Brands Powered By Influencers — How Does It Work?
2020 has been all about survival for many businesses across the world and in various industries. In health and wellness, cannabidiol — better known as CBD — is emerging stronger than ever in Europe and the UK, and the market is set for major growth, even amidst the COVID-19 pandemic. Venture Capital firms, independent investors, celebrities, and entrepreneurs across the globe are keener than ever to get a piece of the pie and make a lasting, positive impact on the lives of many who regularly use CBD for their health and wellness needs. Now that the United Nations Commission on Narcotic Drugs (CND) has approved the World Health Organization Expert Committee (ECDD) recommendation for rescheduling cannabis, there is no better time to enter the market.
The CBD industry and its players are innovators in every sense, with a heavy emphasis on digital-first growth, research and development (R&D) in all areas of the supply chain, and business practice. The number of CBD products on the market is larger than ever, and growing at an explosive rate as these companies all strive to make their mark and earn their market share — and these are not easy waters to navigate for those who are new to cannabis or brand building and product development.
For many, this may seem like an unmanageable task given the barriers to entry and the long route to market. Not only is an in-depth understanding of the market and its stakeholders required, but also expert knowledge of the supply chain and how to bring products to consumers is an essential piece of the puzzle, along with regional laws and restrictions. For an individual or newcomers to the industry, this requires a lot of research and network-building, not to mention the many hours of work and human resources required to set up and scale a business while running marketing, sales, and fulfillment.
What is the best way to create a successful CBD brand efficiently and effectively, especially in the age of digitalization? Find the experts that can help you with every step of the process, of course! We will take you through the steps by exploring different market entry modes, their business models, and how they work, as well as their respective advantages. We will also cover which celebrities and influencers are already hopping on board the CBD train and how they are doing it to show you just how easy it could be with the right partner by your side.
What Are Your Options for Market Entry?
The two major types of market entry modes are equity and non-equity. The key factors to keep in mind before entering any such agreement are the degree of risk involved, the control of resources and dedicated personnel required, and the potential return on investment as an outcome. We will focus on joint ventures (equity) and licensing (non-equity), and also explain how royalties work.
Joint Ventures
Generally speaking, joint ventures (JVs) are firms set up, owned, and operated by two or more entities who also share returns as well as risks. The four main reasons that a joint venture may be formed are:
- To gain access to new markets.
- To gain efficiencies through the combination of assets and operations.
- To share (financial) risk and mitigate potential political, economic, and social risks.
- To gain access to capabilities and skills.
Cannabis and e-commerce are arguably very high-technology industries that require significant investment in R&D and new product development (NPD) to succeed given the highly dynamic nature of the market, so the first-mover advantage is a key factor to gain an edge over competitors.
For small and medium-sized enterprises (SMEs) or individuals, this type of investment — financial and otherwise — can be too much, and the equity mode may not be the right strategy. However, given that CBD is a high-growth market with an aggressive dynamism, the potential for return on investment is also higher and (dependent on the agreement between parties) can allow the brand to exercise more control, which can be particularly useful when entering foreign markets.
Brand Licensing
Licensing is an industry in and of itself, valued at around 270 billion USD in 2019. Simply put, “A license is an agreement through which a licensee leases the rights to a legally protected piece of intellectual property from a licensor — the entity which owns or represents the property — for use in conjunction with a product or service.” Essentially, this can be considered as a rental agreement between a manufacturer (licensee) and a brand (licensor). It allows the manufacturer to potentially increase their sales at a lower cost (than creating and marketing a new brand) by leveraging the power of an existing brand and its consumer base. This allows the brand-owner to diversify their product portfolio, reach more customers, and expand into new markets and territories.
Licensing can be categorized into three main categories:
- Exclusive licensing: this is an agreement in which the licensee attains exclusive rights to a brand, wherein the licensor will not give the right to their brand to another entity.
- Non-exclusive licensing: as can be derived from the name, this agreement allows the licensor to give the rights to their brand to other entities.
- Sole licensing: in this type of agreement, the licensor gives the exclusion to use their brand to a sole licensee, but can obtain the right to use the mark.
There are many different ways to structure a licensing agreement. From pure Intangible Asset Licensing (IAL), as described in Step 1 of the figure below, to a full-fledged licensing agreement that can include a broader scope of assets and services, such as web hosting, site management, staff training, and more.
What Are Royalties and How Do They Work?
Licensing royalties are not set or standardized by any means; the terms are agreed upon by the licensor and licensee and usually negotiated based on the brand’s power (awareness, reach, equity, and so on). A world-famous luxury brand that is considered a household name, such as Armani, has been said to receive as much as 10% in royalties for licensing their brand to produce watches and accessories. From that royalty income, Armani reportedly funnels around 20% into marketing activities such as PR and advertising, specifically for the licensed goods, working closely with the licensee.
The royalty fee is also based on wholesale sales, in which the licensor (brand) will usually want an upfront guarantee of $X. Even if the licensee does not manage to hit this sales goal, the fee must be paid to the licensor.
Why You Should License Your Brand
The principal benefits of licensing are increased reach, establishing symbiosis, and more profitability. For the licensor, an agreement with the right person or brand means high-paced expansion and market penetration with less risk and lower cost. There is a motivation for the licensee to perform better due to the competitive nature of the licensing business, and poor performance can lead to losing the rights to a brand. The licensee is often a local partner or experienced within a certain area and thus should be trusted to provide insight on consumer preferences and trends, taking a lot of investment into research out of the equation. The licensed brand will be exposed to new customers, widening the licensor’s network and overall brand equity. In turn, with the right brand partner, a licensee may be able to reach new demographics and leverage the promotional powers and reach of the existing brand.
For the licensee, effective collaboration with a respected and well-known brand will increase recognition and customer loyalty. The licensee may take advantage of the brand’s existing assets, such as a clear visual language and tone of voice, relying on existing consumer recognition and loyalty. Coupled with the licensor’s promotional support, sales will be boosted, and economies of scale can be established rapidly. Leveraging the licensor’s direct access to consumers can ease some of the initial financial burdens on a marketing budget that many new brands face, allowing for a larger budget to be allocated to R&D and profit optimization.
Where to Start With Licensing
There are many ways to enter the market with a unique CBD product, whether you already have a brand or are looking to establish a new one. That’s why flexibility is essential when looking for a partner to help you so that both parties can play to each other’s strengths. Leveraging the network and distribution opportunities that a strong influencer-led brand brings with it, supported by the technical and strategic know-how of an experienced business partner means will form a highly lucrative partnership.
Understanding the market size, potential customer base, and competitive landscape will allow for acute targeting, choosing the right sales channels and communication vehicles, and creating the right products and brand image will create a mutually beneficial relationship. In the CBD health and wellness vertical, expert product knowledge is required, from good manufacturing practice (GMP) to the right formulation, range development, and design. Best practice for import and export as well as distribution is also a must, given the varying laws around CBD and regulatory frameworks differing from country to country, and sometimes even within one country. Starting with the necessary permits, lab tests, and COAs needed to even begin creating a CBD product to ensure its quality, marketing expertise is also a must, given social media promotion and advertising restrictions when it comes to CBD.
A great brand can only go so far without dedicated marketing, sales, and distribution strategies in place. Knowing how much of each product should be produced based on sell-through analyses of similar products and understanding how to present products to appeal to the right audience are things that a licensee should know how to do in order to generate good sell-through rates and not have to sell at discounted rates or dispose of inventory. A good partner should allow you to focus on building the CBD brand that you want, giving you the best advice on how to create the right products for your target market. A reliable partner should help you create the right products that cater to your needs and the needs you wish to address, whether it’s sleep, stress, fitness, beauty, general wellness, or otherwise. Many high-profile individuals are doing this already after personally experiencing great results with CBD and other cannabinoids.
Celebrities, Influencers, and CBD
Martha Stewart
You could refer to her as “the OG influencer,” Martha Stewart is an iconic media personality and businesswoman who now licensed her eponymous brand name to gourmet-flavored CBD products after being introduced to the Canopy Growth team by her friend and colleague, Snoop Dogg. This is strategic diversification, given Martha’s expertise in food, lifestyle, and retail which she leverages to enter a new industry, namely cannabis. Though her brand was sold several years ago, she retains a say in its strategic and creative direction.
When asked why she created the range, she said, “I’ve found that CBD supplements are a simple way to enhance my own health and wellness, especially when it comes to managing the stresses of daily life. I set out to create the most delicious CBD products on the market, drawing inspiration from some of my favorite recipes and flavor profiles from my greenhouse and gardens. My wellness gummies closely resemble the French confections, pâte de fruits, rather than the sticky, overly sweet versions you might find elsewhere. […] I am very proud of the end result: wellness gummies, oil drops, and soft gels that taste as wonderful as they make you feel.”
John Legend
The entertainer may be best known for his soulful voice, but he has recently invested in Plus Hemp, a California-based CBD company, and also come on as an advisor. He was quoted as saying, “I have been a believer in the benefits of CBD for some time. I was drawn to the Plus team because they’re an innovative, family-run company, and they use science to deliver a consistent, high-quality product. I appreciate that they’re committed to setting a high standard within an industry that has to date been fairly unregulated.”
Plus Hemp has also created a CBD gummy product that aims to help users sleep better, produced in collaboration with Casper, the mattress company — a great strategic alliance through licensing.
Kourtney Kardashian
Kim Kardashian caused a stir when she hosted a CBD-themed baby shower, but now her sister Kourtney is joining in on the fun with a Hyaluronic Halo + CBD serum and derma-roller that her company, Poosh, created in collaboration with Hora Skin Care. We hope to see this range of skincare products and tools expanded, and perhaps more members of the Kardashian family will soon follow suit.
Bella Thorne
Considered by many to be a controversial child-star-turned-social-media-mogul, Bella Thorne has already launched Forbidden Flowers, a cannabis brand that will soon expand its current THC-focused range to include CBD and hemp products. She is reportedly a long-time user of cannabis, stating, “I have struggled with anxiety for many years, and weed was the one source I found for me to do the most healing. Because of the properties in weed, I have been able to cope with my anxiety in a natural way, rather than my doctors trying to fix it using prescription drugs,“
Chelsea Handler
The comedian and TV-personality who is always ready to roast is now ready to launch her own line of cannabis products. She has openly advocated the use of cannabis for her own stress and sleep issues, but rather than enter a licensing agreement, Handler wanted more control of the brand and product and so chose to partner with NorCal Cannabis Company in San Francisco in order to target a specific demographic: “I wanted to take my experience and create something specifically for women who have either never tried it before, or who had a bad experience 20 years ago. We were missing the educational component to cannabis, and now with the legalization of cannabis and micro-dosing, we are in a whole new world of possibilities.”
Jay-Z
The rapper/mogul/entrepreneur has partnered with California-based cannabis company, Caliva. The cannabis line called Monogram is still clouded in mystery and they have yet to clear the haze on their product offering, but Jay-Z is already cleverly creating a buzz around the brand with a glossy-cool website featuring a custom soundtrack, “Monogram: Sounds From the Grow Room,” which was also released on Tidal, his streaming service platform. “Monogram marks a new chapter in cannabis defined by dignity, care, and consistency,” the homepage reads. “It is a collective effort to bring you the best, and a humble pursuit to discover what the best truly means.” Elevating the cannabis experience and taking you to new highs? I’m down for it.
Gwyneth Paltrow (& more)
The award-winning actress-turned-entrepreneur is known for being a huge fan of wellness and wellbeing and there is no denying that she brought alternative healthcare to a whole new demographic. We are hopeful that her recent investment in Canna-beverage company, Cann — the fastest-growing THC drink in the US. Paltrow has invested alongside celebrities like Ruby Rose, Darren Criss, Rebel Wilson, and Tove Lo. Thanks to Paltrow’s lifestyle platform, goop, she has deep insights into the wellness industry and consumer trends and firmly believes in the potential of cannabis, stating “Cann sits at the intersection of two powerful trends we’ve been monitoring at goop for some time: the ‘sober curious’ and ‘cannabis curious’ movements. There’s no reason why alcohol should be so much easier to purchase than Cann, and I’m confident the founders will lead the charge in finding ways to integrate it into the same purchasing channels and drinking environments.”
Nicole Kidman
The Oscar-winning actress has entered into an exciting business partnership with CURE Pharmaceutical’s CBD subsidiary, SeraLabs. She will act as their global brand ambassador, strategy consultant, and also partake in product development. Not only do SeraLabs and Kidman share values around empowering women in business, but they are also aligned in their vision of bringing innovative CBD products to men and women of all ages. Kidman said, “With my injury last year, I experienced the benefit of CBD wellness products firsthand. I believe these products are a vital solution in health and wellness and [CEO Nancy Duitch] and SeraLabs are a company I believe in. Joining them in this partnership is something I am very excited about!” So am I, Nicole!
Are You Ready to Launch a CBD Brand?
It’s no longer just a pipedream or a venture only accessible to the rich and famous — creating your own CBD brand is more accessible than you may think! Finding the right partner might seem intimidating when there is so much to learn about and so many things to consider. As the leading marketplace for CBD with over 1200 products, Alphagreen has unique consumer insights from a worldwide customer base, accompanied by our tech and e-commerce expertise. We are brand experts and product experts with a global network of relevant industry players and a team that can guide the licensing process from start to finish, customized to the needs of the licensee. Our 30–40% month-on-month growth record shows our dedication to excellence. We strive to bring our customers and our partners together by providing the best and most innovative services and products available. We are here to help brands and we are here to help people to live their lives to the fullest.
Do you want to learn more? Let’s chat!
Sources
https://geargods.net/editorials/eight-celebs-whove-started-their-own-cbd-brands/
