After initiating coverage of the cannabis industry Feb. 25, Jefferies analysts have followed up with their take on the CBD segment, particularly CBD beauty products. The research firm estimates that the CBD category could reach $25 billion globally in the next decade and will amass 15 percent of the total skincare market.

In addition, Jefferies expects that CBD will partially cannbialize — rather than expand — the market.

Heightened Interest In CBD Beauty Products

Consumers have been expressing more interest in wellness, natural ingredients and medicinal benefits, the Jefferies analysts said in a Tuesday note. As countries around the world have embraced the legalization of cannabis, the interest in CBD beauty products has escalated too; the sell-side firm said search trends for CBD beauty have grown by 370 percent since the beginning of the year. 

Retailers are also developing multibrand assortments of CBD products to test consumers' response. Analysts expect that CBD products will likely replace existing non-CBD products and therefore they won't significantly englarge the market size.

The market could grow if prescriptions for dermatological products are replaced by over-the-counder CBD goods, which could have a positive impact on comps at retailers like LVMH Moet Hennessy Louis Vuitton SE LVMHF owned Sephora and Ulta Beauty Inc ULTA, according to Jefferies. 

Large Conglomerates Entering CBD Space

Large companies that dominate the beauty space are looking at CBD amid trends that show that wellness has some of the best potential among segments to capitalize on growth. This is dictated by loose regulatory frameworks around topicals, low-cost digital marketing and specialty merchandising venues, Jefferies said.  

Some examples of products entering the space: the Origins Hemp Mask from Estee Lauder Companies Inc EL, Murad's Hemp Serum from Unilever NV ADR UN, and Keihl's Cannabis Serum from L'oreal CO/ADR LRLCY.

Jefferies also mentioned that most CBD beauty offerings come from smaller indie brands like Milk Makeup, MGC Beauty and St. Jane, among others. 

In addition to infusing CBD into existing labels, companies could also further augment their offerings through mergers and acquisitions.

Improving Market Pathway

Claims regarding CBD beauty products will likely mirror those for SPF products, Jefferies said: the claims will be validated, but not necessarily based on scientific evidence or clinical trials.

After discussions with CBD beauty brands, the analysts said the pathway to market is improving with quality supply; consumer awareness, education and acceptance; and retailer support. 

CBD products and brands are also seeing measurable earned media value, according to Jefferies.