America’s hemp-based CBD industry poised for M&A

Several hemp-based CBD brands are eying acquisition targets in a move that will lead to further consolidation of the market.

Josh Long, Associate editorial director, Natural Products Insider

July 6, 2021

3 Min Read
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The 2018 Farm Bill legalizing hemp across the U.S. spawned a fiercely competitive market for CBD products.

But the market looks much different today than it did even 1 ½ years ago.

Many smaller brands have dropped out of the space, while several startups and entrepreneurs never moved “out of first gear,” according to Bethany Gomez, managing director of Brightfield Group, which tracks sales in the CBD market. Others that experimented with CBD line extensions, she noted, have shuttered the portfolios.

The industry has shrunk to around 2,000 brands, Gomez said, down from a peak of 3,500 at the end of 2019. Several CBD brands are eying acquisition targets in a move that will lead to further consolidation of the market.

For example:

  • On April 27, The Valens Co. announced an agreement to acquire Green Roads for $40 million, plus another $20 million contingent on the business achieving certain earnings milestones.

  • On May 17, HempFusion Wellness Inc. revealed plans to acquire APCNA Holdings Inc. (Apothecanna), a brand in the topicals space whose retail partners include CVS Pharmacy and Seventh Sense.

  • On May 25, HempFusion disclosed an agreement to acquire Sagely Enterprises Inc. (Sagely Naturals), whose CBD products are distributed in more than 14,000 retailers nationwide.

  • On June 16, Kadenwood announced the acquisition of the Social CBD brand. Through the acquisition, Kadenwood said, the CBD company would now boast a portfolio of multiple brands across roughly 18,000 retail stores.

Analysts expect more merger and acquisition activity in the coming months in the hemp-based CBD market. Many companies are “cash-starved,” and “it’s a good time to go shopping,” Gomez said in an interview.

By and large, 2020 wasn’t kind to the American CBD sector. The pandemic resulted in closures of retail stores, driving consumers online and away from natural food stores where hemp-CBD sales once proliferated.

Gomez said firms also faced challenges obtaining assets and capital.

Meanwhile, U.S. regulators did not offer guidance or rules for CBD ingestible products—limiting growth in the sector and keeping CPG brands on the sidelines, analysts and executives said.

Several public companies faced financial headwinds that may be representative of struggles affecting the broader CBD market. Hemp-based CBD sales grew to $4.6 billion in 2020 from $4.2 billion in 2019, according to Brightfield Group. But growth in the CBD category plunged to just 11% in 2020, compared to 560% in 2019, Gomez reported.

Brightfield Group forecasts the CBD market will grow 15% in 2021 to $5.3 billion—and an increasingly smaller number of brands are poised to control the market.

This is no surprise to Jason Mitchell, co-founder and CEO of HempFusion, a public company whose shares are traded in Canada on the Toronto Stock Exchange (TSX) and over the counter (CBDHF) in the U.S.

In a recent interview, Mitchell said he conveyed a message to his team and board of directors in Jan 2020: Consolidation was inevitable.

After sharing the message with his team, Abacus Health Products Inc. announced an agreement in February 2020 to acquire a CBD topicals brand, Harmony Health. Soon thereafter, Charlotte’s Web Holdings Inc. disclosed a deal to acquire Abacus.

HempFusion is no stranger to acquisitions. The company in 2019 acquired Probulin, which sells probiotic supplements, reflecting a move to diversify beyond the cannabinoid space.

This year has been a frenzied one for Mitchell and his team. HempFusion in January completed an initial public offering and subsequently announced separate deals to acquire Apothecanna and Sagely Naturals.

Citing IRI data, HempFusion reported Sagely Naturals maintains the No. 1 position in CBD topicals.

The Sagely Naturals deal, Mitchell shared, “won’t be our last.”

Any further consolidation in the space may help to stabilize a fragmented market.

“Thirty-five-hundred brands cannot be supported—period—in this industry,” Mitchell concluded, commenting on Brightfield Group’s recent data disclosing the number of brands has diminished to 2,000. “There just isn’t enough consumer interest. It just doesn’t make sense at all.”

About the Author(s)

Josh Long

Associate editorial director, Natural Products Insider, Informa Markets Health and Nutrition

Josh Long directs the online news, feature and op-ed coverage at Natural Products Insider, which targets the health and wellness industry. He has been reporting on developments in the dietary supplement industry for over a decade, with a focus on regulatory issues, including at the Food and Drug Administration.

He has moderated and/or presented at industry trade shows, including SupplySide East, SupplySide West, Natural Products Expo West, NBJ Summit and the annual Dietary Supplement Regulatory Summit.

Connect with Josh on LinkedIn and ping him with story ideas at [email protected]

Education and previous experience

Josh majored in journalism and graduated from Arizona State University the same year "Jake the Snake" Plummer led the Sun Devils to the Rose Bowl against the Ohio State Buckeyes. He also holds a J.D. from the University of Wyoming College of Law, was admitted in 2008 to practice law in the state of Colorado and spent a year clerking for a state district court judge.

Over more than a quarter century, he’s written on various topics for newspapers and business-to-business publications – from the Yavapai in Arizona and a controversial plan for a nuclear-waste incinerator in Idaho to nuanced issues, including FDA enforcement of the Dietary Supplement Health and Education Act of 1994 (DSHEA).

Since the late 1990s, his articles have been published in a variety of media, including but not limited to, the Cape Cod Times (in Massachusetts), Sedona Red Rock News (in Arizona), Denver Post (in Colorado), Casper Star-Tribune (in Wyoming), now-defunct Jackson Hole Guide (in Wyoming), Colorado Lawyer (published by the Colorado Bar Association) and Nutrition Business Journal.

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