Predictions for the domestic CBD market indicate growth to $20 billion by 2024, with a Nielsen study saying that the market will reach to somewhere between $2.25 billion and $2.75 billion in 2020, even accounting for some unpredictability in FDA rulings.
Driving the industry’s growth is the fact that CBD products are increasingly being carried by major retailers, including Walgreens, CVS, GNC Holdings and Kroger, as well as larger online specialty retailers such as Nug Republic. As CBD grows to occupy a greater share of shelf space, we can expect intense competition between retail and online channels. Vape and tobacco shops and specialty CBD brick-and-mortar retailers emerged early in the game, but may lose ground to online sales as well as general retail outlets.
The combination of large retail chains entering the market, and rapidly growing demand, will put some pressure on CBD manufacturers however, and smaller producers, manufacturers and distributors may lose ground if they are not able to keep pace with an inevitable surge of progressively larger orders. Retailers will demand two things from CBD manufacturers: The ability to provide inventory as needed, and the ability to satisfy customers’ demand for a trustworthy product. The inventory question will need to be answered internally with improvements in management, supply chain innovations and investments in production facilities, and this will lead to greater investment on the part of private equity firms and investment bankers, IPOs and other capital functions. On the trust front, this will require producers to reassure consumers with things like clear labeling, product transparency and the use of third-party labs to provide unbiased reports on purity, ingredients and percentage of THC.
A complicating factor in the industry’s growth will be the FDA, which to date has not issued approval for any CBD products outside of the Epidiolex CBD product, which is available only by prescription. The FDA has been foot-dragging and delaying acknowledging FDA’s therapeutic utility and general safety, although market demand will ultimately drive them to action. When (or if) the FDA issues a Generally Recognized As Safe (GRAS) designation to CBD, the market will get a boost, which will lead to greater distribution of CBD products over-the-counter for things like general pain, sleep aid, or arthritis. Another factor in the growth of the market is the proliferation of information and research, and the fact that healthcare providers are becoming more knowledgeable about the potential uses of CBD.
Retailers and manufacturers aren’t the only ones that will be cashing in on the industry in the 2020s, already many tobacco farmers, beset by a decline in the tobacco industry, are looking into replacing their tobacco crops with hemp. As farmers continue to be hit hard by the trade war, we can expect to see this as a growing trend.
Investors will be looking to move into CBD especially amidst questions about the economy and worries over the stability of the stock market in relation to the trade war and the 2020 election. Already CBD has moved from the shadows and into the major leagues, and investment vehicles including ETFs, as well as publicly-traded stocks, are readily available and represent growth investments in many portfolios.
Some are calling it a “gold rush,” and there is some truth to that characterization with the market facing overwhelming growth projections and the product being legitimized by research as well as acceptance onto mainstream retail shelves. But as with any gold rush, investors are still advised to be cautious. Any industry growing that fast will see a shakeout, and we can expect a surge of merger and acquisition activity, serious interest on the part of private equity holdings interested in getting a toe into what seems to be one of the few growth industries left, and the better-funded producers, growers and resellers pushing out the underfunded ones.
The growth of this industry is however inevitable, and CBD will represent a breakout industry throughout the 2020s.