The US CBD food sector is in a state of flux. A few years ago, it was anticipated the market was poised to enjoy rapid growth but the available data suggests that has not been the case.
Brightfield Group, a US-based market researcher that analyses the cannabis and CBD markets, valued US hemp-derived CBD retail sales at $4.4bn in 2022, down 6% on 2021.
And Brightfield says that if you strip out FDA-approved pharmaceutical products that contain CBD, the market value of CBD products declined by more than 8% year on year in 2022.
Sales fail to provide buzz
Like many categories, the CBD market in the US has been impacted by macroeconomic factors such as high inflation, which has limited consumer spending and also made it difficult for manufacturers to raise capital.
As a result, Victor Martino, a US-based CPG industry consultant, says CBD sales in the country have not reached the heady heights some had expected.
“What was anticipated and billed as a sales boom has been more like a slow start with a few spurts, a levelling off, and then a drop,” Martino says.
That’s partly due to weaker-than-anticipated sales in some food and beverage segments. Martino cites the example of functional beverages.
“In the beverage segment, there are so many other popular functional beverages that my view is CBD is mostly an afterthought among consumers,” he says. “The benefits of CBD food and beverage products also are hard to quantify.”
There are some areas where CBD products have found favour with US consumers. The largest CBD product category at the moment is tinctures with an estimated 17.5% of total CBD sales in 2022, according to data from Brightfield, followed by gummies with a consumer product market share of 16.3%. However, that situation could be about to change.
“The gummy category has exploded in recent years and is set to overtake tinctures to become the largest CBD category in 2023, says Matt Zehner, a senior analyst at Brightfield. “Between 2020 and 2022, the category more than doubled in share, growing from 8.3% to 19% – gargantuan growth over a period of just two years.”
Gummies tend to be lower priced than other ingestible categories, Zehner explains, allowing more users to “continue their CBD regimen while conserving money during these unsure financial times”.
Regulatory fog
Sales growth could have been more buoyant to date were it not for the fact the market for foods containing CBD in the US has been hampered by the lack of clear and good regulation from the federal government.
“The regulatory uncertainty at the federal level, combined with the burdensome patchwork of state and local requirements, have really been tough on stakeholders, all the way from soil to oil,” says Jonathan Havens, co-chair of the cannabis law and food, beverage and agribusiness practices at the US law firm Saul Ewing.
“We’re fortunate to have a number of well-regarded CBD clients who have a ‘compliance first’ mentality – their products are independently tested, they aren’t making therapeutic claims, and their product labels have QR codes that link to certificates of analysis. However, even the most well-intentioned brands struggle to comply with disparate and, in many cases conflicting state laws.”
The daunting regulatory framework in the US has deterred new entrants, according to Zehner.
“Without any regulatory scheme in place, many large retailers and CPG companies have avoided the space or made only limited forays,” he says. “In the absence of any regulatory scheme that allows CBD products to be sold as dietary supplements and food additives, the market exists in something of a grey area where products are technically legal but not subject to oversight.
“As a result, virtually all large consumer packaged goods companies have steered clear from the space completely to avoid being found in violation of any FDA [Food and Drug Administration] rules. Additionally, most mainstream retailers have avoided stocking any CBD products and those that have dipped their toes in the sector have typically just sold topicals, a category that is seen as less risky because it’s not ingestible.”
One investment banking source who specialises in providing mergers and acquisitions services and advice to CPG companies says “no investors we speak to are talking about CBD positively right now” and that is partly due to the current regulatory framework.
The sticking point is that although the 2018 Farm Bill allowed for the cultivation of hemp and derived products including CBD, regulatory hurdles such as limitations around marketing and product claims and restrictions on interstate commerce have prevented manufacturers of CBD food products achieving even larger growth rates.
US watchdog’s pronouncement
But that situation could be about to change. Earlier this year, the FDA admitted the current regulatory framework for CBD foods and supplements was not appropriate and the agency said it was prepared to work with the US Congress to develop a new framework for CBD products.
Havens says it could take a while for the guidelines to pass through Congress and for President Biden to sign a bill to make it happen. What is needed, he suggests, is a “consistent national framework that ensures safety and transparency”.
“Adherence to good manufacturing practice, subjected to independent, third-party testing, with truthful labelling would help achieve those twin safety and transparency goals,” Havens explains. “Again, leading members of industry are already doing these things. It’s just making sure the rest of the industry is held to the same standards. Congress understands the importance of this proposed framework, and I suspect any policy it advances will reflect the same. The big question is: how long will it take before such a policy becomes law?”
Zehner thinks the most likely avenue for the regulation of CBD products to be passed will be in the 2023 Farm Bill, which he describes as an “omnibus package of legislation” covering a range of food and agricultural programmes.
“While hearings have been underway since late 2022, it is unclear how Congress plans to tackle the issue of CBD if hemp regulation is included in the package,” Zehner says. “However, it is probable that, regardless of the specific legislation where the provision is included, Congressional CBD regulations will allow for the sale of CBD as a dietary supplement and food additive. This move would prompt investment from large CPG firms and lead to an array of CBD products, including ingestibles, being distributed in mainstream retail channels like big box stores and supermarkets.”
Debate over trajectory of US CBD food market
The difference the introduction of a new regulatory framework could make to the US CBD sector could be profound, judging by Brightfield’s projections.
“With federal regulation implemented by 2024, the US CBD market is expected to reach an annual value of $10.3bn by 2028 [$9.2bn excluding pharmaceuticals], driven by accelerated growth of ingestible products like drinks and gummies as well as increased acceptance by mainstream retailers,” Zehner says.
“Without such guidance, the CBD market is expected to remain decidedly more niche, with annual sales in 2028 forecast to hit $5.2bn ($4.2bn sans pharmaceuticals).”
Havens believes there should be a lot of interest in this category over the coming years. “As more states legalise cannabis, consumers will become increasingly aware of the plant and its 100-plus phytocannabinoids and all of the possibilities related to the same,” he says. “As we’re already seeing, I expect CBD to continue to be combined in products with other cannabinoids – for example, CBD plus CBN [cannabinol]. I also think cannabinoid-derived products will continue to become more mainstream (major brands, major retailers, mainstream endorsers, and so on).”
Kemin Industries is a US-based ingredients supplier selling into industries including agriculture, aquaculture, food, and beverage. The company markets hemp CBD distillates for use in health and wellness products.
Tyler Holstein, global product manager for the company’s human nutrition and health business, says the market can ride consumer interest in health and wellness.
“Hemp is popular in foods as it contains the essential amino acids, is high in protein and essentially fatty acids. As increased protein is a trend we are seeing in foods, the addition of hemp oil in applications beyond products such as protein shakes and smoothies, may start to become more popular,” Holstein says.
“Many consumers have made the decision to buy hemp-based products, such as CBD oils because they believe hemp has numerous health benefits. CBD from hemp products is growing in awareness and popularity as 75% say they are familiar or very familiar with CBD from hemp products4 and another 20% have used supplements and/or functional foods with CBD from hemp products in the past six months.”
Martino is less bullish when it comes to the future growth of CBD food and beverage products in the US. He says CBD nutritional supplements offer greater sales potential and he sees limited – if any – growth for food and beverages over the next few years.
“Overall, looking at CBD – consumable and non-consumable – in 2023 as opposed to 2019, my view is that it’s a real business with growth potential but it’s clearly not the boom business many thought it would be five years ago,” Martino says. “I see moderate percentage growth over the next couple years. Growth will be higher in the health and body care and nutritional supplement categories, with CBD food and beverage products struggling more so than thriving.”
The rate of growth enjoyed by US manufacturers of CBD food and beverage products could well be determined by the outcome of discussions that are due to take place in Congress over the coming months. The US CBD market will be watching proceedings with interest.
