoholic beverage that contains cannabis or cannabis products, and would provide
that no alcoholic beverage shall be manufactured, sold, or offered for sale if it contains
tetrahydrocannabinol or cannabinoids, regardless of source.”
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Maine
Despite being one of 10 states to legalize marijuana for recreational use, health officials
in Maine recently ordered businesses in the state to remove CBD-infused edibles from
store shelves according to an article in the Portland Press Herald. Similar to California,
the Maine Department of Health and Human Services appears to be following the FDA’s
lead in determining that CBD is an unapproved food additive.
State health inspectors in Maine have reportedly told businesses to remove “all foods,
tinctures and capsules” containing CBD from their shelves; however, business owners
can still sell “CBD products that can be smoked, vaped, worn as a patch or applied as a
lotion, and all medical marijuana patients can still buy oral CBDs from licensed
caregivers or dispensaries.”
New York
In response to the 2018 Farm Bill, the New York State Department of Agriculture and
Markets issued a FAQ dated Dec. 18, 2018 on the manufacture and sale of hempderived
CBD products. The department indicates that its current guidance is subject to
change and that it will likely be issuing additional regulations as the industry evolves.
The FAQ suggests that New York will allow the sale of CBD products sold as a topical or
dietary supplement (pill or tincture), the latter of which runs counter to FDA’s current
position. However, the guidance appears to restrict CBD products for vaping/inhalation.
Additionally, New York will require licensure and prior written approval to produce and
sell certain food and beverages under the New York State Industrial Hemp Research
Pilot Program. Licensees under the program can sell products that are “(1) listed in your
Research Plan and (2) produced in a facility meeting dietary-supplement GMP standards
and (3) properly labeled and packaged for sale pursuant to FDA regulations for dietary
supplements, and (4) in compliance with all provisions of the Research Partner
Agreement.”
Otherwise, New York will restrict the manufacture and sale of ready-to-eat food and
beverage products with added CBD infusions or CBD extracts and lists products such as
“CBD chocolate syrup, CBD soda, and CBD-infused frosting drizzled cookies.” In early
February, the New York Times reported that the New York Department of Health and
Mental Hygiene was beginning to more aggressively enforce this restriction in New York
City restaurants and eateries.
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North Carolina
The North Carolina Department of Agriculture and Consumer Services recently
announced its intent to issue warning letters to manufacturers and retailers who sell
products containing CBD oil in the state. According to a Feb 8 press release, North
Carolina will follow current federal laws, meaning that “CBD cannot legally be added to
any human food or animal feed that is for sale,” as CBD is the active ingredient in an
FDA-approved therapy and cannot be considered a dietary supplement.
North Carolina intends to take an “educate before regulate stance with industry,”
according to the release. However, the state will “reserve the right to be more assertive”
to ensure consumer health and safety, likely meaning product embargoes and seizures.
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Ohio
State and local health officials in Ohio have also begun cracking down on retailers selling
CBD products, according to a recent report from the Cincinnati Enquirer. The Ohio
Department of Agriculture is reportedly ordering the “embargo” of products containing
CBD, which has forced some businesses to remove products from store shelves.
Like most states, Ohio has not yet set up regulations for hemp, which the 2018 Farm Bill
requires from each state before the manufacture and sale of certain hemp-derived
products. In the meantime, CBD sales are technically limited to one of the Ohio’s 56
licensed dispensaries, under the state’s medical marijuana program.
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Global CBD Landscape (Azer)
International Drug Conventions (UN)
There are three international conventions that are core to the drug control system: (1)
1961 Single Convention on Narcotic Drugs, (2) 1971 Single Convention on Psychotropic
Substances and (3) 1988 Single Convention Against Illicit Traffic in Narcotic Drugs and
Psychoactive Substances.
Under the 1961 Convention, cannabis extracts and tinctures are currently classified as
Schedule I substances based on high abuse and dependence potential. Resin and herbal
cannabis are classified as Schedule IV, the most prohibitive category, including
dangerous substances that have little to no medical benefits. THC is classified as a
Schedule II substance in the 1971 Convention. CBD does not currently have its own
scheduled class in the Conventions. Based on recent recommendations from the World
Health Organization (WHO), these classifications are likely to change in the short term.
Although the cannabis plant, as a whole, is scheduled under the conventions, there is not
a distinct separation between marijuana and hemp at the moment. However, there is an
exemption in the conventions for industrial uses of hemp, permitted there is no
potential for abuse. The language in the treaties is vague and has allowed member
states to interpret the conventions in a way that permits the use of hemp to fit their
national legislation. This is a principle based on the practice of “good faith.”
Cannabis Recommendations (WHO)
Beginning in November 2017, CBD was subject to its first pre-critical review conducted
by the WHO at the 39th meeting of the Expert Committee on Drug Dependence (ECDD).
Following the critical review of CBD at the ECDD’s 40th meeting, it was recommended
that “pure CBD should not be scheduled in the International Drug Control Conventions.”
Further clarifications were recently added outlining that CBD preparations containing
less than 0.2% THC should be removed from the drug conventions. The clarification does
not specifically mention the difference between CBD preparations derived from hemp or
marijuana. This outcome is based on expert consultations that found that CBD has no
potential for abuse or dependence. CBD will be the first cannabinoid not controlled
under international law.
The WHO also recommended that THC be removed from the 1971 Convention and listed
under Schedule I. Similarly, it recommended that herbal cannabis and resin remain
under Schedule I and removed from Schedule IV of the 1961 Convention. Extracts and
tinctures were also recommended to be removed from Schedule I. This marks a historic
decision because this was the first time cannabis has ever been subject to a critical
review conducted by the WHO.
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In March 2019, the Commission on Narcotic Drugs, comprised of 53 countries, will vote
on the WHO’s recommendations to schedule substances. A simple majority is required.
However, it is uncertain whether the member states will vote on cannabis and its
derivatives since the WHO delayed the announcement of the recommendation by two
months. This may postpone the vote until 2020.
When the vote is passed to remove pure CBD and CBD preparations, countries that
permit the use of pure CBD and preparations of CBD will not be in violation of any
international treaties. Although countries would no longer be obliged to enforce any
control on CBD, national jurisdictions may still implement measures to regulate or
prohibit CBD use.
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European Landscape
European Parliament Resolution
In February 2019, the European Parliament passed a significant resolution to create
harmonized policies and standardized practices for medical cannabis products in the EU.
The Parliament stressed the importance of conducting clinical trials, which requires a
formal assessment of socio-economic and regulatory barriers that have prohibited
access to research in the past. This is not a legislative, binding resolution; the European
Commission will need to consider a regulatory framework that permits access and
availability to cannabis medicine, therapies and scientific studies.
The European Parliament explicitly stated support for the WHO’s recommendations to
institutionalize the medical and scientific uses of cannabis. Having these two
international institutions aligned on standardizing medical cannabis policies will
facilitate support for interstate agreements and trade, and paves way for rapid
legislative change and growth.
EU Standards And Regulations
There is not a supranational regulatory framework for cannabis in the EU. However,
general standards, such as Good Manufacturing Practice (GMP), Good Agricultural and
Collection Practice and Good Distribution Practice, are now significant for cannabis
compliance. Licenses and authorization must be obtained for certification. This is
especially required for pharmaceutical grade cannabis, which is why many Canadian LPs
can export to Europe and made investments to build GMP-certified facilities. Although
not necessary for non-prescribed cannabis, products with GMP-certification have
trusted quality recognition across the EU.
In the EU, the legal limit for THC content is less than 0.2%, in comparison to North
America where it is less than 0.3% THC. There are some disparities across the continent
with higher margins in Italy (up to 0.6%) and various import requirements country to
country. Outside of the EU, Switzerland permits up to 1% THC content, which is treated
as a tobacco substitute.
EU Novel Food
Recently, CBD has been added to the European Union’s (EU) Novel Food Catalogue.
Foodstuff may be supplements, ingredients or other substance forms. A “novel” food is a
product not previously consumed in the EU, to a significant degree, prior to May 15,
1997, such as for example, foods that enter the market through new technology or
agricultural products normally consumed and grown outside of the EU (e.g. chia seeds,
vitamin K, UV treated food).
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Amendments to the Catalogue occur frequently and provide a regulatory framework for
EU Member States (MS) to follow. Some MS (i.e. UK, France, Germany, Italy, and
Holland) requested to update the catalogue with CBD and hemp-derived products. The
European Food Safety Authority (EFSA) is now conducting a risk assessment for CBD.
This categorization includes pure CBD extracts and products that contain CBD extracts.
The EFSA’s assessment is limited to a daily intake of 130 milligrams. The outcome of the
review is expected in March 2019. By October 2019, the European Commission will
release a draft act to authorize CBD in the updated Catalogue.
While the EFSA assesses CBD, some countries have already banned the sale of CBD and
removed product from the shelves (e.g. France, Austria). MS may have their national
food or health agencies provide further guidance for CBD products and preparations.
Obtaining authorization for CBD and hemp-derived products (e.g. tinctures, edibles,
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beverages) will be imperative. This regulatory framework does not affect skincare,
cosmetics or topicals with CBD or hemp ingredients.
Europe
UK
The UK legalized prescription based medical cannabis in November 2018. Medical
cannabis treatments that are advertised with specific medical claims must obtain
authorization from the Medicines and Healthcare Regulatory Agency (MHRA). Currently,
licensed medical cannabis products are Sativex, Dronabinol and Nabilone. Epidiolex,
medical grade pure CBD produced by British pharmaceutical company, GW
Pharmaceuticals, is undergoing the licensing process. “Unlicensed” products may be able
to be obtained, such as products from Tilray or Bedrocan, under special circumstances
which are unmet by other licensed products. Canopy and Aurora announced at the
beginning of 2019 that it plans to export to the UK later this year. Despite changes in
legality, the number of patients who have been prescribed medical cannabis treatments
is quite limited.
While pharmaceutical grade products are difficult to obtain, CBD products are widely
available across the UK. Pure CBD is not a controlled substance under the Misuse of
Drugs Act 1971. Therefore, as long as CBD products are not authorized by the MHRA,
medical claims on labeling and packaging cannot be made. There are also no enforced
regulations for testing or packaging. These loopholes in the legislation have led to an
increasing number of CBD products marketed as health supplements or wellness
products. Due to the growing trend, CBD products have been widely available across the
UK, primarily sold in boutique shops, cafes, health stores and online. Holland and
Barrett, a health foods store, was the first High Street store to carry CBD products in
2017. Other mainstream outlets now sell hemp-based beauty products, CBD tinctures,
edibles, vapes, e-liquids and other forms of the substance. A handful of restaurants also
offer CBD cocktails or hot drinks, and the number of kitchens and chefs using cannabisbased
products is increasing across the country.
However, in January 2019, the UK Food Standards Agency (FSA) announced that it
plans to conduct an investigation of CBD products for consumer safety. It is expected
that the FSA will later provide requirements for authorization. This may take up to 18
months. Although enforcement is unclear at the moment, some CBD products have
already been removed from the shelves. Since the FSA’s assessment does not apply to
cosmetics or skincare products with CBD, some CBD companies have expressed interest
in launching beauty products now.
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A license is required in order to cultivate hemp in the UK. There are restrictions on
where the farm can be located that must be approved by the Home Office. Many
companies still struggle to secure banking and payment options for their hemp-related
businesses. A lobbying group, the British Hemp Association, was formed to educate and
push for legislative changes, such as whole plant processing and financial support. Due
to barriers of entry, the number of hemp farmlands is small, around 810 hectares.
Italy
Medical cannabis has been legal in Italy since 2013, yet access and supply remained
restricted for years. In 2017, the Military Chemical and Pharmaceutical Plant (MCPP)
received a license to cultivate medical cannabis, which supplemented the imported
supply from the Netherlands (i.e. from Bedrocan). The MCPP cultivates a medical
cannabis product, FM2, that contains 5-8% THC and 7.5-12% CBD. A high THC product
(FM1) and a CBD product (FM0) will soon be available. The MCPP only produces 100-150
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kg per year, which has led to a shortage of supply. In 2018, an import license was
granted to Canadian licensed producer (LP), Aurora, for 100 kg of medical cannabis per
year to help meet the demand.
Italy has a rich history of hemp cultivation and it used to be one of the main producers in
the world prior to prohibition of the plant. The market opened up in 2016 when the
government announced that a license to cultivate hemp for industrial, food, cosmetic
and energy purposes was no longer required. Whereas the rest of the EU requires THC
content to be below 0.2%, Italy permits a margin of up to 0.6%.
Based on the license exemption, many companies started producing and selling high
CBD, low THC referred to as “cannabis light.” Cannabis light products must state that the
product is not for human consumption; however, once a person purchases the product
the use is essentially up to their own discretion. These products are legally sold and
branded as “collectors’ items.” Since it is a “collectors’ item,” imported “cannabis light”
products are not taxed. However, it is necessary to have proper test and analytics when
crossing the border to guarantee the product passes customs.
One of the first “cannabis light” companies, EasyJoint Project, launched in 2017 and is
sold in hemp specialist shops. There are now around 1,000 e-commerce sites and other
retail stores that sell CBD oil, capsules, CBD for pets, dried flower, vapes and cosmetics.
Legally, the Health Ministry must approve products, yet this is not frequently enforced.
Foreign companies have invested in land over the last couple of years, including public
Canadian companies Wayland, LGC Capital, Canopy and CROP. In 2018, Wayland
entered a JV with CBD Italian Factory S.S. with plans to supply the local market with
CBD for medical, therapeutic and veterinary purposes. LGC Capital entered an
agreement with EasyJoint to acquire 47% of the company to gain access to the local
“cannabis light” companies’ 415 retail outlets and 11 branded stores. In February 2019,
Canopy made an investment in Italian organic hemp producer and CBD extractor,
Canapar Corp. CROP, a Canadian holdings company, acquired 30% of Italian company,
Zhemplar, to cultivate and extract low THC, high CBD products, under a white label
brand, Tiffany CBD and Hempire Italia. The company also has exclusive rights with Yield
Growth Corp to over 55 wellness products that can be infused with CBD.
Switzerland
Switzerland is recognized for its progressive drug policies and evidence based
approaches. Medical cannabis has been regulated since 2008 and continued to open
with regulatory changes in 2017. The number of patients is relatively small, at around
3,000 people. Prior to June 2018, it was not possible to obtain pharmaceutical grade
pure CBD for medical purposes. That changed once the Food and Drug Administration in
the U.S. approved Epidiolex; subsequently, the Swiss law changed, too. Pharmacies can
now prepare magistral formulas for CBD for patients who meet certain conditions
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Although cannabis is controlled under the Narcotics Act, CBD is not included in that
legislation. The country permits 1% THC to be cultivated, produced and used, which is
regulated as a tobacco substitute. These products (e.g. pre-rolled joints, dried flower,
and cannabis cigarettes) are regulated under the Tobacco Ordinance and can be
purchased in supermarkets, specialty shops, kiosks and cafes. The first cannabis
cigarette was available for purchase in 2017. These products are predominantly
consumed by affluent businesspeople during breaks at work or the end of the day.
The Federal Office of Public Health (FOPH) provides regulatory oversight for tobacco
and CBD products. Registration with the FOPH is required for tobacco substitutes to
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guarantee quality control and compliance. However, this is practiced under “selfsupervision”
requiring the company to register products prior to market placement. In
recent years, the FOPH has been removing CBD products from storefronts due to lack of
self-compliance, transparency and false claims.
Swiss law also permits CBD to be used in pure or synthesized form for cosmetic
products. The Federal Food Safety and Veterinary Office regulates cosmetic products as
well as products that contain hemp-derived ingredients and CBD liquids for e-cigarettes.
None of these products can make any pharmacological claims. The Federal Office for
Agriculture regulates hemp seeds, oil, fiber, etc, and seeds must be certified and listed
under the European Union’s Common Catalogue of Varieties.
From 2017 to 2018 there was an influx in the number of cannabis companies in
Switzerland, leveling off from around 500 companies to around 100 companies. While
many are supplying the local market, a number of companies are exploring and
exporting to neighboring markets (e.g. Italy, France, Germany). Beyond their
geographical advantage, Switzerland also is recognized for its quality and sophisticated
pharmaceutical sector.
At the end of 2018, LGC Capital entered a partnership with Viridi, a Swiss cultivator,
processor and distributor of high-CBD products. Wayland acquired Haxon AG, a Swiss
hemp producer of 1% THC products. Creso Pharma Limited entered into an agreement
with Hempmate Zurich AG for further expansion into the European CBD market.
France
Medical cannabis has been legal in France since 2013 and Marinol has been the only
product prescribed. In 2018, the ANSM launched an investigation to explore scientific
data for therapeutic uses of the plants, type of eligible conditions and consider
regulatory frameworks in other legal medical markets. An initial recommendation found
that legal medical cannabis should be authorized and final recommendations are
expected to be released by September 2019. Aurora has already announced plans to
expand into France by investing in infrastructure prior to the market opening.
France is the leading hemp cultivator and processor in Europe, and the global leader in
hemp seed production. In 2016, there was a total of 33,000 hectares growing hemp.
Stalks and seeds can be processed, yet buds cannot be legally processed, unless for
medical purposes. Synthetics are permitted for use. The country permits the cultivation
of 20 strains, approved by the EU. There is one company, Hemp-it, that has received a
license to grow different varieties.
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Despite its leading position in hemp production, the French government has cracked
down on the sale of hemp-derived products and CBD sold in stores, cafes and seed
shops, as a response to public health and safety. Over the past few months, the Ministry
of Social Affairs and Health and National Agency for the Safety of Medicines and Health
products (ANSM) have been conducting a review on the uses and authorizations
required for CBD. There are a number of CBD and hemp-derived skincare and cosmetic
companies that sell lotions, cremes, pain balms, beard oils, etc. France’s extensive
history in the cosmetics industry positions the country well for CBD skincare.
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Latin American Landscape
Chile
Medical cannabis has been legal in Chile since 2017 following a pilot program conducting
scientific research that began in 2014. A consortium of non-for-profit organizations,
most notably the Daya Foundation, ran this program. They treated over 1,000 patients
in the first year of operations. Following the regulatory change in 2017, imported
medical cannabis products were available from pharmacies.
Product authorization and cultivation licenses are required to grow and distribute
medical cannabis products in country. The Agricultural and Livestock Service of Chile
governs these licenses. Chile also permits home-grow, which is popular in the country
and the region.
Dayacann (part of Daya Foundation) was the first company to receive a license to
cultivate medical cannabis in Chile. Khiron Life Sciences entered an MOU with Dayacann
in January 2019 to further expand into the Chilean market of around 1.8 million
patients. In 2018, Tilray entered a partnership with Alef Biotechnology (now Tilray Latin
America) for distribution in Chile and Brazil, and recently received a license to cultivate
and process medical cannabis products. Two Tilray products, T100 and TC100 were
approved for prescription in 2016. Canopy Growth’s Spectrum Cannabis Chile is also
operating in Santiago focused on medical research and patient outreach.
Hemp production has been part of Chile’s history, dating back to the 1500s, and has
remained legal. There have been provisions in Chilean law to differentiate between
cannabis and hemp. Despite its legality, there are not many hemp farms in the country.
Chile hosts Expoweed, a hemp trade show, that is Latin America’s biggest hemp event.
With the land and history, the country has positioned itself for growth as demand for
hemp-based products increase.
Colombia
Colombia is becoming a Latin American hub for cannabis cultivation due to favorable
climate and cost of production. The country permits exports of extracts only, with the
exception of small quantities of dried flower that are exported for scientific reasons.
Only permitting extracts for export is strategic to have traceability from seed to harvest
and production. This is in order to curb organized crime and money laundering related to
the country’s history of drug trafficking. There have been trade agreements established
between the EU and Canada in order to facilitate exportation of extracts.
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The governments passed legislation for medical use in 2015, which was formally
implemented in 2016, and a framework for medical cannabis cultivation was established
in 2017. The country issues four types of licenses: 1. Cannabis Seeds (for scientific
purposes) 2. Cultivation (psychoactive cannabis) 3. Manufacturing (cannabis derivatives)
4. Cultivation (non-psychoactive cannabis). Another license is required to export. Clever
Leaves became the first Colombian company in February 2019 to export medical
cannabis to Canada.
Many Canadian LPs have opened operations in Colombia, including Canopy, Aurora,
Plena Global, Khiron Life Sciences, Blueberries Medical Corp, Pharmacielo and Wayland.
Some of these companies are focused on cultivating strains for CBD. Pure Harvest
Cannabis Producers recently entered a JV for land in Colombia to produce CBD from
hemp and cannabis. Pharmacielo also secured a proprietary license to cultivate 10
strains, some CBD and some THC dominant. The company registered their seeds, which
is now required following an amnesty period for seed genetics that ended December 31,
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2018. Organto received a license to produce high-CBD strains and Foulimed intends to
cultivate 70 tones of hemp and cannabis for medical purposes. Colombia enjoys an
advantageous climate for cultivating cannabis at a low cost for production, which has
attracted interest from many foreign companies.
Mexico
Medical cannabis has been regulated in Mexico since 2017. This regulatory change
followed a favorable Supreme Court ruling for a young girl who treated her Lennox-
Gastaut syndrome with CBD oil in 2015. It is permitted to have medical cannabis
products with up to 1% THC content and these products are regulated by the Health
Ministry. Aurora (through their subsidiary Farmacias Magistrales) recently received a
license to import medical cannabis products containing over 1% THC. Pharamacielo
recently announced a JV with Mexican pharmaceutical company MINO Labs S.A. de C.V.
to distribute medical cannabis domestically.
Mexico is the second largest hemp producer in Latin America. The law changed in 2017
to permit the cultivation and processing of industrial hemp. In November 2018, the
government released a list of 38 OTC products – 21 food supplements, 9 cosmetics, 6
edibles or beverages, 2 raw material – that have been approved for sale in the country.
Seven companies received authorization for these products, which includes 2 American,
4 Mexican and 1 Spanish company. These products must contain no more than 1% THC.
Products can be purchased through retail stores and e-commerce sites. The regulatory
agency authorizing these products is the Mexican Federal Commission for Protection
Against Sanitary Risks.
Mexico has announced plans to legalize cannabis for adult-use purposes in 2019, which
would significantly change the shape of the market opportunities. The country would
become the third in the world to implement a nationwide policy to legalize cannabis for
all purposes. In the proposed legislation there would include six types of cultivation
licenses – 1. Personal, 2. Scientific, 3. Therapeutic, 4. Recreational, 5. Pharmaceutical
and 6. Industrial – five manufacturing licenses – 1. Personal, 2. Therapeutic, 3.
Pharmaceutical, 4. Recreational and 5. Industrial – and three distribution licenses – 1.
Therapeutic, 2. Pharmaceutical and 3. Industrial. These considerations are still pending.
While this will bring many changes to the regulatory framework, home-grow has been
legal for personal use since 2015.
Former President Vicente Fox has become a public figure in the cannabis industry by
accepting a position at Khiron Life Sciences, one of the leading Latin American
producers. The company launched a nutraceutical line, Kuida Life Mexico S.A., at the end
of 2018. They receive approval to import CBD-based supplement products for sleep,
digestion and muscle recovery. Khiron also entered a JV with American edibles company
Dixie Brands for distribution in the Latin American market.
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Uruguay
Uruguay was the first country in the world to legalize cannabis for all purposes
nationwide in 2017. However, medical cannabis has been regulated in the country since
2013 and an industrial hemp program has been implemented since 2010. The Institution
of Regulation and Control of Cannabis provides regulatory oversight for the medical
market.
There are two licensed producers in Uruguay, and thus, the market has not opened to
many foreign entities. This has led to a shortage of supply for the domestic market.
Addressing supply issues, the country announced plans to rework the framework to
permit more imports and opened applications for up to five more licenses.
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The current licensed companies have already entered agreements with publicly traded
cannabis companies. In 2018, Aurora acquired Uruguayan fully licensed ICC Labs Inc.
(ICC) that operates a GMP-certified lab facility, indoor and outdoor grow operations and
distributes CBD-based products under the brand BIDIOL. In January 2019, Khiron
acquired NettaGrowth International Inc., which gives the company access to one of the
two currently held medical cannabis licenses in Uruguay.
The amount of land cultivating hemp increased since 2016 but it not at the commercial
scale yet. There are intentions to grow hemp in order to extract CBD for pharmaceutical
and nutraceutical uses. Although cultivation of CBD with less than 1% THC is permitted,
it is relatively difficult to access CBD products in Uruguay at the moment. In 2018, Auxly
Cannabis Group acquired Uruguayan hemp cultivator and extractor Inverell S.A. with
plans to develop and distribute CBD products.
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Additional Applications / Implications (Nadeau & Osborne)
Epilepsy & Psychiatric Conditions (Nadeau)
For companies willing to invest in research and manufacturing, the development of FDAapproved
cannabinoid-based drugs provides another path to market. GW’s Epidiolex
(highly potent, pure CBD) was approved by the FDA in 2018, and several other
companies are dedicating resources to conducting the pre-clinical and clinical research
necessary to follow in GW’s footsteps. These companies are developing cannabinoids
that differ by route of administration (oral capsule, oromucosal spray, sublingual pill,
aerosol, topical cream, etc), formulation (level of purification, bioavailability,
concentration), and dosing strategy (single agent or in combination). Below we
summarize the clinical trial data from GW’s Epidiolex in epilepsy and psychiatric
indications, and Zynerba’s transdermal CBD gel ZYN002 in Fragile X syndrome.
GW conducted a broad Phase III program for Epidiolex in epilepsy, consisting of two
Phase III trials in Dravet, two Phase III trials in Lennox-Gastaut syndrome (LGS), a Phase
III trial in tuberous sclerosis complex, and a Phase II/III trial in infantile spasms. The first
three Phase III trials (one in Dravet and two in LGS) supported an NDA submission,
leading to FDA approval in June 2018.
The Phase III efficacy portion of the first Dravet trial randomized 120 patients to either
Epidiolex (20 mg/kg/day, n=61), or placebo (n=59). Epidiolex was added to background
anti-epileptic drugs (AEDs). On average, patients were taking ~3 AEDS after previously
having failed 4 or more. The average age of trial participants was 10 years and 30% of
patients were less than 6 years of age. Patients entered the study with a median
baseline convulsive seizure frequency of 13/month. The primary endpoint was the %
change in monthly frequency of convulsive seizures during the 14-week treatment
period compared with the 4-week baseline between Epidiolex and placebo.
On the trial's primary endpoint, Epidiolex achieved a highly statistically significant
median reduction in monthly convulsive seizures of 39% compared with a reduction in
placebo patients of 13% (p=0.01). The difference between Epidiolex and placebo
emerged during the first month of treatment and was maintained through the entirety
of the treatment period. Nine pre-specified sensitivity analyses of the primary endpoint
confirmed the robustness of the primary endpoint result. These analyses dealt with
statistical elements such as the data’s normality, assumptions about discontinuations,
and the time period over which the data were analyzed. A number of secondary
endpoints were also assessed (responder analysis, seizure types, global impression of
change).
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Full data were presented at AES 2016. This presentation disclosed that during the
maintenance period the reduction in seizure frequency was 41% for Epidiolex vs. 16%
for placebo, p=0.0052. The median reduction in total seizures was 29% for Epidiolex vs.
9% for placebo during the treatment period, and 37% for Epidiolex vs. 10% for placebo
during the maintenance period. There was a clear separation between Epidiolex and
placebo in a continuous response analysis of convulsive seizures across all reductions in
convulsive seizure frequency. In particular 43% of Epidiolex patients vs. 27% of patients
taking placebo had at least a 50% reduction in convulsive seizures. 62% of Epidiolex
patients vs. 35% of placebo patients were rated slightly improved, much improved, or
very much improved on the Caregiver Global Impression of Change (CGIC). It was noted
that three Epidiolex and no placebo patients achieved convulsive and total seizure
freedom during the treatment period. While the poster did not discuss the impact of
concomitant clobazam on efficacy, it did note that "the effect of concomitant AEDs on
efficacy will be explored in future pooled analyses."
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Figure 121 Efficacy Results From Epidiolex’s First Phase III Trial In Dravet Syndrome
Source: GW Pharma, AES 2016
The most common adverse events were reported to be somnolence (36% in patients on
Epidiolex vs. 10% in placebo patients), diarrhea (31% vs. 10%), decreased appetite (28%
vs. 5%), fatigue (20% vs. 3%), pyrexia (15% vs. 9%), and vomiting (15% vs. 5%).
Importantly, there was no difference in the number of patients who experienced status
epilepticus between Epidiolex (n=4) and placebo (n=3). Increases in ALT or AST (>3x
ULN) occurred in 12 CBD and 1 placebo patient, all of whom were on concomitant
valproic acid. All elevations resolved. SAEs were seen in 10 Epidiolex patients vs. three
on placebo. Eight patients on Epidiolex discontinued treatment compared with one
patient on placebo, due to adverse events similar to those above, including three due to
ALT/AST elevations.
Figure 122 Safety Data From Epidiolex’s First Phase III Trial In Dravet Syndrome
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Source: Cowen and Company
In 2015, GW initiated two Phase III trials in Lennox-Gastaut Syndrome. The first trial
enrolled 171 patients, and the second enrolled 225. In the first LGS study, the patients
were randomized 1:1 to 20mg/kg or placebo while in the second, they were randomized
1:1:1 to 20mg/kg Epidiolex, 10mg/kg Epidiolex, or placebo. The LGS trials assessed drop
seizures (atonic, tonic, and tonic-clonic seizures that involve the entire body, trunk or
head that led or could have led to a fall, injury, slumping in a chair or hitting the patient’s
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Figure 123 1st LGS Phase 3 Trial Design
Source: GW Pharma
head on a surface). The primary efficacy endpoint of the trials was a comparison
between Epidiolex and placebo in the percentage change in the monthly frequency of
drop seizures during the 14 week treatment period (including 2 weeks of dose
escalation) compared to the 4 week baseline period. Following the completion of the
blinded portion of the trial, all patients were eligible to receive Epidiolex in an open label
extension study.
Figure 124 2nd LGS Phase 3 Trial Dose Ranging Design
Source: GW Pharma
The first Phase III trial, patients were on an average of three AEDs, and had previously
tried and failed an average of 6 other AEDs. Even on their baseline medications, the
patients were experiencing a median baseline drop seizure frequency of 74 per month.
The average age of patients in the trial was 15 years, although 34% were 18 years or
older. On the primary endpoint, Epidiolex produced a median reduction in monthly drop
seizures of 44% compared to a reduction of 22% in patients taking placebo (p=0.0135).
Epidiolex reduced all seizures by 41% vs. a 14% reduction for placebo (p=0.0005), while
the reduction in all seizures during the maintenance period was 45% for Epidiolex vs.
15% for placebo (p=0.0004). Similar to the Dravet trial, there was a clear separation
between Epidiolex and placebo on percent reduction in drop seizure frequency across all
magnitudes of reduction. In particular, 44% of Epidiolex patients had at least a 50%
reduction in drop seizures, compared to 24% of patients taking placebo (p=0.0043). 58%
of Epidiolex patients compared to 34% of placebo patients were rated as "slightly
improved", "much improved" or "very much improved" on the Subject/Caregiver Global
Impression of Change.
Epidiolex appeared to be well tolerated in the trial. 86% of patients on Epdiolex had an
adverse event, compared to 69% of placebo patients. The most common adverse events
were diarrhea (19% of patients on Epidiolex vs. 8% of placebo patients), somnolence
(15% vs. 9%), pyrexia (13% vs. 8%), decreased appetite (13% vs. 2%) and vomiting (11%
vs. 17%). Again, there was no difference in the number of patients who experienced
status epilepticus between Epidiolex (n=1) and placebo (n=1). There was one death in
the Epidiolex group from acute respiratory distress syndrome, but it was not considered
treatment related. Increases in ALT or AST (>3xULN) occurred in 20 CBD and 1 placebo
patient, all of whom were on concomitant valproic acid. All elevations resolved.
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In September 2016, GW announced that Epidiolex's second Phase III pivotal trial
(GWPCARE3) in the treatment of Lennox-Gastaut syndrome was also successful. On
average, patients were on 3 AEDs at baseline, having previously tried and failed a mean
of 7 other AEDs (median=10). The median baseline drop seizure frequency was 85 per
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 125 GWPCARE3: Reduction In Drop Seizures
month and the average age of patients in the trial was 16 yrs, although 30% were 18 yrs
or older. On the primary endpoint, 20 mg/kg Epidiolex produced a median reduction in
monthly drop seizures of 42% compared to a reduction of 17% in patients taking
placebo, p=0.0047. There was also a suggestion of a dose response in the data, with the
lower 10 mg/kg/day dose of Epidiolex producing a median reduction in monthly drop
seizures of 37%, p=0.0016. In both dose groups the difference between Epidiolex and
placebo emerged during the first month of treatment and was sustained during the
entire treatment period. GW disclosed that the trial's secondary endpoints, and a series
of sensitivity analyses, confirmed the robustness of the results. Similar to Epidiolex's
other Phase III studies, although patients on clobazam (51%) had some additional
benefit, GW indicated that Epidiolex also showed efficacy in patients not on clobazam.
Figure 126 GWPCARE3: Responder Analysis
Source: GW Pharma, AAN 2017 Source: GW Pharma, AAN 2017
Additional data were presented at AAN 2017. Included in this presentation were several
of the trial's secondary endpoints and a series of sensitivity analyses. All of these
confirmed the robustness of the results. For example, the proportion of patients with a
>50% reduction in seizure frequency was 40% for 20 mg/kg Epidiolex (p<0.001), 36% for
10 mg/kg Epidiolex (p<0.01), and 15% for placebo. The proportion of patients with a
>75% reduction in seizure frequency was 25% for 20 mg/kg Epidiolex (p<0.01), 11% for
10 mg/kg (p<0.05) Epidiolex, and 3% for placebo. The proportion of patients who
achieved seizure freedom was 7% for 20 mg/kg Epidiolex, 4% for 10 mg/kg Epidiolex,
and 1% for placebo.
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Figure 127 GWPCARE3: Safety
Source: GW Pharma, AAN 2017
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Epidiolex appeared to be well tolerated in the trial. 94% of patients on 20 mg/kg
Epdiolex and 84% of patients on 10 mg/kg Epidiolex had an adverse event, compared to
72% of placebo patients. 88% of 20 mg/kg patients and 89% of 10 mg/kg patients
deemed their adverse events to be mild or moderate. The most common AEs on 20
mg/kg were somnolence, decreased appetite, diarrhea, upper respiratory infection,
pyrexia, vomiting and nasopharyngitis. For 10mg/kg the most common AEs were
somnolence, decreased appetite, upper respiratory infection, diarrhea, and status
epilepticus. None of the cases of status epilepticus on 10 mg/kg were deemed
treatment-related. Thirteen patients on 20 mg/kg Epidiolex had an SAE, of which five
were considered treatment related; and 13 patients on 10 mg/kg Epidiolex had an SAE,
of which 2 were considered treatment related, compared to 8 patients on placebo.
Elevations in ALT/AST levels were observed in 11 patients in the 20mg/kg group and 2
patients in the 10mg/kg group; 10 of the 13 patients were also on valproic acid. Five
Epidiolex patients withdrew due to the elevations, but none of the patients met the
criteria for drug-induced liver injury. GW noted that overall 10 mg/kg seemed to be
somewhat better tolerated; 6 patients on 20 mg/kg Epidiolex and 1 patient on 10
mg/kg Epidiolex discontinued treatment due to adverse events, compared with 1
patient on placebo. There were no deaths in the trial. The results of the trial were
published in NEJM in May 2018.
Following the release of Phase III datasets from 1 Dravet and 2 LGS trials, a key area of
controversy among investors (though not physicians) had been the drug-drug
interaction between Epidiolex and clobazam, and in particular whether Epidiolex was
effective in patients who were not also taking clobazam. This was put to rest at AES
2017 when GW presented a pooled analysis of the two Phase III LGS trials evaluating
Epidiolex’s efficacy with and without concomitant clobazam. Even without clobazam,
Epidiolex produced solid placebo-adjusted response rates. Response was characterized
in terms of “25% responders”, “50% responders”, and “75% responders”, meaning the
proportion of patients who had a 25%, 50%, or 75% decrease in seizure frequency. For
patients randomized to Epidiolex’s 20mg/kg dose, the placebo-adjusted 50% response
rate was 22% for patients on Epidiolex without clobazam, compared to 33% for patients
on Epidiolex and clobazam. We believe that investors had been hoping for a 12-15%
placebo-adjusted 50% response rate for patients on Epidiolex without clobazam in order
to be satisfied that Epidiolex was active without clobazam, and therefore the results
cleared this bar. For patients randomized to 10 mg/kg Epidiolex, the placebo-adjusted
50% response rate was 25% for patients on Epidiolex without clobazam, compared to
27% for patients on Epidiolex with clobazam. The results for other thresholds of seizure
frequency reduction were also generally solid. For 25% responders, the placeboadjusted
response rate was 9% for patients on 20 mg/kg Epidiolex without clobazam,
compared to 24% for patients on 20mg/kg Epidiolex with clobazam. At the 75%
responder threshold, the placebo adjusted response rate was 8% for patients on
20mg/kg Epidiolex without clobazam, compared to 30% for patients on 20mg/kg
Epidiolex with clobazam. In addition to the pooled Phase III data, there were also
abstracts from the compassionate use experience of Massachusetts General Hospital
and the University of Alabama Birmingham. The analyses from these two institutions
also concluded that Epidiolex does not need to be combined with clobazam to be
effective.
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 128 Pooled LGS % Seizure Reduction: 10mg/kg Epidiolex vs.
Placebo
Source: GW Pharma, AES 2017 Source: GW Pharma, AES 2017
Figure 129 Pooled LGS % Seizure Reduction: 20mg/kg Epidiolex vs.
Placebo
GW has also studied CBD in psychiatric indications. Results from an exploratory study of
CBD (GWP42003) in schizophrenia were released in September 2015. The trial was a
Phase IIa 6 week, placebo-controlled exploratory trial in 88 patients with schizophrenia
refractory to first line anti-psychotic medications. To be enrolled, patients must have
been treated for a minimum of four weeks on a first line anti-psychotic medication and
still have a PANSS total score in excess of 60. CBD was administered as adjunct therapy
on a background of antipsychotic medication. The trial did not have a primary endpoint,
but rather a number of exploratory endpoints.
CBD consistently demonstrated superiority to placebo, suggesting that CBD may have
substantial anti-psychotic effects. CBD produced statistically significant benefits
compared to placebo on the PANSS positive sub-scale (p=0.018), the Clinical Global
Impression of Severity (p=0.04) and Clinical Global Impression of Improvement (p=0.02).
The proportion of responders (improvement in PANSS Total score > 20%) was higher on
CBD than placebo (p=0.07), with an Odds Ratio of 2.65. Moreover, CBD trended superior
to placebo (p=0.07) on sub-domains of the PANSS that were particularly relevant to
cognition in people with schizophrenia. The Scale for Assessment of Negative Symptoms
showed a trend in favor of CBD, and reached statistical significance in patients taking
CBD together with a leading first line anti-psychotic medication. The rest of the
exploratory endpoints, many of which were other scales measuring functionality and
cognition in schizophrenia patients, also trended in favor of CBD.
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Even in the context of schizophrenia, CBD produced a clean safety profile, with no
serious adverse events and a balanced incidence of adverse events compared to
placebo. The most common adverse events were diarrhea (9.3% CBD vs. 4.4% placebo),
nausea (7% CBD vs. 0% placebo), headache (7% CBD vs. 8.9% placebo) and somnolence
(0% CBD vs. 6.7% placebo). There were two withdrawals from the study due to
treatment-related adverse events, one each for CBD and placebo.
CBD's activity in schizophrenia is supported by pre-clinical data in animal models, as well
as by a recent study published in The Journal of Clinical Investigations (2012) which
suggested CBD may be useful as either monotherapy or in combination with first line
anti-psychotic agents. Nonetheless, while the p-values suggest that CBD has activity, its
potency is difficult to judge without knowing the effect sizes. Therefore, additional data
from this and subsequent studies will be necessary to fully understand the potential of
CBD in schizophrenia. GW Pharma has indicated that it intends to pursue CBD's future
development in pediatric orphan neuropsychiatric indications.
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 130 ZYN002 Produced Reductions In ADAMS At 12 Weeks…
Source: Zynerba
GW’s platform allows it to produce chemotypes with precise concentrations of various
cannabinoids, and the company is testing numerous other cannabinoids. GW’s CBDV
drug is in a 10 patient investigator sponsored trial in autism spectrum disorders, and a
Phase II 100 patient placebo controlled trial in this indication began in December 2018.
GW is also investigating CBDV for use in epilepsy, though the first clinical trial was not
successful.
Zynerba studied its transdermal CBD gel ZYN002 in Fragile X syndrome in a 12 week
Phase II open-label study in children and adolescents. In the trial, patients were initiated
on a dose of 50mg daily with the option to titrate up to 250mg daily. The primary
endpoint was the Anxiety, Depression, and Mood Scale (ADAMS) Total Score. Twenty
patients were enrolled, 18 of whom completed the 12 week treatment. At 12 weeks,
two patients were on 100mg and 16 were on 250mg. On the primary endpoint, subjects
saw an average improvement of 14.1 points (or 45.8%) from baseline (p<0.0001) with
the greatest improvements seen in social avoidance (52.9%), general anxiety (54.0%),
and manic/hyperactive behavior (p=0.0003). Twelve patients continued in a long-term
extension study out to 12 months of follow up. These patients showed statistically
significant improvements in mean % change from baseline in ADAMS Total Score, as
well. The extension trial also contributed to a more robust safety dataset. The most
common treatment-emergent adverse events were gastroenteritis (14%) and upper
respiratory tract infection (12%); no serious AEs were reported. A randomized, doubleblind,
placebo-controlled trial to extend these findings to a larger population is ongoing
in Australia, New Zealand, and the U.S.
Figure 131 …And Efficacy Persisted Out To 12 Months In An Extension
Study
Source: Zynerba
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COLLABORATIVE INSIGHTS February 25, 2019
Industrial Hemp And Sustainable Bioproducts (Osborne)
Figure 132 - Industrial Hemp Use Cases
Part of Plant Fiber Hurd Entire Stalk Hemp Nut Hemp Oil Seed Cake
Product Category
Common Uses
Source: Cowen and Company
Figure 133 - Industrial Hemp Imports In 2017 ($1,000)
True Hemp,
raw/proc. not
spun
$780
Hemp Seed
Oilcake and Solids
$11,494
Textiles
Building Materials,
Industrial Products, Paper
Energy Products
Foods
Foods, Personal Care
Products, Technical Oils
Hemp plants have been used for industrial applications for thousands of years. Hemp
stalk fiber was traditionally used as a textile for use in rope; clothing; and sails due to its
tensile strength. Hemp seeds are used in foods and compressed to make oils that were
used as a lighting fuel. The original diesel engine was designed to run on a variety of
biodiesel fuels, including vegetable oils and seed oils, which included hempseed oil. In
1937, hemp production was banned due to its similarity to marijuana despite low THC
presence, but to aid the war effort the federal government requested that farmers plant
industrial hemp to make up for a shortfall in imports from the Asian Pacific. Farmers
planted 36,000 acres of hemp in 1942 and set a target of 50,000 acres in order to
produce the 34,000 feet of hemp that was needed in each Naval battleship and for
other textile uses. The cheap availability of petroleum based synthetic products and
federal regulations against hemp production caused hemp production to decline rapidly
again after the war in the U.S. and throughout most of Europe. As hemp now looks to
make a comeback in light of recent legislation, we see the use cases for industrial hemp
to include many of the traditional textile and food uses that were previously common, in
addition to the growing CBD market.
Figure 134 - Industrial Hemp Imports In 2017 (Metric Tons)
Pressed Products
Apparel Fibre Board Ethanol Bread Supplements Animal Feed
Netting Mulch Biofuels Granola Soap Proteins
Canvas Printing Cereal Cosmetics Flour
Cardboard
Solvents, lubricants, fuels
True Hemp Yarn
$2,739
True Hemp Woven
Fabrics
$1,819
Hemp Seed
Oilcake and Solids
1,475
True Hemp,
raw/proc. not
spun
621
True Hemp Yarn
31
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Hemp Oil and
Fractions
$7,603
Hemp Seeds
$42,897
Hemp Oil and
Fractions
749
Hemp Seeds
7,606
Source: Cowen and Company, Compiled by CRS using data from the U.S. ITC
Sustainability Of CBD And Hemp Production
As the CBD industry grows in size, we believe that producers will look to minimize the
environmental impact of production. In addition, we could see producers try to monetize
the entire waste stream of the hemp production process by converting parts of the
plant that aren’t used to produce CBD or other products into biomass energy. We
believe the most common use cases for hemp biomass will be in the form of pelleting for
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 135 - Biodiesel Production By Input (Millions Of Pounds)
1,600
1,400
1,200
1,000
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Source: Cowen and Company, EIA
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use as heating fuel, and also see potential to act as a cellulosic biofuel. The process of
pelleting industrial hemp biomass would be a similar to that of pelleting wood waste,
which gets converted into densified biomass products such as roundwood, pulpwood,
sawmill residuals, and wood product manufacturing residues, which typically cost ~$30
per ton. Wood biomass fuel has an annual capacity of 12.6 million tons per year and
produces ~675 GWh per year in energy. Access to local refineries is key to utilizing hemp
biomass as a cellulosic biofuel. Through local access to refineries, the fuel can be refined
while transportation costs, which can make the products uncompetitive, are minimized.
Given the commoditized market for biodiesel however, where soybean oil has ~50% of
the market input by weight and corn oil has ~15% of the market input by weight, we do
not expect hemp to materialize as a meaningful player due to the competitive
advantage of high production crops competing for low cost production.
Canola oil Corn oil Cottonseed oil Palm oil Soybean oil Other Vegetable
Poultry Tallow White grease Other Animal Fats Yellow grease Other Recycled
Algae Other Alcohol Catalysts
Biochemical CBD Production Methods
CBD is most commonly produced by either CO2 or ethanol extraction from hemp plants.
In CO2 extraction, plants are filtered through a series of chambers with temperature
and pressures applied to the plants that isolate the cannabinoids. The C02 method is
able to isolate CBD at a 90% efficiency and is typically used when producing small
quantities. Ethanol extraction introduces the hemp plant to solvent ethanol and enables
higher volumes production. In addition to hemp-based production of CBD, we believe
the opportunity exists for players within the biochemical space to produce CBD by
utilizing a fermentation approach from other feedstocks. Amyris recently announced a
$255 million cannabinoid development, licensing and commercialization agreement.
Amyris plans to utilize the C5 molecule found in sugarcane in a fermentation process to
produce CBD. The company believes that the fermentation process ensures a level of
purity that is not possible through traditional plant-based production, where CBD levels
can vary from plant to plant. In order to build out the industrial scale necessary for mass
food market, CBD products will need to be produced at standardized levels. Given
Amyris plans to produce CBD at its Brotas plant in Brazil, which is fueled by biomass coproduct
of the nearby sugarcane fields, we believe this will be an attractive option for
companies looking to integrate CBD into their products sustainably assuming the
company is able to produce cost competitively with hemp plants.
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COLLABORATIVE INSIGHTS February 25, 2019
Figure 136 Cannabis Comp Table
Company Name - Non-Coverage
Currency:
Ticker
Local
Curr
Source: Thomson Reuters and Cowen and Company
Appendix
Price
52 Week Enterprise Value /
Market Enterprise
FY1
2/22/2019 Low High
LTM Rev FY1 Rev FY2 Rev FY3 Rev
Value Value
EBITDA
1933 Industries Inc TGIF.CD CAD 0.56 0.30 0.80 133 131 8.8 4.3 3.1 NA 31.2 11.8 NA
Aphria Inc APHA.N USD 10.18 3.75 13.45 2,535 3,219 56.2 NA NA NA NA NA NA
Aurora Cannabis Inc ACB USD 6.96 3.90 12.53 6,948 9,318 78.2 NA NA NA NA NA NA
Charlotte's Web Holdings Inc CWEB.CD CAD 18.15 9.05 22.75 1,678 1,199 NA 17.1 7.6 4.4 51.1 21.5 12.0
Cronos Group Inc CRON.O USD 21.92 5.12 25.10 3,892 5,113 NM NM 37.7 29.2 NM 122.0 96.1
Curaleaf Holdings Inc CURA.CD CAD 10.25 1.43 26.01 3,412 3,412 NA 38.3 9.3 4.7 NM 27.8 12.9
CV Sciences Inc CVSI.PK USD 4.90 0.37 9.20 463 453 11.0 NA NA NA NA NA NA
Elixinol Global Ltd EXL.AX AUD 3.47 1.34 3.69 161 148 NA 1.4 1.2 1.0 14.6 7.6 6.3
Emblem Corp EMC.V CAD 1.78 0.83 2.12 234 202 35.4 24.4 2.7 1.4 NM 18.2 5.6
Emerald Health Therapeutics Inc EMH.V CAD 3.89 2.04 6.35 554 504 NM NA NA NA NA NA NA
Green Organic Dutchman Holdings Ltd TGOD.TO CAD 3.69 2.06 9.64 989 789 NA 53.6 4.0 1.4 NM NM 6.3
Green Thumb Industries Inc GTII.CD CAD 19.69 8.21 32.50 1,257 859 NA 13.0 4.0 1.9 NM 19.2 5.6
Khiron Life Sciences Corp KHRN.V CAD 4.05 0.87 4.35 308 294 NA NM 24.6 3.9 NM NM 15.3
Level Brands Inc LEVB.N USD 5.05 2.60 8.41 51 43 4.7 NA NA NA NA NA NA
Neptune Wellness Solutions Inc NEPT.O USD 3.67 2.27 5.14 295 374 14.5 14.1 6.1 2.7 84.2 30.6 11.1
OrganiGram Holdings Inc OGI.V CAD 7.74 3.26 8.55 1,013 1,016 NA 8.2 4.3 3.2 19.5 11.6 8.8
Company Name - Coverage
Canopy Growth Corp WEED.TO CAD 58.51 23.88 76.68 20,071 16,142 NA NM 74.2 34.9 NM NM 105.0
KushCo Holdings Inc KSHB.PK CAD 6.38 3.76 7.20 560 16,142 NA NM NM NM NM NM NM
Tilray Inc TLRY.OQ USD 79.07 20.10 300.00 7,367 16,142 NM NA NA NA NA NA NA
Turning Point Brands Inc TPB USD 41.00 19.11 47.00 802 16,142 NM NM NM NM NM NM NM
FY2
EBITDA
FY3
EBITDA
Overall Min 50.6 42.6 4.7 1.4 1.2 1.0 14.6 7.6 5.6
Overall Mean 2636.1 4582.0 29.8 19.4 14.9 8.0 40.1 30.0 25.9
Overall Median 895 937 14.5 14.1 5.2 3.2 31.2 19.2 11.1
Overall Max 20,071 16,142 78.2 53.6 74.2 34.9 84.2 122.0 105.0
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COLLABORATIVE INSIGHTS February 25, 2019
VALUATION METHODOLOGY AND RISKS
Valuation Methodology
Cannabis: Our valuation methodology is primarily based on Relative EV-to-Sales (EV-to-Sales
divided by Sales-Growth), followed by EV-to-Sales.
Investment Risks
Cannabis: Cannabis is an emerging industry and is subject to regulatory headwinds. While
over 50% of the population is in favor of legalization, only a few states have thus far
legalized cannabis for recreational use and the product remains illegal at the federal level.
Looking forward, much work and change still needs to occur in order for this industry to
realize its full potential.
Risks Pertaining to U.S. Cannabis-Related Companies: If you are considering investing in a
U.S. company that is connected to the cannabis industry, be aware that cannabis-related
companies may be at risk of federal and/or state criminal prosecution. The Department of
Treasury has issued guidance that The Controlled Substances Act (“CSA”) makes it illegal
under U.S. federal law to manufacture, distribute, or dispense cannabis and cannabis-related
products. Many states impose and enforce similar prohibitions. Notwithstanding the federal
ban, however, many U.S. states and the District of Columbia have legalized certain cannabisrelated
activities.
Risks Pertaining to Canadian Cannabis-Related Companies: In Canada, cannabis is an
emerging industry and is subject to regulatory headwinds. While medical cannabis is legal
in Canada, legislation has also been introduced to legalize adult-use sales on October 17,
2018. An initial regulatory framework has been laid out for the adult-use market, looking
ahead, the category will be subject a number of potential headwinds, including taxes and
restrictions on from factors and packaging.
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COLLABORATIVE INSIGHTS February 25, 2019
ADDENDUM
Stocks Mentioned In Important Disclosures
Ticker
WEED
GWPH
TLRY
TPB
Company Name
Canopy Growth Corporation
GW Pharmaceuticals Plc
Tilray
Turning Point Brands
Important Disclosures and Information Relating to Cowen Washington Research Group
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Important Disclosures Relating to Cowen Research
Cowen and Company, LLC and or its affiliates make a market in the stock of GW Pharmaceuticals Plc, Tilray, Turning Point Brands and Canopy Growth Corporation securities.
Cowen and Company, LLC served as the placement agent in connection with Tilray's Series A preferred stock financing in February and March 2018.
Cowen and Company, LLC managed or co-managed a public offering of GW Pharmaceuticals Plc, Tilray, Turning Point Brands and Canopy Growth Corporation in the past 12 months.
Cowen and Company, LLC received compensation for investment banking services from GW Pharmaceuticals Plc, Tilray, Turning Point Brands and Canopy Growth Corporation in the
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Disclosures.action
The recommendation contained in this report was produced at February 25, 2019, 22:19 ET. and disseminated at February 25, 2019, 22:19 ET.
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Cowen and Company, LLC. New York 646 562 1010 Boston 617 946 3700 San Francisco 415 646 7200 Chicago 312 577 2240 Cleveland 440 331 3531 Atlanta 866 544 7009
Stamford 646 616 3000 Washington, D.C. 202 868 5300 London (affiliate) 44 207 071 7500
COWEN AND COMPANY EQUITY RESEARCH RATING DEFINITIONS
Outperform (1): The stock is expected to achieve a total positive return of at least 15% over the next 12 months
Market Perform (2): The stock is expected to have a total return that falls between the parameters of an Outperform and Underperform over the next 12 months
Underperform (3): Stock is expected to achieve a total negative return of at least 10% over the next 12 months
Assumption: The expected total return calculation includes anticipated dividend yield
Cowen and Company Equity Research Rating Distribution
Distribution of Ratings/Investment Banking Services (IB) as of 12/31/18
Rating Count Ratings Distribution Count IB Services/Past 12 Months
Buy (a) 473 64.01% 116 24.52%
Hold (b) 259 35.05% 20 7.72%
Sell (c) 7 0.95% 0 0.00%
(a) Corresponds to "Outperform" rated stocks as defined in Cowen and Company, LLC's equity research rating definitions. (b) Corresponds to "Market Perform" as defined in Cowen
and Company, LLC's equity research ratings definitions. (c) Corresponds to "Underperform" as defined in Cowen and Company, LLC's equity research ratings definitions. Cowen and
Company Equity Research Rating Distribution Table does not include any company for which the equity research rating is currently suspended or any debt security followed by Cowen
Credit Research and Trading.
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Note: "Buy", "Hold" and "Sell" are not terms that Cowen and Company, LLC uses in its ratings system and should not be construed as investment options. Rather, these ratings terms
are used illustratively to comply with FINRA regulation.
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COLLABORATIVE INSIGHTS February 25, 2019
180
160
140
120
100
80
60
40
20
250
200
150
100
50
50
0
(1):$166.00
02/24/17
(1):$165.00
08/07/17
(1):$175.00
09/27/18
GW Pharmaceuticals Plc Rating History as of 02/25/2019
powered by: BlueMatrix
Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19
I:(1):$34.00
08/13/18
(1):$62.00
08/29/18
(1):$172.00
10/09/18
(1):$150.00
11/14/18
Closing Price
Target Price
Tilray Rating History as of 02/25/2019
powered by: BlueMatrix
Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19
I:(1):$13.00
06/06/16
(1):$17.00
11/11/16
(1):$18.00
03/13/17
(1):$19.00
05/12/17
Closing Price
Target Price
Turning Point Brands Rating History as of 02/25/2019
(1):$20.00
08/10/17
(1):$25.00
01/08/18
powered by: BlueMatrix
(1):$27.00
03/12/18
(1):$35.00
08/08/18
(1):$45.00
09/06/18
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40
30
20
10
0
Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19
Closing Price
Target Price
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COLLABORATIVE INSIGHTS February 25, 2019
100
80
60
40
20
0
I:(1):$13.00
01/10/17
(1):$15.00
02/14/17
(1):$10.00
06/14/17
(1):$10.50
09/05/17
Canopy Growth Corporation Rating History as of 02/25/2019
(1):$24.00
11/14/17
(1):$44.00
01/08/18
powered by: BlueMatrix
(1):$45.00
04/16/18
(1):$48.00
06/27/18
(1):$56.00
08/16/18
(1):$74.00
09/04/18
(1):$82.00
10/09/18
Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18 Oct 18 Jan 19
Legend for Price Chart:
Closing Price
Target Price
I = Initiation | 1 = Outperform | 2 = Market Perform | 3 = Underperform | UR = Price Target Under Review | T = Terminated Coverage | $xx = Price Target | NA = Not Available |
S=Suspended
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POINTS OF CONTACT
Author Profiles
Cowen Research
New York
646 562 1330
cowen.research@cowen.com
Andrew M. Charles, CFA
New York
646 562 1332
andrew.charles@cowen.com
Andrew Charles is an analyst focused on
restaurants. He has spent over seven years
on the sell side covering the sector.
Phil Nadeau, Ph.D.
New York
646 562 1336
phil.nadeau@cowen.com
Phil Nadeau is a senior analyst covering
biotech. He joined Cowen in 2000 and holds
an SB/M.Eng from MIT, and a Ph.D. from
Harvard.
Charles Rhyee
New York
Vivien Azer
New York
646 562 1351
vivien.azer@cowen.com
Vivien Azer is a senior analyst covering
beverages, tobacco and cannabis. She joined
Cowen in 2014.
Oliver Chen, CFA
New York
646 562 1424
oliver.chen@cowen.com
Oliver Chen is an II-ranked analyst covering
retailing/specialty, broadlines, department
stores, & luxury goods. He has an MBA from
Wharton.
Charles Neivert
New York
646 562 1370
charles.neivert@cowen.com
Charlie Neivert is a senior research
analyst covering agricultural & commodity
chemicals. He has a BA from University of
Pennsylvania.
Eric Assaraf
Washington, DC
John Blackledge
New York
646 562 1359
john.blackledge@cowen.com
John Blackledge is a senior analyst covering
the Internet sector. He joined Cowen in
2012 as the head of Internet research.
John Kernan, CFA
New York
646 562 1324
john.kernan@cowen.com
John Kernan is a research analyst focused
on apparel, footwear and textiles. He has
spent seven years on the sell side covering
the sector.
Jeffrey Osborne
Stamford
646 562 1391
jeffrey.osborne@cowen.com
Jeff Osborne is an analyst covering
sustainable energy tech. He has a BS from
Trinity University and an MBA from Wayne
State University.
Doug Schenkel
Boston
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646 562 1376
202 868 5304
617 946 3918
charles.rhyee@cowen.com
eric.assaraf@cowen.com
doug.schenkel@cowen.com
Charles Rhyee is a senior analyst covering
health care IT and distribution, which he has
followed since 1999. He joined Cowen in
2011.
Eric Assaraf is with Cowen Washington
Research Group covering health care. He
received degrees from the University of
Maryland.
Doug Schenkel is a senior analyst covering
tools and diagnostics. He joined Cowen in
2005 and holds an M.B.A. from the UCLA
Anderson School.
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