CBD market stagnates under regulatory limbo, but dedicated consumer core remains

FDA’s decision not to start a rulemaking process for CBD regulation will continue to hamstring the category, analysts said. But a solid core of consumers is still buying the products without giving much thought to the regulatory limbo.

Hope in the category was high after the passage of the 2018 Farm Bill, which removed hemp from the Controlled Substances Act (CSA) while preserving FDA’s authority under the Federal Food, Drug & Cosmetic Act (FDCA).

Following passage of the 2018 Farm Bill, industry stakeholders expressed hope that FDA would regulate CBD-containing dietary supplements. That process, however, dragged on, leading three trade organizations—the Consumer Health Products Association (CHPA), the Council for Responsible Nutrition (CRN) and the Natural Products Association (NPA)—to file petitions asking FDA to issue a regulation permitting CBD in supplements.

FDA denied those requests in January. 

CBD products—which, the FDA asserts, technically have no regulatory home under the FDCA statute—are widely available both at the local level and online. This curious state of affairs has severely stunted the potential growth of the category, investment analysts said. 

The bad news from FDA comes on the heels of the Covid-19 pandemic, in which interest in immune support supplements soared while other categories, including CBD, went into something of a swoon.

Related:FDA denies CBD dietary supplement petitions, looks to Congress for new pathway

“The CBD industry has been facing a pretty difficult market for the past three years and that has gotten increasingly difficult,” Bethany Gomez, co-founder and managing director of market research firm Brightfield Group, told Natural Products Insider in an interview.

Brightfield Group was initially focused specifically on the cannabis and CBD markets, Gomez said, but the research firm has now expanded its platform to include dietary supplements and food and beverages.

Regulatory limbo has clapped lid on market

Gomez said a category once perceived as having boundless potential now finds itself pressed into a narrow space.

“Given that there has not been guidance [from FDA] and everyone is still in this limbo zone, the opportunities in the category remain capped,” she said.

The lack of federal regulatory recognition has meant companies have only limited distribution opportunities, Gomez said. The holy grail of placement in a big box store or on Amazon remains out of reach.

A lone major retail chain—Wegmans—is selling CBD ingestible products, but even that firm is small potatoes in the food and beverage retail universe. Wegmans reported annual sales of $11.2 billion in 2021, whereas Kroger, by comparison, brought in almost $138 billion in that same year and the pharmacy chain CVS generated $292 billion in revenue.

The early promise of the CBD category attracted a lot of investment, Gomez said. And though the market has experienced significant attrition, new, smaller brands continue to pop up amid stagnation in the overall category.

“We are still seeing about 2,000 to 2,500 brands operating in a market of only about $5 billion,” Gomez said.

Established brands taking hits

The result is that even established brands that have touted their science backing and quality control struggle to make money, Gomez said. CV Sciences might be seen as an example. Key personnel have left the brand, which most recently included the departure of Stuart Tomc, who was VP of human nutrition and a key executive for many years.

In its 2022 third quarter earnings statement, CV Sciences reported $3.8 million in revenue compared to $5.1 million in the third quarter of 2021. The company’s stock, which in 2018 was trading for as much as $6 a share, now goes for 4 cents.

CV Sciences said in its statement it was still evaluating “strategic review, including consideration of inbound and outbound merger, sale, acquisition or other options for the company as a whole or for any business segments.”

Another high-profile company, cbdMD, has seen sales fall off, too. The company reported $35.4 million in revenue in its fiscal 2022, compared to $45.8 million for the previous year. 

“It has been a really difficult time for a lot of the earlier movers in the space,” Gomez said.

Gomez said most investment capital is now sitting on the sidelines, waiting to see if the federal regulatory logjam can be cleared. She said there is some hope that more focused language on a CBD market pathway will be included in the next Farm Bill, which is a must-pass piece of legislation before the end of the year.

But even then, it will be up to FDA to administer whatever is mandated in the legislation, and sources have told Natural Products Insider that even fierce advocates such as Sen. Mitch McConnell (R-Kentucky) are loathe to dictate to FDA what it must do as it concerns food safety.

“Investors have been very down on CBD for quite some time, and this is not going to make them any more excited,” Gomez said, referring to the disappointing news from FDA.  “It’s very difficult to make that case to investors when your sales are declining, and the market is stagnant at best.”

The drag of the gray market

Giadha A. DeCarcer, founding member and CEO of CTrust, concurred. CTrust bills itself as a “credit rating and monitoring solution dedicated to cannabis.”

“Several state regulatory agencies overseeing cannabis markets have urged the FDA to develop a more comprehensive regulatory pathway for CBD and its derivatives, several of which are prohibited from being included in cannabis businesses in those regulated cannabis markets,” DeCarcer said in a statement to Natural Products Insider.

“Anything short of developing these CBD-specific regulations at the federal level will continue to burden capital-raising endeavors in the industry and further stress already distressed operators, specifically in the still gray U.S. CBD market where more guidance, clarity and structure is needed,” she added.

A big issue is the “gray” market for CBD means the safety of some of the many bit players mentioned by Gomez can’t really be vetted, Amanda Reiman, Ph.D., MSW, chief knowledge officer of New Frontier Data, said in an emailed statement. (Reiman stressed her firm is not currently tracking CBD because of a decision to focus only on markets with a defined regulatory underpinning, such as medical cannabis.)

“In terms of the effect that the government's decision has on the market and its safety, the longer the government waits to implement regulations on the CBD market, the longer consumers have to navigate a potentially unsafe environment,” Reiman added. “Not because CBD itself is inherently dangerous, but because the lack of regulation gives way to untested and unregulated products on the shelves and online.”

Looking on the bright side

The CBD market has suffered significant damage, with companies going out of business and investment capital lost. But it’s not all doom and gloom, Gomez said.

A dedicated core of consumers has been created, and in her view, the category is ripe for renewed growth if and when the regulatory picture is sorted out.

“We think the market right now is at the capacity it is going to reach,” Gomez said, referring to the inherent limitations CBD businesses faced by operating in a gray regulatory space. Her firm forecasted a market of $6 billion by 2027, assuming no guidance came from FDA.

If the agency were to pursue a pathway for regulation, though, the projection was closer to $11 billion. Despite the federal regulatory cloud over CBD, the market is not expected to evaporate.

“It has become a very popular industry that, while people don’t talk about much anymore, is still being used by about 13% of Americans,” Gomez said, adding CBD is “not going away and usage is not declining.”