The US cannabidiol (CBD) market was not immune to the economic impacts of the COVID-19 pandemic. Stakeholders across the entire industry were affected, and many brands rushed to pivot in an already fast-paced business. Entire marketing and sales strategies were upended by store closures, changes in consumer needs and drops in the price of CBD. The industry has been rebounding ever since its fall in second quarter (Q2) 2020, but the landscape looks much different than before. Ecommerce is the dominant channel, CBD discovery has stunted, and there is still no federally supported regulatory structure for ingestible products. As if that was not enough, innovation continues to rise, and the ties between CBD and cannabis get closer.
All this has brought CBD to its existential question: is it a standalone industry, a cannabis product or an ingredient? Let’s explore the latest trends that brought about this question.
Slow regulatory rollout limits ingestible growth
The CBD market still exists in a regulatory gray area nearly 2.5 years after the Farm Bill legalizing low-THC hemp went into effect. The delay has been particularly impactful for ingestible CBD products like edibles and tinctures. The FDA has yet to provide the framework needed to govern how CBD ingestibles can be sold legally.
The lack of regulation has largely kept mainstream consumer packaged goods companies from entering the market. Federal guidance is needed for these players to get involved without posing important risks to the rest of their business. The legal gray area is also one of the reasons why CBD is so separate from similar products like mood modification beverages or immunity supplements. Yet, Brightfield Group’s Opportunities to Win report showcased how similar CBD products already look like mainstream, non-CBD products.
The good news is that regulatory turbulence will not last forever. The FDA will eventually provide guidance on CBD ingestibles, allowing companies of any size to confidently create CBD products of all stripes.
The industry triples down on e-commerce
Unsurprisingly, growth in CBD was driven by e-commerce in 2020. Brands shifted strategies and competed for consumers online, while brick-and-mortar sales slowed. Those already dominant in the channel had a leg up, but many CBD brands pivoted and achieved some success. The brands that focused on boosting their e-commerce have proven to be the most successful. Increased online sales made website visitors more important than ever, and the brands with the highest consumer loyalty also have the highest site traffic.
- Strategic online advertising brought shoppers onto brand websites.
- Targeted email campaigns kept potential customers interested and primed them to buy.
- Subscription models helped foster loyalty by providing convenient, money-saving incentives to remain a customer.
2020 store closures impact consumer discovery despite increased reopenings
The shuttering of many CBD retail businesses stunted discovery in 2020. Consumers could previously come upon CBD when browsing a beauty retailer, vitamin shop, or medical practitioner’s office. Many of these retailers deemed essential businesses still experienced a significant decline in sales as shopping habits quickly changed. Most notably and even with these channels reopened, consumers are not spending time in stores like they once were.
Consumers still report buying CBD at brick-and-mortar channels, even with 50% saying they purchase online. Notable increases are in pharmacies and specialized CBD retailers—stores in these channels are specific and focused, allowing shoppers to get in and out with what they need. CBD discovery will pick up in other retail channels once consumers feel comfortable shopping in-store. Inevitably, end caps and store displays will introduce new people to CBD once again.
Millennials & Gen X driving the market
Millennials and Gen Xers account for more than two-thirds (71%) of CBD users. Knowing who these consumers are is imperative to accurately marketing to them. A plurality of both generations uses CBD daily, but millennials take more doses per day. Both generations are also more informed about the CBD dose they take, especially when compared to baby boomers. Knowledge and preference will only increase as millennials and Gen Xers become more experienced users.
Retaining and gaining the loyalty of these groups will take innovative, unique offerings that deliver on product expectations. Word of mouth is the most popular outlet for initial CBD awareness among both generations. Millennials are more likely to learn about CBD from social media, in-store browsing, or from a budtender. Gen Xers learn about CBD from more traditional sources like doctors, the news/TV, or print ads.
Where someone hears about CBD could make or break future purchase intent, as consumers who are not open to using CBD have gaps in their knowledge on the cannabinoid. For example, 17% of consumers not open to trying CBD incorrectly reported not desiring the psychoactive effects of CBD (there are no such effects), and another 16% don’t believe CBD works.
Countering misconceptions with approachable information on CBD could help convert non-believers into potential users or prevent people from adopting incorrect beliefs all together. For instance, 18% of consumers not using CBD today openly admitted they do not know enough about CBD products. Education on product types and use cases is key in educating younger generations to increase usage, help with CBD penetration, and hopefully increase spend over time.
Existential question of CBD: Wellness? Cannabis? Its own industry?
CBD is its own category because of how it is regulated. The gray area mentioned prior keeps CBD gated from other industries, but where will CBD fall once regulation changes? The most likely industries are cannabis and wellness, spurred by growing cannabis legalization and the global shift to wellness-focused products.
Innovating into wellness: Cannabinoids and beyond
There’s now more to CBD products than just CBD, as many of the top brands have incorporated minor cannabinoids into their portfolios. Cannabinol (CBN) and cannabigerol (CBG) lines were launched throughout the second half of 2020. CBN found its place as a sleep aid, while CBG’s main appeal was its “newness” to the market—it has since been pushed into a beauty or skincare positioning.
But brands have gone beyond cannabinoids. Functional ingredients began popping up on CBD labels mainly to account for health claims. For example, a brand cannot say CBD helps with sleep; it can say melatonin plus CBD helps with sleep.
Now, CBD brands are adding functional ingredients to CBD products to capture wider appeal. Ingredients common in wellness products—such as mushrooms, botanicals and adaptogens—are increasingly making their way into CBD formulations. This extends beyond dietary supplements into beauty products as well, as many brands have topical lines with popular skincare ingredients.
The road ahead
The exact future of the US CBD market may be unclear, but there’s no denying consumers are interested in the cannabinoid from both a wellness and cannabis perspective.
The connection between cannabis, wellness, and CBD becomes increasingly important as mergers and acquisitions heat up. Non-CBD companies partnering with and acquiring CBD brands will influence how competition looks in the space, as well as how final products are positioned and expanding the realm of consumers they reach. An influx of wellness-focused CPG dollars will expand horizons for CBD. Once legislative issues are worked out, distribution channel relationships already forged by wellness and cannabis brands will increasingly shape how, when, and why people buy CBD.
Madeline Obrzut is a content specialist for Brightfield Group. She’s a cannabis professional who closely watches the industry from both a market research and consumer perspective. She graduated from DePaul University with a Master of Arts in public relations and advertising.