CBD product sales grew by 706% in 2019. Hear from CBD product and marketing experts to understand why this is a booming market on IN CLEAR FOCUS.
IN CLEAR FOCUS this week: A sneak preview of Bigeye’s upcoming 2020 National Study of CBD Use. In the US, around 15% of adults regularly use products containing CBD. Year-on-year sales of CBD products grew by 706% in 2019. To examine this booming market, we hear from three experts with unique perspectives on the CBD industry. Learn how the retailing and use of CBD-based products is evolving and why the category represents such a significant opportunity.
Adrian Tennant: You’re listening to IN CLEAR FOCUS, a unique perspective on the business of advertising produced weekly by Bigeye. Hello, I’m your host, Adrian Tennant, VP of Insights at Bigeye. An audience-focused, creative-driven, full-service advertising agency. We’re based in Orlando, Florida, but serve clients across the United States and beyond. Thank you for joining us. In the current situation, we especially appreciate you choosing to spend your time with us. Cannabidiol is an ingredient in a growing range of consumer categories. In addition to products intended to relieve conditions such as anxiety and arthritis pain, you’ll also find CBD in beauty products, food and beverages, sports supplements, and even apparel. And its uses are nor limited to humans – there are CBD products especially for pets, as highlighted in Bigeye’s 2019 US Pet Industry Study. Consumers’ receptivity to CBD use has been growing rapidly since the 2018 Farm Bill legalized industrial hemp production. Here in the US, around 15% of adults age 21 and older use products containing CBD. Earlier this year, Bigeye undertook a national research study to really understand CBD use and to help identify opportunities to tap into this dynamic market. We’ll be publishing the results of our study soon, but to contextualize the findings, today, we’re going to hear three perspectives on the market for CBD products and how purchasing and consumption is evolving. As we were analyzing the 2020 Bigeye CBD study results together, I asked Dana Cassell, our senior strategist, about some of the findings from the report. So first, Dana, can you give us a sense of what the market for CBD products here in the US looks like?
Dana Cassell: Sure. The popularity of CBD-infused oils, tinctures, creams, food items, and drinks, along with a host of other products, has exploded since December, 2018 when, as you mentioned in the intro, the federal government legalized regulated production of hemp with the Farm Bill. An estimated $5 billion was spent in the US on CBD products in 2019 – an eye-popping 706% increase over the previous year. That figure is set to grow to $24 billion by 2023 the increase in sales of CBD products is explained in part by broader distribution and availability in mainstream retailers such as Walgreens, Kroger, and Bed, Bath & Beyond. But the rise in popularity of CBD products has also brought greater scrutiny from the US Food and Drug Administration, which in November of last year issued warning letters to 15 companies for illegally selling products containing CBD. The FDA has since announced that it recognizes the potential opportunities that CBD-based products may offer and acknowledges the significant level of interest among consumers. So it’s a fast-growing market full of opportunity, but there’s also uncertainty around its regulation.
Adrian Tennant: Last year we discussed CBD regulation with one of Bigeye’s go-to experts. Joe Englander. Joe is a shareholder in the intellectual property practice group at Fowler White Burnett and leads the firm’s cannabis law team. Joe works with industry clients in the fields of hemp, medical marijuana, and affiliated businesses. When he joined us via phone from his office in Miami, I asked Joe what the legal status of CBD is here in Florida.
Joe Englander: There are two sets of regulations. There’s the federal set and then there’s the state set. The federal set has the Farm Bill of 2018, which has made hemp and CBD products legal. And there’s an interim regulation with the USDA, which is now in effect, which is helping States come up with plans and frameworks for regulations. In Florida, there is the Florida Hemp Act, which also makes hemp and CBD products legal and also provides for pilot programs for the universities to test different varieties of hemp. And there are new regulations which are being promulgated by the Florida Department of Agriculture, which have not yet been finalized, but are expected to be finalized soon.
Adrian Tennant: So Joe, how fast is the market for CBD and CBD-infused products growing?
Joe Englander: Very rapidly! Right now the only hemp that’s growing in Florida is with the university pilot program. But the interest and the businesses which are showing up to Florida showcases and seminars, it grows more each year.
Adrian Tennant: Could you tell us a little bit more about that pilot program?
Joe Englander: Well under the Florida state law, the university of Florida and other agricultural colleges are allowed to begin growing hemp to see what types of seeds are viable here in Florida. The thing about hemp is it can only have a certain low percentage of THC, so they’re confirming that the seeds which they are testing are in fact hemp seeds and not marijuana seeds.
Adrian Tennant: Right now, what should manufacturers include on CBD product labels to be in compliance with legal rules?
Joe Englander: That’s an interesting point there. You’ll find that in the regulations with both full regulations and the interim regulations that you have to say that there is CBD on them and the amount of CBD, but you can’t make any medical claims with regard to the CBD at this point. But you have to show what the percentage is and what I guess what you would say the dosage is, like what is recommended. For example, whether you’re supposed to take one edible or two out of a package of 50 edibles.
Adrian Tennant: It is a little confusing, the interplay between state regulations and the federal level. Do you see a path forward for greater clarity here?
Joe Englander: I don’t think that there’s going to be clarity until there’s legalization of marijuana in some way and then it would probably be similar to the types of regulations that go on with cigarettes or perhaps liquor. As far as Florida goes, I think there should be no general limitation as far as the CBD trademarks and protections of naming and branding, as long as the restrictions regarding age are are taken care of.
Adrian Tennant: While regulations on hemp-derived ingestible CBD products vary from state to state, the Food and Drug Administration has approved all topical CBD products at the federal level. This includes analgesics, joint relief, lotions, and creams. One person with direct experience of manufacturing topical products containing CBD is Michael Law of Eagle Labs, based in St Petersburg, Florida. Michael was also a guest on IN CLEAR FOCUS last year, and with his background in the production and marketing of consumer packaged goods, it was interesting to hear Michael’s take on the booming CBD market. First I asked Michael how Eagle Labs got involved in CBD product manufacturing.
Michael Law: So Eagle labs had been making skincare and nutritional products for private label clients, large national retail clients for about 10 years. The company was owned by a chemist with 40 years of experience formulating and Eagle Labs was purchased by an entrepreneurial pair of brothers that wanted to get into the CBD category, but in a way that would ensure that their finished goods would be nothing but the highest quality. So they purchased a very good quality manufacturer with chemists, as I said, with a lot of experience. And then they set about ensuring that their manufacturing processes were going to be ahead of any potential regulations. Our batch records, for example, are over 20 pages long for both the cosmetic products that we manufacture. Anything that might be a nutritional supplement with CBD, there’s extreme rigor. We qualify any new raw material vendor with three separate batch tests. We get certificates of analysis to ensure that the potency of the raw material for CBD is accurate and that the safety is also assured: that there’s no heavy metals, there’s no bacteria, there’s no pesticides and so on. So very rigorous on testing anything that comes into our facility. Any new raw materials that come in are quarantined until they’re tested. And then they’re moved into the area where they can be used for manufacturing. As we’re manufacturing – actually filling the tincture bottles for example – we’re testing from the top of the mixer, the middle, and the bottom to ensure that we’ve got a consistent level of CBD across the entire batch. And then when we get to the finished goods stage, we send out our samples from our finished goods to third-party labs for final testing. And we get what’s called a certificate of analysis or a C of A that shows the potency or if it’s a 500 milligram bottle, we want to make sure that it’s got 500 milligrams in it and that it doesn’t have any pesticides or any heavy metals or bacteria in it. So, I would say, a very, very strong focus on quality as you mentioned. And in fact, we believe that it’s in our best interest and our customer’s best interest to actually be ahead of what we think the FDA will decide in terms of manufacturing regulations. So we’re moving towards OTC qualification, which would essentially mean we could make a drug in our facility and we would have the processes for making drugs. I think when the FDA does regulate, there will be a lot of smaller manufacturers that either haven’t or aren’t willing to make those kinds of investments in quality that will disappear.
Adrian Tennant: We’ll be right back after this message.
Lauren Fore: I’m Lauren Fore, and I’m on the operations team at Bigeye. Every week, IN CLEAR FOCUS addresses topics that impact our work as agency professionals and reflects the way that Bigeye puts audiences first. For every engagement, we develop a deep understanding of our clients’ prospects, and customers. This data is distilled into actionable insights that inspire creative brand-building and persuasive activation campaigns – and guide strategic, cost-efficient media placements that really connect with our client’s audiences. If you’d like to know more about how to put Bigeye’s audience-focused insights to work for your brand, please contact us. Email firstname.lastname@example.org. Bigeye. Reaching the right people, in the right place, at the right time.
Adrian Tennant: Welcome back. We’re talking today about Cannabidiol ahead of the publication of a national study of CBD use conducted by Bigeye. CBD quality and certification are clearly important considerations for consumers, but how is spending distributed across the different categories of CBD products? Back to Dana Cassell for some answers from Bigeye’s study.
Dana Cassell: Yeah, so I mentioned earlier that the market for CBD was estimated to be worth $5 billion in 2019. With CBD gaining in popularity – in line with the trend towards health and wellness – and with product availability and variety increasing, the market is on track to grow to around $24 billion over the next three years. We asked users how much on average they spend on CBD products per month, in total. In the full report, we break the results out by condition, but the key data points are that over two thirds – 67% – of CBD users spend up to $99 per month on products containing CBD. Over one quarter – 26% – spend between a hundred dollars and $199 monthly. For the most frequent indications consistently around one-third of CBD users spend between $50 and $99 per month.
Adrian Tennant: Staying with purchase data, we asked respondents where they had purchased products containing CBD within the past six months, both in-store and online. CBD products purchased from physical stores are primarily bought from cannabis or medical marijuana dispensaries or from health, vitamin, or supplement stores. One-fifth of users report purchasing from drugstores, and another one-fifth from vape or smoke shops. Respondents identifying as male are almost twice as likely to purchase from a drugstore and more than twice as likely to purchase from a grocery store.
Dana Cassell: We’ve talked previously about CBD products making their way into supermarkets and grocery stores, so it’s interesting that this appeals to shoppers who identify as male.
Adrian Tennant: Over half of our study respondents never purchase CBD online and of those that do, Amazon.com was the most cited retailer. Right now, it seems CBD products are purchased primarily from physical stores. Michael Law of Eagle Labs offered some advice for store merchandisers.
Michael Law: If you’re a retailer and you want to be in the CBD business, I would say be in the CBD business. Have a significant amount of assortment. My advice is that you should have all CBD products in one central location. If you move them into their various subcategories, I think it’s going to be art for the consumer to know that you’re in the category. My recommendation would be to have all of the CBD products in one location. You can have secondary locations, for example, in the pain relief aisle for the appropriate products. But I would still have a home location that has got everything together. That way, you’re concentrating on the opportunity for education. I think that you should have in-store signage and pamphlets and other forms of consumer education that are going to address the most frequently asked questions that consumers might have either on a new brand or on the category itself. I think having it all in one location allows the opportunity to have an in store educator nearby. There are some great best practices from smaller natural food stores and health food stores where there’s an in-aisle educator that comes right to you immediately when you enter the aisle. They come right to you and ask if they can answer any questions for you in the category. That also, retailers are going to be very concerned about shrink. And shrink is a term for lost product that leaves the store without being paid for. Retailers, if they have an in-aisle educator, they’re going to have eyes on the product and they can ensure that they keep shrink to a minimum. Some of the larger retailers that are now entering the category have got a very limited assortment and they’re putting everything in a lockup case similar to what you may see in some retailers for expensive razor blades where you actually have to get somebody from the store to come and unlock the case for you to access the products. I think that retailers like that will sell some product, but they’re not optimizing the opportunity. I think the profit potential in this category is massive and I think it would be worthwhile investing in in-store educators, certainly in high-volume stores, so that you can have a broad assortment and have somebody that can drive consumer education – and that’ll help drive conversion. Because once you get that consumer, once they make their first purchase at a given retail location, that retailer becomes the destination where they go for that product.
Adrian Tennant: Great points there from Michael Law. In Bigeye’s upcoming CBD study, we report in detail on the attitudes that characterize different groups of CBD users and identify which factors are most influential in the decision to purchase and use each category of product. We also examine how respondents rank the relative importance of ingredients, product design, and on-pack information – and what prompts CBD users to try new products. Back to Dana and some findings that surprised us.
Dana Cassell: We asked survey respondents how likely they are to continue using products containing CBD long-term. So drum roll please…
Adrian Tennant: Okay. It’s very clear that existing CBD users are true believers in its efficacy. 88% are somewhat or extremely likely to continue using CBD longterm.
Dana Cassell: This is huge. Only 15% of the US adult population is currently using CBD. But of those, 88% plan to continue doing so long-term; the other 85% of the US market represents an untapped opportunity.
Adrian Tennant: Our research data highlights a correlation between the length of time consumers use CBD products and the number of indications they use CBD for. The number of indications rises the longer a consumer uses CBD. This points to CBD’s unique proposition as a multifunctional ingredient. In practical terms, a claim that CBD helps treat specific skin conditions can be augmented with a claim that it also calms the user and lessens the anxiety that a person may have as a consequence of their condition.
Dana Cassell: The study results show that some consumers are either supplementing or replacing the use of over-the-counter pain medications in favor of more natural solutions like CBD. Consumers using CBD to treat medical conditions were among the most likely to spend between $200 and $249 per month on CBD products. Pharmaceutical drug spending is a major concern, so it’s perhaps not surprising that consumers, faced with higher copays or exclusions from their medical insurance plans, are looking to CBD based products as alternatives to Big Pharma’s offerings.
Adrian Tennant: Watch out for an announcement about Bigeye’s National Study of CBD Use coming soon. Next week, IN CLEAR FOCUS will have a special episode exploring changes in consumer behavior and attitudes in response to the COVID-19 pandemic. A reminder too that you can find links to resources we discuss every week on the IN CLEAR FOCUS page at bigeyeagency.com under “Insights.” Just click on the button marked “Podcast.” And if you have an Amazon Echo device, you can use the IN CLEAR FOCUS skill to add the podcast to your Flash Briefing. Thank you for listening to IN CLEAR FOCUS, produced by Bigeye. I’ve been your host, Adrian Tennant. Until next week, stay safe. Goodbye.