CBD’s Innovation Wave

Despite an ever-shifting legal landscape, cannabidiol is forging its way into the mainstream market, even in states that have yet to legalize marijuana. Here’s why—and what you need to know to get in on this exploding category.

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CBD Innovation | Korent

The journey that cannabidiol (CBD) has traveled in just a few short years is hard to fathom. Five years ago, you might not yet have even heard about cannabidiol or CBD, a naturally occurring compound found in marijuana and hemp plants. Today, news stories heralding its potential medicinal benefits and growing popularity are virtually a daily occurrence. In December, CNN dubbed it “USA’s coolest food and drink ingredient,” while The New York Times settled for the slightly more cautious headline “Why is CBD Everywhere?” and then went on to describe it as “voguish.”

In various media, to varying degrees, it’s been touted as a remedy for a dizzying array of maladies, from easing anxiety, reducing inflammation and curing insomnia to aiding those plagued by seizures, calming debilitating tremors and easing the side effects of chemotherapy. And it’s popping up in everything—including pop, as a matter of fact. Oils, tinctures, e-liquids, pills, soda, craft beers, gum, beauty products and even pet food—the list is endless. According to Vaping360, CBD oil alone is already a $340 million market, and sales of the compound, in all of its diverse forms, are on the rise. “There’s been an explosion of interest in CBD over the past four years,” says Bethany Gomez, director of research for Brightfield Group, who says that retailers are racing to get into the category. “Already, you can find it at thousands of retailers around the country.

And yet, while there is growing popularity and acknowledgement of its growth potential, there’s still a great deal of confusion, among retailers and consumers alike, about what exactly CBD is, whether it’s legal, and how to navigate the wide and ever-increasing array of CBD products currently available.

CBD 101: Hemp vs. Cannabis-Derived CBD
If you’ve been following CBD at all, you probably already know that CBD does not have the psychographic properties of THC, another cannabinoid and the one the cannabis plant leaf is more famous for containing. Unlike THC, CBD will not, in other words, get someone who smokes, vapes or ingests it in any of its forms high, stoned or loopy. However, historically, CBD has commonly been derived from cannabis, which federal law classifies as a Schedule I drug (along with heroin) that is prohibited by the United States Drug Enforcement Agency due to its “high potential” for abuse.

Legality of Cannabis and CBD

There are, however, two game-changing developments going on right now that are paving the way for the category’s growth in the mainstream market. First, more and more states are moving toward legalizing cannabis use in at least some form. “With this recent election, now technically over 40 states have some form of cannabis legalized,” notes Lance Lambert, strategic business unit manager-herbal at Boveda, who points out that even states thought to be conservative stronghold states like Texas and Utah are coming around.

For practical purposes, the conflicted stance of federal and state governments on the legality of cannabis has led to a patchwork approach to bringing the CBD products to market since federal law prohibits such products from crossing state lines. While CBD is being sold in states where recreational use of marijuana is legal, as well as in those that allow medical use of marijuana, the inability to ship products across state lines has served to check CBD’s growth as a category.

A Happy Turn for Hemp-Derived CBD
Enter game-changer No. 2: To understand the second development, you first need to know that CBD comes in two forms: cannabis-derived CBD and hemp-derived CBD. Many people use the terms hemp and cannabis interchangeably. Yet, while both are part of the same species, they differ notably in that hemp—at least hemp as it’s defined by federal law—contains less than 0.3 percent THC. Despite this, both substances had been classified by the federal government as controlled substances. However, the 2018 Farm Bill, passed into law on December 17, 2018, changed that.

CBDfx | CBD's Innovative WaveThe 2018 Farm Bill contained a provision that removed hemp-derived CBD from the Controlled Substances Act, freeing manufacturers to distribute their hemp-derived CBD products nationally—and retailers nationwide to sell them. The ramifications are huge, says Christian Graversen, brand manager at CBDfx, which markets a wide range of hemp-derived CBD products. “My guesstimate is that the [CBD] industry is at about $750 million now, and after the Farm Bill passes we expect to see an industry closer to $5 billion,” says Graversen. “Everyone is waiting for the Farm Bill that will let the big-box retailers bring it on board, chains like Rite Aid, Walgreens and CVS.”

Gomez is even more optimistic about the category’s potential. “We’re forecasting the market for hemp-derived CBD to hit $22 billion by 2022,” she says. “These products will be able to scale so much more quickly after the Farm Bill passes.”

While the national chains will represent new competition for the local and regional stores selling CBD, smoke shops are well-positioned to benefit from the Farm Bill and subsequent growth of CBD, says Graversen. “I think you will see a few big brands go with the big-box stores, but there will always be boutique-style products at the high end,” he says, noting that smoke shops have an edge when it comes to helping to educate consumers about premium products in a category like CBD. “When customers see a product that’s 50 percent cheaper and they don’t have any information, they’ll go for the cheaper product, and they may not have a good experience,” he says. “If that happens, education at the store level will be crucial.”

Ready, Steady… Wait
What can retailers do in order to protect themselves—and their customers—from substandard CBD products? Christian Cypher, senior vice president of global specialty products and managing director of specialty crops at Pyxus International, offers these pointers:

  • Retailers should strive to obtain as much information as possible about the quality of the products they are selling and the brand, including whether the products were produced in clean-room environments and FDA-registered facilities and whether they follow good manufacturing practices. High production standards lead to consistent and quality products.
  • Retailers should also look for—and require—transparency in product manufacturing and quality testing. They should check how easily, if at all, a manufacturer makes it to obtain quality and testing certifications from product release and independent laboratories.
  • In addition, retailers should partner with companies who are willing to work with retailers to educate their team members and consumers

As the CBD market matures over time, such precautions may become less necessary. But for now, as Graversen puts it, “There will always be a gray market, but I think store owners who are in it for the long term should want to buy CBD products from a company that is 100 percent compliant.”

This story first appeared in the January/February 2019 issue of Tobacco Business magazine. Members of the tobacco industry are eligible for a complimentary subscription to our magazine. Click here for details.

 Story Jennifer Gelfand, editor-in-chief of Tobacco Business Magazine.