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The CBD sector’s approach to regulation can make market size estimation complicated, too. Although CBD was legalized at the federal level through the 2018 Farm Bill, each state has its own specific rules regarding production, processing and sales of hemp-derived CBD products. In fact, currently X states bar sales of CBD products and other states have taken action to prohibit sales of certain products, such as smokable hemp.
The patchwork of regulations and minimal oversight regarding CBD product formulations have left holes in the system allowing bad actors to develop and market CBD products that do not contain as much – or sometimes any – CBD. This presents an additional complication to CBD market size estimation: how to accommodate for consumers who intended to purchase and use CBD but unintentionally purchased a CBD-free product.
On top of all this, consumer behavior within the CBD space and consumer preferences for CBD products are still being understood. Without truly understanding consumers’ motivations for purchasing CBD products generally or the drivers behind their specific choice of format, it can be difficult to project how sales will change in the future.
Taken all together, these factors emphasize the importance of carefully vetting CBD market size estimates. This includes taking into account when the estimation was conducted, what type of data was used for estimation and the goals of the person or organization behind the estimate.
LEVERAGING CONSUMER DATA IN MARKET ESTIMATIONS
Lacking some of the typical inputs for sizing categories, researchers must turn to more innovative methodologies. Based on an upcoming study of the current and future state of CBD consumers, High Yield Insights will model CBD market estimations based on consumer data. The CBD Consumer Insights Library marks the most ambitious entry into CBD consumer understanding, leveraging best-in-class survey technology and the most expansive, well-structured scope of panel respondents. This will include a suite of category-level CBD consumer insight reports as well as consumer segmentation analysis, identification of factors that influence CBD purchasing decisions, perceptions of mainstream brands operating in CBD and how using CBD impacts consumption of alcohol and OTC and prescription medications. Click here for more information and to sign up for early access to the CBD Consumer Insights Library.
We will couple this with a comprehensive CBD retail pricing analysis to develop the most up-to-date assessment of current CBD consumption. Our estimates will take into account how pandemic-era CBD use may evolve in the future. By disclosing the methodology and accompanying data, companies seeking intelligence on the questions posed above can interpret the results and inform business strategies with the most current and transparent market estimations available.
PANDEMIC’S IMPACT ON THE CBD MARKET
Destigmatization of cannabis generally, coupled with CBD’s increasing presence in mainstream retail outlets such as Kroger and Walgreens, means consumers who otherwise would not consider using a cannabis derivative are increasingly exposed to the cannabinoid. As High Yield discovered in 2019’s The CBD Consumer Experience study, easier access to CBD products ranked among the top drivers for increased use by current consumers and a key factor for potential users considering the use of CBD products.
While access to CBD products has been disrupted by COVID-19 as shoppers retreated from physical stores, the level of awareness was already at a higher point than at any point prior. CBD brands have been somewhat protected from the fallout however due to the prominence of eCommerce – a key channel for most, and the only sales channel for some.
Reports show that the continuing COVID-19 pandemic has led to increases in stress, anxiety and depression among U.S. consumers – conditions known to be treated by consumers with CBD. Some of these consumers are seeking alternative, natural and other non-pharmaceutical solutions to these mental health concerns. While the current impact of COVID on CBD use has yet to be fully quantified, it is likely that some consumers have begun using CBD to treat pandemic-related health issues. Thus, in our estimation, the net impact of COVID-19 on the industry has been a tailwind. The absence of consumer data capturing changes to purchase habits and usage trends disrupted by COVID-19 is perhaps the most glaring omission from many published analyses, another issue High Yield will address in our upcoming publications.
NEW USERS AND HIGHER VOLUME SALES UNDERPIN GROWTH
With many unknowns surrounding the CBD market and CBD consumers themselves, it is difficult to project how rapidly the market will grow. Industry sources are predicting the market will reach $9 billion to $20 billion by 2024, growing at a 34% to 45% compound annual growth rate. This massive growth is expected to come not just from new users, but from existing users expanding their repertoire as well. Amongst US CBD consumers, 50% have tried at least one new product format in the last 6 months. Although this is largely driven by market newcomers, almost one in six longer-term CBD users have added 2 or more product formats to their repertoire since the beginning of the pandemic.
SOOTHING SUPPLEMENTS TO SOAR
The findings from High Yield’s consumer research have shone a spotlight on how the CBD industry continues to thrive in spite of (or perhaps because of), the difficulties posed by the global pandemic.
A significant 25% of the 4,177 CBD users surveyed said that they had bought their most recent CBD item in order to cope with COVID-related anxiety or stress. Perhaps because they better-understand the product benefits, formats, and dosage, those who have been using CBD for more than 6 months were more likely to have said that they purchased their last CBD product for this reason. COVID anxiety and stress may also have also been the purchase trigger for existing CBD users to expand the product ranges that they buy into. High Yield’s consumer research has found that almost half (46%) of the longer term CBD users bought at least one new product format in the last 6 months. This willingness to experiment within the market highlights the opportunities for newer categories, particularly food and drink.
The supplements sector is set to be the markets biggest winner as a result of the pandemic with research finding that irrespective of whether they are market newcomers or have been using CBD for longer, CBD users were most likely to turn to products within the supplements sector in order to take the edge off their pandemic blues. Although the newcomers are more likely to enter the category with oils and topicals, almost 6/10 (56%) who only started taking CBD since March have used gummies. One in four COVID commencers who have only tried one or two product formats since entering the market in the last 6 months have used gummies.
WHO ARE THE “COVID COMMENCERS”?
The market newcomers have a distinct demographic profile. Largely because men are more likely to have been early adopters of CBD, the newcomers to the market are more likely to be women, especially those who are retired. Amongst the adults who only started to use CBD in the last 6 months, men have a far broader product repertoire than women. Some 31% of male newcomers bought into 10 or more different format types compared to just 10% of the female newcomers.
Demonstrating the growth of market appeal amongst the silver-haired crowd, almost two-thirds of retired CBD users joined the market in the 6 months to October 2020.
Among existing users who are expanding their product repertoire, overriding characteristics are:
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Female (almost 6/10 CBD users who increased their product repertoire in the last six months were women)
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Separated (almost half of CBD users who describe their relationship status as separated tried at least one new CBD product in the six months to October 2020. This compares to an average of 35%)
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Working full time (55% of those who have increased their product repertoire are in full-time employment).
THE KNOWLEDGE GAP AMONG NEWCOMERS
For the uninitiated, the CBD market can be extremely confusing and our recent blog post looked at the role of customization in helping new consumers find the shortcut to the products that will meet their needs. However, there are stark differences in industry knowledge between CBD novices and those who have been using it for longer. This further demonstrates the need for a guiding hand from the industry:
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One in ten CBD newcomers don’t know the difference between hemp and marijuana,
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Almost one in ten don’t understand the difference between CBD and THC,
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Newcomers are significantly less likely to understand the difference between full spectrum, broad spectrum, and isolate.
It begs the question as to why the newcomers enter a market that they know so little about and it would appear that the main attraction is curiosity coupled with recommendations from trusted sources. It is arguable that once they have experienced product benefits, they may be more inclined to repeat purchase to address specific health concerns, or to improve their health.
However, the industry is at real risk of losing newcomers with the most recent joiners being less likely to say that they have found a product, format, or brand that works for them. There is still a huge deal of trial and error with market newcomers being significantly more likely than longer-term users to say that they are still trying to find the product format or brand that works for them (34% vs 25%).
In many ways, the requirements of new CBD users are much more simplistic; they want a product that works at a reasonable price. The market newcomers are slightly more likely than average to be influenced by special offers and promotions for products and they are also much less likely to pay more for CBD-only products from specialist CBD brands (13% vs 19% amongst longer-term users). At this stage of their CBD journey, the way in which a product is sourced is less of a concern for the market newcomers and this is further supported by the fact that they are also less likely to do extensive product research before selecting an item for purchase (just 22% do so compared to 29% amongst longer-term users).
It is critical to find a way to decrease the experimental stage of their purchase journey if the market is to secure future sales from this group. There are obviously limitations to the claims that brands may make regarding product benefits, but the fact that market newcomers are heavily influenced by friends/family (50%) and also health providers (47%) can be used to spur growth and help them find the right products faster.
