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Articles > The State Of The CBD Market

The State Of The CBD Market
October 5, 2017

Political Analyst – Derek Thomas

CBD or Cannabidiol is one of the hottest growing sectors in cannabis. Whether you’re talking about a patient’s health or an investor’s ROI, CBD is on track to meet and exceed expectations.

In fact, a report new report from the Brightfield Group estimates that hemp CBD sales have already hit $170 million in 2016 and a likely 55% compound annual growth rate over the next five years will cause the market to break into the billion-dollar mark.

It’s always necessary to explain the difference between CBD or CBD Hemp Oil and traditional hemp oil, the latter being the oil expelled from the seeds. Where CBD or CBD Hemp Oil is made from extracting the Cannabidiol compound from varying parts of the plant – often from the flower.

This compound has turned out to be something of a medical miracle. It has been used to treat very severe neurological and seizure disorders and mental health disorders like PTSD and depression. It also has anti-inflammatory, antioxidant, neuroprotectant, analgesic, anti-psychotic, and anxiolytic properties.

CBD first saw an explosion of interest after CNN aired a story on a girl named Charlotte, who was having 300 grand mal seizures a week. At only 5 years old, Charlotte began a CBD treatment. Within a year Charlotte was off all her medications and had reduced her seizures to a couple times a month, usually in her sleep. The story caused a wave of national support for the Charlotte, Colorado, and CBD’s.

While the medical value of CBD is crystal clear, its future is a bit hazier. If the Brightfield Group’s estimates are correct, then 2017 will see the domestic CBD market reach $250 million. But numerous issues like legality, quality, and consumer education are negatively effecting the CBD landscape.

A history of legal maneuvers with complex implications from both pro and anti CBD forces have created a marketplace full of unsure brands and retailers. Technical420 recently reported on the effects that legal issues are having on local retail businesses. Now it seems that online retailers are feeling the fear too, as Target recently added then dropped all CBD products from its online store.

And the digital battle ground may turn out to be one of the most important. According to a Forbes article, citing the same Brightfield Report, “(they) determined that 64.5% of the sales come through the online channel followed by 17.8% at smoke shops. Dispensaries were third, with 9% of the sales and health stores and doctor’s offices rounded out the top five.”

Amazon and Target don’t sell CBD products. Wal-mart only sells a few products. That means the majority of the $160 million in online CBD sales will come from independent brands and smaller retail websites. It’s a great thing for the dominate players in the CBD game, which are easy to sort out with Brightfield’s report.

The top 20 brands averaged sales of $2.1 million per year per company for 2016. Some brands are much more successful with sales of $9 million-12 million. There are only 5 that have hit sales in this range, and only another 15 that have broken into the millions. Hundreds are trying to get there.

If the current trends continue then online CBD sales will continue to grow significantly. In the short and medium term the hundreds vying for a spot at the top have a shot to get there. In the long term, companies already dominate in the digital sphere will have a strong advantage in dominating digital big-box’s like Amazon and Target when they come online.

Besides the legal landscape, CBD also faces quality control issues. With any new market, some companies betray the public trust by misleading in advertising, using inferior ingredients, and showing false content percentages. Heavy metals, pesticides, fungicides, herbicides, fungus, bacteria and a slew of other nasty ingredients can be found in bad CBD oil. The internet can be like the wild west of information at times, but Project CBD is a great place to start discerning the market for yourself.

Some basics to look out for? The Ministry of Hemp published a great article on what you can do. Generally, you’ll want to consider first where your CBD’s were grown and made. China and Eastern Europe often have quality control issues. Some western European brands have also been caught re-labeling Chinese CBD’s. Your best bet is to buy from an in-state brand (where legal) that touts commitment to quality. You should take it a step further and request third party lab results, paying attention to things like potency, pesticides, residual solvents, and mycotoxins. Even if you are forced to buy online from an out-of-state brand (if, for example, it wasn’t legal to grow CBD’s in your state), everyone should be checking the reviews of whatever CBD’s they are considering.

Federal legalization, despite being however far away, would certainly help with quality control issues. Until then, the current legislative grey area’s actually make inferior products cheaper and easier to market, hurting some small brands that do have integrity. For now, it is up to the consumer to be overly informed and vigilant about CBD products.

It’s also worth noting, and being thankful for, the numerous brands that operate out of a place of integrity and do strive for high quality products. And the arduous and costly labor of ensuring product quality.

Often these companies are small Colorado and California based start-ups. With many resources focused on the costs of quality control, they produce incredible products and then must compete in a limited number of markets or in an already crowded and dominated digital space.

The entrepreneurs and staff must focus on the quality of everything from the soil and environment, plant varietal, and growth methods all the way to extracting, processing and bottling.

Sansal Wellness (OTC: ARUU) and the many like it are great examples of the potential for high quality, domestic, growth companies in the CBD market. As a small, quality-driven start up outside of Pueblo, Colorado they focus on no-til farming in clean soil, lots of on site and independent testing, and state-of-the-art extraction methods performed in clean labs.

It’s almost certain that eventually educated consumers and a regulated marketplace will push the garbage from the marketplace, predicting when is the challenge. Until then, support of the small mom and pop brands like Sansal Wellness and others that are focused on quality will be important in the formation of the industry.

It’s very rare that a consumer gets to choose what could be described as “farm-to-table” products. CBD patients and advocates should choose these brands for personal and market reasons.

It will be interesting to see how the industry falls together over the next years and ultimately when its federally legal. The patients have the most to lose or gain, but the investors ROI is right behind.

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