Is cannabis the next big category for sports marketers? Before we answer that one, a quick review of the market is in order.
A recent Yahoo News/Marist University survey estimated the number of Americans who currently use marijuana at 55 million (22%) ("current use" means having used cannabis at least once or twice in the past year.) About 35 million are what the survey calls "regular users," or people who use marijuana at least once or twice a month.
Up until recently, these cannabis users had to light up with discretion. That’s changing quickly: Nine states and DC have authorized recreational marijuana, and another 20 states are ok for medical use.
Revised legal status, changing societal norms and an enthusiastic market mean one thing: the cannabis market is burning up. [Ed. Note: I swear that will be the last pot pun for the remainder of this entry…] The US cannabis market, estimated at $8.5 billion in 2017, (+37% from 2016) is projected to reach $23.4 billion by 2023. In short, that’s anticipated market growth of over 275% in about 5 years.
Not surprisingly, that eye-popping growth is attracting a LOT of attention from the Fortune 500. Constellation Brands, the giant spirits maker and distributor, recently poured $3.8 billion into Canadian cannabis company Canopy Growth. Cigarette makers like Phillip Morris and British Tobacco, struggling with declining use of cigarettes, are preparing their own cannabis investments to stay ahead of shifting cultural tastes.
As money pours into the category, cannabis companies are prepping to battle for market share across the supply chain: growers, products, brands, retail, accessories, etc. As a reference point, consider the first birth pains of the commercial internet and the cascades of money that came from new companies eager for market share.
Can sports properties play a role here? While music venues and concerts may provide a more natural channel than sports (music and weed have something of a history together), we’re already seeing the first cannabis sports deals.
The Las Vegas Lights (USL) were among the first when the signed a deal with a local dispensary, NuWu Cannabis Marketplace. (Side note: The fun killers at the USL League office in Florida are trying to kill this deal.)
The National Women’s Hockey League (NWHL) is sponsored by AG Health, a Florida-based producer of hemp-based wellness products.
With legalization coming to Canada on Oct 18, 2018, rumors are swirling regarding medical marijuana producer Aphira partnering with the Canadian Football League (which doesn’t test players for marijuana use).
So while the ball is rolling, these are smaller deals with second-tier professional sports. A quick survey of sponsorship executives from top tier US pro teams where cannabis is legal suggest they are (for the most part) adopting a wait-and-see approach:
“We’re reticent to jump in because it’s still is a bit stigmatized and not sure it’s best for our brand to be associated with the industry. At least not at this point….”
“I’ve brought this up several times, but until it’s no longer a ‘no-no’ for the players, I think we’re going to leave it alone.“
“I would assume that we would be open to cannabis sponsorship, but it would be pending league rules. ”
“This is a category that would be welcomed by our fan base and also position the franchise as progressive, in contrast to other sports franchises in the market.”
“Under no circumstances will we be pursuing cannabis partners.”
“We are interested, paying attention, but not exactly sure how we or the league feels about promoting the category. Some believe it falls in line with tobacco, others see it as akin to alcohol especially if you are talking about edibles. ‘It’s complicated’ would be an appropriate description.”
It's complicated, indeed. State law permitting recreational use conflicts with federal law, which still classifies cannabis as a Schedule 1 drug. Cannabis companies operating in legal states cannot access the federally insured banking system, and therefore have challenges storing and moving money. Players are tested for cannabis usage and can be suspended for positive tests. So yes…complicated. And even if these issues are resolved by legalization at the Federal level, marketing legal cannabis will be highly regulated. Canada, which is approaching legalization on October 17, 2018, has enacted rules for marketing, branding and advertising that can only be described as draconian. Sports sponsorship, promotion and naming rights are specially referenced and broadly prohibited (PDF).
In the near term, the most likely recourse for teams seeking to secure cannabis revenue would be to focus on consumable CBD products. (This is where things get a little technical, so apologies while we diverge a bit into botany 101.) The cannabis plant produces about 16 different types of cannaboids, and cannabis-based products generally use two: THC and CBD. THC is the psychoactive ingredient that makes you high. CBD, on the other hand, lacks psychoactive properties and is widely regarded for its anti-inflammatory properties.
CBDs are where Erik Ott, founder of KO Acquisitions, a leading merger and acquisition specialist in the cannabis market, sees the greatest opportunity:
“Cannabis brands are very focused on the wellness aspect of the plant, and stand to benefit from sports partnerships to get the word out that CBD is a safe and more effective post-workout recovery tool than its opioid counterparts. Just as Gatorade taught us how instrumental electrolytes are to reduce cramping, cannabis companies can teach us that CBD can help the recovery process by reducing swelling, decreasing nausea, alleviating pain and improving sleep and relaxation.”
Cannabis and CBDs as the next Gatorade? It's awfully enticing: the market that Gatorade created in 1965 now generates $25 billion in sales annually. According to KO Acquisitions’ Ott, CBD drinks might very well follow a similar trajectory: a market that now generates under $20 million in annual sales is projected to grow to $600 million by 2023.
Craft brewers are beginning to put muscle into getting the CBD beverage ball rolling. Heineken's Lagunitas brand recently launched HiFi Hops, a nonalcoholic beverage that has different CBD and THC levels. Increasing activity between craft brewers and cannabis producers is a fait accompli, as is the marketing muscle that goes along with their offerings. As one NBA sponsorship executive put it: "The real question is how long until our beer partners are pressuring us to take their new cannabis infused products?"
Sports properties that involve participation (marathons, endurance races, challenge courses, etc) might be the most natural first step for significant partnerships, as they can reinforce the CBD product's recovery-oriented messages, and don't have to deal with league offices. The wild west of eSports seems like a natural fit as well.
Teams from the major pro leagues, obviously, have to take a more conservative approach. Aggressive properties should consider working with existing beer and CPG partners to review their planned cannabis offerings and determine their content (THC v CBD). For these top tier sports properties, CBD pure products offer a realistic and intriguing starting point for what could be an immensely profitable (though nevertheless challenging) category.