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• CBD-derived beauty, personal care and pet brands, among others, have made their way into national retail chains like Walgreens, Sephora and American Eagle Outfitters.
• Industry experts say regulatory uncertainty and the young age of the category could result in more minority investments than buyouts in the near term.

With fewer restrictions than ever, buyers are increasingly curious about the smoking hot CBD-infused consumer products space, but industry experts say remaining regulatory uncertainty and the young age of the category could result in more minority investments than buyouts in the near term.

The inflection point for bringing CBD, or the non-psychoactive part of the cannabis plant, into the mainstream was the passage of the 2018 US Farm Bill last December, which lifted restrictions on selling hemp-derived products across state lines. Since then, CBD-derived beauty, personal care and pet brands, among others, have made their way into national retail chains like Walgreens, Sephora and American Eagle Outfitters.

CBD oil hemp products, Medicinal cannabis with extract oil in a bottle on a wooden table. Medical cannabis concept Getty

Michael Lux, a Denver-based Partner at accounting firm Crowe, said he expects strategic minority investments to make up the bulk of CBD’s activity over the next 6-12 months. Although many of the industry’s players are “growing like weeds,” he explained that most are younger than five years old and not ready to explore full exits.

Despite the category’s youth, Lux said interest from consumer packaged goods (CPG) companies has been “very high,” and noted that many of his firm’s CBD-based consumer clients have been approached for strategic investments, as well as research and retail partnerships.

However, one industry banker cautioned that “it will be a bit off” before the market can expect to see acquisitions from traditional CPG groups, particularly for ingestible products like beverages and edibles, since the Food and Drug Administration (FDA) is still working to create a regulatory framework for CBD.

Earlier this week, the FDA announced that it is expediting its effort to create clearer guidelines for CBD, which is believed to have healing property for a range of conditions, including inflammation and anxiety. The department plans to publish a report on its progress by early fall.

In the meantime, companies who operate in the personal care space, with products like CBD-infused topical creams, beauty products and tinctures, are more likely to receive strategic investments, said the banker and a second banker interviewed for this report. Both noted that regulators are more comfortable with non-digestible products, making them a less risky investment.

Canadian cannabis companies, many of which have dual listings on the Canadian and US stock exchanges, are especially likely to invest in US CBD brands in the near term, each of the sources said. They explained that these businesses provide entry into the US market without jeopardizing their US listings, since THC is still federally illegal in the US.

CBD stands for cannabiodil and lacks the psychoactive properties of THC (which stands for tetrahydrocannabinol). Both naturally occur in marijuana/hemp and the farm bill legalized hemp products with only low concentrations of THC.

Seattle-based Lazarus Naturals, which was founded in 2014 and sells CBD-based supplements and personal care products, is one such company. In an April interview with Mergermarket, CEO Sequoia Price-Lazarus said the business has received approaches from publicly-traded Canadian cannabis companies. Though not pursuing a sale, the executive said the company is considering raising up to $20 million in growth capital this year.

Cannabis producer Canopy Growth’s acquisition of London-based natural skincare company This Works in May was more evidence of hemp producers’ interest in the personal care space.

While some financial sponsors, such as Seattle-based Privateer Holdings, were built specifically to invest in CBD and cannabis brands, each of the sources said most US financial sponsors would be barred from investing in the category since most existing funds restrict investments in the space. Lux said he has “heard of a few” sponsors who are interested in raising CBD-friendly funds, but noted that this could take a significant amount of time.

Strategic buyers across a range of industries, including pharmaceuticals, consumer products and food and beverage, are expected to show interest in acquiring CBD brands once FDA regulations become more clear, but in the meantime, activity will be limited to minority investments, particularly from Canada, each of the sources agreed.

“I think people are still trying to figure out where this is going to go,” said Lux. “It’s an industry that didn’t exist 10 years ago and barely existed five years ago, and it sounds cliché, but the sky really is the limit here.”

SOURCE: By Emily Fasold , Forbes

https://www.forbes.com/sites/mergermarket/2019/07/22/cbd-consumer-companies-seeing-high-interest-but-ma-future-clouded-in-smoke/#533e55d25a0f

SPONSOR: Applied Biosciences Corp. is a vertically integrated company focused on the development of science-driven cannabinoid therapeutics and biopharmaceuticals, as well as state-of-the-art testing and analytics capabilities to our customers.  As a leading company in the CBD, Pet and Health and Wellness space, the company is currently shipping to the majority of US states as well as to 5 International countries. Click Here for More Info

• Cannabis-based concentrates, extracts, and edibles are becoming highly popular among consumers
• Specifically, the edible and beverage marketplace is quickly gaining popularity due to the ease at which customers can use the products

NEW YORK, July 16, 2019 — Each year, more and more countries are moving towards approving cannabis use. In particular, medicinal cannabis is witnessing immense support as most of the countries looking to enter into the market space are more keen on the medical sector due to the therapeutic benefits associated with cannabis. However, several regions around the world have also either decriminalized or legalized the use of recreational cannabis in moderate amounts. For instance, Canada completely legalized adult-use cannabis in late 2018. On the other hand, countries such as Colombia and Spain have only decriminalized recreational use, allowing adults to possess up to a certain amount.

Moreover, the U.S. has given states the jurisdiction to legalize cannabis or keep the drug illicit. As a result, more than half the U.S. legalized cannabis for medical use, while a fifth of the nation, including the District of Columbia, allows for legal recreational usage. While the medical marketplace is much more globally prevalent, the recreational market is expected to overshadow the medical segment as the North American market continues to mature.

Additionally, as the recreational market continues to expand, consumers are also experiencing an influx of new products. Aside from traditional cannabis flower, consumers can now choose from a variety of products at dispensaries and retail stores. Now, cannabis-based concentrates, extracts, and edibles are becoming highly popular among consumers. Specifically, the edible and beverage marketplace is quickly gaining popularity due to the ease at which customers can use the products.

Furthermore, a large recreational user base exists for the edible and beverage market, and the industry is heavily being accelerated by the increasing demand for wellness products to treat a variety of health concerns. According to data compiled by Reports and Data, the global cannabis-based beverage market was valued at USD 1.57 Billion in 2018. By 2026, the market is expected to reach USD 5.04 Billion while exhibiting a CAGR of 15.4% during the forecast period.

The cannabis-infused edible and beverage market is expected to witness a strong increase in demand, particularly for beverages over the next several years. Canaccord Genuity analyst Bobby Burleson noted last year that beverages packed with CBD or THC ingredients can account for nearly 20% of the U.S. edible products markets by 2022, increasing from 6% in 2018. Burleson highlighted that the growing beverage industry is becoming an attractive investment opportunity for beer and soda makers and that data has shown that there is a direct correlation between alcohol and cannabis consumption.

A joint research conducted by the University of Connecticut, Georgia State University, and Universidad Del Pacifico discovered that counties located in medical marijuana states witnessed a 15% reduction in monthly alcohol sales. The conclusion of the study uncovered that cannabis and alcohol are both substitutes for one another, meaning that they share the same target audience. The study also indicates that as more countries move towards cannabis legalization, more users will be inclined to shift over to the cannabis market. The shift has even prompted alcohol producers to enter into the cannabis industry to maximize its consumer base reach.

While alcohol beverage producers may look towards developing THC beverages, soda producers are looking to leverage CBD for health and wellness beverages. Soda producers are specifically focusing on CBD because of the consumer shifts from sugary drinks to more functional options. Regardless of the market type, Canaccord expects both the THC and CBD-based beverage markets in the U.S. to experience growth, as by 2022, Canaccord expects the demand for CBD beverages to reach USD 260 Million, while THC beverages are projected to reach USD 34 Million. “Interest has spiked from the beer industry on mounting evidence of a substitution relationship between cannabis and alcohol, while large soda companies increasingly view CBD as a natural fit within their strategically important wellness offerings,” Burleson wrote.

Read More: https://www.prnewswire.com/news-releases/cbd-based-functional-drinks-charm-health-conscious-consumers-300885358.html