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Innovating for Success in the Cannabis & CBD Categories

June 2019

© 2019 Ipsos. All rights reserved. Contains Ipsos' Confidential and Proprietary information and may not be disclosed or reproduced without the prior written consent of Ipsos.

We have come a long way on how our society views cannabis…

USA ranks second in consumption of cannabis, slightly behind Canada

12%24%23%22%21%20%19%17%13%13%13%12%11%11%11%10%10%10%9%8%8%6%3%3%2%1%

85%74%76%67%76%76%79%79%83%85%81%86%85%85%86%86%89%89%88%86%92%92%97%96%96%97%

All CountriesCanada

USIndia

South AfricaChile

SwedenBrazil

ArgentinaMexicoPoland

BelgiumColombiaGermany

ItalyAustralia

Great BritainPeru

SpainFrance

NetherlandsTurkey

HungaryRussiaSerbiaJapan

Total – YES, Use NO, Don’t Use

Source: Ipsos Global Advisor Omnibus December 2018

What is morally acceptable to use (in moderation)?

36%38%

41%41%

49%51%

54%65%

70%71%

74%

PornographyTobacco

Violent video gamesE-cigs/vaping

Online bettingCannabis

Casino gamblingOnline dating

LiquorBeer

Wine

% of Americans

Source: Ipsos Global Advisor Omnibus December 2018

Since 2004, “Cannabis” has progressively become a more common search term

0

20

40

60

80

100

120

2004

-01

2004

-05

2004

-09

2005

-01

2005

-05

2005

-09

2006

-01

2006

-05

2006

-09

2007

-01

2007

-05

2007

-09

2008

-01

2008

-05

2008

-09

2009

-01

2009

-05

2009

-09

2010

-01

2010

-05

2010

-09

2011

-01

2011

-05

2011

-09

2012

-01

2012

-05

2012

-09

2013

-01

2013

-05

2013

-09

2014

-01

2014

-05

2014

-09

2015

-01

2015

-05

2015

-09

2016

-01

2016

-05

2016

-09

2017

-01

2017

-05

2017

-09

2018

-01

2018

-05

2018

-09

2019

-01

Google “Cannabis” Search TrendsUSA Data (2004 to Present)

Source: Google Trends

Support for legalization has increased steadily since 1969

0

10

20

30

40

50

60

1969 1972 1973 1977 1979 1980 1985 1995 2000 2001 2003 2005 2009 2010 2011 2011 2012 2013 2014 2014 2015 2016 2017

Support for Legalization of Cannabis in the USA (1969 to 2017)

Source: https://www.pewresearch.org/wp-content/uploads/2018/10/FT_18.10.09_MarijuanaUpdate_topline_for_release.pdfIpsos data from 2017: https://venturebeat.com/2017/12/06/u-s-pot-industry-high-tech-high-finance-and-high-times/

What’s driving the increased social acceptanceof cannabis, and how can it inform innovation strategies?

Argentina

AustraliaBelgium

Brazil Canada

Chile

Colombia

France

Germany

Great BritainHungary India

Italy

Japan

Mexico

Netherlands

PeruPoland

Russia

Serbia

South Africa

Spain

Sweden

Turkey

US

35%

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

0% 10% 20% 30% 40% 50%

Support for Legalization

Support for Using Cannabis for Medical Reasons andImpact on Support for Legalization

PolandPolandGermany

Belgium

Countries with higher support for legalization believe cannabis does more good than harm

Using Cannabis Does more Good than Harm

Source: Ipsos Global Advisor Omnibus (Dec 2018)

Argentina

Australia

Belgium

Brazil

Canada

Chile

Columbia

FranceGermany

UK

HungaryIndia

Italy

Japan

Mexico

Netherlands

Peru

Poland

Russia

Serbia

South AfricaSpain

Sweden

Turkey

USA

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

0% 10% 20% 30% 40% 50% 60%Support for Legalization

UK

ItalyBelgium

France

Hungary

Mexico

Australia

MexicoMexicoSpainUKUK

USA

Countries with higher support for legalization are less likely to believe cannabis leads to harder drug use

Cannabis Leads to Use of Harder Drugs

Source: Ipsos Global Advisor Omnibus (Dec 2018)

Belief that Cannabis Leads to Use of Harder Drugs andImpact on Support for Legalization

We also know that people are motivated by 8 fundamental core motivations

Ipsos data shows that consumers feel cannabis meets a wide variety of need states, for both medical and recreational reasons

MEDICAL NEED STATES RECREATIONAL NEED STATES

Source: Ipsos Cannabis Consumption Tracker (Sept 2018 to Feb 2019)

What are the key barriers to increased use?

But also some consumer tensions which can be addressed via innovation

“Too expensive”

“I don’t like the thought of smoking”

“I don’t like the smell”

“I don’t feel comfortable using it”

“I am afraid of the potential side effects”

Innovation can help address different need states to maximize reach andminimize cannibalization within your portfolio.

How is cannabis consumed? Let’s talk about formats.

67% 36% 24% 18% 17%BONG, PIPE, JOINT MADE

FROM BUDS/FLOWERS VAPORIZER EDIBLE PRE-ROLLED JOINT OIL

Most cannabis is being smoked as whole flower, but edibles are slowly gaining ground

Source: Ipsos Omnibus Data (Jan 2019)<15% not depicted

HOW CONSUMED/USED

Convenience is #1 reason for choosing to vape cannabis

44%

34%

29%

25%

20%

17%

17%

17%

14%

Convenience of use

It's my friend's preference

It's a healthier way to consume it

Allows me to manage my dosage better

Addresses my symptoms with fewer side effects

Convenience of buying (it's easier to find in this form)

Faster onset of effects

Allows me to easily share with others around me

Other

REASONS FOR VAPING CANNABIS COMPARED TO OTHER METHODS OF CONSUMPTION

Source: Ipsos Omnibus Data (Jan 2019)

Convenience is also #1 reason for consuming cannabis in edible form

38%

25%

19%

19%

18%

14%

12%

6%

11%

Convenience of use

It's a healthier way to consume it

Convenience of buying (it's easier to find in this form)

Allows me to easily share with others around me

Allows me to manage my dosage better

It's my friend's preference

Faster onset of effects

Addresses my symptoms with fewer side effects

Other

REASONS FOR USING EDIBLE CANNABIS COMPARED TO OTHER METHODS OF CONSUMPTION

Source: Ipsos Omnibus Data (Jan 2019)

Alcohol distributors are making a strong foray

into the cannabis market.

Interest is also high for recreational THC-focused product, but to a lesser degree

MEDIUM TO CONSUME THC FOR ALTERED MENTAL STATE

40% 33% 32% 28% 28% 22% 21%FOOD/

BAKED GOODSCOFFEE/

TEAWATER SODA/

SOFT DRINKSOTHER

BEVERAGESBEAUTY/SKIN PRODUCTS

ENERGY DRINKS

USA

Source: Ipsos Omnibus Data (Jan 2019)

37% 33% 29% 44% 41% 39% 28%FOOD/

BAKED GOODSCOFFEE/

TEAWATER OTHER

BEVERAGESSODA/

SOFT DRINKSBEAUTY/SKIN PRODUCTS

ENERGY DRINKS

Interest in coffee/tea/water based beverages is also very high for non-intoxicating CBD products, as are edibles

MEDIUM TO CONSUME CBD FOR MEDICINE/HEALTH BENEFITSUSA

Source: Ipsos Omnibus Data (Jan 2019)

Let’s talk innovation

Growing consumer interest and acceptance is driving rampant innovation

Retailers of all types are stocking their shelves, only creating greater incentive for new product development

Mom & Pop LuxuryMass Market / Big Box

So what does it all mean?

Inherent Potential of New Product Idea

Consumer Lens

Competitive Lens

How Potential Stacks Up To What Consumers Use Today

OUR PHILOSOPHY is that innovation must be evaluated through two lenses

Broad appeal does not mean “one size fits all”*Be relevant

Broad appeal does not mean “one size fits all”*Be relevant

Relevance alone won’t guarantee trial, especially with increasing fragmentation

Differentiate (and be relevant)

PRODUCTS WITH

54%more likely to achieve higher than expected trial

High Relevance and High

Differentiation

High Purchase Intent

34%more likely to achieve higher than expected trial

INDEX TO AVERAGE

TRIAL

*

Talking to “who matters” is important*Know your target

Spend your time and money wisely by getting close to the people that

matter most, your potential buyers and

target

To truly win, you have to move beyond initial trial and drive repeat business*

*To truly win, you have to move beyond initial trial and drive repeat business

Packaging matters more than ever*Don’t forget pack

Claims can educate on the category

Shelf standout encourages trial

Distinctive brand assets facilitate repeat

Inherent Potential of New Product Idea

Consumer Lens

Competitive Lens

How Potential Stacks Up To What Consumers Use Today

OUR PHILOSOPHY is that innovation must be evaluated through two lenses

Competitive context is key for a realistic assessment of performance*Consumers individually define the competition

(product most often purchased / used)

The Innovation is compared to real in-market products, defined by the consumer, including private label, niche brands, home remedies, etc. —NOT OLD IDEAS THAT NEVER LAUNCHED

The innovation and consumer-defined competition are assessed on the same KPIs, allowing us to benchmark the innovation’s performance

HOW CONSUMER

DEFINED COMPETITION

WORKS

Pay attention to regulation*

To recap…Be relevant anddifferentiated

Know your target

It’s about trial and repeat

Don’t forget pack

Assess with competitive context

Pay attention to regulation

Thank YouAny questions?