CBD market outlook, challenges

From the origins of the CBD market to concerns over adulteration of products and the regulatory quagmire facing FDA, INSIDER takes a deep dive into the hottest ingredient in the dietary supplement industry.

Josh Long, Associate editorial director, Natural Products Insider

August 26, 2019

5 Min Read
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Charlotte’s Web and CV Sciences are part of an industry that analysts project will generate tens of billions of dollars annually. In 2018, hemp-based CBD sales totaled $390 million, according to Hemp Business Journal (HBJ). Based on what HBJ founder Sean Murphy said is a conservative estimate, the publication projected sales of $1.4 billion for 2022.

One could make a “reasonable” argument that sales of hemp-derived CBD products will reach $1.5 billion to $3 billion by 2022, depending on such variables as mass-market retailers entering the space and how “the stars align with FDA,” Murphy wrote in a January 2019 email.

Others have announced more bullish estimates. In 2018, the Brightfield Group predicted the hemp-derived CBD market would reach $22 billion by 2022. In an article on its website, the market research firm focused on the “legal cannabis industry” acknowledged its estimates were “shocking,” but didn’t waiver from them.

The market for CBD “has grown almost exclusively based on word-of-mouth, with marketing heavily restricted due to the legal gray area that hemp CBD operates in,” the Brightfield Group wrote in a separate article in September 2018. “But, if Mitch McConnell has his way, the Farm Bill will change that, officially de-scheduling hemp and paving the way for mass retailers, CPG [consumer packaged goods], ingredients and health care companies to enter the space. And that is what will change the game entirely.”

McConnell—the Senate majority leader—“had his way.” The 2018 Farm Bill, which President Donald Trump signed into law in December, removed hemp from the federal Controlled Substances Act (CSA) and treated the crop as an agricultural commodity subject to USDA’s oversight. The new law preserved FDA’s authority to regulate cannabis-derived products, including CBD, which the agency has determined cannot be added to food or marketed as a dietary supplement.

But the latest Farm Bill granted the industry access to such things as banking and insurance, said Cory Pala, director of investor relations with Charlotte’s Web, which completed an initial public offering in 2018 in Canada. “And it really removed the stigma and fear of, ‘Is this legal, is this not legal?’ among consumers,” he said in an interview.

Following passage of the 2018 Farm Bill, prominent brick-and-mortar retailers have begun marketing CBD-containing products in the U.S. Some of them include CVS Health Corp., The Kroger Co., Vitamin Shoppe Inc. and Walgreens Boots Alliance Inc.

CBD in Nutraceuticals

In the CBD market, nutraceuticals alone could comprise $6.4 billion in 2025 revenues, followed by topicals ($4 billion), beverages ($2.4 billion), food ($1.12 billion), beauty ($1.12 billion) and vapor ($960 million), according to Cohen, a New York-based financial services firm. Its projection for 2025 assumes that 10% of adults in the U.S. will use CBD by that year and spend an annual average of $640 each.

Sales of hemp-derived CBD supplements in the U.S. will more than double by 2021 to $520 million, up from $238 million in 2018, according to a forecast from Nutrition Business Journal (NBJ).

To grab a slice of those projected sales, manufacturers of natural products are rushing into the market. In an NBJ survey of 232 natural and organic product manufacturers conducted in the first quarter of 2019, 65% of respondents reported plans to launch CBD/hemp products in the next one to two years.

Cohen analysts forecast CBD products could “conservatively” yield $16 billion in U.S. retail sales by 2025. That’s up from estimates ranging from $600 million to $2 billion in 2018, according to Cohen’s Feb. 25, 2019 equity research report.

“Hemp-derived CBD … is in its infancy in the United States and on the verge of an unprecedented growth opportunity,” research analyst Scott Fortune of Roth Capital Partners, an investment banking firm in Newport Beach, California, wrote in a March 7, 2019 industry note.

Adulteration, Misbranding

But the disparity in the quality of hemp-products is stark. When supplement marketer Thorne started researching the market prior to launching a hemp extract in 2018, Jacqueline Jacques fielded calls from purported suppliers of raw materials.

“And when you really get into a conversation with them, it turned out that they were actually making an extract in their garage,” said Jacques, Thorne’s senior vice president of portfolio development. One man told her he was making an extract in his kitchen.

At a May 31, 2019 public hearing hosted by FDA, several speakers highlighted research showing significant discrepancies between CBD labels and what’s actually in the products, including instances in which products contained dangerous substances.

“There’s a massive amount of economic adulteration in this market, and that’s going to get worse, not better,” Jacques said. “If you don’t have good quality controls (QCs), there’s all kinds of things you don’t find, and I think in this particular case, the risks are higher.”

FDA Regulation

Amid a vacuum in federal oversight of the CBD industry, many people are in support of FDA actively regulating the market. The agency is pondering a rulemaking that would allow CBD to be lawfully sold in conventional food and dietary supplements.

While such a proceeding could take several years to be completed, lawmakers in Congress and others are pressing FDA to act quickly and, at a minimum, issue interim rules and/or guidance.

“While the 2018 Farm Bill included my provision to remove hemp, and its derivatives like CBD, from the list of controlled substances, CBD food and dietary supplement products remain in a gray area without clarification from the FDA,” McConnell, who recently met with FDA’s acting commissioner, Ned Sharpless, M.D., said in a statement.

This article was excerpted from INSIDER’s “Competing concerns in the CBD market.” Click the link to read the deep dive in its entirety.

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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