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COWEN
COLLABORATIVE INSIGHTS
February 25, 2019

Topicals

Outside of nutraceuticals, we expect the topical CBD market to provide the largest contribution to industry sales. We believe the non-ingestible nature of the product makes it more attractive to consumers looking to experiment in CBD and can provide a source of trial into the category. While the CBD market clearly needs more clinical research into the benefits of the cannabinoid, it has been suggested that two of the primary benefits are anti-inflammation and muscle recovery, which can cater to a large and diverse consumer base.

Over the next two years, we expect the topical CBD market to grow to $1.5 bn (almost $1 bn less than our outlook for nutraceuticals). We estimate that in 2018, the total addressable U.S. topical market, which includes both OTC and rx offerings was ~$12.8 bn. If we assume no growth in the category base, a $1.5 bn CBD category by 2020 would imply a ~12% share of the market, the largest market share among all of the categories analyzed, excluding nutraceuticals.

Figure 48 U.S. Topical Category Generates ~$13 BN In Revenue

U.S. Addressable Topical Market ($ in bn)

[Chart showing bars for 2018, 2019E, 2020E at values $12.8, $12.8, $12.8]

Source: Company Reports and Cowen and Company

Figure 49 We Believe CBD Topicals Could Be A $1.5 BN Market in 2 Years

U.S. CBD Topicals ($ in mm)

[Chart showing bars for 2018 ($500), 2019E ($1,000), 2020E ($1,500)]

Source: Cowen and Company

Our below scenario analysis provides a wider incremental range of market share outcomes relative to other categories. We can see that every 5 pts of market share capture is worth over $600 mm in revenues. While our analysis contemplates a 2% share of the topical market, we believe that this is unlikely and view the floor at ~7%, which would imply almost $900 mm in revenues by 2020. Given the number of companies providing topical solutions, coupled with what we expect to be robust consumer demand, a market share between 12-17% is not unrealistic.

Figure 50 Topicals Expected To Be a Major Contributor to CBD

2020 Market Share Scenario Analysis

Market Share | 2% | 7% | 12% | 17% | 22%
Absolute Sales ($ in mm) | $220 | $860 | $1,500 | $2,140 | $2,780

Source: Cowen and Company

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