With a global pandemic affecting the entire retail economy, sales of CBD products fell short of their astronomical 2020 projections, but still saw huge year-over-year growth. As consumer demand continues to increase, analysts believe CBD sales could surpass $20 billion in sales in just four years, provided that regulatory hurdles break the way most experts expect.
“We project that 2020 ended the year at roughly $4.3 billion in total, which is about a 55-60% total growth versus last year,” says Kelly Neilson, vice president of insights and analytics at BDSA. “We’re looking at $6.8 billion in 2021 and up to $20.5 billion as we move into 2025. And that’s growth through dispensary channels, more distribution through general retail with [Food and Drug Administration] regulation, which opens the doors.”
Even without the FDA regulations, consumers are increasingly trying CBD products, with New Frontier Data reporting that nearly 9 in 10 Americans are now familiar with CBD and about 20% have tried it.
“CBD is becoming more and more mainstream. It’s being sold in more and more traditional retail channels — gas stations and grocery stores and whatnot,” says Tyler Yahn-Grode, data analyst at New Frontier Data. “CBD is definitely here to stay. We’re pretty bullish on consumer demand.”
BDSA initially projected a 70% growth rate for CBD in 2020, but Neilson says the COVID-19 pandemic changed consumer behavior, in that many retail stores that carry CBD products closed or saw a drastic drop in customers, forcing BDSA to reevaluate its forecasts.
The Wild World of CBD
Although regulatory concerns and a lack of concrete guidance from the U.S. Food and Drug Administration continue to hold back the CBD industry, overall sales are still rising rapidly, while both new and established brands fight for shelf space, consumer loyalty and the attention of online shoppers and national distributors. Marijuana Venture’s third annual CBD issue looks at the sales trends that have solidified the industry as one of the fastest-growing segments of the U.S. economy, as well as how some companies have made their mark with hemp-derived products.
Innovation in the products themselves slowed due to the pandemic, as well.
At the same time, according to John Kagia, New Frontier’s chief knowledge officer, the pandemic also “accelerated the normalization of attitudes around cannabis” and created conditions that had consumers looking for ways to reduce stress, manage anxiety and improve sleep, all of which are market drivers of CBD sales.
“So the pandemic, ironically, has created a really favorable environment for exploration and environment for CBD use because it dovetails really well with some of the mental health issues folks are dealing with because of the pandemic,” he says
Much of the hope for the growth in CBD products is in infused edibles, which are still illegal federally, though 16 states, including Pennsylvania, have passed laws allowing for the sales of CBD-infused food and beverage products. Edible products already account for 15% of CBD sales in mainstream channels, according to BDSA, with projections nearing 28% by 2025.
Other major sales categories for CBD in 2020 include sublingual products at 19% market share, with inhalable products at 13%, beauty and skincare products at about 12%, and pet products at around 5%, according to Neilson.
But the increase in sales and demand has not necessarily translated to huge profits for CBD companies because the oversupply of hemp drove down prices and encouraged more entrants in the marketplace, all battling for the same share of consumer dollars, according to Yahn-Gorde.
“We saw sales increase as a whole but interestingly enough, if you go look at the largest publicly traded companies involved in selling CBD, almost all of them saw a very significant decline in revenues year over year because of this price war,” he says.
On the production and processing side, it’s currently very difficult to make money due to a glut in biomass, with 92% of last year’s 157,000 acres of hemp being dedicated to cannabinoid production, according to data from New Frontier. And that number represented a drop in acreage from the year before, the first time in the modern era there has been a decline in the number of hemp acres under cultivation.
With so much cheap biomass available, an estimated 135 million pounds of excess, according to Beau Whitney of Whitney Economics, the market for distillate and isolate has all but collapsed, falling from highs of $40,000 per kilogram to as low as $600 per kilogram.
“When I talk to the product manufacturers, their demand is increasing like 500% year over year. So the issue is not retail demand,” Whitney says.
The cannabinoid market of the future
With 9 in 10 Americans now familiar with CBD, many producers and processors have turned their focus to lesser-known cannabinoids.
According to John Kagia of New Frontier Data, CBN, CBG, THCv and Delta-8 THC are starting to get more attention from consumers and processors for their wellness benefits. Kagia says it stems from consumers learning more about cannabis and, in particular, more about CBD, which is finally reaching an “inflection period” of increased awareness.
“But if it has taken five to seven years for CBD to go from zero to where we are right now, we think with some of these minor cannabinoids, as their therapeutic and wellness potential becomes better understood, they’re going to cover that ground even quicker than CBD did over the years,” he says.
Kelly Neilson at BDSA agrees, adding that in the dispensary channel in particular, the increased awareness of CBD will “open the floodgates to secondary cannabinoids.”
“I think within the dispensary channel it will continue to expand the way people are thinking about cannabis in general,” she says.
But Kagia warns that there is still research to be done, including the basics of how these cannabinoids interact with the body, particularly when ingested in doses much larger than usually found in the plant, though he is convinced a wave of these products will land on store shelves.
“Given some of the therapeutic and wellness potential (that) the early science is indicating, I suspect were going to start seeing a market for those emerge over the next few years,” he says.
— Brian Beckley
CBD at the Dispensaries
While CBD has exploded across the United States, particularly in grocery, health food and other traditional retail channels, there remains a market for CBD products produced from state-licensed cannabis cultivators and processors and sold through state-licensed recreational retailers.
But CBD accounts for a shrinking percentage of sales at those shops, according to Cooper Ashley, a data analyst at Headset who reviewed data from point-of-sales in California, Colorado, Nevada, Oregon and Washington.
Ashley analyzed data for non-inhalable products available at rec shops, which includes edibles, beverages, topicals, tinctures and capsules; at its peak in 2019, CBD accounted for 40% of sales in those categories, but that percentage but fell to about 35% of sales in early 2020. He expects that number to rebound somewhat, “but I do think we’ve probably seen the peak,” he says.
The numbers vary greatly inside each category. For example, Headset’s data show that 9 of 10 topical product purchases were CBD products, but only 22.5% of beverages were CBD products. CBD-infused edibles constituted 28% of all edibles purchases, though Cooper says it’s “definitely rising,” up from 23% the prior year.
According to Ashley, sales of pure CBD products have dropped in dispensaries, probably due to the availability elsewhere; however, THC-heavy CBD products — meaning there is more THC than CBD in the product — is a growing category, doubling from 11% to 22% of CBD sales since 2018.
“I think we’re seeing more and more producers seeing that customers are aware of CBD and see its value, but they’re still looking for a THC experience,” he says. Ashley also says that women are more likely to buy CBD products at dispensaries than men, noting that in the previous 90 days of data, female customers spent 37% of their total spending on CBD products, while male customers spent just 31% of their money on CBD.
— Brian Beckley
“Consumers have embraced hemp products and CBD.”
Whitney calls the current revenue numbers the “tip of the iceberg” and agrees that demand for CBD products will only increase.
Right now, analysts agree that despite consumer demand, the FDA’s ban on including CBD in ingestible products is holding back the market. If the FDA allows CBD-infused foods, as most analysts expect, national consumer packaged goods companies could enter the space.
“Once that FDA regulation comes through, it’s likely that a lot of preexisting food and beverage manufacturers are going to start to eyeball the space,” Neilson says.
If and when that happens, it could mean a flooding of traditional markets with CBD products as major food, beverage and snack companies leverage their distribution networks and relationships to move products to store shelves.
“If CBD ends up being treated like a vitamin or mineral, something the way you would add niacin to bread or vitamin C to oatmeal, then we start looking at the possibility of a CBD-everywhere environment, where every form of ingestible from your breakfast cereal to pet foods will have CBD in it,” says Kagia.