While monitoring cannabidiol as a theme in beauty, Jefferies analyst Stephanie Wissink noted that while large conglomerates are infusing CBD into existing labels and could augment through M&A, indie brands and specialty retailers are the ones taking the lead in developing the category, estimated at $25B globally in 10 years. As with other ingredient trends, the analyst argued that CBD infused products will likely replace existing non-CBD items in the beauty bag and not significantly enlarge the market size.
CBD IN BEAUTY: The legal U.S. cannabis market nears $10B today, potentially growing to $60B by 2025, Jefferies' Wissink told investors in a research note. The analyst sees wellness aligned categories having among the best potential to capitalize on growth given generally loose regulatory frameworks around topicals, low cost digital content to market, and specialty venues to merchandise. As the trend develops, large conglomerates are infusing CBD into existing labels and could augment through M&A, she added, pointing out Estee Lauder's (EL) Origins Hemp Mask, Unilever's (UN) Murad Hemp Serum and L'Oreal's (LRLCY) Keihl's Cannabis Serum as examples. But similar to other trends, Wissink noted that the majority of CBD beauty offerings are from smaller indie brands, which are taking the lead in developing the category. The analyst believes consumers' interest in wellness, natural ingredients, medicinal benefits and the legalization of marijuana in several states and countries have catalyzed interest in CBD beauty, with search trends for the category up 370% year to date. However, she argued that to the extent CBD infused products are adopted, they likely will replace existing non-CBD items in the beauty bag. Overall, Wissink does not see CBD significantly enlarging the market size, unless dermatology scripts for skin conditions are replaced by over the counter CBD goods, which could drive comparable sales at LVMH's (LVMUY) Sephora and Ulta Beauty (ULTA). Regarding regulations around CBD beauty products, recent discussions "with numerous CBD beauty brands" suggest that the pathway to market is improving, she added.
RECENT INITIATION OF CANNABIS NAMES: Late last month, Jefferies analyst Owen Bennett started coverage of nine names in the cannabis space, namely Aurora Cannabis (ACB), Green Organic Dutchman (TGODF), CannTrust (CTST), OrganiGram (OGRMF) and Flowr (FLWPF) with Buy ratings, Canopy Growth (CGC) and Emerald (EMHTF) with Hold ratings, and Cronos (CRON) and Hexo (HEXO) with Underperform ratings. The analyst told investors that he sees a base-case conservative industry size of over $50B by 2029 and a realistic upside size of $130B on wider industry disruption. Further, he argued that global winners will be those that lead in both medical and recreation, which are now broadly similar but will become two distinct segments, and also have a strong U.S. position.
PRICE ACTION: In morning trading, shares of Estee Lauder have gained almost 1% to $158.87, while Ulta Beauty's stock has dropped about 1% to $307.80.
Estee Lauder
+1.44 (+0.91%)
Use symbol UL
+0.085 (+0.16%)
Unilever
+0.01 (+0.02%)
L'Oreal
+ (+0.00%)
LVMH
+ (+0.00%)
Ulta Beauty
-2.07 (-0.67%)
Aurora Cannabis
+0.11 (+1.39%)
Green Organic Dutchman
+ (+0.00%)
CannTrust
+0.17 (+1.93%)
Organigram
+ (+0.00%)
Flowr
+ (+0.00%)
Canopy Growth
+0.66 (+1.43%)
Emerald Health Therapeutics
+ (+0.00%)
Cronos Group
+0.39 (+1.86%)
Hexo
+0.1 (+1.81%)