How is coronavirus impacting the market for hemp-derived CBD? Brightfield Group weighs in

By Elaine Watson contact

- Last updated on GMT

Many companies are shifting their focus to prioritize e-commerce for CBD products, says Brightfield Group. (Picture: Getty Images/Aleksandr_Kravtsov)
Many companies are shifting their focus to prioritize e-commerce for CBD products, says Brightfield Group. (Picture: Getty Images/Aleksandr_Kravtsov)

Related tags: Cbd, Hemp

“Three months ago, everyone was focused on the next wave of CBD users, people that haven’t tried CBD yet, but I really think it’s those heavy users, those core users, that are going to be driving this market over the next few months,” predicts the managing director of Brightfield Group, which has been tracking consumer sentiment and sales in the CBD market for some time.

For people who consider CBD to be essential for them ​[for example to manage anxiety or chronic pain], they plan to increase consumption, and many people are prioritizing self-care right now… But we’re going to emerge out of this ​[lockdown] into a full-blown recession, and for new consumers, $6 for a CBD-infused beverage is a stretch.

We may also be starting to hit a curve of disillusionment,” ​said Gomez. “There have been a lot of poor-quality products hit the market, and a lot of smaller players are not going to be able to survive this. We have been tracking more than 3,500 CBD brands, so it’s a very overcrowded playing field.”

Companies are shifting their focus to prioritize e-commerce for CBD products

That said, CBD brands that do make it through the next few months may emerge much stronger, especially if they are able to build a loyal following on e-commerce platforms, where many brands are flourishing even as their bricks & mortar sales have suffered amid the pandemic, she said.

“Companies are shifting their focus to prioritize e-commerce. It’s more sticky and it helps to drive repurchase rates​.

We get data directly from the brands themselves, and there was an initial spike in CBD e-commerce sales ​[at the start of the pandemic] that has slowed down a bit, but some of the strongest CBD brands online have seen their ​[e-commerce] sales sustained at about 30% above average after that initial spike.”

‘With a direct to consumer business you can really build a connection with consumers’

However, many specialist CBD stores have temporarily closed (as they are not deemed essential) although some cannabis dispensaries (which also sell hemp-derived CBD products, although in significant volumes) have remained open.

Bethany-Gomez-Brightfield Group
In some respects, delayed retailer shelf resets/category reviews due to the coronavirus pandemic are moot when it comes to CBD-infused foods and beverages, as many large retailers are in any case waiting for clarity on the regulatory status of these products from the FDA before bringing them into stores, notes Bethany Gomez at Brightfield Group. (Picture: Brightfield Group)

The biggest channel​ [for CBD] is e-commerce and after that it’s pharmacies – which remain open - and CBD specialty retailers, which are largely closed right now, although some have been deemed essential and many of them are trying to shift ​[some business] online,” ​said Gomez.

“Pharmacies and natural food stores are open, butwhen people are avoiding human interaction, products ​[such as CBD] that benefit from advice and interaction with store clerks to attract new users are suffering.”

Even before the pandemic, she said, “What we’d been seeing was that some brands that had put emphasis on bricks and mortar were getting less traction through those channels than they had expected. With a direct to consumer business you can really build a connection with consumers.”

‘Clinical data might win over physicians, but is not a key driver of consumer demand [for CBD]’

While some commentators wonder if the dearth of clinical data to support the benefits of low doses of hemp-derived CBD could lead to an 'emperor's got no clothes' moment for the category ("the gap between the scientific evidence and evangelical claims tsunami is vast​," ​claims Anthony Almada), this seems unlikely, said Gomez, who noted that more studies are now underway. 

She added:“Clinical data might win over physicians, but is not a key driver of consumer demand; CBD came into prominence in the first place because of ​[grass roots] enthusiasm from passionate consumers, who tend to be more influenced by word of mouth and anecdotal evidence.”

Put another way, consumers typically try CBD because of word of mouth, and come back for more if they experience a benefit (real or perceived), and in turn can often dismiss the entire category if they don’t feel any effects, said Gomez.  

“They might take one product, feel no effect, and say CBD doesn’t work."

CBD-oil-Gettyimages-MysteryShot
Mike Fata: 'Right now, the [CBD] market is also oversupplied, so pricing is being impacted across the industry. I’ve seen that high-quality CBD distillate (zero THC) pricing in the last 12-18 months has dropped from $10,000 Kg to $2,500 kg. I’m sure it’s even lower for long term contracts, as there are stockpiles of product (both finished goods and biomass).' Picture: Gettyimages-MysteryShot

CBD prices have dropped precipitously over the past 12-18 months

Mike Fata – who founded Manitoba Harvest​, which makes products from hemp seeds as well as a line of supplements from the aerial parts of the plant (which contain CBD) – predicted that consumer interest in wellness will continue, even in a recession.

However, new CBD brands that had based revenue predictions on rapid growth in brick & mortar accounts this year may need to revise business plans, pivot to e-commerce channels, and conserve cash until market conditions become more favorable, said Fata, who is chairman of functional mushroom powder brand Om​ and plant-based brand Sol Cuisine​.

“Right now, the market is also oversupplied, so pricing is being impacted across the industry. I’ve seen that high-quality CBD distillate (zero THC) pricing in the last 12-18 months has dropped from $10,000 Kg to $2,500 kg. I’m sure it’s even lower for long term contracts, as there are stockpiles of product (both finished goods and biomass).

“The pricing for CBD biomass is still a range, depending on quality and state grown, but I have seen it down as low at $5 per kg.”

Investing: A buyer’s market

Asked about investment available for emerging food and beverage brands, he said there’s still money available for startups with strong management teams and “with a strong reason for being​.”

But he added: “If you look at multiples for brands looking for investment, we were in a seller’s market, whereas now we’re going to flip back to a buyer’s market.”

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