COWEN COLLABORATIVE INSIGHTS February 25, 2019 Cannabidiol (CBD) Entrance Into Mass Retail May Start In Beauty Before Entering Broadlines (Chen) a Cowen’s take is that first movers may predominantly consist of independent operators, followed by beauty, convenience, and other major chains. We believe that growth could take on a barbell dynamic, with early adopters being both high-end luxury players alongside lower-end local convenience shops, with middle-ground retailers including WMT, TGT, and COST likely being the last to sell CBD products after a test-and-learn phase is observed among the early adopters. We expect that CBD in beauty could be a ~$1bn opportunity within skincare specifically; the skincare category currently comprises ~23% of the overall S87bn beauty products market. Luxury Department Stores Are Early Adopters. A number of independent retail operators have recently announced plans to expand their physical presence to incorporate CBD. For example, luxury department store Barneys New York is adding a 300-square-foot cannabis store-within-store concept called “The High End” to its flagship store in Beverly Hills, where it will sell CBD beauty products and vintage paraphernalia. Neiman Marcus also announced its “Trending Beauty’ initiative, which includes carrying leading CBD brands (5 SKUs) online and within 5 of its 44 stores. Another example is Green Growth Brands (CSE: GGB, not covered) recently announcing a deal with DSW Inc. (DSW, not covered) to sell its Seventh Sense brand within 96 US- based DSW stores; this announcement comes after a 10-week trial phase where 74.4% of product presented on shelves was reportedly sold. GGB also announced it will open 108 stores within Simon Property malls (SPG, not covered), starting in March 2019. Beauty Could Be First Major Distribution Channel. Cowen believes that the future of beauty will increasingly emphasize clean, natural ingredients within products — in line with the broader health and wellness movement