Charting a New Course for CBD

NATIONAL REPORT — The CBD category has high growth potential, but more than its fair share of growing pains for retailers, who are still working out which products and brands to offer to which consumers for the best outcome.  

To succeed, convenience store operators need to educate themselves on the state of the CBD industry, its legal status, and ongoing consumer research, according to a recent presentation delivered as part of the 2022 Tobacco Plus Expo (TPE). 

In the United States, the hemp-derived CBD market was expected to reach $4.7 billion in retail sales in 2021, up 2.5 percent from 2020, noted presenter Bethany Gomez, managing director at the Brightfield Group research firm. After consumer products derived from hemp became legal as part of the 2018 version of the U.S. Farm Bill, the CBD industry saw "massive growth," she said.

However, the market experienced challenges last year due to factors such as a lack of regulatory clarity from the Food and Drug Administration (FDA), the COVID-19 pandemic, competition from cannabis and cannabis-derived products, and price compression related to a shift in product mix toward lower-priced items, such as CBD gummies. Many CBD consumers have made this switch to enable more frequent consumption.

Today, CBD is sold at a wide variety of retailers, from smoke and vape shops to convenience stores to pet retailers and natural food outlets — but not at mega-chains such as Target, which are waiting until there is regulatory movement from the FDA. This has resulted in some slowdown in CBD growth, but also strong penetration across independent retailers.

Despite a stagnant market, there has been strong category growth among existing CBD consumers, with those making a CBD purchase within the past three months jumping from 8 percent in 2020 to 13 percent in 2021, according to Evergi consumer insights.

CBD users also increased their frequency of consumption throughout 2020 and into 2021, with many transitioning from occasional consumers to consistent daily users. More than half of CBD consumers report using it at least five days per week.

CBD is also penetrating a more diverse age range. At its onset, the market was dominated by millennials, but today's growth is "bifurcating," Gomez said, noting that both baby boomers and Gen Z constituted a greater proportion of overall CBD consumers in 2021.

This bifurcation is contributing to a shift in the CBD product market. Gummies and drinks are projected to dominate growth in the short- and longer-term forecast periods, with more established CBD products such as tinctures declining in market share. Consumers are increasingly seeking out less-expensive products that fit into their daily routines.

"You don't really see tinctures in other aspects of daily life," Gomez said. "It's kind of a strange product."

Further product innovation is likely to serve as a major source of differentiation for brands, and as a growth driver for the CBD industry at large.

The fact that mega-chain retailers do not hold significant share of the CBD market means continued opportunities for growth in independent retail channels, which also have longer-term growth opportunities based on strong product selection and high levels of employee knowledge. At smaller stores, there is time and space to discuss CBD products and answer questions, which is particularly important since CBD is still a category that has a lack of understanding, especially when it comes to differentiating between brands and form factors.

TPE 2022 International took place as a hybrid event this year, with TPE Ignite online educational series occurring Jan. 10-14 and a live trade show occurring Jan. 26-28 in Las Vegas. All of this year's educational sessions are live on TPE's Facebook page and will be available later on TPE's YouTube channel.