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Is There a CBD Bubble?

Nobody knows what CBD does or how it will be regulated. That hasn’t stopped investors, entrepreneurs and retailers from putting big money behind one of the hottest wellness trends.
The Standard Dose store in New York | Source: Courtesy
  • Cheryl Wischhover

NEW YORK, United States — Manhattan's Flatiron District is gaining a reputation as a hub for all things wellness, where Goop acolytes can grab a Cha Cha Matcha latte before balancing their chakras at a boutique fitness studio. And it's on the northern border of this neighborhood, next door to Dr. Smood (slogan: "probably the healthiest cafe in New York") and across the street from a spa offering LED light therapy, that Standard Dose has set up shop.

The store’s interior is done up in soft pink and dove grey, the colours of the moment for wellness retail. A custom essential oil blend infuses the air, and an assortment of powders, tinctures and creams are displayed on trendy terrazzo countertops. The main thing separating Standard Dose from Credo, Detox Market or countless other wellness-minded shops: almost everything it sells contains cannabidiol.

Better known as CBD, the cannabis-derived compound is now available in everything from seltzer to lip gloss. The makers of these products say they can ease pain or decrease inflammation, though few can cite hard science to support these claims. The lack of evidence hasn’t slowed the proliferation of products, which draw from a growing base of mainly upper-income consumers.

But some investors, retailers and cosmetics companies are placing multi-million-dollar bets that CBD will have much broader appeal. They include one of Standard Dose’s investors, LB Equity, which in February of 2019 raised a $50 million fund to invest in CBD beauty brands. The firm has stakes in two brands and is pursuing investments in five more. Gotham Green Partners, another cannabis-friendly investor, backed Cannuka, maker of products infused with a mixture of CBD and manuka honey from New Zealand, and Lord Jones, the first CBD brand stocked at Sephora.


CBD products are an increasingly common sight in mainstream department stores like Nordstrom and Neiman Marcus, and beauty retailers Ulta and Sephora have gone all-in on the category. Mid-sized beauty brands Paula's Choice and Peter Thomas Roth now sell lines containing the substance.

CBD's appeal to investors and retailers is obvious; cannabis, newly destigmatised, is hot right now and so is wellness.

CBD’s appeal to investors and retailers is obvious; cannabis, newly destigmatised, is hot right now and so is wellness.

But walking around Standard Dose — or Sephora — it can be hard to remember that as recently as 2017, CBD was virtually unknown outside the most hardcore wellness circles. The beauty and wellness categories are littered with ingredients of the moment that suddenly weren’t anymore. There are some signs the trend may already have peaked: shares in companies that sell legal cannabis and related products plunged last year, and Google searches for CBD have tailed off from their peak in the middle of 2019.

Regulators could also put the brakes on the CBD boom. The 2018 Farm Bill legalised industrial hemp, a source of CBD, which unlike the cannabis plant’s THC does not contain psychoactive properties. However, the FDA is still working out how to test, classify and, potentially, regulate the use of CBD in cosmetics and wellness products. There also isn’t much hard evidence that CBD products are effective; that hasn’t deterred many early buyers, but could limit its popularity down the line.

Cannuka is backed by Gotham Green Partners | Source: Courtesy Cannuka is backed by Gotham Green Partners | Source: Courtesy

Cannuka is backed by Gotham Green Partners | Source: Courtesy

But though CBD does not produce a high, it's certainly given the beauty industry one.

“We’re on that path going from an underground subculture to mainstream consumer appeal, and investors are on that journey as well,” said Robert Rosenheck, Lord Jones’ founder and chief executive.

High-End Head Shops


Of the dozens of small, independent brands that have launched CBD products over the last couple of years, chances are a healthy percentage are hoping to follow in Lord Jones’ footsteps.

An early (founded in 2017) prestige entrant in CBD beauty that sells a $100 oil and a $70 “stiletto cream,” Lord Jones was the first brand of its kind to enter Sephora, in late 2018. It was acquired by Cronos, a cannabis company, in September for $300 million.

Cronos' investment in Lord Jones is more about future potential than current sales (the deal price was up to 150 times the brand's 2018 sales, Marketwatch reported.) In 2019, CBD beauty and skin products accounted for $525 million in sales and topical wellness products for $554 million, according to Jessica Lukas, an analyst at BDS Analytics, a cannabis market research firm. The firm predicts those numbers could increase to $2.9 billion and $3.1 billion, respectively, by 2024.

Beauty brands are attracted by the high margins and the lack of dominant players in the category. According to a 2019 BDS Analytics report, average topical CBD product selling prices increased from about $18 per unit in 2014 to over $28 last year.

Beauty brands are attracted by the high margins and the lack of dominant players in the category.

Big conglomerates like Estée Lauder and L’Oréal have shied away from the category, likely waiting for smaller brands to work out the questions about efficacy and potential legal hurdles. As with other trends, like “clean” beauty, they may end up buying the most-successful CBD brands down the line.

“We’re moving as expeditiously as we can to create and build really great brands because over the next two to three years, as the legal environment clarifies, the large players will want to get in,” said LB Equity Principal and Founder Jay Lucas.

Retailers have been quicker to embrace the trend. Ulta brought on its first CBD brand, Cannuka, in March 2019, and now carries several others. Sephora now sells Saint Jane along with Lord Jones. This month, Nordstrom rolled out a multi-brand CBD display online and in 32 of its 117 stores. The retailer decided to introduce CBD products after seeing customers search for them on Nordstrom’s website, said Debra Redmond, Nordstrom’s vice president of beauty.

“What we’re seeing is encouraging and pushing us to continue looking at other brands,” she said, noting that Sagely Naturals, Leef Organics and Beboe have been breakout brands at the retailer.


Chasing That Green

Cannuka had a soft launch in 2016, making it a relative veteran in the CBD beauty world. Its founder, Michael Bumgarner, has a farming background. He was interested in the burgeoning legal hemp economy and landed on skincare as an untapped market.

He said he combined CBD with manuka honey because it “created an approachable brand” for customers not comfortable with cannabis. He sought out Gotham Green Partners as a cannabis-savvy investor, because he wanted to have access to hemp farms to be closer to his ingredient source.

“They bring some big checks,” said Bumgarner, noting that Gotham Green’s investment in Cannuka was between $5 and $10 million. He declined to share revenue but said the brand grew 600 percent from 2018 to 2019. Gotham Green Partners declined to comment.

Gotham Green Partners also invested $5 million in Wldkat, a new brand which is set to launch six CBD-infused skincare products in April, including a coconut water spray and a mushroom and moss gel cream. One of its founders, Amy Zunzunegui, was in product development at Urban Decay for almost 20 years.

Standard Dose has been growing at a rate of 30 to 40 percent per month.

Standard Dose has been growing at a rate of 30 to 40 percent per month. Lucas, the Standard Dose investor at LB Equity, said it is looking towards “major expansion” for Standard Dose, including raising more capital.

Other "Sephoras of CBD" include the year-old Fleur Marché (another Gotham Green Partners investment, founded by two Goop alumni) and TruPotency. Legal marijuana dispensaries increasingly stock CBD products.

Regulatory Buzzkills

Both Cannuka and Fleur Marché were unable to sell their products online last spring after their third-party payment processor Elavon shut down CBD sales, reportedly after some sellers' products were found to contain THC. Google and Facebook do not allow CBD sellers to buy ads, and Amazon won't list their products (though The Washington Post was able to find some for sale in December).

The reason for all this skittishness? CBD is in a regulatory grey zone. Experts say the US Food and Drug Administration is two to four years away from finalising regulations specifically covering the ingredient. In November, the FDA sent warning letters to 15 companies selling oral and topical CBD products, mostly for misleading marketing and claims.

The industry is growing more confident it will soon receive the green light from regulators. Specialty payment providers like Ching Ching have stepped in, and e-commerce services provider Shopify announced in September that it was launching features to support CBD sellers, including partnering with payment providers and marketing assistance.

The FDA has offered some initial guidance. CBD is legal to use in cosmetics as long as it isn’t contaminated with unlisted ingredients and its benefits aren’t misstated. It’s currently illegal to market CBD as a supplement.

CBD is finding a foothold in skincare in part because even many established products contain unfamiliar ingredients marketed with vague claims, a halo of wellness and enthusiastic customer testimonials in lieu of hard science.

“We’re talking about people … embracing products that, for the most part, are entirely unregulated and that in many cases are based upon fairly specious claims,” said Paul Armentano, the deputy director of NORML, an organisation that has worked to legalise marijuana and which now advocates for regulation in the industry.

We're talking about people … embracing products that, for the most part, are entirely unregulated.

It's clear that both oral and topical CBD have biologic activity and may have potential benefits. But while some preliminary studies are promising, its benefits in skincare are unknown. As a cannabis researcher told BoF in 2018 "Even if it did work, what is the dosage?... How much do you actually need?" No one knows, but that hasn't stopped brands from selling it in various forms.

For some companies trafficking in topical products, the lack of hard evidence hasn’t hurt sales.

“It’s great that we don’t necessarily have to answer those questions. We have thousands of testimonials, and a lot of reviews and data. The people will determine who wins and loses in any category,” said Cannuka founder Bumgarner.

CBD brands are taking steps to reassure customers that the ingredient lists on their bottles are accurate. Standard Dose does random spot testing and has kicked brands off its site for discrepancies. Hemp suppliers have to provide third party documentation that their CBD does not contain THC, and some brands and retailers require additional testing.

“It’s a very onerous process. We require testing on both the hemp extract and the finished product for every brand on the site,” said Ashley Lewis, a Fleur Marché co-founder.

However, many CBD products are so new that labs struggle to test them. Everything from the CBD extraction process to testing is still in its infancy. “The main thing [producers] struggle with is just having a product that’s the same every time,” said Van Butsic, the co-director of the Cannabis Research Center at the University of California Berkeley.

Wldkat founder Zunzunegui also discovered that labs are still figuring out how to do accurate testing on CBD. “We had an issue back in December where we had one lab say one thing and one say another thing,” she said.

Greener Pastures?

Despite the unknowns, brands and retailers see customer education as the best way to take CBD mainstream. Nordstrom has online resources explaining the basic terminology and what to expect from products. Fleur Marché has done over 80 trunk shows in the past year at retailers and spaces like Soho House.

“We are clear with our customers that it’s not a silver bullet. It’s great to use in beauty, but it’s not going to make you all of a sudden be less anxious,” said Meredith Schroeder, Fleur Marche’s other co-founder.

It's great to use in beauty, but it's not going to make you all of a sudden be less anxious.

The CBD market is on the verge of even more expansion. “There’s a real chance that there could be ten times this much CBD produced in the next two years than there was this year. I would expect to see a huge increase in production and probably a drop in price,” said Berkeley’s Butsic.

Plus, the conversation around cannabinoids will get even more esoteric, because cannabis extracts are complex. Brands and consumers are already talking about the pros and cons of full-spectrum, broad-spectrum, CBD isolate formulas and nano-formulations, as well as emerging cannabinoid compounds like CBG and CBN.

BD Equity’s Lucas seems delighted by it all. “It doesn’t happen very often that a multi-billion dollar industry is created overnight. That’s essentially what’s happening here.”

Editor's Note: This article was revised on 31st January 2020. An earlier version of this article misspelled the name of Nordstrom's vice president of beauty. Her name is Debra Redmond. 

Related Articles:

Cannabis for the One PercentOpens in new window ]

Is Marijuana the Luxury Industry’s Next Big Opportunity?Opens in new window ]

Can Cannabis Beauty Go Mass?Opens in new window ]

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