The CBD Industry Just Shed 1,000 Brands. Here's Why Analysts Still See Strong Growth Ahead

The boom happened—to the tune of 562% growth in a single year—and the bust was inevitable, with analysts last summer predicting “an extinction event” in the U.S. CBD market that would wipe out some of the 3,000 brands in the space. That forecast turned out to be accurate, according to a new Brightfield Group report that says the CBD industry sheds more than 1,000 players in the past 12 months—some through corporate consolidation and others to insolvency. The category continued to grow, in modest double digits, as retail rebounds and consumers amp up their search for wellness options amid the apparent easing of the pandemic. But there are significant challenges ahead, according to Bethany Gomez, Brightfield’s managing director, that range from FDA foot-dragging on regulations to the mad scramble for shelf space. “We consider this to be a rebuilding year,” Gomez told Adweek. “There will be continued growth, but companies will have to fight and claw for it.” The path from $5 billion to $16 billion Sales are expected to increase 15% in 2021 to $5.3 billion, the Brightfield study shows, and climb to $16 billion by 2026, spurred by new cannacurious customers, price cuts and product innovation. Data from another source, BDSA, paints a rosier picture of CBD’s prospects, anticipating $21.9 billion in U.S. and Canadian sales by 2026, a 33% annual growth rate, assuming the FDA approves the hemp-based substance as a legal food additive in 2022. Ingestibles will help propel the market going forward—mirroring a trend in big sister cannabis—as the drink category is projected to jump 71% this year and gummies are on track to grow 44%, data shows. Meanwhile, online sales will pass $2 billion, making up 38% of the total market as consumers cement their lockdown shift to ecommerce. Among the other standout findings of the annual study: Martha Stewart CBD has become one of the only celebrity-backed brands to ever crack into the top 20 sellers, which is dominated by Charlotte’s Web (with 3.6% of all retail sales) and other players such as Medterra, cbdMD, CBDfx and Lazarus Naturals. Stewart’s tinctures, gummies and capsules, created in partnership with Canadian cannabis giant Canopy Growth, not only piqued consumer interest but spurred sales. “Martha herself was very effective in building awareness,” Gomez said. “There was enough flash behind the line that it drove people to purchase.” There aren’t a lot of Martha Stewarts out there, though if Oprah launched a CBD brand, that would be a story.—Bethany Gomez, Brightfield Group The brand, which began as direct-to-consumer only, aggressively pushed into brick-and-mortar stores using Canopy’s clout, adding to its exposure and sales. The line’s early success, though, isn’t necessarily a model for other A-listers and Hollywood types, nor does it guarantee a long-term hit, Gomez said. “There aren’t a lot of Martha Stewarts out there, though if Oprah launched a CBD brand, that would be a story,” she said. “We’ll see if Martha can stay in the top 20, but I don’t expect it to be a top 5 brand anytime soon.” Some players have wiped out, including GenCanna, Pyxus International, Myaderm, United Cannabis Corp., and Atalo Holdings. And others are in acquisition mode, with Valens taking over popular brand Green Roads, Kadenwood buying Social CBD and HempFusion picking up Apothecanna and Sagely Naturals. Gomez thinks the merger-mania will likely accelerate, as sizable companies search for acquisition targets that will increase their retail doors and consumer reach. Many brands will step up their functional ingredients, adding elderberry, ashwagandha and mushrooms like lion's mane, to their products and honing their messages as general wellness offerings. A number of players, like Medterra, Recess, Vybes and Weller, have stripped out the CBD all together for stand-alone lines that promise immunity support and mood boosts. Those moves are happening as some brands lean further into cannabis, touting the medicinal value of CBD for pain, anxiety and insomnia. “We’re seeing experimentation in both directions, and the lines are definitely blurring,” Gomez said. “But where brands were all congregating in a similar space in the past, they’re now starting to distinguish and differentiate themselves better based on an OTC positioning targeting Baby Boomers, for instance, or a cannabis-adjacent brand looking for millennials at dispensaries.” Recess, a CBD Beverage, Created a ‘Guide to Re-entering Society’