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The CBD-beauty investment space is heating up.
LB Equity, an investment firm focused on emerging brands in the beauty and personal care sectors, recently announced its investment in cannabis-infused beauty brand Herb Essentials. LB Equity launched in January with a $50 million fund to be invested in emerging high-growth brands creating and selling cannabis, wellness and beauty products. The very first investment from this fund in January was with a CBD retailer named Standard Dose. Next month, LB Equity will debut female beauty and stress-free skincare brand Mellow Giraffe, and inhouse creation from LB Equity. Though Herb Essentials hasn’t disclosed the terms and conditions for their deal, Ian Knowles – director at LB Equity, has categorized the share of the company as the “significant minority.” LB Equity fund aims to invest in companies that see existing revenue of between $1 million to around $3 million in annual sales. The fund expects to take these businesses to about $20 million to $50 million in their annual sales. To achieve this objective, LB Equity Fund plans to support these companies with their basic operations, general distribution as well as in product development.
Private equity groups are gradually establishing a larger presence in the CBD space, irrespective of the existing legal regulations surrounding the usage of cannabis. Investors see the opportunity of building a brand that will be suitable for acquisition as soon as beauty conglomerates or the CPG companies plan to move into the emerging category.
“We see a major tectonic shift in the market, with the move toward natural and clean ingredients [like CBD],” remarks Jay Lucas, managing partner in LB Equity. He continues to assert: “There is a murky legal environment and, as a result, a number of players, including [most] private equity and strategic buyers, are on the sidelines. That has allowed smaller players like us [who are willing to invest] to take advantage of this window of opportunity.”
Though Herb Essentials is only two years old it has managed to establish itself as a holistic cannabis brand that provides both beauty as well as lifestyle-enhancing products. Herb Essentials plans to use its lump-sum capital to enhance its product range, create job prospects, and increase product distribution beyond smaller boutiques to larger retailers. They also plan to invest in marketing beyond simple posts to their official Instagram account, which possesses over 4,000 followers. Robert Lund – the founder and CEO of Herb Essentials, indicated the hiring of an operations manager will be a high priority. Though Lund does not mention annual sales for the brand, he remarks that the company will double its revenue by 2019.
In August, the cannabis company Cronos Group Inc. acquired Redwood Holdings’ CBD brand Lord Jones for about $300 million. Lucas mentions that LB Equity has the potential to succeed against any existing CBD brands, including the ability to work with the brands which have not yet created a CBD offering but possess the potential to do so in the future.
LB Equity is now planning to replicate the achievement of the former players in its space. Lucas asserts that “We are on the path to creating the next Lord Jones. That’s the model of what we are creating here.”