After CBD’s Explosive 562% Growth in 2019, Brands Now Face an ‘Extinction Event’

New report estimates up to two-thirds of brands could fail despite the category's positive long-term outlook

CBD oil, a popular supplement for reducing anxiety, faces growth obstacles as a category. Getty Images
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Key Insights

There was plenty of buzzworthy news coming out of the CBD industry in 2019—namely its staggering 562% growth.

But that number was too stratospheric to last, even before the Covid-19 outbreak. And since the pandemic hit, the cannabis-adjacent category has taken a nosedive, with negative growth and flat revenues for at least six straight months, according to research firm Brightfield Group.

At least half or two-thirds of those 3,000 brands will fall out by the end of the year. To call this a volatile period would be a tremendous understatement.

Bethany Gomez, managing director, Brightfield

CBD companies, like many other brands, are continuing to grapple with retail disruption and cash-strapped consumers. Those challenges, coupled with complicated regulatory issues, have created a perfect storm, according to Brightfield’s managing director Bethany Gomez. The upshot: Some of the 3,000 brands now crowding the space are not likely to weather it.

“2020 is shaping up to be an extinction event,” Gomez said. “At least half or 2/3 of those 3,000 brands will fall out by the end of the year. To call this a volatile period would be a tremendous understatement.”

But the future isn’t all doom and gloom, said Gomez, whose firm takes bi-annual deep dives into cannabis and related industries. There’s growth on the horizon, likely to be spurred by product innovation, sophisticated rebranding and clever digital marketing.

Below are some of the key findings of Brightfield’s U.S. CBD Market Report for mid-2020:

CBD is here for the long haul

The industry has been battered during the public health crisis, with sales slipping as specialty retailers closed their doors. Consumers also lost their jobs and much of their disposable income during this period of record unemployment.

Even so, the category is expected to bring in $4.7 billion in sales this year. That’s less than previously projected but still up 14% from 2019. By 2025, that figure will jump to $16.8 billion, according to Brightfield’s estimates.

“This category grew out of nowhere,” said Gomez, citing as a key driver the 2018 Farm Bill, which legalized hemp as an agricultural commodity and removed it from the federal controlled-substances list. “After the Farm Bill passed, the floodgates opened.”

Hemp-derived CBD is made from the sort of industrial hemp used for sourcing fibers and seeds, meaning it contains very little or none of the psychoactive compound THC that historically made cannabis popular as a recreational drug. The 2018 Farm Bill created a legal distinction between hemp and other forms of cannabis.

About 15% of Americans over age 21 used some form of CBD in 2019, when distribution exploded to nearly 100,000 retail outlets, ranging from Whole Foods and Walgreens to Urban Outfitters and Sephora.

It might be difficult to recruit new customers beyond this early surge, Gomez said, but at the same time, Americans are reporting significant, elevated levels of stress. Consumers who have already tried or regularly use the non-psychoactive cannabinoid products could increase their purchases. The top reason cited for using CBD (by 42% of fans, per the study) is anxiety.

Will startups keep pace as the industry matures?

Startups dominated the space in 2019, in sheer volume, but many of their products were decidedly first-generation, Gomez said.

@TLStanleyLA T.L. Stanley is a senior editor at Adweek, where she specializes in consumer trends, cannabis marketing, meat alternatives, pop culture, challenger brands and creativity.