Recently, New York-based investment bank Cowen & Co. released a study on the CBD (cannabidiol) market. Of the findings, one of the most intriguing was that nearly 7 percent of the 2,500 polled, said they had used CBD, an active ingredient in marijuana that purportedly provides relief to patients without getting them high, as a supplement. This figure was far higher than what the Cowen analysts had expected.
Yet even more fascinating was the projected estimate Cowen analysts made about the revenue of this market–$16 billion by 2025. This number is a marked jump from the estimated retail sales of CBD consumer products in 2018 that ranged between $600 million and $2 billion. Although CBD is technically legal as a result of the Farm Bill that passed late last year, the legal marijuana economy is still fragmented as a result of the federal illegality. Currently, 33 states and Washington, D.C. have legal medical markets while 10 states (plus D.C.) permit recreational use.
This beggars the question: Is the $16 billion projection an accurate reflection of the realities of the present market or is it aspirational? With CBD not yet tested or approved by the Food and Drug Administration, the agency has been cracking down on businesses making medical claims. Other states are following suit. Last month in New York City, the Department of Health ordered that restaurants, bars and other venues cannot sell CBD-infused edibles as the FDA maintains that CBD is not “safe as a food additive.”
Cowen’s Vivien Azer, the first senior Wall Street analyst to cover the nascent cannabis industry, said pragmatism informed the firm’s revenue projections of the CBD market. “We try to build some conservatism for some regulatory headwind,” she explained.
In addition to the study’s conclusion that nearly 7 percent of respondents had used CBD—Azer said she didn’t realize that many people tried or used a CBD product—she was surprised by yet another finding: Close to 20 percent of those surveyed said they had sampled a CBD product in beverage form. Interestingly, the study skewed toward the younger generation. The rate of usage for those under 35 was over 9 percent while for those in the 45-55 age bracket, it was 6.4 percent. For people ages 55 and above, the number was 3.7 percent.
The study also noted that strong consumer interest in CBD “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.” When asked to explain to explain the red-hot popularity of the market, Azer candidly replied, “I think it’s because for some consumers, it actually works as both an anti-inflammatory and anti-anxiety [product],” she said. “Those are characteristics that are tangible to the consumers. With CBD, you know if it works for you or not. There is a tangible payback in relatively short order.”
Eleven Cowen analysts from the firm’s consumer, health care, industrials and regulatory teams collaborated on this study. The analysis primarily focused on consumer staples applications for CBD.