For the purposes of this article and those that follow, we will use cannabis and marijuana interchangeably. These are products that are often known as “pot” or “weed,” contain the compound tetrahydrocannabinol (THC), have psychoactive effects that give the “high” sensation and are recreationally legal in 11 states and medicinally legal in 28 states.
Additionally, we will refer to products containing cannabidiol (CBD) as CBD or hemp-derivative products. These products are non-psychoactive, which is to say they do not produce the high associated with THC, and have exploded in interest due to a tendency to relieve pain and anxiety. Please note that different types of cannabis may also contain CBD.
Inspired by the folklore of the unofficial cannabis holiday of 4/20, TMR is taking a look into the cannabis landscape, how CBD is impacting the sports sponsorship industry and how it may continue to grow, develop and change. We dig into existing deals, how leagues and associations are approaching their ties to cannabis and CBD, and offer our thoughts on what could be still to come based on the opportunity that exists.
Welcome to the first of our ongoing SportsCannaBiz series.
Whether or not you live in a state that has already legalized cannabis or one that has explored doing so, it’s no doubt that you’ve seen the reports on how big the businesses of cannabis, as well as CBD, is and could potentially be. The market is inundated with new brands and products trying to educate consumers with dollars to spend. At the same time, cultural stigma is melting away with cultural perception becoming increasingly accepting. For perspective:
- Colorado saw more than $302 million in taxes and business fees on $1.7 billion of medical and recreational sales in 2019.
- Cannabis researchers BDS Analytics and Arcview Market Research project that the collective market for CBD sales is expected to exceed $40 billion in the U.S. by 2024.
- Some of Illinois’ 37 recreational dispensaries were forced to temporarily close due to a supply shortage in the first week of operation (Jan 1-7, 2020), yet still generated $10.8 million in sales that same week.
It’s hard not to see how the societal stigma around these two products, especially when both CBD stores and dispensaries, where legal, are becoming feasible tenants on Main Street in communities nationwide.
Frankly, it can be hard to ignore the smell of the business taking hold–sometimes literally–proving there is a clear market for cannabis and CBD across the country.
This market gap leaves a space for new brands to take hold, which in turn presents the need for advertising, public relations, out-of-home, and in some case, and, for the purpose of this series, sponsorship.
For both cannabis and CBD brands, there exists a large market of mostly brand-agnostic experienced consumers, juxtaposed to a second customer base of first-time or non-users who need to be simultaneously educated and indoctrinated to a brand. The market is so unprecedented, there isn’t even an analogy to come close.
When the hard seltzer category seemingly crystallized out of thin air last year, there wasn’t a massive void in regulations surrounding the legality of marketing this alcohol product. As states legalized sports betting, consumers quickly familiarized themselves with Fan Duel and Draft Kings, with both becoming frequent, and often lucrative sponsorship partners, all the way up through the Big 5.
When technology companies began popping up in the 1990s for example, we did not have Adobe legal in California, illegal in Wisconsin and decriminalized in North Carolina. Photoshop was Photoshop—and legal—in all fifty states.
What we’re left with instead is to operate in a legal grey area and a number of major cannabis brands being forced to use different marketing plans all the down to different logos in Pennsylvania than Nevada due to the way regulators in each state enforce state laws.
In the sponsorship world, we’re left with property rightsholders currently held back from partnering with a billion dollar category–one that boasts untapped sports business opportunity to connect with fans at the heart of two passions: sport and cannabis.
Slowly, there have been a small number of partnerships coming out of the CBD industry, with most existing on the individual or athlete level, as well as two notable cannabis partnerships in minor league professional sports, with zero from either industry coming from Big 5 (NFL, NBA, MLB, NHL, MLS) properties in the U.S.
Notable CBD Partnership Examples
- In May 2019, UFC announced an exclusive, multi-year, multi-million dollar, global partnership with Canadian company Aurora Cannabis that includes “clinical research on the relationship between 100% hemp derived cannabidiol (CBD) products and athlete wellness and recovery, with a view to accelerating CBD product development and education.”
- NFL & NFLPA agreed to conduct a joint study on the use of cannabis as a medicinal tool in May 2019.
- NHL Alumni Association announced in Mar 2019 that it was working with Canopy Growth to see if CBD products could effectively treat post-concussion neurological disorders.
We’re so excited to announce baseball’s first ever sponsorship with a CBD brand. The sponsorship with @LazarusNaturals, a CBD brand headquartered in Portland, will begin in the 2019 season! #staypickled pic.twitter.com/nokfc766I1
— Portland Pickles (@picklesbaseball) May 15, 2019
Notable Cannabis Partnerships
- USL Las Vegas Lights announced a partnership with NuWu Cannabis Marketplace via a tweet in Apr 2018, making them the first professional sports team in the U.S. to partner with a marijuana dispensary.
- USL Detroit City FC announced this Jan that Detroit-based cannabis company Pleasantrees signed on as the teams official training partner.
We were going to wait till 4:20 pm, but we were just too excited 😏
We are proud to announce our partnership with @NuwuCannabis!
The first professional sports team in the U.S. to partner with a marijuana dispensary.
ONLY. IN. VEGAS. pic.twitter.com/ItGhT7a4vn
— Las Vegas Lights FC (@lvlightsfc) April 13, 2018
It is also worth noting that the Big 5 have varying policies of enforcement around both cannabis and CBD, with organizations like the PGA following the direction of the World Anti-Doping Agency (WADA).
- MLB — In late 2019, MLB announced that marijuana will not be on the list of banned substances for Minor League Baseball (MiLB) players. MLB had previously removed the substance from the list for major leaguers.
- NHL — Currently tests for the drug, to ensure it does not need to provide substance abuse help to players with abnormally high levels of THC, but does not punish players for testing positive, per ESPN.
- NFL & NBA — Both still test, and reprimand, players testing positive for cannabis usage, though the NFL Collective Bargaining Agreement is set to have this as a major topic of discussion in 2020. And in 2019, NBA commissioner Adam Silver, called it a ‘complicated issue.’
- PGA — The PGA Tour removed CBD from its list of prohibited substances after WADA did the same, paving the way for players including Bubba Watson, Charley Hoffman, Lucas Glover and Scott Piercy to sign sponsorship deals in the category.
— MLB Communications (@MLB_PR) December 12, 2019
With most leagues not even approving the use of medical or recreational cannabis by their players, it’s hard to see a world in the near future where these same rightsholders could begin taking sponsorship dollars from these businesses.
Now, what if we imagine a world where both CBD and cannabis are free range sponsorship categories for rightsholders? What would that look like and how would it all shape out? We’ve made some entirely hypothetical projections based on what we know to be true the sponsorship and cannabis industry, as well as trends we have seen over the year.
Peering into TMR’s Crystal Ball: Who’s first?
We predict that the PGA and LPGA will announce the first league-wide deals in America for both CBD and cannabis, paving the way for additional professional leagues to follow suit. Following these deals, we would predict that professional tennis would be second, followed by the NHL, MLS, MLB, NBA and NFL.
Why? Professional golf and tennis in the U.S. have the strongest fan demographic to attach to the largest potential market in the U.S. for both CBD and cannabis – older fans with high disposable income who also play the sport they’re watching.
Due to the potential medical benefits of both CBD and cannabis, as well as the disposable income that often comes with older age, the community of fans that exist within these sports may look to these products as alternatives to traditional medicine. At the same time, these are the fans that grew up in the 1970s and 1980s and may have stopped using cannabis as public perception became more negative in the late 1980s and 1990s.
Though tennis and golf are unlikely to see tour-wide partnerships due to international events in countries where cannabis is not legal, tennis’ U.S.-based World TeamTennis (WTT), with five of its nine teams in recreational cannabis markets, or the newly proposed Premier Golf League, with the path partially paved by CBD deals with PGA Tour players, could benefit greatly. Their smaller, less-entrenched structure–like in minor league sports–affords the opportunity to push the boundaries of traditional sponsorship and result in first-of-their-kind deals seen as unfeasible by the Big 5.
We anticipate the NHL will soon follow golf and tennis. Over half the NHL markets have legal recreational marijuana, thanks in large part to Canadian national legalization and the seven teams that exist there. Plus, with cannabis not included on the NHL’s list of banned substances, there is no need to a wait for the next CBA negotiation to clear the issues that would arise from not allowing players to, ahem, partake in a major sponsor category.
Up next will be the MLS, MLB and NBA, in that order, though we think it is very possible these three happen in short order. The MLS and MLB have the right market distribution to match up with the category and the NBA has the right brand to match with cannabis brands that would not approach the older demographics of the other leagues.
In any instance, it is hard to imagine a world where the NFL isn’t the last league to get on board, given the league’s long-standing problems and mishandling of player related drug issues tied to cannabis and the amount of time it will take to erase current ill-will.
TMR Crystal Ball: How will these partnerships develop over time?
CBD sponsorships will be first, starting at the league level and trickling down to the tournaments over the following years for the PGA and LPGA. Opposite of that, teams will begin signing deals before the league in the Big 5 in order to match best to the local markets capable of capitalizing on the opportunity. Cannabis partnerships will lag behind two to three years behind in both cases, exhibiting a similar flow of growth.
TMR Crystal Ball: What are the barriers that must be overcome to get there?
While there are quite a number of more specific barriers that exist, we identify the four broad buckets within which changes will need to be made for the industry to adapt.
- Inconsistency of Legislation
Without regulatory consistency across every state in which a league operates, how can brands implement a true regional or national partnership? In some scenarios, some teams would be unable to promote cannabis and CBD brands, while their interstate rival can. Leagues can’t open up a category to some teams but not others. A federal regulatory baseline on marketing and direction from federal agencies would be needed to ensure consistent implementation and compliance.
- Lack of Financial Services Options
More financially impactful is the fact that cannabis is still considered a “Schedule 1” substance under the U.S. Controlled Substances Act, rendering most banks unable to openly bank the cannabis industry as well as funds tied to it, though some are finding ways to do so in states where cannabis is legal. States like Colorado, among the first to legalize cannabis in 2012, have found quiet ways to offer banking services to cannabis companies—eight years later. In TMR’s home state of Illinois, there are no clear guidelines on banking the industry, causing many to choose to sit on the sidelines and not risk regulatory backlash, and prompting the introduction of a bill to protect financial institutions.
What’s the holdup? Cannabis is a heavily cash-based business and taking funds under federal regulations is considered “money laundering” and exposes both the rightsholder and its financial institution to action by the IRS. A potential solution, the SAFE Banking Act, provides direction and industry oversight and has already passed through the U.S. House of Representatives. However, the bill’s future remains uncertain as it sits stalled in the U.S. Senate.
- League Approval
This hurdle seems obvious, but how we get there is less so. Knowing the challenges of perception that many properties would face with CBD and cannabis deals, leagues are going to likely wait for the results of both medical and fan-based studies to understand how these partnerships could ultimately impact them. These studies will take a lot of input from a number of parties and will need to set guidelines for overcoming a number of implementation challenges.
- Partnership Implementation Pitfalls
Lastly, there are a number of challenges related to implementation that need to be thought through before CBD and cannabis deals can be signed, some of which already face other categories like beer, liquor, spirits and banking.
Partnership Pitfall: Advertising/Signage — Cannabis advertising generally cannot be placed where a disproportionate number of minors could see or view them, nor can these ads target minors. Despite most regulations prohibiting advertisements that show the cannabis plant or people consuming it, families may still choose not to bring their kids to games, as not to expose them to cannabis related advertising. Rightsholders would be wise to cannabis partnership activations tied to targeted, fan-specific and voluntary experiences and education early on as states grapple with ongoing changes in regulation.
Partnership Pitfall: Sampling/Experiential — Equally a challenge, sampling cannabis in a stadium or event setting presents a number of challenges with venues unlikely to allow cannabis consumption on-site and many states prohibiting public consumption of cannabis outside of the home. It won’t be the same as just going to concessions and getting a beer from the team’s beer sponsor. Instead, sampling will be less about consumption and more about education. This has included locked product samples to showcase the cannabis plant at smaller local street festivals as a way to educated consumers on growth and cultivation as a way to build a brand. It may also include pure brand activation in the same way a bank may host a wheel-of-fun or Plinko-style activation. Again, these would need to only be accessible to of-age attendees.
Back to reality
In truth, there’s still a long road ahead to a world where we begin seeing cannabis partnerships broadly implemented in professional sports in the U.S.
Unfortunately, this path remains unclear as regulators will need to have something to react to in the first place. We will likely see minor league deals slowly continue grow until then, along with a number of smaller league CBD partnerships, eventually building up to the Big 5 implementing–after learning from the trailblazing deals done by “the little guys” before them.
Until these discussions happen and clearer direction is given by U.S. government agencies, such as the FDA or USDA, and regulatory standards are implemented–which may only happen on a one-off basis in the near-term–both brands and rightsholders will essentially remain in the dark. Meanwhile, sponsorship sales teams anxiously await the go ahead to start selling to this category.