CBD competition heats up as Martha Stewart brand gains awareness

Bethany Gomez, Brightfield Group Managing Director, joins the Yahoo Finance's Zack Guzman to discuss the state of the CBD industry, along with the latest insights from Brightfield Group's Q4 CBD Brand Health survey.

Video Transcript

ZACK GUZMAN: Well, in today's "Cannabis Focus," New Jersey finally made good on its ballot initiative to legalize marijuana, which voters overwhelmingly approved last year. New Jersey Governor Phil Murphy signing the laws that provided a legal framework to move forward on that. New Jerseyans can now possess up to 6 ounces of marijuana without legal consequence.

Legal sales and licensing will take some time to work out in that state, but it's a big step forward, particularly in the Northeast when it comes to legalizing the psychoactive compound in marijuana, or THC. The non-psychoactive compound of cannabis, though, CBD, continues to be a big business, with Canopy Growth most recently celebrating the explosive launch of its Martha Stewart line of CBD products in the US on their earnings call.

The company noted that Martha Stewart's brand is already outselling 94% of all CBD brands in the US just four months after launch, according to their numbers. So joining us now on all things CBD is the smartest person I know that covers the space, Brightfield Group Managing Director Bethany Gomez joins us once again. Bethany, thanks for taking the time.

I mean, you guys have great data on which brands consumers trust around this. You fact-checked the Martha growth as well as what "Playboy's" CEO told us about a week ago or so on their CBD product. My jaws hit the floor in looking at their numbers. But CBD users actually know the "Playboy" brand. So talk to me about what you're seeing.

BETHANY GOMEZ: Sure. So in a recent Q4 study that we surveyed more than 5,000 CBD users, we found that already 15% of CBD users were aware of Martha Stewart's brand, and a similar number, 15.4% for CBD, buy "Playboy" as well. So this is a really strong testament to the ability of these brands to leverage these strong celebrity endorsements out of the gate to grab awareness in that very crowded CBD space. So they're off to the races there from an awareness standpoint, which is really great to see for the brand.

Now, they still have a great deal of work ahead of them in order to convert all of that awareness into purchasing and into loyalty. But those initial metrics are very strong there as well.

ZACK GUZMAN: Yeah, brand awareness and then getting them to buy it is another thing-- purchase intent, and then getting them to buy it again is also another thing.

BETHANY GOMEZ: Exactly Yes.

ZACK GUZMAN: We're showing hemp-- we're showing hemp fusion here too as one of those new entrants. They just recently IPOd. I mean, their shares-- in that IPO, it was $1 a piece. We've seen them now trade above $3 a share. What's interesting, though, is the CBD space overall has not necessarily seen the same boost in some of those leaders-- Charlotte's Web out there as well.

When you look at it, is that potentially because there's been that stall on the regulatory front, where people were expecting CBD to get added to everything, like we saw before-- coffee, what have you? So where are we at now in kind of that, I guess, advancement of the overall CBD market?

BETHANY GOMEZ: Yeah. So 2020 was a very interesting year for CBD, to say the least. On the one side, the industry was hit very hard by the pandemic, particularly in Q2. We saw brands that were very heavy through the brick and mortar channels really struggle to be able to continue to promote their products and get those out to consumers. We also saw some significant price drops that impacted the industry. So Charlotte's Web, for example, had been very, very strong through brick and mortar channels and took a bit of a hit when the pandemic hit.

Now, what brands have been doing to be able to adjust to the new normal here is really lean in on their e-commerce performances, really lean in on digital marketing. Today, we see more than 52% of consumers are now purchasing CBD online. This is up from only 22% in Q4 2019. So that's a very dramatic shift.

Charlotte's Web has been able to see a bit of recovery from focusing much more heavily on those e-commerce performance. But brands like cbdMD that were very strong in e-commerce to begin with, were able to pick up a great deal of a boost from that switch to e-commerce. Canopy, for example, has some pretty clever strategies there to be able to leverage Martha Stewart brand awareness, drive consumers into their e-commerce platform, and then their whole portfolio of brands is able to benefit from that increased awareness.

So their First and Free brand, which is one of their flagships, was able to see a boost in conversion as a result of more consumers coming to the site because of Martha Stewart. So this is a great indication of how well the brands in the space have been able to pivot and focus much more heavily on e-commerce as well.

ZACK GUZMAN: They've also-- well, we've seen Canopy stress on the earnings call that they kind of built on their brick and mortar rollout too, getting into some pretty important stores with both those brands. But for me, covering cannabis not just on the marijuana side, but also the CBD side, we haven't necessarily seen this bounce-back from a lot of these CBD names. And my question to you, just to wrap things up, would be kind of, those leaders who had established themselves in the space, it seems like it's pretty easy.

All you need to do is slap Martha Stewart or some other big celebrity onto a CBD label, all of a sudden, you're up there with the big boys. Because you look at CB Sciences, one of those companies we talked about before that had been a leader in the space-- shares down 87% since April of 2019. They haven't necessarily seen that bounce-back. So talk to me about maybe protective moats for some of these CBD players that had been in the space relative to new entrants like Canopy rolling out Martha.

BETHANY GOMEZ: Yeah, absolutely. So you know, the celebrity endorsements can be helpful for those awareness grabs. But that doesn't necessarily mean they're going to be able to convert through the funnel. So Martha Stewart is kind of the shining example of the celebrity endorsements. But most celebrities-- right now you'll see in CBD, you know, everything from Dog the Bounty Hunter endorsing CBD, to Shaq, and Brett Favre, and you name it.

There's dozens, and dozens, and dozens of brands that are endorsing-- celebrities, sorry, that are endorsing CBD that don't have the same level of success of Martha. So she is certainly a kind of crown jewel of the celebrity endorsements because she has so much equity and trust amongst consumers. So it's not quite that easily replicable. What we see right now it's definitely a very steep competition in the digital space, very steep competition amongst brands in the CBD space overall.

But really retaining those customers comes down to quality. And many of the market leaders have much higher value consumers that are able to come back, and back, and back, and boost that ROI and that value of each consumer. So brands like Green Roads and Functional Remedies are able to gather more high value consumers to boost their overall performance and create a bit of a moat there to help protect them in that space.

ZACK GUZMAN: Got it. So yeah, we'll keep an eye on those repurchase rates to really figure out who's winning. But lastly, I guess-- and this is a tricky question, because I assume that it might stem from the timeline for when we're going to see legalization of cannabis on a federal level. But when you think about the growth of CBD versus, you know, marijuana products here, what are your guys' market expectations for that? To come full circle, as we see New Jersey now start to get legal sales off the ground hopefully by the end of the year, talk to me about which side of the cannabis business is worth watching.

BETHANY GOMEZ: Absolutely. So at this juncture, we're expecting the US cannabis market to hit $45 billion by 2025. So that's really strong kind of consistent growth. The US cannabis market, even with legalization in place, increased access to legalization in place that we expect over the forecast period, is a matter of incremental growth. More states like New Jersey and, in the future, New York and other states like that adding on adult use markets piece, by piece, by piece.

This leads to that strong incremental growth over time that is strong and sustainable. The CBD market has been able to experience a lot more of this very rapid hockey stick growth, where when regulatory shifts come into play, it's very rapid to be able to push products throughout the country in a very quick turnaround. So with the addition of more FDA guidance that is expected in 2021, we would expect another hockey stick growth year in 2022 for CBD as those products become more widely available. But that market is expected to hit about $17 billion by 2025-- so smaller in nature than the US cannabis market if that gives you a beat on it.

ZACK GUZMAN: No, for sure. It does. And still, I'll have to get used to seeing "Playboy" up there as a list on our CBD companies. But, Bethany Gomez, appreciate you joining us here-- Brightfield Group managing director. Thanks again.