In 2015, Leandro Pasztor found a pound of misplaced marijuana. He’d set it aside two years prior, and one day it appeared like an unpaid parking ticket, demanding attention. 

As a marijuana grower, Pasztor wasn’t in the habit of losing product. And at the time of his discovery, he was planning to launch a line of medicinal oils extracted from cannabis plants. Out of curiosity, he threw the old weed in with a batch of plants he’d prepared for a local testing lab in Irvine, California, and a month later, his phone rang. 

“Do you know what you have here?” the technician asked. Pasztor was stumped. “THC oil?” he guessed. In fact, the full answer was more interesting.

The technician wasn’t talking about THC, or tetrahydrocannabinol, the marijuana compound that gets you stoned. Nor was he talking about CBD, the other cannabinoid that spawned a booming market of capsules, lozenges, skincare products, and pet treats. What the lab discovered in Pasztor’s weed was a third cannabinoid called cannabinol, or CBN, which usually occurs as a fraction of a percentage in fresh marijuana. But Pasztor’s two-year-old plants, shockingly, contained nearly 15 percent CBN. 

“At the time, I have no idea what is CBN,” says Pasztor in his Brazilian accent. “But the lab say I have something they never saw before.” 

(Photo of Leonardo Pasztor courtesy of ENP 81)

Five years later, CBN is poised to be the next cannabis trend. It could join the ranks of terpenes, cannabis for pets, or maybe even CBD, which is tracking toward a $24-billion valuation by 2024, according to BDS Analytics. But at this point, CBD competition is stiff, and prospectors have essentially already launched every product you could imagine, including CBD-infused toothpaste and bedsheets. “The market is totally saturated,” says Olivia Mannix, CEO of the industry-consulting firm Cannabrand. “A lot of companies are ready to jump to the next-best thing.” CBN could be it.

Cannabis is an especially tricky industry. Pot-minded entrepreneurs are in the middle of a gold rush, but nobody knows which stream to drop a pan into. You can follow the herd toward a proven trend, or you can try to be the first to arrive at an entirely new stream. Just about every industry has examples of companies that struck gold by launching a new product category. 

Through the magic of electrolytes, Gatorade built a $20-plus billion market for sports drinks. With streaming video, Netflix weaned us off mail-order DVDs and recruited 167 million subscribers. Wireless earbuds, wood-burning pellet grills, butter in your coffee: New solutions to old problems offer countless routes to profitability. And the question entrepreneurs often face is whether it’s better to go bushwacking in wild frontiers or to wait for somebody else to break a trail. 

In other words, did Pastor’s early movement give him a competitive advantage, or would he have been better off waiting for other companies to help him build out a CBN market? 

Knowing which compound to bet on

It wasn’t until last year, that most cannapreneurs even started thinking about what Pasztor had stumbled on. 

The Farm Bill, passed in December, 2018, had been the big bang of cannabinoids. It made hemp federally legal, which gave manufacturers unfettered access to all the non-THC compounds in cannabis. The average consumer knew zilch about CBC, CBG, CBT, THC-V or CBN. But the industry was raring to find the next CBD and convinced that one of these acronyms—or hell, maybe all of them!—had major money-making potential. 

The question was, which to start with? Which compound would be the quickest to demonstrate benefit? And which benefits did customers care about? 

Andrea Holmes, PhD, an organic chemist who was launching her company, Precision Plant Molecules, at the time, remembers the frenzy. As a producer of raw cannabinoids, Holmes met with hundreds of cannabis brand reps to find out which ones they found most promising and what extracts and isolates retail companies were looking for. “They were rattling off everything they’d ever heard about,” says Holmes. “They didn't really know why.” 

(Photo of Andrea Holmes courtesy of Precision Plant Molecules )

Cannabinoid research wasn’t—and still isn’t—much help. High-quality human studies are essentially non-existent, so entrepreneurs have been forced to run informal trials on themselves and their friends, and try to pinpoint benefits of specific compounds. Around CBN, there did at least seem to be consensus: The stuff was exhausting. The cannabis cognoscenti considered it to be a potent sleep aid.

As it turns out, CBN is created by the oxidation of THC-A (not to be confused with psychoactive THC or THC-V). So levels climb as weed ages. And that’s why Pasztor’s lost marijuana had such high amounts. He’d accidentally found a production method that gave him a five-year headstart on companies that would ultimately buy CBN in isolate form from labs like Precision Plant Molecules. 

Back in 2015, Pasztor had wasted no time bringing his discovery to market. Within weeks of the lab test, he’d thrown together packaging for his new company, Moonlion Cannascience, and launched three tinctures. One was high in THC, one CBD, and the third, CBN. Pasztor believes Moonlion was the first company to bottle CBN for commercial retail, and with no competition, predicted that customers who experienced the cannabinoid’s sleep-promoting power would become long-term loyalists. After six months selling CBN, he’d improved his packaging and established retail partnerships with 80 medical-marijuana collectives, the dispensary-like organizations that facilitated sales in the early days of legalized weed. If Pasztor’s annual sales were just $60,000, he had the market cornered. Things were heading in the right direction 

Then, in 2018, just as the rest of the cannabis industry was about to realize the opportunity in CBN, Moonlion took a hit. 

That year, recreational marijuana was legalized in California and with the new licensing restrictions, medical collectives that couldn’t afford to upgrade into legal dispensaries were forced to shut down. Pasztor lost two-thirds of his retailers. And since he couldn’t afford a manufacturing license, he had to start paying royalty fees to bigger companies that could keep Moonlion on the shelf. 

For a while, Moonlion was produced by a company called Fountain of Wellbeing. Then it was Apollo Cultivation Management, then Ocean Grown. Pastor managed to keep the brand alive, but with less revenue and smaller margins, it became harder to scale. Plus, new competitors began entering the market, and many of them seemed to be riding a rocket ship paid for by big investors. 

The first-to-market myth

Conventional wisdom has long held that being first to market provides a competitive advantage, but in truth, it doesn’t always work out that way. “In most cases, what people consider to be first movers are not actually the first to market,” says Stanislav Dobrev, PhD, a professor at the University of Wisconsin’s Lubar School of Business. “When we see the first company to succeed, we don't usually bother to learn about what came before it. Usually, the first firms failed.” 

Dobrev has studied the first-mover myth most closely in the automotive industry. Early in the 20th century, Henry Ford owned 85 percent of the auto market, and today, he’s often credited as the first automaker. “But there were about 30 companies that tried to make cars before Ford,” says Dobrev. They started launching nearly two decades earlier. Some even ran early versions of Ford’s famous assembly line.

Given the choice, most entrepreneurs would rather be Ford than one of the forgotten companies that came before. They’d also rather be Wal-Mart than Kmart, or Google instead of Ask.com. “The operative advantage for the first-mover goes to the first company to reach scale,” says Dobrev. “That’s when you essentially block out others.” 

Ford’s competitors failed in part because they didn’t have predecessors to study. And nobody built up the initial market for them the way they did, unintentionally, for Ford. CBN is a world away from the Model A, but it faces the same challenge of uncertainty. “With cannabis, there are still moral and legal issues and evolving consumer preferences around concepts like natural and organic,” says Dobrev. “I think it's very hard for anybody to claim they can predict where the market is going.”

One strategy for managing uncertainty is to put a harness on it: You get a product into play, watch the market’s response, and then adjust as necessary.  Nectris, a cannabinoid producer, is launching a lavender-tinged CBN:CBD tincture in May.  The new product, called Simple Goods, is part of a partnership with Loudpack, a company that retails with 90 percent of California dispensaries. “It might be a struggle at first to win customers,” admits CEO Woody Mooers. But those who become early adopters will feel a connection to the brand, he says. “We could always tweak the product to be better later.” 

Glass House Group, which owns four licensed retail stores and a portfolio of brands, is another company panning in the stream of CBN. This February, in partnership with 72-year-old cannabis activist, “Mama Sue” Taylor, Glass House launched a 50:50 blend of CBN and CBD. (The industry agrees that CBN works best when accompanied by other cannabinoids.) On the bottle of the Mama Sue tincture, the word sleep is displayed in big letters. The marketing is a deliberate play not just for older users—“One of the highest-growth demographics in our store is 55-plus,” notes Glass House president Graham Farrar—but also for those who struggle with insomnia. After the thrill of getting stoned, the next most common reason people buy weed is help themselves nod off, he says. 

Some strategists will see Glass House’s hyper-targeted strategy as a strong move. “The general-market approach doesn’t seem to be working anymore,” says Michael Mayes, CEO of the cannabis consulting firm Quantum 9. “Brands have to be very deliberate about cornering a specific group of consumers.” 

Moonlion Cannascience, in contrast, comes in what Pasztor calls “generic” packaging. It doesn’t intentionally target anybody specific or advertise an intended use. The two companies reveal a dramatic difference in how the brands view the market. Moonlion sees a massive, monolithic group of cannabis users, while Glass House Group sees potentially dozens of smaller segments to shave off with sharply focused campaigns. 

In the meantime, many companies are hanging back to see which strategy—if either—makes the most sense. Wana, a company that did $25 million in sales on CBD and THC last year, is currently in R&D on several cannabinoids, and it views CBN as the most likely to blow up next. But it’s still too early to say for sure. “I just don’t believe the market is clamoring for it right now,” says Nancy Whiteman, Wana’s CEO. “I certainly think it’s going to happen. I just don’t know that it’s imminent.”

Before she launches anything new in cannabinoids, Whiteman would like to see consumer education improve. Surveys reveal that about half of consumers are still unclear about whether CBD gets you stoned. (It doesn’t.) She’d also like to see more data on CBN, specifically. “I think this could be a fast-follower market,” she says. “Because one of the things I think we’ll learn in the next year or two is what ratios and levels of cannabinoids are necessary to make products most effective. At the end of the day, that’s going to separate the winners from the losers—not necessarily who gets there fastest, but who gets there best.” 

When to jump on the CBN Train

It’s still too soon to predict who, if anybody, will emerge as the Gatorade of CBN. But it’s clear that the barriers to entry are shrinking. Two years ago, cannabis companies would have paid $50,000 to $80,000 for a kilogram of CBN isolate. But with supply chains improving and demand starting to inch upward, CBN has come down to about $20,000 per kilo. And the price is expected to continue falling. That’s encouraging companies to launch new products.

While Pasztor may have been the first to market, he didn’t manage to build his company big enough to afford the flashy promotional campaigns of new competitors like Loudpack and Glass House Group. Plus, the larger companies are buying CBN isolate in bulk, while Pasztor still creates his CBN the old-fashioned way, by aging plants. His ability to scale is limited by the amount of weed he set aside nearly three years ago. 

But Pasztor is on the shelf, and that matters. One of Moonlion’s struggles has been to educate consumers about the benefits of CBN. With bigger companies now helping on that front, he’s bound to benefit from the growing awareness.

Plus, CBN has proven to be useful in another way: Vendors want something their competitors don’t have. Moonlion’s CBN has been the key to setting up meetings that ultimately enabled him to get his CBD and THC oils onto shelves. “Because of CBN, the door is not so lightly closed,” says Pasztor. If he’s able to hold on, he could be in a good position to catch the next wave of cannabis, whatever that may be.  

And if the industry has its way, the tide of cannabinoids will continue to rise. “What we call exotic today is commonplace tomorrow,” says Farrar, of Glass House Group. “My expectation is that we’ll continue to see the march of new cannabinoids: CBG, CBC, THC-V. It’s not going to stop.”