You might say that Vivien Azer is the OG of cannabis analysts. A managing director at the financial firm Cowen and Company, Azer was the first major Wall Street analyst to begin covering the cannabis industry—a sector she added to her mix of beverage and tobacco companies in 2016. Three years later, the world’s biggest banks are still scrambling to cover the growing cannabis industry, which Azer projects will be worth $80 billion by 2030 in the US alone.
Quartz caught up with Azer just after she wrapped up at Cowen’s cannabis summit in Canada, where many of the mega-producers she covers are based. She told us why she’s bullish on CBD, how she sees the structure of this new industry developing, and what makes the CBD business different from booze or beauty.
QZ: How was the mood at Cowen’s cannabis industry summit last week?
VA: It was pretty upbeat. All the Canadian companies are working feverishly to ramp capacity…everyone is just ramping capacity. Pricing is holding up well and increasingly these companies view the broader cannabis opportunity as a global one—be it adult-use in Canada, medical in Europe or Latin America, or CBD in the United States.
It’s interesting that you say CBD in the United States. It seems like one thing that CBD is doing is giving these Canadian companies inroads to the US market. Is the excitement about CBD justified?
It is justified. We were surprised to see in our survey data that, you know, over 6.5% of our respondents had already tried a CBD product, including beverages, which came in at like 20%. At the time that we did that survey, I hadn’t even tried a CBD beverage yet!
Have you now?
Yes, I have! But it really just speaks to the broader point that consumers are educating themselves on CBD, and really seeking out these potentially novel solutions.
Have you seen anything in your alcohol or tobacco coverage that’s comparable to CBD in terms of an ingredient, or a product that generated this much excitement and interest?
No, I don’t have a good analog for CBD. Certainly not in my core coverage. I could say e-cigarettes but I think that’s probably a stretch.
But it’s not, say, craft whiskies or IPA?
No, because it would have to be something that’s totally new. So maybe it’s like hard seltzer—that was a totally new phenomenon a couple of years ago.
But how big do you think it could be? Is it the new hard seltzer or is it the new alcohol?
Neither. We really view CBD as a health and wellness solution, given its purported benefits as it relates to inflammation and anxiety. It is psychoactive because it has anti-anxiety properties, but it doesn’t make you high—which is why I don’t really think about it as an alcohol substitute. I think about marijuana and alcohol as substitutes.
I noticed in one of your notes that by 2020 you’ve got CBD projected at an almost 30% share of the herbal supplement market.
Yeah. I don’t cover any other herbal supplement companies, so it’s a best guess. But we were surprised to see how many consumers had already tried the product. And so, you know, the estimate that had been out there for sizing the CBD market opportunity had been $600 million to $2 billion in 2018 in CBD sales, per [CBD market researcher] Brightfield. But then after we saw our own survey data, it seemed reasonable enough to us that category sales were likely at the high end of that range.
What is the bull case for CBD?
That we live in an increasingly busy world. Everybody has anxiety and this is a great solution for that.
And what’s the bear case?
That some kind of research comes out that there are unintended consequences that consumers had not been made aware of because there wasn’t adequate science, ie: side effects.
What should we be looking more at from a market perspective?
I think one of the most interesting things is how quickly some large retailers pivoted to carry even limited amounts of CBD after the passage of the Farm Bill—like Walgreens and CVS as prime examples.
Do you get a sense that the market is oversaturated, or do you think there’s still room for it to grow?
In terms of the number of participants in the marketplace, it has gotten quite competitive very quickly. But if I benchmark it to distilled spirits—which is obviously a much bigger category—no, it wouldn’t suggest that we’re oversaturated. If you just look at vodka alone, there’s like 800 vodka brands in the United States.
So you think there’s still good room for it to grow?
In terms of the number of participants, yeah, I’m sure it will. One thing that could drive a natural shakeout could be the transition to brick-and-mortar retail—there is only so much shelf space available.
I recently heard Canopy CEO Bruce Linton say that an overproduction of CBD in the US could cause a crash in the price. Do you look at indicators like that?
We have not yet identified a good methodology for surveying wholesale pricing on CBD, or supply coming online, and that would be what you needed to do if you were going to try to forecast price deflation in the market.
Do you think there is a bubble coming, or is this here to stay?
Cautiously, we think it’s here to stay. Much earlier in my career as a junior associate, I looked at companies like Estée Lauder and other beauty brands. So I’m cognizant that in beauty there are a lot of fads, for sure. Where I think that CBD is different is that, with beauty applications it can sometimes be hard to tell, as the average consumer, whether you’re actually getting the advertised benefit. But if this is a solution for topical pain relief, you know whether you got a benefit or not almost instantaneously.
So in pain relief it seems like more of a pharmaceutical substitute. But we also see CBD in face oils, mascaras, and products like that. Are you just as interested in those segments?
Oh, absolutely—especially high-end beauty. That can be a very high-margin offering for a manufacturer.
If you’re thinking about CBD as a wellness solution, how does that play in with some of the big alcohol companies getting involved with CBD-infused beers and beverages? Are these just a blip, and where it’s really going is wellness?
We kept nutraceutical form factors as the biggest sub-segment in our $16 billion market survey exercise. That was deliberate. Vape for instance, we have as the smallest category. I believe we are forecasting it for $900 million. If you really believe this is a health and wellness proposition, then is vapor the right delivery system? I’m a little skeptical.
What’s the attraction of CBD for more established industries like tobacco and alcohol?
It’s an ability to ideally leverage their existing distribution network and their retail relationships—and drive incremental top-line growth, which, if you’re in the tobacco industry, you could definitely use.
Do you think that CBD is sort of here to stay as its own industry, or will tobacco and alcohol companies have CBD arms? How do you see the structure of this industry playing out?
It’s totally reasonable to think that there’s going to be pure-play CBD brands in the marketplace, but that you’re also going to see large multinationals either introduce their own CBD offerings and/or partner with an existing player to introduce something.
As far as the tobacco companies getting involved, what do you think is the most interesting there?
Altria and Cronos are doing something in an asset-light way. I would think that would be just a prelude to marijuana.
A prelude to the tobacco companies getting into marijuana?
CBD and marijuana are both types of cannabis. It’s the same thing. Canopy Growth has articulated the strategy—they’re going to get into the market with CBD because that’s what’s legal in the US, and then they hope to be able to leverage those assets into marijuana.
Is national cannabis legalization in the US important to the CBD market at this point?
If you believe that there is some kind of crossover in the consumer base, then expanding legal access to adult use could have a halo effect on CBD. But when we did our CBD market sizing, we didn’t contemplate national marijuana legalization as a key factor one way or the other. It seems like consumers are just figuring out what CBD is on their own, with the internet.
Do you see it affecting the beverage market?
From a displacement standpoint? No, not really. The total non-alcoholic ready-to-drink beverage category in the US is quite large—over a hundred billion dollars. So if I’m sizing the entire CBD opportunity at $16 billion and a fraction of that is beverages, it would be too small to move the needle.
What do you think the cannabis industry can learn from tobacco and alcohol?
They can learn a lot about branding, number one. This is the US, right? Everything is highly branded. They can learn about retail distribution, price segmentation—categories generally have a good-better-best framework. And as a product manufacturer, you should know very specifically which of those verticals you want play in.
What’s most exciting to you about, about CBD specifically?
That it could very well have the potential to ultimately help de-stigmatize the broader cannabis category.