Advertisement
04/27/2021

Understanding Regulations & Market Trends Key to CBD Category Growth

The future is green, but businesses need to stay abreast of market entry and adoption trends, among other factors.
Angela Hanson
Senior Editor
Angela Hanson profile picture
CBD oil

NATIONAL REPORT The growing CBD market presents significant opportunities to convenience store retailers — but only if they understand what CBD offers and how it is regulated, according to Priscilla Agoncillo, president of the Cannabinoid Industry Association and CEO of Original Breeders League.

"Understanding regulations is very important for success," Agoncillo said during a Tobacco Plus Expo (TPE) 2021 virtual education session entitled "A Greener Future: CBD and America." Due to the pandemic, TPE 2021 decided to offer a split format, holding virtual education sessions in the beginning of the year followed by an in-person event in May.

The 2018 Farm Bill established the U.S. Food & Drug Administration's authority to regulate cannabis-derived compounds, including CBD, but the agency has not approved any drug products containing CBD with the exception of certain Big Pharma drugs. Any product intended to have a therapeutic or medical use, and any product other than food that is intended to affect the structure of function of the body, is considered a drug.

"What this means is you have to be especially careful with health claims when labeling and marketing your product," Agoncillo said.

The CBD industry is already experiencing significant growth, and that is expected to accelerate. Estimates by New Frontier Data put the CBD market growing from $390 million in 2018 to an expected $1.3 billion in 2022, while BDS Analytics and Arcview suggest that CBD sales will reach more than $20 billion in 2024.

In addition to the oils, tinctures, capsules, edibles, topicals and cosmetics currently available, CBD products are expected to expand into infused beverages, suppositories, sprays, inhalers and more. Cosmetics and supplements containing CBD are particularly likely to increase.

The number of dispensaries and authorized retail storefronts that sell cannabis-based products is also anticipated to rise as more states and regions legalize the offerings, clearing the way for retailers to meet consumer demand. 

"As scientific evidence of CBD's benefits come to light, the popularity of CBD will increase," Agoncillo predicted. "The research and findings will lead to new products and new drug development, integration with new technology and delivery systems, increasing recognition of use within the household, and breakthroughs in medicine and therapies."

PATHS TO GROWTH

Certain segments of the CBD market are currently very niche, but will become larger and more formalized as brands seek out less-crowded consumer segments, Agoncillo pointed out. This will further diversify and differentiate each brand, leading to higher ROIs on exploratory segmented marketing efforts.

Brands will likely move toward proven models for consumer packaged goods, focusing on brand family extensions, and companies will develop diversified portfolios and specific consumer segmentation. For example, some brands will follow Procter & Gamble's "family of brands" business model or create line extensions. To succeed, businesses will need to understand consumer market entry and adoption trends.

Currently, CBD gummies are the primary point of entry for new consumers, as six in 10 try them before trying any other types of CBD products.

Looking beyond gummies, a study released by High Yields Insights and InnovateMR revealed significant room to grow in the CBD infused beverage segment. Just 28 percent of the study's respondents reported finding a CBD product, brand or format that works for them.

"With Gen Zs and millennials comprising the majority of new CBD beverage converts (62 percent), along with a clear opportunity to expand existing delivery methods to better fulfill consumer preferences, we project exponential growth in this segment," Agoncillo said.

On the marketing front, a push for diversity and inclusivity will benefit CBD sales. Asian, Black and Hispanic consumer marketing will support cultural competence, especially among the largest brands, according to Agoncillo. More brands will concentrate on the growth opportunities in these relatively untapped markets.

An initial signal of brand focus on this segmented market is the introduction of unique campaigns built to appeal specifically to Black and Hispanic customers, along with advertising, packaging and support in Spanish.

"We expect to see more focus on niche marketing as consumer brand loyalty shifts toward the brands that consumers believe respect and understand them," she said.

MARKET TRENDS

Rising rates of anxiety and associated mental health issues are providing new opportunities for CBD, particularly during the COVID-19 pandemic.

A quarter of new CBD market entrants reportedly purchased products to cope with pandemic-related stress and anxiety. Additionally, more than 83 percent of U.S. employees report experiencing mental health issues. Accordingly, industry insiders project heightened partnership and growth opportunities around CBD products that focus on stress, anxiety and sleep.

However, both suppliers and retailers need to be careful about how these products are promoted.

"We are seeing increased focus on this niche need-state market, which can be tricky to navigate due to advertising restrictions," Agoncillo cautioned. "Brands are finding value in workarounds that allow [them] to leap over ad restrictions via targeted keyword searches."

She stressed the importance of companies using legal counsel to guide them through understanding changes to regulations and staying in compliance. Ultimately, it is safer to err on the side of caution, she said. 

The in-person portion of TPE 2021 is slated to be held May 12-14 at the Las Vegas Convention Center.

About the Author

Angela Hanson is Senior Editor of Convenience Store News. Read More