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Volume 23 No. 17

In Depth

Signage from CBD sponsors was visible at two of sports’ biggest events in the past month — on Bubba Watson’s visor at the PGA Championship and on James Hinchcliffe’s Arrow Schmidt Peterson Motorsports car at the Indianapolis 500 (see photo below).
Photo: getty images
Signage from CBD sponsors was visible at two of sports’ biggest events in the past month — on Bubba Watson’s visor at the PGA Championship and on James Hinchcliffe’s Arrow Schmidt Peterson Motorsports car at the Indianapolis 500 (see photo below).
Photo: getty images
Signage from CBD sponsors was visible at two of sports’ biggest events in the past month — on Bubba Watson’s visor at the PGA Championship and on James Hinchcliffe’s Arrow Schmidt Peterson Motorsports car at the Indianapolis 500 (see photo below).
Photo: getty images

CBD marketer Pure Spectrum is close to completing a sponsorship deal with a national governing body for an Olympic sport — USA Triathlon. The company, which already has more than 100 paid athlete endorsers, primarily from CrossFit and mixed martial arts, is also in talks with the PGA Tour and the National Basketball Retired Players Association.

These are among recent indicators that CBD products, formulated from the non-psychoactive chemical in marijuana plants, are going mainstream. And even though marijuana remains illegal under federal law, there are many more examples.

Last week, the UFC signed its first cannabis sponsorship, bringing on Aurora Cannabis to promote its CBD products. The deal came three years after UFC fighter Nate Diaz shocked a post-fight news conference by sucking on a CBD vape pen after losing the main event to Conor McGregor.

Also last week, news surfaced of the NFL and its players union agreeing for the first time to jointly study the use of marijuana as a pain management tool. The NHL Alumni Association in March said it was working with Canopy Growth, a cannabis company, for research on 100 retired players to see if CBD products could effectively treat post-concussion neurological disorders.

In golf, Bubba Watson played the recent PGA Championship with a visor bearing the logo of cbdMD, a company mainstream enough that it is traded on the New York Stock Exchange (YCBD) and advertised on a digital billboard in Times Square. Earlier this year, Scott McCarron was the first PGA Tour player to join the CBD parade, signing with hemp-oil supplier Functional Remedies. Scott Piercy, with four career wins on the PGA Tour, is touting Real Brands, a CBD company in which he’s an investor.

This year’s Indianapolis 500 included cars sponsored by at least two different CBD marketers: Defy, a CBD-based sports performance drink, sponsored two cars from Arrow Schmidt Peterson Motorsports; and a Carlin Racing car carried advertising from CBD maker Craft 1861. An illustration of how confounding industry regulations are is that while teams can transact sponsorship deals, the drivers piloting their cars cannot use the sponsor products, because CBD remains a banned substance at the Indy 500.

The list of retired stick-and-ball athletes who have invested in or are touting marijuana-related products is long but starts with an all-time great. Pro Football Hall of Famer Joe Montana recently participated in a $75 million round of fundraising for Caliva, a California company, which grows marijuana and sells it in its own stores and to hundreds of other retailers. Other hall of famers with connections to the industry include Terrell Davis as a co-founder of Defy and Andre Reed as an endorser for CBD company Kannaway. Former Detroit Lions wide receiver Calvin Johnson has received preliminary approval for a license to operate a medical marijuana dispensary in Michigan, where voters legalized recreational pot use last November. 

As mainstream a retailer as CVS recently began selling CBD products across its stores in eight states: Alabama, California, Colorado, Illinois, Indiana, Kentucky, Maryland and Tennessee. An Amazon search for “CBD” elicits seven pages of results: from dozens of hemp gummy bears to a remarkable variety of CBD dog products, including “Calm Pup,” “hemp oil-infused chews for dog anxiety” and “Zesty Paws Calming Treats.”

So, when will America’s biggest sports leagues start allowing CBD sponsorships, not to mention allowing deals for the psychoactive side of the growing cannabis industry, as pot becomes legal in more states? It’s one of the leading  questions now being asked on the revenue side of every sports property.

WHERE IT’S LEGAL


115 pro teams play in 9 states, plus Washington, D.C., that have fully legalized (medicinally and recreationally) marijuana.

California: 47
■ Colorado: 10
■ District of Columbia: 8
■ Maine: 3
■ Massachusetts: 12
■ Michigan: 11
■ Nevada: 6
■ Oregon: 6
■ Vermont: 1
■ Washington: 11

Note: Alaska does not have a pro sports franchise. 

Source: SBJ research

“This [CBD] is a major emerging category. A lot of our fighters [including two-time UFC bantamweight champion TJ Dillashaw] are doing endorsement deals on their own,” said Paul Asencio, senior vice president of global partnerships for the UFC. 

Asencio said the Aurora deal, which includes octagon placement and content rights, is one of UFC’s five largest sponsorships. An industry source said the deal was for five years at an annual average of $15 million, but Asencio would neither confirm nor deny that figure. He said the deal took less than three months to complete and that UFC had meetings with five or six other CBD companies.

“This [CBD]  category is really active and now everyone’s going to be on this category, but I think we’re a year or two away from an MLB or NFL doing this sort of partnership,” he said.

A veteran sponsorship salesman for one of the big four stick-and-ball leagues recently suggested to senior management that CBD products were the next big sponsorship category. Their answer:  “a hard ‘no,’ at least for now,” he said.

“Marijuana is the big category everybody’s waiting for,” offered a senior salesman at one of America’s biggest arena management companies. “You see all the athletes getting involved. Marijuana itself is way off for the leagues, but CBDs are coming soon. … I could eventually see [separate] sponsorships for CBDs, pot delivery services like Eaze, retailers and even [marijuana] brands, but our lawyers have told us to hold, even in states where pot is legal.”

Estimates of the potential size of the cannabis sponsorship market range from something rivaling the spirits category to an explosion of money that could surpass sports’ ultimate sugar daddy — the beer industry.

“The legal cannabis category [in the U.S.] is set to grow at a 17% [compound annual growth rate] over the next decade to as much as $47 billion in annual sales,” RBC Capital Markets analyst Nik Modi wrote in the company’s note to clients last August.

The growth in sales is mostly thanks to recreational marijuana use, and specifically products such as edibles and concentrates. RBC estimates suggest that in the U.S. alone, illegal and legal marijuana sales amounted to $50 billion, compared to wine at $65 billion, cigarettes at $77 billion and beer at $117 billion.

“If you include CBDs and [psychoactive] pot, I think that category IS beer, maybe larger,” said the league sponsorship salesman. “Considering the amount of competition in CBDs, as a seller, I’d throw out an insane number as an asking price. People compare this to gambling, but that was an established industry. This is the Wild West.”

“This could be bigger than cigarettes, which created some of the first big sports marketing, like Winston Cup and Virginia Slims Tennis,” said Chris Weil, chairman and CEO of Momentum Worldwide, which counts sports-centric brands American Express, Verizon, Coca-Cola and Anheuser-Busch InBev as clients and more recently, Canadian cannabis company Starseed. “We’re in the top of the first inning as far as figuring this all out. There’s very little clarity as far as [corporate] liability, along with what’s legal and where, in terms of products and marketing.”

■ ■ ■ ■

CBD’s purported health benefits are almost endless. As an anti-inflammatory, pain reliever and opioid alternative, some athletes say CBD is perfect to promote recovery and healing. Retired NFL players have used it to combat the debilitating effects of CTE. CBD products have also been touted as sleep aids; cancer-fighting medicine; or something that can ease depression, assist those quitting a tobacco addiction and those recovering from concussions. There are numerous claims that CBD is an effective treatment for Alzheimer’s disease, epilepsy, arthritis and various anxieties, including post-traumatic stress disorder. It’s even been suggested as a treatment for acne.

“There are claims from A to Z,” said Pure Spectrum founder and CEO Brady Bell, who has successfully used CBD products to control tic syndrome, something akin to Tourette syndrome. “I stick with what I know,” he said, “but we are at the point when maybe 9% of the country even really knows what CBDs are, much less what they do.

“I’ve sat with some of the country’s most prominent doctors who are starting to change their minds about CBDs. But if you put my mom in a room and asked her to take our products, there’s no way to talk her into it. We have to fight through decades of propaganda to get people to understand that this is not a mind-altering drug.”

Photo: getty images
Photo: getty images
Photo: getty images

While the World Anti-Doping Agency removed CBD from its list of banned substances effective last year, THC — which produces marijuana’s “high” — remains on the list. As for CBD products, there are still concerns that some formulations contain enough THC to cause athletes to fail an exam or “test hot.” Some CBD purveyors, like Pure Spectrum, make a zero percent testing claim a cornerstone of their marketing to athletes. A third-party verification of that claim will be a prerequisite before mainstream sports properties will feel confident enough to attach their intellectual property to CBDs.

“We need to be 100% sure that if our fighters were to use this product, they won’t test positive,” said the UFC’s Ascencio, expressing concerns held across the industry. “During our negotiations, what was so important to Aurora was the clinical research and data [on athletes and CBD products] we’ll do as part of this.”

Or, as the league corporate salesperson put it, “before doing a deal, we’d spend a lot for third-party verification.’’

Perhaps the most complex issue will be dealing with collective-bargaining agreements, under which pro athletes are tested for THC, among other banned substances. “No league’s going to let a sponsorship deal happen for a banned substance,” said Brian Cooper, president and CEO of MKTG Canada.

An important question here, to this point rhetorical: If a league agreed to stop testing for THC, what would it ask for as a quid pro quo from the players association?

■ ■ ■ ■

Recreational use of marijuana has been legal across Canada since last October, but pot marketing there is still restricted. Distribution is largely limited to government-owned retail, and while there are more than a handful of multibillion-dollar market cap and publicly traded pot companies, such as Canopy Growth, Tilray and Aurora, that doesn’t mean those marketing budgets also are bloated.

“The restrictions on [marijuana] marketing here have not caught up to the fact that it’s now legal, so what you have seen up here has been a lot of medical claims,” Cooper said. “All these companies have lobbyists and what they are all saying loudly now is ‘How can you let us have a business when we can’t brand or differentiate ourselves?’”

Hubert Richard, president of Effix, which exclusively handles sponsorship sales and marketing for the Montreal Canadiens and their home, Bell Centre, said that when marijuana was first legalized north of the border, some of the largest Canadian cannabis companies were interested in securing right of first refusal to negotiate, in case a sponsorship pact with the Canadiens would ever be permitted. “They had serious, serious money to invest,” he said, “but it’s ended up being similar to tobacco laws: advertising and sponsorship is just impossible here. … Even if it became legal, there’s still a moral question, so I doubt if any of the big teams, such as ourselves, would associate themselves officially with those products.”

In the U.S., some marketing talent is following the dollars into the cannabis industry. Kevin George was global CMO at spirits marketer Beam Suntory and the president of the Mosaic marketing agency before early this year joining Harvest Health and Recreation, a vertically integrated marijuana grower, manufacturer and seller with 21 stores in eight states. “The way it is now, it’s not unlike how spirits were treated by the sports leagues for quite some time,” he said.

First Look Podcast, with sponsorship discussion beginning at the 24:55 mark:

George said marijuana marketing was “difficult, but not impossible, in states where it’s legal,” normally using out-of-home, local digital and print ads. He also noted the growing use of music festival sponsorships by cannabis companies, including the Harvest House of Cannabis activation with Rolling Stone in Palm Springs during Coachella weekend, which included product sampling, along with “CBD-infused massages and yoga.”

George said he expects a top pro sports team to break the pot embargo within 12 months. “Spirits had since prohibition ended [in 1933] to figure out how to market,” he said. “In cannabis, we’re at the day after prohibition now, and just figuring out how to handle marketing of every type. State regulation moves at its own speed, which isn’t that fast, but it will move a lot faster than 86 years.”

Noting that federal illegality is one of the many sticky issues surrounding marketing of cannabis and related  products, Momentum’s Weil said, “The real question will be around government regulation. Does pot get regulated like cigarettes or does it get regulated like beer and alcohol? The social norm will be reached when taking a hit or two on your vape pipe is regarded no differently than drinking a beer, but I’m not sure yet if that’s where the whole thing is heading.”

NuWu Cannabis Marketplace activated its sponsorship with the Las Vegas Lights in a most visible fashion.
Photo: las vegas lights
NuWu Cannabis Marketplace activated its sponsorship with the Las Vegas Lights in a most visible fashion.
Photo: las vegas lights
NuWu Cannabis Marketplace activated its sponsorship with the Las Vegas Lights in a most visible fashion.
Photo: las vegas lights

The USL Las Vegas Lights were the first pro sports team in America with a cannabis sponsorship, signing a three-year pact last year with a cannabis dispensary that’s four blocks from the team’s downtown Vegas stadium.

NuWu Cannabis Marketplace, owned by the Las Vegas Paiute Tribe, sells Lights jerseys and other merchandise in the same massive (almost 16,000-square-foot) retail space where it sells buds and vape pens. The sponsorship includes a 36-by-18-foot sign at the team’s home, Cashman Field, that says “Get Lit.’’

Lights owner and CEO Brett Lashbrook said his team gets paid for the “high five-figure” annual sponsorship the same way every quarter — with cash stuffed into a brown paper bag, a result of banks’ reluctance to work with marijuana companies. Activation behind the sponsorship includes some routine ticket promotions and bounce-back offers.

“Really, it’s like any other sponsorship in terms of activation, it’s just in an incredibly nontraditional category,” said Lashbrook, the former COO at MLS team Orlando City. 

“The shock value within the sports world over this sponsorship has all been outside of Nevada,’’ he added. Even though there are USL teams in pot-legal locales such as Colorado, California and Canada, the Lights remain the USL’s only team with a cannabis sponsorship, which says all you need to know about the stigma still attached to marijuana after 82 years of federal prohibition.

CBD, the non-psychoactive portion of hemp and marijuana plants, seems to be nearing big sport sponsorships. Most industry experts interviewed for this story predicted that one of the big four American stick-and-ball leagues will allow CBD deals within a year or two.

So how far are we from widespread marketing, including sports sponsorships, for products containing THC, the psychoactive ingredient in cannabis? Marijuana is now legal for recreational use in 10 states, permitted for medical usage in 33, and it’s legal throughout Canada. 

“It’s just going to follow the same path as gambling — state by state,’’ said former Visa sponsorship chief Michael Lynch, now servicing the nascent cannabis industry through 3 Emerald Marketing, a new California sports and entertainment marketing agency. “Some league will have to do it first, and I believe it will be the NBA, because [Commissioner] Adam Silver is an innovator.”

The biggest indicator that marijuana will make it into sports as an intoxicant is the sizable investments in the industry by North America’s largest breweries, all of which already spend heavily on sports media and sponsorships.

Heineken-owned Lagunitas sells THC- and CBD-infused beverages in California dispensaries.
Heineken-owned Lagunitas sells THC- and CBD-infused beverages in California dispensaries.
Heineken-owned Lagunitas sells THC- and CBD-infused beverages in California dispensaries.

Looking to develop cannabis-infused beverages, Corona beer marketer Constellation Brands, has invested more than $4 billion in Canopy Growth, one of Canada’s biggest cannabis companies, which equates to around a 40% equity stake. Anheuser-Busch InBev is working with Tilray, another Canadian pot producer. Molson Coors is developing THC-infused beverages with Hexo Corp., another large Canadian cannabis concern.

Last June, Heineken started selling Lagunitas-branded Hi-Fi Hops. The nonalcoholic beverage comes in two versions — one with 10 milligrams of THC, and one with 5 milligrams of THC and 5 milligrams of CBD and is sold in some of California’s cannabis dispensaries.

“You look at the brewers’ investments and you just know this has to find its way into sports eventually,” said Brian Cooper, president and CEO of marketing agency MKTG Canada. “We’re probably three to five years away, but eventually this will be as big in sports as booze and beer combined.”

Wealth management expert and New York Yankees minority owner Barry Klarberg asserted, “The next billionaires are coming from this business.’’ Still, Klarberg, who recently has been representing athletes and cannabis companies, added “I don’t see the big leagues allowing this — even for CBDs — until it’s legal across the United States.”

“We’re all really stoked.”

That’s not a review that most athletes would give when asked to assess the business metrics of a corporate partnership that he is forbidden to talk about on game day.

Prior to the beginning of the AMA 2019 Monster Energy Supercross season, Los Angeles-based CBD company Ignite signed a one-year sponsorship deal with rider Dean Wilson. But as Wilson was practicing on the track in the days leading up to the season-opening Anaheim 1 at Angel Stadium in early January, the company’s logos on Wilson’s bike and apparel triggered some concerns at Feld Entertainment, the circuit’s operator, and NBC, its broadcast partner.

Dean Wilson signed a one-year deal with Ignite, leading to an increase in the company’s brand awareness.
Photo: mx vice
Dean Wilson signed a one-year deal with Ignite, leading to an increase in the company’s brand awareness.
Photo: mx vice
Dean Wilson signed a one-year deal with Ignite, leading to an increase in the company’s brand awareness.
Photo: mx vice

A chemical in marijuana, CBD does not cause a high and is often sold as a dietary supplement or included in creams and other personal care products. CBD isn’t legal in a lot of states, Wilson said, so he was forced to put tape over the logo on race day.

The AMA quickly issued a set of guidelines that allows riders to sign such deals and activate on social media, but forbids any form of race-day exposure, including verbal mentions on TV.

But Wilson, who said he gets drug tested “all the time,” said that Ignite has told him that the partnership has directly led to an increase in the company’s brand awareness and in the sales of its products.

The number of people following Wilson’s social media channels grew 13% since the season began in January, according to SBJ analysis of Hookit data.

“But it’s not just about selling the product,” he said. “It’s about raising awareness of the benefits of CBD.”