The CBD market is at the start of a rapid growth trajectory. Looking to lead the way is the newly-listed Cellular Goods (LON: CBX) with its biosythensis approach that allows it to efficiently scale up its CBD offering far quicker than a field cultivation approach.
Backed by David Beckham’s investment company and operating in a promising market which is ripe for a dominant player to emerge, there are high hopes that CBX’s formula could enable it to become the go-to consumer brand in the space.
Here we speak to Cellluar Goods Chief Executive Officer Alexis Abraham who reveals why he is confident that Cellular Goods will be able to put its early mover advantage to great effect and deliver exceptional shareholder value.
Firstly, can you please provide an overview of Cellular Goods’ value proposition?
Cellular Goods is a UK-based provider of premium consumer products based on biosynthetic cannabinoids. We make efficacy led and research-backed products and the initial range includes premium skincare and athletic recovery. We prefer to call the latter ‘movement’ because we believe that our consumers will be aged 18-80 because who doesn’t want to move a little bit better every day. The world is waking up to the potential of cannabinoids and at the same time we have seen massive growth in the public’s awareness of the importance of wellness and self-care. At Cellular Goods we firmly believe that cannabinoids will prove to be the king of wellness ingredients.
The now well known cannabinoid CBD has gained significant attention but the market remains fragmented and there are few recognisable brands and no ‘household’ names in the sector yet. We aim to meet the need for a standout consumer brand through our investment in proprietary formulations, clear and informative content, and the quality of our research-backed products. The lab-made biosynthetic cannabinoids we are exclusively using are not derived from grown hemp or cannabis plants and so are pesticide and contaminant free and are the result of a supply chain that is massively more sustainable and scalable. Following industry best-practice our products have known provenance and extensive independent laboratory testing to ensure consistency and efficacy. The alliance of real science and a dominant brand is a key feature, and a not easily replicated differentiator between Cellular Goods and other companies in the space.
We are the first pure-play cannabinoid consumer products company to list on London Stock Exchange. This offers a compelling opportunity for UK investors who are currently underserved for options to take positions in this rapidly evolving market. Sourcing our cannabinoids through biosynthesis also enables much more immediate scale-up for Cellular Goods because lab-engineered cannabinoids are meaningfully more time and energy efficient than those produced by field cultivation. Currently, it requires between five and ten days to produce one batch compared to up to 200 days for the field-grown equivalent. The fermentation manufacturing process, also known as biosynthesis, sees large outputs over short periods under precisely controlled conditions producing consistent yields of the highest quality and purity.
Across the verticals you are focusing on, how will you look to successfully penetrate the respective markets?
Our overarching goal is to deliver effective and research-backed cannabinoid products that consumers can trust. The net proceeds from our IPO will be deployed to finalise the development, launch and marketing of a range of Cellular Goods’ premium-quality consumer products for skin care and movement, with the first skin care range due to launch in September and our second topical recovery range coming on to the market early next year.
The CBD market is currently comprised of a large number of smaller companies, each of whom have different product offerings, philosophies and for the most part are selling their product directly to the consumer through their own website, while a few producers have agreements with retailers such as Holland and Barrett and Lloyds pharmacy and other retailers.
Consequently, the quality of CBD products differs significantly across the market as shown by recent independent testing by the Centre for Medicinal Cannabis in 2019. While testing 30 popular CBD oil products available in the UK from either retail or online stores they found that only 38% of the products tested were within 10% of the advertised CBD content. Given this backdrop it has been difficult for consumers to make informed decisions about the quality, compliance, and composition of the products they are purchasing, and this study clearly shows that for what’s been available on the shelves to date testing hasn’t been carried out in a consistent or rigorous manner. Cellular Goods addresses these weaknesses of the industry with our own testing at multiple points throughout the manufacturing and supply process.
Our go to market strategy is a hybrid of the now popular direct to consumer model combined with the edit and authority conferred through the targeted use of physical and online retail partners. Our team is exploring retail opportunities through supply arrangements and partnerships with retailers and well known premium online shopping businesses as we know that many consumers discover and gain trust in brands as a result of their presence in established and respected retailers on the high street and online. On our website customers will be able to make both one-off purchases, set up recurring purchases, and access cross-category bundles. The subscription approach is a proven model with popular brands such as Dollar Shave Club, BarkBox and Glossier proving the merits of this approach for building loyal long-term customer bases.
Beyond this, the nascent cannabinoid market has many opportunities. Looking to the more advanced market in the US, a booming CBD market has spawned a very interesting subset in pet products; a valuable segment that we are keen to explore.
The numbers. Can you provide an indication as to what financial success potentially looks like in the coming years?
We are a young company that is currently focused on growth and as such we plan to channel our profits into maximising Cellular Goods’ success and longevity through proprietary research and development and investment in our brand.
The market opportunity for novel cannabinoids in Europe is huge and we are uniquely poised to capitalise on this lucrative space given the capital we have raised, the expertise of the management and advisory team we have assembled, and our strategic focus on biosynthesis, a method of production that is going to revolutionise the industry.
Already, six million people in the UK have tried CBD, according to the Centre for Medicinal Cannabis, which also found that 1,300,000 British consumers are currently using CBD products. This is a significant existing base and a good starting point but it is just the beginning. For instance, the CMC has found that the UK market has doubled year-on-year for the past three years and is expected to be worth almost £1bn a year by 2025.
Initial revenue will derive from sales of the first product ranges; a cannabinoid face mask and serum and a CBD based topical gel for movement harnessing the anti-inflammatory and antibacterial properties of cannabinoids. Cellular Goods will diversify revenue streams as we continue to develop and add product lines and verticals. We expect to have 250,000 active customers over the first three years based on analysis of the size of the market and Cellular Goods’ anticipated marketing spending and reach.
Cellular Goods believes that the skin-wellbeing and movement markets approached through compliant topical applications is a prime opening on which to focus our initial products and in which to develop our first ranges. The surging demand and year-on-year growth seen in Canada and North America has been tremendous. The UK is one of the strongest markets in its own right already, and together with Europe, we believe it is on the start of a journey that will broadly follow the same trends observed in the US and potentially exceed them.
What are the key challenges you anticipate in achieving your growth plans and how will you overcome them?
The biggest hurdle in the sector for many businesses has been the associated regulatory challenge. The cannabinoids in our products are lab-made and not extracted from the plant and because biosynthetic production of cannabinoids does not involve the cultivation or processing of the cannabis sativa plant it does not face the same regulatory challenges to supply. This has enabled us to navigate the legal and regulatory difficulties that come with bringing a novel product onto the market without running into the issue of the Proceeds of Crime Act or (POCA).
In the UK today, we are one of a small number of companies active in the cannabis space that have been able to take their businesses public following a ruling by Financial Conduct Authority allowing companies operating in this sector to list on the main market. Cellular Goods made the decision to engage and work with both FCA and the London Stock Exchange from the outset. What we have built with our biosynthetic proposition not only puts us in the strongest position from a regulatory perspective but also gives us a technology for producing cannabinoids at the scale needed for consumer products and in a manner that is cleaner, greener, and faster than anything else out there.
We firmly believe that the world is at the start of a second cannabis boom and this time it is being built on broad consumer demand, legal ingredients, and visibility on an increasingly clear regulatory framework. The focus is moving from cannabis to cannabinoids (such as CBD and CBG) and taking this a step further we feel that the winning companies will derive their cannabinoids from sustainable biosynthetic production of which we are a leader with an early mover advantage. There are currently a limited number of suppliers able to produce premium biosynthetic CBD and CBG. We have already partnered with a select group of the leading biosynthetic manufacturers. These partnerships guarantee us a consistent supply of these legally compliant and ecologically sensitive raw materials heading off any supply challenges as we scale.
Imagine you find yourself in a lift with Warren Buffett. What would be your ‘elevator pitch’ to summarise why he should invest in your business?
Wellness and self-care are themost significant macro consumer trends to emerge in the last few years and this rise has been greatly accelerated by covid. Based on what we know and the research that is mounting daily we believe that cannabinoids will prove to be the king of wellness ingredients and that cannabinoids derived from biosynthetic manufacturing are the only ones with the ability to be scaled to meet consumer demand in a manner that is compliant, economical, and ecologically sensitive. Within this new opportunity there is the possibility of building a go-to consumer brand; a household name in the space – and Cellular Goods believes that enormous shareholder value can be created by a business with a deep involvement and commitment to the science allied to a dominant brand.
Please note: this discussion with Alexis Abraham forms part of ShareBuyers’ going for growth series – helping companies with high growth potential to share their story and expected prospects.