The Business of CBD - The Modern-Day Gold Rush
Cannabidiol, or CBD as it is commonly known, is a naturally occurring chemical compound derived from the cannabis plant and the production of CBD has become one of the fastest growing industries in America. Unlike THC, the active derivative in marijuana, CBD does not have psychoactive or intoxicating effects and is commonly used for both people and animals today. In fact, CBD can be found in nearly anything from food and dog treats to clothing and even mattresses.3
Hemp, which is a cannabis plant that had been grown for many purposes for thousands of years, had its growth suppressed over 90 years ago. Though it was once legal, and even mandated to grow hemp in some places, it was made illegal in the 1930’s for fear of the potential economic impact that many versatile hemp products could have on other industries ranging from paper to plastics. To justify the law making it illegal, the government used marijuana as their reason, though many people today are led to believe it was the other way around.
With the passing of new federal legislation regarding the legality of growing hemp for the purpose of CBD production, every state in America will be able to grow hemp for CBD production by 2021. Demand within the United States, coupled with the worldwide demand for CBD products overall, is escalating at an exponential rate. Recent studies suggest that CBD sales in the United States will exceed $20 billion by the year 2024.1
CBD is well known for its extensive medicinal benefits which may include anything from claims of reducing stress to curing cancer. This wide variety of potential applications and benefits is creating such hype and demand that we are seeing larger fortune 500 companies jumping into the industry to produce CBD products to bring to market.2 That said, the question becomes, is there any real substance behind all the claims of CBD’s benefits and if so, is there still room to enter the CBD market?
Wholesale CBD is sold by the kilogram. In early 2014, when just a handful of states had begun to legalize hemp, the price per kilogram was as high as $40,000. Today, companies are selling kilograms of CBD for as little as $2,000. All you have to do is Google “CBD” and you will find hundreds if not thousands of companies offering a wide range of CBD products, both wholesale and retail. So, with such a high demand for CBD, why the sudden drop in price?
The reason is that CBD, which was once a boutique and difficult to find ingredient, has now turned into a commodity with buyers, sellers, brokers and market makers. Each year the acres of farmland utilized for growing hemp are nearly doubling and even tripling in some areas. As the production of hemp from these additional farmers comes online, the demand for CBD has not kept up with supply. As a result, we have seen prices plummet. For hemp farmers, what was once a guaranteed sale has turned into a surplus of product for which there aren’t enough buyers. This increased hemp production, coupled with the still limited hemp processing capacity, has created a supply glut.
As is common with many new “hot” industries that grow too fast, growing pains will create a ‘flush out’ period. As the price of CBD continues to decrease, the smaller mom and pop companies, including both hemp farmers and hemp processors, will not be able to survive. That said, once these growing pains balance out again, the price of CBD should stabilize and could potentially even rise again.
In addition to this balance in hemp farming and production, new USDA regulations which require rigorous testing of hemp crops could potentially render a large number of CBD genetics obsolete. USDA regulations now demand that hemp used for the production of CBD may not exceed 0.3% THC, and many, if not most CBD genetics will exceed this threshold, creating a challenge for farmers to find a reliable CBD genetic. The risk of federal prosecution and the potential inability to sell their harvest may cause many hemp farmers to sit on the sidelines or return to farming their original crops rather than growing hemp.
Perhaps even more encouraging to those looking to enter the market, is that in addition to the already booming CBD industry, we are now seeing a great deal of hype for another hemp derived cannabinoid called Cannabigerol, or CBG. CBG is the precursor, or stem cell, for over 113 other cannabinoids including CBD and THC. The potential for this new derivative is creating waves of excitement in the industry and we expect to see explosive growth for CBG in the coming years.
In conclusion, there is most definitely still room to enter the lucrative CBD or CBG market. The potential growth of the CBD and CBG industry is exponential and still in the very early stages. The keys to success when entering this quickly growing market are to stay flexible, the CBD market is changing constantly with new regulations and technology; be well capitalized to ensure your ability to shift gears in this dynamic market; stay ahead of the curve, be an innovator and stay up to speed on the newest trends; and be vertically integrated, with your own farm, processing and products so that you are not reliant upon other companies. With these things in mind, it is possible to achieve great success and stake your claim in the business of CBD – the modern-day Gold Rush.
1. https://www.forbes.com/sites/irisdorbian/2019/05/20/cbd-market-could-reach-20-billion-by-2024-says-new-study/#58a5d53d49d0
2. https://www.fool.com/investing/2019/04/30/4-surprising-companies-now-selling-cbd-products.aspx
3. https://zbdbed.com/