CBD market and shopper traits

The U.S. cannabidiol (CBD) market has not been immune to the economic impact of the COVID-19 pandemic. Stakeholders from across the industry were affected, and many brands plunged into an already fast-moving business. Whole marketing and sales strategies have been turned upside down by store closures, changing consumer needs and falling prices for CBD. The industry has been recovering since its decline in the second quarter (Q2) of 2020, but the landscape looks very different from before. E-commerce is the dominant channel, the discovery of CBD has stunted and there is still no government-sponsored regulatory structure for ingestible products. As if that wasn’t enough, innovation continues to increase and the links between CBD and cannabis are tightening.

All of this has brought CBD to its existential question: is it a standalone industry, a cannabis product, or an ingredient? Let’s examine the latest trends that have raised this question.

Slow regulatory rollout limits revenue growth

The CBD market is still in a regulatory gray area nearly 2.5 years after the Farm Bill legalizing low-THC hemp came into effect. The delay has particularly affected ingestible CBD products like edibles and tinctures. The FDA has yet to put in place the necessary framework to regulate how CBD tablets can be legally sold.

The lack of regulation has largely deterred mainstream consumer goods companies from entering the market. In order for these actors to get involved without exposing important risks to the rest of their business, state guidance is required. The legal gray area is also one of the reasons CBD is so separate from similar products like mood-altering beverages or immunity supplements. However, the Brightfield Group’s Opportunities for Profit report showed how similar CBD products already look to mainstream non-CBD products.

The good news is that regulatory turmoil won’t last forever. The FDA will eventually provide guidelines on ingestible CBD products that will allow businesses of all sizes to confidently manufacture all types of CBD products.

The industry triples in e-commerce

Unsurprisingly, CBD’s growth in 2020 was driven by e-commerce. Brands changed their strategies and competed for consumers online while brick and mortar sales slowed. Those who already dominated the channel got a head start, but many CBD brands turned around and achieved some success. The brands that have focused on promoting their e-commerce have proven to be the most successful. With increased online sales, website visitors are more important than ever, and the brands with the highest levels of customer loyalty have the highest website traffic.

  • Strategic online advertising brought buyers to branded websites.
  • Targeted e-mail campaigns interested potential customers and encouraged them to buy.
  • Subscription models helped build loyalty by providing convenient, money-saving incentives to stay a customer.

2020 store closings have an impact on consumer recognition despite the increased number of reopenings

The closings of many CBD retail businesses stunted the 2020 discovery. Consumers could come across CBD earlier by browsing a beauty retailer, vitamin store, or doctor’s office. Many of these retailers, viewed as essential stores, were still seeing significant sales declines as shopping habits changed rapidly. Most importantly, and despite the reopening of these channels, consumers are no longer spending time in stores as they used to.

Consumers still report buying CBD through brick and mortar channels even when 50% say they buy online. There are notable gains in pharmacies and specialist CBD retailers – businesses in these channels are specific and focused so shoppers can get on and off with what they need. The discovery of CBD will increase in other retail channels once consumers are comfortable with in-store shopping. End caps and shop displays will inevitably bring new people to CBD again.

Millennials and Gen X are driving the market

Millennials and Gen Xers make up more than two-thirds (71%) of CBD users. Knowing who these consumers are is essential in order to market to them accurately. A large number of both generations are using CBD on a daily basis, but millennials are taking more doses each day. Both generations are also better informed about the dose of CBD they are taking, especially when compared to the baby boomers. Knowledge and preferences will only increase as Millennials and Generation Xers become more experienced users.

To maintain and gain the loyalty of these groups, innovative, unique offerings that meet product expectations are required. Word of mouth is the most popular source of initial awareness of CBD for both generations. Millennials are more likely to learn about CBD through social media, browsing the store, or from a budget tender. Generation Xers are learning more about CBD from more traditional sources like doctors, the news / TV, or print ads.

If anyone hears about CBD, it could establish or break future purchase intentions as consumers who are not open to the use of CBD have gaps in their knowledge of the cannabinoid. For example, 17% of consumers who did not want to try CBD falsely stated that they did not want the psychoactive effects of CBD (there are no such effects), and another 16% do not believe that CBD works.

Fighting misunderstandings with accessible information about CBD could help turn unbelievers into potential users or prevent people from assuming wrong beliefs altogether. For example, 18% of consumers who don’t use CBD today openly admit that they don’t know enough about CBD products. Educating about product types and use cases is key to educating younger generations to increase usage, help with CBD penetration, and hopefully increase spending over time.

Existential question of CBD: wellness? Cannabis? Your own branch?

CBD is in its own category due to its regulation. The aforementioned gray area keeps CBD out of other industries, but where will CBD fall if regulations change? The most likely industries are cannabis and wellness, which are being driven by the increasing legalization of cannabis and the global shift towards wellness-oriented products.

Innovation for wellness: cannabinoids and more

CBD products now offer more than just CBD as many of the top brands have added smaller cannabinoids to their portfolios. The Cannabinol (CBN) and Cannabigerol (CBG) product lines were launched in the second half of 2020. CBN found its place as a sleep aid, while CBG’s main attraction was its “novelty” in the market – it has since been used in a beauty or skin care positioning.

But brands go beyond cannabinoids. Functional ingredients appeared on the CBD labels mainly to accommodate health claims. For example, a brand can’t say that CBD helps with sleep; it can say that melatonin plus CBD helps with sleep.

Now, CBD brands are adding functional ingredients to CBD products for wider appeal. Ingredients that are common in wellness products – such as mushrooms, plant compounds and adaptogens – are increasingly being used in CBD formulations. This extends beyond nutritional supplements to beauty products as many brands offer up-to-date product lines with popular skin care ingredients.

Along the road

The exact future of the US CBD market may be unclear, but there is no denying that consumers are interested in the cannabinoid from both a wellness and a cannabis perspective.

The connection between cannabis, wellness, and CBD is becoming increasingly important as mergers and acquisitions keep getting hotter. Non-CBD companies that partner with and acquire CBD brands will have an impact on how the industry competes, how the end products are positioned, and expand the range of consumers they reach. An influx of wellness-focused CPG dollars will broaden the horizons for CBD. Once legal issues are resolved, the channel relationships already forged by wellness and cannabis brands will increasingly shape how, when, and why people buy CBD.

Madeline Obrzut is a content specialist for the Brightfield Group. She is a cannabis professional who keeps a close eye on the industry from both a research and a consumer perspective. She graduated from DePaul University with a Masters of Arts degree in public relations and advertising.