Jessica Hochman serves as Natural Insights and Innovation Research Manager at SPINS.
CBD (or cannabidiol) is opening up a promising new market within the health and wellness industry. It’s one of several cannabinoid compounds found in both cannabis and hemp, though CBD is not psychoactive (and so won’t get consumers high). A growing body of research points to the human endocannabinoid system’s support of essential functions, including inflammation, mood, sleep, and more.
In a recent study from AT Kearney survey, 76% of respondents agreed or strongly agreed that products containing or derived from cannabis can offer wellness or therapeutic benefits. Today’s consumers, with an affinity for self-care and a wealth of research available at their fingertips online, are actively seeking out CBD and cannabinoids, despite nuanced specifics of the ingredients’ legality according to different government agencies and across state and federal jurisdictions. And even with regulatory concerns surrounding the products, brands and retailers are acting fast to deliver on this mounting consumer demand.
Many are calling this moment a gold (or green) rush, and the ambiguous terms of CBD’s legality add a Wild-West element to the industry’s rapid growth. For more than 20 years, SPINS data has tracked specific product characteristics driving sales at retail: our coding captures more than 600 functional ingredients with unique granularity, including newcomers like CBD and other cannabinoids. Through this lens, we can see that, even under the limitations of the current legal climate, products containing CBD and cannabinoids have grown an astonishing 384% in sales in traditional retail channels over the last year — and it feels like it’s just the beginning.
From Incubator Channels to Scaled Success
SPINS’ data also indicates that the CBD trend has tremendous untapped opportunity across the retail landscape. Today, 95 percent of sales volume for CBD and cannabinoids takes place in the natural channel, where so many trends first take root. Because of SPINS’ proprietary partnerships with the innovative retailers in this channel, our data frequently delivers the first glimpse of emerging trends and soon-to-be-celebrated functional ingredients. Following in the footsteps of the wellness and specialty diet trends that came before it (such as organics, plant-based, and gluten-free), CBD is growing first in the natural channel, but often we see a natural incubation period followed by scaled growth in mainstream channels over time.
Cannabinoids Cross Categories, Brands Differentiate at Expo East
CBD and cannabinoids already report sales in more than a dozen product categories within SPINS data, and the prolific presence of these ingredients at industry events like September’s Natural Products Expo East points to continued expansion. Beyond the supplement formats (sublingual oils, soft gel capsules, etc.) you might expect, our researchers found CBD and hemp extracts in everything from caramels and chocolates to coffee beans; functional beverages, bars, and bites; a broad array of body care products (lotions, lip balms, bath bombs, etc.), often paired with other botanicals; and pet products, too.
For as many categories as these versatile ingredients have already entered, consumers are pursuing cannabinoids for benefits across nearly as many health focuses: from mood functions (calm, focus, stress and anxiety support) to improved sleep to pain relief and muscle recovery from inflammation.
One early differentiator among the many purveyors of cannabinoid products at Expo East was whether an item uses an isolate of CBD or the full spectrum of cannabinoids that can be extracted from hemp, touting a synergistic benefit called the entourage effect. Methods of extraction, via chemical solvent or carbon dioxide pressure or even lipid infusion from Functional Remedies, serve to further set the products apart from one another. As with so many areas of the natural products industry, supply-chain differentiators such as Green Gorilla’s organic certification, Evo Hemp’s mission-driven sourcing (partnering with a grower on an American Indian reservation to drive revenue to disadvantaged populations), and Charlotte’s Web’s vertical integration also point to ways brands are already carving out a niche in a rapidly expanding market.
Brands Bet Big on CBD
CBD and cannabinoids are a relatively new trend, but it isn’t just start-ups bringing the ingredients to market. In fact, several heritage natural brands with considerable market share in body care or supplements (such as Barlean’s, Irwin Naturals, and ShiKai) have entered the segment early. These brands’ established reputations may lend the credibility some consumers need in order to try out the cannabinoid trend. While nascent brands may find a willing market and build their platforms on hemp and cannabis, serving young shopper demographics who are eager for experimental and leading-edge items, familiar natural brand names may be just what other more risk-averse shoppers need to encourage new product trial.
Setting CBD Strategy
With so much consumer interest, brands of all sizes, retailers, and investors all see significant opportunity in CBD. SPINS’ Principal of Brand Growth Solutions Perteet Spencer offers valuable perspectives on navigating this promising space, tailored to each group.
Perteet Spencer is a Principal with SPIN’s Brand Growth Solutions.
“For brands, a solid foundational understanding of category and consumer dynamics is essential to considerations of expanding into the CBD space,” Spencer advises. “Who are your brand’s core consumers, and how would your proposed CBD-enhanced offering relate to their needs?”
She also underscores the importance of a nuanced knowledge of the retail marketplace, particularly given the current regulatory landscape. “Brands who gain early traction won’t win with a ‘one-size-fits-all’ approach. Understanding regional market dynamics and identifying exactly how their products will fit into a particular retailer’s mix are both critical to a brand’s success.”
“As for retailers,” Spencer added, “they need to develop tailored assortments based on the shopping behavior of their consumers. For retailers of every size, these fundamentals are the same: they need to know exactly where their shoppers are in their adoption of CBD products and which categories present room for growth on the leading edge.”
For investors, Spencer says data-driven due diligence is crucial. “Investors are going to get pitch after pitch about the potential in CBD, and at least that part of every pitch will be true: what needs to come next is fact-based research and critical analysis of the brands currently in the space in order to size any forthcoming opportunity.”
Current regulations pose an initial hurdle for CBD and cannabinoid growth today, but it seems likely that the legislative climate will shift: already 31 states have legalized medical cannabis, with 10 making provisions for recreational use, and FDA approval of a cannabis-derived epilepsy treatment has prompted the DEA to move this drug to its lowest class of controlled substances.
All the while, CBD continues to show explosive growth in the natural channel, with no signs of slowing. As restrictions loosen, the CBD gold rush will provide expansive opportunities for the brands, retailers, and investors who enter the space with the right data and consumer understanding to mitigate risk and maximize the value they deliver in the market. RL
Jessica Hochman serves as Natural Insights and Innovation Research Manager at SPINS. Perteet Spencer is a Principal with SPIN’s Brand Growth Solutions. SPINS is a provider of retail consumer insights, analytics reporting and consulting services for the natural, organic and specialty products industry.