By Nicole Farah
The complexity of the emerging CBD space is already on display and will only grow as the nascent market matures. In a broad industry like cannabidiol (CBD), opportunities and problems vary based on various levels of regulations, the market sector a company operates in and a myriad of other factors.
The state of cannabis remains the same regarding regulations. More nations and jurisdictions have legalized CBD, but the marketplace remains a fragmented patchwork of rules. COVID-19 exacerbated the ongoing regulatory struggles for cannabis, both CBD and THC products. At the same time, retail sales, the prime driver of CBD sales, struggled due to pandemic-related store closures and supply chain issues. COVID-19 certainly dealt the CBD space a blow, including a 6.1% decline in revenue for 2020.
Still, optimism shines on, as a CAGR of over 20% is expected in the coming years. At the same time, market consolidation should increase in 2022, building off an M&A-heavy 2021.
While growth is impressive, bad actors continue to hurt industry reputation while clouding consumer knowledge. Poor quality products and recalls of mislabeled, misdosed or otherwise faulty products can turn would-be consumers away from CBD products. The good news is that compliant products are becoming the norm, with the results achieved through consistent experiences, successful go-to-market strategies and supply chain acumen.
Opportunity remains ripe, with no brands yet capturing the majority of this fragmented market of consumers. It is believed that companies will soon do so through consistent, thoughtful products that cater to a wide range of consumer-desired effects.
A Burgeoning Global Market
Those addressing the problem could be poised to capitalize across numerous major CBD markets, including the US, EU and Latin America. Each shows ample potential for those willing to take on the competitive market.
The US is appealing with its large and mature market that leads the way in CBD products consumed. Consumers skew towards the 30 and over crowd, with Millenials and Gen-Xers consuming 71% of the nation’s CBD products in 2021.
The EU and UK have shown a marked preference toward the medical market. Nearly 73 million EU citizens consumed CBD, according to 2020 insights from New Frontier Data. Still, with several nations legalizing THC, it remains to be seen how it may impact CBD popularity in the region.
The Latin American cannabis boom has made nations like Colombia, Mexico and Panama early market leaders due to skilled agricultural workers and near-perfect growing conditions. The combination is paying off as regulations ease in several nations. In 2020, Central and South America combined to sell US$1.5 billion in hemp, up from 2019’s $1.2 billion.
The wholesale cannabis market will continue to expand overall, with CBD flower and products driving a significant portion of the boom. Companies that remain vigilant to remain compliant while providing consumers with consistent, reliable products have the foundation to become leaders in the years to come.
Is CBD Market Share Worth Fighting For?
Absolutely. Regulations and other pain points are momentary hurdles for companies that play their cards right. If they scale in a compliant, consumer-friendly fashion, they could be the leading name in a marketplace with an expected global CAGR of between 22% and 49% through 2028.
The market continues to diversify, fueling growth expectations. Nutraceuticals expect to lead the way. Cowen projects the vertical to generate $6.4 billion in revenue in the US market by 2025. The firm expects topicals ($4 billion) and beverages ($2.4 billion) to round out the top three leading sectors by that time, with beauty ($1.12 billion), food ($1.12 billion) and vaporized ($96 million) products in the mix. Having a company in many of these sectors, creating high-quality products will be a key to market-leading success.
Despite building the infrastructure, CBD brands have to comprehend the road ahead. While rich in opportunities, the market will further commoditize over time. Consolidation will continue as the overproduction of non-psychoactive flower plagues certain companies and markets. Exports and margins will again compress, making cost-effectiveness all that much more critical.
As such, it’s no surprise that CBD remains an exciting, high-risk, high-reward market. While nothing is certain, companies investing in the research, compliance, delivery, and efficacy of their products put themselves in the best position to succeed locally and globally.