In 2016, hemp-derived CBD sales accounted for less than 5% of the cannabis market, but.rapid growth has driven CBD sales to nearly $600 million in 2018, and the Hemp-Derived CBD 2018 Market Overview and Analysis report from Brightfield Group predicts CBD sales will reach $22 billion (40 times its current market size) by 2022, surpassing the rest of the cannabis market combined, if the Hemp Farming Act of 2018 (Farm Bill) is passed.
The Effects of the Farm Bill to Hemp-Derived CBD Market Growth
Brightfield Group expects the passing of the Farm Bill will open the CBD market in four key ways:
1. Strategic Marketing
Current laws are extremely limiting in terms of how CBD products can be marketed to consumers. The Farm Bill will legalize hemp-based CBD at the federal level making it easy for CBD companies to advertise their products the same way other nutraceutical brands do. With more marketing, more consumers will become aware of CBD products and sales will increase.
2. Distribution Channels
Today, the majority of CBD product sales occur online. The Brightfield Group’s research discovered that in 2018, CBD product sales are taking place through six channels:
- Natural food stores (29%)
- Online sales (24%)
- Smoke shops (23%)
- Medical companies (6%)
- Dispensaries (6%)
- Other channels (12%) such as multi-level marketing companies, specialized CBD retailers, gas stations and convenience stores, gyms, and independent pharmacies.
When the Farm Bill passes, Brightfield predicts national retailers like Walmart, pharmacies like CVS, supermarkets, pharmaceutical companies, and a variety of other channels will start carrying CBD products. In 2022, Brightfield expects the majority of CBD product sales will happen through chained retailers and other more conventional and mainstream supplement retail channels (e.g., natural food stores and alternative medicine practitioners).
3. Changing Consumer Sentiments
Many consumers today view hemp (the source of hemp-derived CBD products) similarly to marijuana (which includes THC, the component that creates the high effect) since they come from the same plant (cannabis) and are both illegal at the federal level. However, the passing of the Farm Bill will show consumers that hemp and marijuana are actually very different.
Hemp has been gaining popularity among consumers in recent years and as more CBD products are available on traditional retailers’ shelves, much of the stigma around them will disappear. At this point, CBD companies will have opportunities to build their brands, making the market ripe for mergers and acquisitions.
4. Product Variety and Innovation
Already, CBD product companies have launched a wide variety of products for various uses. Edibles, tinctures, creams, pills, and more are available, but the number of product types and innovations – both in terms of manufacturing and use cases – will continue to grow when it becomes easier to cultivate and source hemp for manufacturing, cross state lines with it, and conduct research with it. With more product choices comes more competition in the market. Inevitably, sales will go up and the market will grow.
Trends, Tips and Innovations from a Hemp-Derived CBD Market Leader
With such explosive growth forecasted for the CBD market, it’s interesting to consider the effects in terms of market trends, brand-building, innovation, and doing business in this evolving industry. I spoke with Michael Harinen, Chief Brand Officer of Bluebird Botanicals, the eighth largest hemp-derived CBD company in terms of market share according to Brightfield Group, to gain some insights into the future of the CBD market.
CBD Market Trends
As the CBD market grows quickly in multiple directions, much of the market trends are now based on consumer demands. Michael explains, “Consumer demands for lab testing have been on the rise with education about possible contaminations in hemp products. Heavy metals, pesticides, herbicides, and fungicides are some of the common culprits.”
In addition, consumer demands are pushing for a wider variety of products which will shape the industry in the future. “The biggest push right now is CBD everything,” says Michael. “Consumers can find CBD in coffee, lotions, snacks, teas, water, workout supplements, and more.”
CBD Brand Development
As CBD products become more mainstream in terms of consumers being able to purchase them at their local grocery stores, on Amazon, and so on, there is a growing concern about finding brands that are trustworthy and offer high quality products. Michael believes lab testing is the best way for brands to establish their reputations as trustworthy and offering high quality products.
“Specifically, batch testing from verified third-party labs is critical,” says Michael. “We’ve come in contact with many companies that are selling products tainted with contaminants, that have less CBD or cannabinoids than what they claim on the bottle, or those that will send a lab report from years back when requested. You should be able to call up a company or email them and get a timely response to any of your questions.”
For brands, Michael offers the following advice, “First, build a solid foundation of integrity and then allow that to come through your brand presence and interactions. There’s no such thing as too much testing. Be transparent and honest. Be supportive and informative to your customers. Get to understand the requirements for GMP certification and be ready for a visit from the FDA. It can happen, and if you’re not ready with all of your documents and processes in line, it can end your company. Invest in marketing materials, labels, a website, and so on so your customers can have a relationship with your brand and company.”
Tips for Entrepreneurs and Investors Entering the CBD Market
Entering the CBD market today isn’t like entering many other markets. While that might change if the Farm Bill is passed, there are some aspects of owning all or a piece of a hemp-derived CBD company that you can still expect. Michael shares, “If you want to start a business in this industry, build solid relationships with your farmers and ingredient suppliers and always have backups. Always request a sample for your own testing before signing any contracts. For longevity’s sake, act with integrity and do the right thing. Honesty goes a long way. Importantly, never make medical claims unless you’re looking for a letter from the FDA.”
Michael’s advice for investors focuses on digging deep and knowing the company you’re thinking of investing in. He says, “Do your research. There are a lot of companies out there with a good face but are a flash in the pan. History and a solid trend of growth are key points to look for in any investment, but especially in such a new industry where the novelty can be used as a smokescreen.”
The future of the CBD market is very promising, and Bluebird Botanicals is excited for it. “The passage of the 2018 Farm Bill with the Senate language on hemp would open up so many opportunities in this industry,” says Michael. “We’re interested to see what applications of CBD make the most sense when all of the dust settles from the current excitement. Does it make sense to include it in food, beverages, or transdermal patches? There’s so much we still don’t know. Time, experience, and research will tell.”
The Future of the Hemp-Derived CBD Market
Assuming the Farm Bill passes, marketing and manufacturing will open up in the CBD market, and major retailers and pharmaceutical companies will enter the market. As a result, Brightfield Group predicts, “Hemp CBD will transition from a grassroots movement largely driven by word-of-mouth marketing into a full-fledged competitor on the nutraceutical market, driving the whopping 132% compound annual growth rate (CAGR) expected over the five year projection period.”
In addition, Brightfield Group predicts the market will continue to grow after the Farm Bill opens the doors to expanded funding for research that will drive pharmaceutical and other research money into the market. This will increase the number and variety of uses for hemp-derived CBD as well as consumer interest in CBD products.
In other words, the CBD market will continue growing in the future, but when the Farm Bill passes, that growth will speed up exponentially to the tune of $22 billion in 2022.