Sponsorship’s new frontier: Marijuana
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.”
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.”