Marijuana Venture has been reporting on CBD for the past year and will continue to regularly follow that side of the cannabis industry, in addition to the more regulated — and higher taxed — marijuana business. What fascinates me about CBD is that because it appears to be more or less legal in all 50 states, the number and scope of new CBD companies is simply astounding.
When Colorado and Washington first legalized recreational marijuana, many entrepreneurs jumped in and new companies sprouted up in both states. However, because of high taxes, restricted sales and tight regulations, THC-focused cannabis companies had many obstacles to overcome in order to get to scale and reliable profits. Not so with hemp/CBD. With a wide-open market, national sales potential and mainstream retailers stocking CBD products, a turbo-charged gold rush is on. Plus, the CBD business has the potential to dwarf the legal marijuana industry.
The recent $300 million acquisition of Manitoba Harvest by Tilray (NASDAQ: TLRY), the Canadian medical marijuana company owned by Seattle-based Privateer Holdings, further highlights the obvious: Hemp/CBD is red hot, and the smart money is focused on scale, operational efficiencies, back office strength and access to major U.S. retailers (look no further than Costco’s food section to find Manitoba’s hemp hearts).
What’s really happening here? The answer is simple: Legal cannabis in its many forms and uses has become a freight train running down the tracks at a fast and furious rate. Whether it’s a consumer buying a gram of Blue Dream marijuana in Seattle, a millennial picking up hemp hearts at Costco to top his/her salad, or a grandmother buying CBD in a Des Moines, Iowa drug store, the race is on. Cannabis is going mainstream faster than anyone predicted and, at the same time, it’s morphing and spreading out like a hydra.
However, even though CBD is used for vastly different reasons than marijuana flower, the keys to success in the CBD business are going to be exactly the same as the ones in recreational cannabis. In other words, forget the “We produce the best bud/hemp/CBD” pitch and focus on the fundamentals that have always worked at retail: great packaging, a well-trained, professional sales force, strong back-office support staff, focus and a solid understanding of the needs/requirements of the customer. I remember well the lessons I learned from the vice president at my software company, Topics Entertainment, who was a former Costco assistant buyer. He often told stories about product pitches by inexperienced sales people who focused on the high margins Costco could make on its products. He knew instantly he was dealing with a rookie if they focused on margins. (Quick tip: All the warehouse clubs — Costco, Sam’s Club, BJ’s — work on fixed, low margins and focus on weekly sales velocity per SKU. In other words, pitching a product’s high margins might work at Target, but is a non-starter at Costco.)
So while the rush may be on, success in the CBD space is going to rely on a lot of work, dedicated employees, research, a focused business model, great packaging, back-office expertise and knowing the particular customer you want to sell to.