Cbn: the Minor Cannabinoid Ready for the Major Leagues
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Intro-Blue, LLC | 617-454-1088 | [email protected] | www.intro-blue.com | Volume 62 | 9/23/20 CBN: THE MINOR CANNABINOID READY FOR THE MAJOR LEAGUES In our January 15 Stash report, we identified Cannabigerol (CBG) as the next big cannabinoid after THC and CBD thanks to its non- psychoactive nature and therapeutic properties which include 1) the ability to help regulate mood, 2) cancer fighting properties, 3) antibacterial properties, 4) potential ability to combat Huntington’s disease, 5) the ability to help treat glaucoma, and 6) effectiveness in decreasing inflammation in irritable bowel disorder (IBD). The latest data from the Brightfield Group validates our thesis and suggests that minor cannabinoid awareness is on the rise among cannabis consumers both in Canada and the U.S. According to the Brightfield Group’s Canadian consumer survey, CBG awareness among cannabis consumers stood at 9.2% in 2Q20, up from 8.2% in 1Q20, with awareness among medical users nearly double the overall average. Further, 29% of consumers who are aware of CBG indicated that they are likely to buy CBG products, with disproportionately strong interest among medical patients. The situation is even better in the U.S. with 13% of cannabis consumers aware of CBG and 78% of them saying that are likely or very likely to purchase it. Like in Canada, potential CBG consumers are much more likely to be medical cannabis users than the average cannabis population (66% vs. 48%). To take advantage of this growing awareness, cannabis companies have already started launching CBG products, including MedTerra’s CBG+CBD formulas and Kush Queen’s RX Bliss CBG+CBD gummies. With competition in the cannabis industry intensifying and companies looking to differentiate themselves based on novel products, we expect CBG adoption to rise further in the near future, and also drive interest in other minor cannabinoids like CBN. We believe Cannabinol (CBN) is likely to follow CBG on the cannabinoid adoption curve, led by its use as a sleep aid. CBN was the first cannabinoid to be identified and isolated from cannabis. CBN comes from the oxidation and decomposition of THC from a hemp plant, meaning that when THC is heated and exposed to CO2, it converts to CBN. The quantity of CBN in cannabis increases as the plant matter ages. The compound has a mild psychoactive response, slightly more so than CBD but much less than THC, and it can enhance the effects of THC and other terpenes. It can be used effectively as a sleep aid or sedative – this is important as according to the Centers for Disease Control and Prevention, one-third of adults in the U.S. do not get enough sleep, implying a huge target market for CBN products. Cannabinol has also been shown to help regulate the immune system and relieve the pain and inflammation caused by several conditions, including arthritis and Crohn’s disease. Some studies show that CBN can be used to reduce the intraocular eye pressure caused by glaucoma while others have found that it can be used to increase appetite. This cannabinoid also acts as an anticonvulsant so it is beneficial to patients suffering from seizure disorders including epilepsy. Given its medicinal benefits and use in broad spectrum CBD products – including blended tinctures, beverages, powders, tablets, capsules, topicals, edibles, smokable products, vaporizer extracts, and personal care products – we expect CBN to follow CBG as a commonly used cannabinoid. Initial signs of CBN’s growing popularity are already visible. According to the Brightfield Group, 11.6% of Canadian cannabis consumers were aware of CBN in 2Q20, up from 10.1% in 1Q20, with awareness among consumers with insomnia rising from 13.7% to 15.1%. In the U.S., 11% of CBD consumers are aware of CBN and 50% of these consumers are very likely to purchase it. Nearly half of CBD consumers use it to deal with insomnia and sleep issues, and CBN’s ability to combat sleep deprivation means that this target segment is ripe for disruption by CBN products. These include the likes of Somnus’ CBN-based tinctures and gummies, Kiva Confections’ Midnight Blueberry gummies, CBD American Shaman’s CBNight Water Soluble CBN Oil, and Mary’s Medicinal’s The Remedy CBN:CBD tincture. This makes CBN the next cannabinoid after THC, CBD, and CBG, to offer strong revenue potential. Chart 1: Google Search Trend Confirms the Rising Popularity of Cannabinol (CBN) Cannabigerol vs Cannabinol - Keyword Search Trend in the U.S. 100 75 50 25 0 Google Search Search Index Google Cannabigerol (CBG) Cannabinol (CBN) Source: Intro-Blue, Google Trends CANNA NEWS COVID-19 California marijuana tax revenues stall in wake of pandemic, job losses. California took in a record $208 million in excise, sales and cultivation taxes from the cannabis industry in the second quarter of 2020, but growth stalled at 2.5% over the previous quarter – the lowest rate of increase since marijuana tax collections in the state started in 2018. Cannabis sales taxes were the bright spot with 12.1% quarter-over-quarter growth; excise and cultivation tax revenue fell 5.6% and 4%, respectively. The state raised tax rates in January to adjust for inflation, setting the new cultivation rates at $9.65 per ounce of flower, $2.89 per ounce of trim and $1.35 per ounce of fresh cannabis plant. The tax on retail purchases remained at 15%. Read More (Marijuana Business Daily) Chart 2: California Cannabis Tax Revenue Growth Slows Source: Intro-Blue, Marijuana Business Daily The legal cannabis industry is creating a new workforce amidst the pandemic. The legal cannabis industry is looking towards the future and “new normal” with expanding, legitimized workforces that have kept the industry alive during a national economic downturn. According to Marijuana Business Daily’s Annual Marijuana Business Factbook, U.S. medical and adult-use cannabis sales will reach at least $15 billion in 2020, an almost 40% increase from last year. It also predicts industry employment could reach almost 300,000 full-time jobs this year, a 50% increase from 2019. To put those figures in perspective, the number of jobs in the cannabis industry would be about the same as the beverage industry and computer programming. It’s important to keep in mind, only 11 states have completely legal adult-use markets. As cannabis becomes legalized in all 50 states, it’s easy to see its employment surpassing other, more established industries. Read More (Forbes) STATE AND REGULATORY NEWS U.S. House to delay marijuana legalization vote until after election. A bill to remove marijuana from the Controlled Substances Act and thereby legalize the plant federally won’t be voted on by the U.S. House this week as planned or before the November 3 election. “House Dems have punted a vote on a marijuana legalization bill to the lame duck (session),” tweeted Sarah Ferris, a congressional reporter for Politico. She wrote that “many moderates were furious that the House would vote on weed before taking up a COVID bill, though other Dems called it a social justice imperative.” According to Politico, Congress will return after the election for a lame duck session, and lawmakers and aides have said a vote will occur on the legislation then. In a statement, House Majority Leader Steny Hoyer confirmed such a timetable, saying: “The MORE Act remains a critical component of House Democrats’ plan for addressing systemic racism and advancing criminal justice reform, and we are committed to bringing it to the Floor for a vote before the end of the year.” Read More (Marijuana Business Daily) States plow forward with pot, with or without Congress. Roughly 1 in 3 Americans could have access to legal recreational marijuana if voters approve state ballot initiatives this November. While a planned House vote on legalizing weed at the federal level is scheduled for later, the real action remains in the states. That’s because even if the House measure passes, there’s zero chance the Republican-controlled Senate will take up the bill, which would eliminate federal criminal penalties and erase some past marijuana convictions. But with the federal government continuing to take a hands-off approach when it comes to cracking down on state- legal markets, five more states could make it legal to buy weed for medical or recreational purposes. Read More (Politico) Cannabis industry growth potential for 2021. In 2019, about a dozen states were poised to put some form of cannabis-legalization initiative on their ballot referendums. Due to the COVID-19 pandemic and stymied petitioner campaigns, though, that number is now down to five states. Still, if these ballot referendums pass, the cannabis industry could see the expansion of existing markets and the opening of new ones in 2021. The market value of the U.S. cannabis industry is projected to reach $30 billion annually by 2025, according to New Frontier Data. The cannabis industry is diverse and comprises a wide range of businesses. Entrepreneurs need to consider their existing skill set and how they can enter the cannabis industry with expertise under their belt. Cannabis businesses face a lot of challenges, but entrepreneurs can overcome them by forming their company with these challenges in mind and creating the right plan and partnerships. Read More (Business News Daily) Americans will spend $60 billion on illicit marijuana this year, report says. Studies estimate that between 12% to 14% of adult Americans enjoy cannabis. That’s a massive group of consumers—and they spend billions of dollars every year on marijuana. Unfortunately, according to a new report, more than 71% of that spending goes to the illicit market, due to various forms of cannabis prohibition enforced in 39 states.