What is the outlook for the CBD consumables market in the US?

More food and beverage products containing cannabidiol, the cannabis compound that doesn't get you high, are being launched in the US. And demand is rising. Victor Martino weighs up how the CBD consumables market could develop stateside.

It's not often in the huge consumer packaged goods (CPG) industry that an entirely new category presents itself. But such is the case with Cannabidiol (CBD) consumables.

CBD is a naturally-occurring compound found in the resinous flower of cannabis, a plant with a rich history as a medicine and wellness substance going back thousands of years. A safe, non-addictive substance, CBD is one of more than a hundred phytocannabinoids that are unique to cannabis and endow the plant with its robust therapeutic profile.

CBD is closely related to tetrahydrocannabinol (THC), the compound that causes the high for which cannabis is known. These are the two components of cannabis that have been most studied by scientists.

Because CBD doesn't cause a high like its cousin THC, it has become the distilled compound of choice for a variety of consumable products, ranging from oils and drinks to a variety of food products like baked goods and snacks.

CBD is also a naturally-occurring constituent of the industrial hemp (cannabis sativa) plant. Hemp is considered the preferred plant for CBD extraction based on current industry consensus.

As little as three years ago, CBD consumables barely registered as a product category in terms of sales. Today, it's a category producing hundreds of millions of dollars in revenues, with forecasters and analysts predicting annual sales of many billions of dollars within the next few years.

Chicago-based research firm SPINS, for example, reported $500,000 in total CBD sales in 2015 from natural and conventional retail channels in the US. But, in the year ending in November 2018, SPINS reported more than $48m in CBD sales from those retail channels.

Repeal of US hemp ban leads to sales boom prediction

The Brightfield Group, which has emerged as the Nielsen or IRI for the analytics and tracking of CBD and cannabis sales, reports total CBD sales in all channels, which includes non-grocery settings such as stores that specialise in selling alternative health-and-wellness products, as well as smoke shops and medicinal cannabis shops. The Brightfield Group predicts the hemp-derived CBD market will reach $22bn by 2022, according to its director of research, Bethany Gomez.

"All of a sudden, CBD is everywhere – it is both a trendy, new ingredient in drinks, face creams and pet treats and an answer to the prayers of so many people suffering from medical conditions ranging from epilepsy to anxiety and chronic pain. It rides the waves of so many global food and health trends, as a substitute for opioids, towards more natural health alternatives and functional ingredients," Gomez says in explaining The Brightfield Group's forecast.

"CBD is the next healthcare phenomenon. It is so effective for so many conditions, is natural, non-psychoactive and has no known serious side-effects. It is the next hot, functional beauty ingredient, like collagen, shea butter or aloe. It can be grown domestically as a substitute for tobacco and provide a much-needed cash crop for American farmers."

The key driving force behind the predicted boom in sales, along with consumer demand and an industry looking for new opportunities, is the repeal of the federal ban on hemp cultivation in the US as part of the 2018 Farm Bill passed by Congress and signed by President Trump at the end of 2018.

The repeal ban opens up hemp and legally allows farmers to grow and sell the crop without legal repercussions. CBD, which is extracted from hemp, is projected to be the most in demand use for the crop cultivated in the US.

The prospect of ‘synbiotic’ products combining both pre and probiotic elements should be considered for potential benefits.

Regulatory uncertainty: consumables enforcement remains murky

However, even with the repeal of the federal hemp ban, the regulatory climate surrounding CBD consumables remains at best murky. Dr. Scott Gottlieb, the former commissioner of the US Food and Drug Administration, said the agency has the authority to regulate cannabis products, specifically CBD. The FDA, he added, is particularly concerned about CBD marketers and sellers touting the compound's ability to cure, treat or prevent diseases.

The lesson here for food and beverage companies already in – or thinking of getting in – the CBD consumables space is to avoid making any specific health benefit claims. CBD consumables is a brave new world for packaged goods companies, and until the FDA issues specific regulations, which it is working on, caution is the best policy, according to legal and industry experts.

The FDA still prohibits foods and beverages containing CBD from crossing state lines, for example. But Gottlieb, prior to his reisngation, said his agency was planning public hearings this year to determine the best way to consider and regulate CBD in the future.

Most big brands would be prudent not to have their name associated with promoting CBD products

Sean Murphy, founder of Hemp Business Journal, says, in the next six months or so, hemp trade industry groups such as the American Herbal Products Association will work with the FDA to come up with a regulatory framework, which is something Dr Gottlieb recently indicated he is open to doing.

Nevertheless, the lack of clear direction from the FDA isn't stopping companies from launching CBD-infused drinks, snacks and more. A striking example is the significant investments some major beverage alcohol companies are making.

But, when it comes to consumer packaged goods companies getting into the game with branded products, the state of play in CBD consumables is very much in the first inning, to borrow a baseball term.

None of the big food and beverage companies have yet pulled the trigger and launched a CBD consumable product line under any of their own brands, which is understandable considering the still uncertain regulatory landscape around CBD consumables.

Michelle Weisberg, a consumer packaged goods industry veteran and Chicago-based consultant researching opportunities for companies in CBD, says such a stance is prudent. 

"Due to current federal laws and an uncertain regulatory climate, I think most big brands would be prudent not to have their name associated with promoting CBD products, unless the company is already selling adult-type consumable products, like alcohol or tobacco," she explains.

CBD and consumer confusion: brands face trust and traceability issues

There's also uncertainty and confusion among US consumers when it comes to CBD consumables. For example, a new survey by Chicago-based research firm Culinary Visions found trust and traceability are among the most important issues consumers have related to food and beverage products made with CBD.

Forty-five per cent of those surveyed said they would trust products that are commercially made to be safe. But, despite having trust in commercial cannabis products, 42% said they would prefer to buy from a small batch producer.

I think the number one thing that needs to occur with packaged goods companies is educating the public about their products

Only 29% of consumers would trust the quality of CBD products bought online, and half of those surveyed said they would feel more comfortable buying CBD consumables if they had the opportunity to speak directly with a knowledgeable sales representative. This data points to the big job food-and-beverage companies have in educating consumers and gaining their trust when it comes to offering branded CBD consumables.

"I think the number one thing that needs to occur with packaged goods companies and brands is educating the public about their products in a responsible but entertaining way," Weisberg says. "This could include sponsoring various tasting events and get-togethers on-site at legalised recreational CBD locations. They could have well-known celebrities and sports figures endorse their products. 

“Companies could also pledge to have a percentage of their profits donated to medical CBD research. They could also have chefs demonstrate how to cook and bake using CBD products and serve CBD beverages at the events."

Sharon Olson, executive director of Culinary Visions, says the CBD food-and-drink product concepts that appealed to the consumers the firm surveyed are those that find appeal and acceptance in gourmet retail and restaurant venues, such as small-batch production, knowledgeable staff, culinary attributes and great taste.

According to the survey, consumers said the top four CBD food-and-drink products consumers are interested in are: baked goods (48%); candy/gummies (45%); snacks (44%); and non-alcoholic beverages (41%). 

These categories are representative of the categories that comprise most of the CBD consumables products on the market.

M2Farms pushes for informing and educating consumers

Weisberg, who's created private-label food-and-beverage products for retailers Tesco, Smart & Final and Cost-Plus World Market among others, says the following categories have high potential: candy (gummies, hard candy, mints and chocolate); baked goods like cookies, brownies and cakes; and beverages, including flavoured water, wine and beer.   

Mario Martin, founder of M2Farms in Sacramento, which has recently launched a line of CBD consumables and health and body care products to complement its existing line of CBD oils and related products, says he sees CBD in everything from baked goods, to "grass-fed" animal products, sauces, emulsions, and even purées.

Martin, who is a pioneer and expert in the cannabis industry, is building a café in Sacramento's hip Midtown neighbourhood where he plans to eventually offer CBD-infused meals and drinks, along with conducting educational events focused on CBD and cannabis.

It’s important that consumers understand that all those nicely labelled containers on store shelves are not vetted by the FDA.

Many health benefits from marijuana are contained in cannabidiol

He insists there are misconceptions about the ingredient that need to be addressed to better inform and educate consumers. 

"It has become common knowledge in recent years that marijuana has numerous health benefits,” he says. “However, after using traditional marijuana products, the tetrahydrocannabinol causes a 'high', or a feeling of euphoria for a time after consumption, which could be an unwanted effect. Many health benefits from marijuana are contained in cannabidiol. 

“So, when CBD is extracted from the cannabis plant and isolated from THC, the benefits of cannabis can be gained without the high. Products in the M2 Farms shop labelled 'CBD' are there to provide people with the option to reap the benefits without the high. However, since most establishments and governmental agencies don't know this concept, not many products make it on the grocery shelf."

M2Farms is focusing on food-and-drink consumables containing CBD, as well as health, body and beauty products in its initial launch, Martin says, "because we believe these are very desirable products with consumers".

Should Big Food move? Balancing uncertainty against opportunity

The CBD consumables space is following the same path as now mainstream categories like organic, functional food and beverage and gluten-free have, with entrepreneurs pioneering the category, innovating and launching branded products out into the marketplace.

CBD is a bottom-up (start-up) rather than top-down (big food-and-drink company) business right now. However, the investment by some food-and-beverage majors – and the interest being shown by others – indicates there is a belief across swathes of the industry that the market for CBD food and beverages is poised to boom.

This poses a bit of a conundrum for larger companies. It is prudent to remain on the sidelines in terms of launching branded products because of the present uncertain regulatory climate but there is a danger in waiting too long and missing the opportunity, as was the case with organic, functional and gluten-free. Many large food companies found they had to buy their way into these categories.

The global market for prebiotics is predicted to reach $7.91bn by 2025

Nobody really has taken a dominant position in cannabis or CBD consumables, because nobody has really nailed the right combination

M2 Farms' Martin suggests the time for major food-and-drink companies to enter the CBD consumables market might just be right now.

"If you get in the game after everyone else has, your market share opportunity shrinks, which could lead to short-term product failure. Do your formulations now and surround yourself with cannabis industry smart alliances," he suggests.

"One thing that big food-and-drink companies do very well is marketing, and that combo would work really well in the current cannabis landscape. Have a look around, nobody really has taken a dominant position in cannabis or CBD consumables, because nobody has really nailed the right combination." 

Martin says joint ventures with smaller companies like his and others is an additional way for larger companies to get into the CBD space.

Disruption is hard to predict, but excitement abounds

Overall, it is far too early in the evolution of the CBD consumables category to say with any reasonable degree of certainty which food-and-drink categories it might disrupt. But most experts in the segment believe alcoholic beverages stand a high probability of disruption from CBD-infused drinks, as to a lesser but significant degree do non-alcoholic functional beverages, which is why we're seeing major investment by drinks companies.

The nutritional supplement category could also see disruption from CBD consumables, as consumers switch from some supplements to CBD oils, topicals and foods and drinks for health-and-wellness reasons.

The passage of the 2018 Farm Bill was the first step in opening the door to a robust CBD consumables market in the US. The next required step is for the FDA to issue clear and concise regulations on the production, marketing and sales of CBD consumables. Industry experts are optimistic that could happen as soon as the end of this year.

Amazon-owned Whole Foods Market has named CBD consumables as one of its top food and drink trends for 2019

However, the uncertain legal and regulatory environment isn't stopping the category from growing. New branded CBD consumable products are seemingly coming out on a weekly basis.

The excitement and buzz about the category and its market potential dominate conferences and conventions. Amazon-owned Whole Foods Market has named CBD consumables as one of its top food and drink trends for 2019.

Many industry leaders and entrepreneurs believe CBD is poised to be the next big category in CPG. Opportunity abounds. It's not often the consumer packaged goods industry has a chance to create and build a truly new category.

This article originally appeared on just-food

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