Uptick in Store Traffic & Consumer Adoption Buoy Optimism in the CBD Category

NATIONAL REPORT — It has been roughly four years since CBD came onto the scene as a product category to watch. It experienced some explosive growth in 2019, but the best may be yet to come.

"There are a lot of very exciting things to come in this category. It was a very exciting 2019, a bit of a turbulent 2020, but we see some really strong predictions and reasons for optimism for the industry moving forward in 2021 and beyond," Bethany Gomez, managing director of Brightfield Group, said during a Tobacco Plus Expo (TPE) 2021 virtual education session entitled "The Crystal Ball: Predictions for CBD in 2021."

Due to the pandemic, TPE 2021 decided to offer a split format, holding virtual education sessions for five weeks beginning in mid-March, followed by an in-person event in May.

CBD & 2020

"The CBD industry started from a very low base in 2017-2018. Then, the Farm Bill hit and we saw 560 percent growth in 2019 as this market really took off," Gomez explained. "2020 was a much more turbulent year where we saw more limited growth — in the 20-percent range."

She cited several factors that contributed to the slowdown, including the contraction of growth in brick-and-mortar channels and price compression, which drove down the value growth for the industry but was really a correction in the market.

"Most of these CBD products were very, very expensive prior to 2020 and prior to the boom in hemp cultivation," she noted. "As hemp cultivation and the availability of CBD went up, the cost of the raw ingredient went down and those cost savings were able to be passed on to consumers."

And while the industry was flat in 2020, Brightfield Group — a Chicago-based research firm for emerging markets including CBD, cannabis and wellness — is seeing strong signs for growth in 2021 as new consumers come into the category, price compression levels off, and consumers come back to brick-and-mortar stores.

Much of the growth is forecasted for the back half of this year, driven by the expectation that the Food and Drug Administration (FDA) may finally issue CBD regulations, Gomez added. CBD does not currently have a legal path forward through the FDA.

"It is still in this legal gray area," she said.

CBD & The Pandemic

CBD products helped consumers through the COVID-19 pandemic. Brightfield Group's research found that three-quarters of consumers agreed that CBD helped them deal with the stress of the pandemic. However, this varied by generation, with Gen Z and millennials using CBD more frequently than baby boomers.

COVID-19 also had an effect on shopping patterns. Prior to the health crisis, roughly 25 percent of consumers purchased CBD products online. This jumped to more than 50 percent after COVID-19 began to spread across the United States.

This is starting to change, though. In the fourth quarter of 2020, 41 percent of consumers said they started purchasing CBD at physical stores again, the company's research found.

"This is great for retailers, but also great for the industry and great for brands. There is no place for discovery like a retail location," Gomez said.

CBD & Innovation

Just as is common with other emerging categories, CBD is focused on innovation. As Gomez pointed out, many manufacturers are taking product development "very seriously." Notably, current CBD innovation centers on familiar formats and need states.

One area garnering a lot of interest is Delta-8, which she referred to as "the new cannabinoid on the block." It has psychoactive properties, but can still be derived from the hemp plant, so it is able to be sold outside of the regulated marijuana supply chain.

Questions remain if that will be true down the road, however. 

Since the fall, there has been "a massive uptick in conversations" around Delta-8 on social media — particularly spiking around December 2020 and January 2021, Brightfield Group's research found.

"Consumers are excited about it, they're talking about it, they're sharing about it. That J-curve level of growth is very similar to what we saw at the beginning of the CBD boom," Gomez explained, adding that 75 percent of CBD consumers said in a recent survey that they were already purchasing or would like to purchase Delta-8 products.

CBD & 2021

Moving through the remainder of this year, Gomez believes there are few notable drivers to watch for. They include: 

• The return to brick-and-mortar will accelerate quarter over quarter;
• Innovation will accelerate around inhalables and hemp flower products;
• Consumer adoption will continue to grow; and 
• Cannabis legalization.

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