The CBD industry has been abuzz in recent months after long-awaited statements released by the U.S. Food and Drug Administration...Read more
The last few years have seen an unprecedented rise in CBD’s public popularity. As interest continues to grow and grow, the industry keeps growing, too. With all these new companies, investors and consumers jumping into the mix, we’re asking, how are the numbers looking? What’s the business forecast for the next few years?
By all accounts, projections are favorable.
It’s billions, baby
In the last year, a handful of reports have come out from different analytics and market research firms all detailing their predictions for the future of the CBD market, working from the findings that in 2018 CBD sales were at $620 million in the United States. The reports actually varied quite significantly in their predictions for the specific percentage of compound annual growth rates (CAGR)—a.k.a. the rate of return on an investment over a period of time longer than one year—that we would see, but each one of the reports placed profits in the billions of dollars within the next few years.
On the conservative end of things, the London-based firm Technavio predicted in their November 2019 report on the global CBD oil market that, between 2020 and 2024, the industry would have a 32 percent CAGR, resulting in market growth of $3.52 billion by 2024. Less conservative was the report released a year ago in February 2019 by investment bank Cowen, which predicted the potential market value for consumer goods to be up to $16 billion by 2025.
But two more reports from last year predicted even higher earnings. BDS Analytics released its study in May 2019 anticipating revenues to reach $20 billion by 2024—a CAGR of roughly 49 percent. The report emphasized how CBD is no longer simply a sub-category of the cannabis industry, but instead, it’s become a whole category unto itself. Even more encouraging still is the report from consumer insights firm Brightfield Group. Released in July 2019, Brightfield predicts that the industry will grow by as much as 706 percent, reaching $23.7 billion by just 2023, which is a whopping 107 percent CAGR.
Fuel for growth
While the value estimates vary, the reports are clear: the CBD market is growing worldwide and it’s not slowing down. There are many factors at cause here, and CBD’s singular position in the market is certainly among them.
As part of the cannabis genre, CBD is already associated with a long history of wellness, and there are innumerable anecdotal claims of its wide-ranging health benefits, as we’ve discussed in many articles on this blog. Additionally, whereas many other natural treatments do not have research to back up their stated benefits, CBD is a natural alternative that actually does have science behind it proving many of its therapeutic assertions. This alone is hugely attractive in an era when consumers are increasingly interested in improved health, anti-pharma and ground-grown remedies. On top of all that, because CBD doesn’t cause a high, it is much more appealing across age groups and demographics. With our aging population, the rising prevalence of arthritis and inflammation-heavy syndromes, and more public promotion by athletes and health advocates, the widespread use of CBD as a more pure and holistic, accessible treatment option and health supplement only continues to rise.
Health and wellness culture aside, there are plenty of other factors contributing to the industry’s rapid growth. The 2018 Farm Bill removing hemp from the Controlled Substances Act, along with the FDA approval of the first CBD-based prescription drug, Epidiolex, were each a huge boon to the industry, legitimizing CBD in the eyes of a broader consumer base and causing a ripple (or tidal wave, really) of new business. The broadening legalization of marijuana and cannabis-based products on the whole also undoubtedly bolsters the CBD industry in a major way, as does the influx of well-established Canadian cannabis and CBD companies coming in to get in on the growing-but-not-yet-maxed-out market of their southern neighbor.
Retail makes its mark
Finally, the arrival of CBD products in major retail chains is potentially the biggest driver of all for market growth at this point. In 2019, pharmacy giants CVS, Walgreens, and Rite Aid all started carrying CBD topicals in as many as eight states and over 2,000 stores. Kroger also started carrying CBD products in 945 stores across 17 states, which equates to approximately one-third of all owned supermarkets in the country, and cannabis corporation Harvest Health & Recreation secured a partnership with several major gas chains to put its CBD products in over 10,000 gas-station convenience stores around the U.S. this year. Even popular companies like Ben & Jerry’s and Whole Foods have hinted at the arrival of CBD products in their lineups.
As far as product types are concerned, tinctures still top the field with 25 percent of revenue, but topicals and skin and beauty products are running closely behind, at 17 and 8 percent, respectively. Most retail chains are coming on board with topicals and beauty products first because those products are considered to be the safest with the least amount of potential production issues, so the percentage of profits for those categories is expected to expound. Despite the fact that retailers only began carrying CBD products partway through last year, by the end of 2019, their sales already exceeded those of other market sellers, ending at roughly 57 percent of the market share.
Even with the incredible promise of the industry, there will still be some challenges to growth in the coming years, some seen and some unforeseen. As of now, the biggest determinants that could impede or slow progress comes down to two things: federal regulatory measures and the lack thereof.
The industry’s lack of regulation has been a dominating cause for concern because it has resulted in the proliferation of “bad actors,” per se, or too many companies trying to make a quick buck that doesn’t follow safe and reliable production standards and end up putting out ineffective and untrustworthy products. The U.S. Food and Drug Administration (FDA) has also been incredibly slow to put out any sort of regulatory standards, instead opting for overwrought warnings and scare tactics that caused momentary stock drops and potentially longer-lasting fears in certain sectors of the public. Since the Farm Bill, broader legalization has progressed more slowly than expected, and the FDA’s warning doesn’t sow confidence that legalization efforts will speed up any time soon. Lastly, the Department of Agriculture’s proposed hemp-testing rules, which call for incredibly strict provisions—like a two-week harvest window and requiring tests to be done in a limited number of DEA-certified labs only—have farmers and companies in all states worried about what that could mean for their crops and turnover going forward.
Full speed ahead
We are still at the very beginning stages of regulation, so new rules at the federal level that are sure to come in the next few years could certainly curb some of the growth projections on the higher end of the spectrum. More scientific findings from pending research studies could also influence the growth rate, depending on whether or not the data is positive or negative for CBD’s effect on certain conditions. But for right now, interest is only expanding, and with what we know about CBD’s effectiveness, that interest won’t wane any time soon.
The outlook is good, folks. Really, really good.