CBD During COVID-19

DISA Global Solutions maintains a regularly updated, interactive map that proves how fast cannabis laws are changing. Currently, 15 states have fully legalized cannabis which doesn’t include all of the pending legislation for medical and recreational use in other states. With 91% of U.S adults now supporting marijuana at a minimum for medical purposes, it highlights that this might be the one political topic that both parties can agree on. Cannabidiol (CBD) stands out from the crowd, with some wall street experts stating it could become a 16 billion dollar industry by 2025. COVID-19 has provided a period where natural remedies to stress and anxiety place CBD products in high demand. But a 2020 cannabis innovations report by the Brightfield Group doesn’t show a lot of optimism even though high sales are being reported. The Brightfield Group highlighted the current issues behind the competition of ecommerce, declining discretionary incomes, and ongoing regulatory debates that makes CBD organizations antsy for what future forecasts will look like. I’ve reached out to Yuong Lam, Chief Operations Officer of CBD Farmhouse, to discuss how the industry is adapting to COVID-19.

BDSA research found that dispensary sales of CBD were up across all major legal markets. Dispensary dollar sales of CBD-infused edibles were up 73% versus last year and CBD-infused beverages were up 55%, but CBD supplements didn’t have the same spike. Why do you think edibles and beverages had a bigger sales spike during this pandemic and what has been the top COVID-19 products in your store’s inventory?

The reason why sales forCBD edibles and drinks may have increased over CBD supplements could be the ease of use to the consumer. Although they may have access to CBD oils and capsules, to a new CBD user, edibles and drinks seem less complicated and less “medicinal”, therefore less daunting to try out for the first time. Another interesting trendI’ve noticed is that every company will have its own CBD tinctures, with similar ingredients and strengths. If they only focus on selling tinctures, there’s not much competition between one brand and another other than competitive pricing. That’s partly whywe are pushing for more diverse options for CBD consumption, and maybe other companies too. We launched CBD moonrock chocolates lately and they have been very popular. It could be that the consumers are just looking for new ways to try CBD that is more convenientand enjoyable even though tinctures would offer the most accurate and potent dosing versus consumables. Our top products beingsold are gummies, chocolates, topicals, and then tinctures (in that order).

According to the 2020 CBD Market Report, middle-class households (making $40,000 to $75,000) now account for nearly one-third of CBD consumers. This new demographic has stated that price is the second ranking product attribute that they consider. Has your business needed to develop new strategies to handle a price sensitive crowd and do you foresee any other changes with an increasing middle-class customer base?

Over the past few years, as more and more companies, farmers, and extractors have entered the market, raw hemp materials and extracts have become more affordable. This has allowed us as a manufacturer to make our prices more affordable to our wholesale clients and consumers. One kilo of pure CBD isolates used to cost thousands of dollars. Now, it ranges from $500 to $700 a kilo. Similar price reductions have been seen in full-spectrum CBD distillate as well. Although we could ride the high prices of all other CBD companies, we don’t see that it will uphold for long. 

There are a good amount of brands who do not manufacture their own products, but actually white label their brands. Those companies will have to uphold their prices for a little longer to make margins. Later, they will have no choice, but to reduce their prices as well to stay competitive in the market. I do foresee that CBD won’t be the only cannabinoid in the hemp market in the near future. Newer hemp cannabinoids such as CBG, CBN, Delta-8THC, and even hemp-derived terpenes are starting to enter the market. We are looking into creating custom formulations to set us apart from conventional CBD-only companies. These types of products, however, will continue to be sold at a higher price for the time being until those extracts reduce in price too. 

The Controlled Substance Act has rippling effects on cannabis organizations, where a cannabis-related business has limited opportunities to deduct business expenses from their taxes. The 2018 Farm Bill essentially removed CBD from this act, which makes it federally legal. Are there any additional regulations or public perception that has had negative effects on CBD businesses?

One legislative struggle we are facing is that delta-8 THC is still in the gray area and up for discussion whether or not is to stay legal because it is a hemp-derived cannabinoid, or be taken off the market because it is essentially THC, but not delta-9 THC. It has gained a lot of popularity over the past year and a good amount of our top sellers are delta-8 THC products. There is also delta-10 THC in the market as well and it is also argued to be legal because it is hemp-derived and it is not delta-9 THC. 

FYI: Delta-8 THC, like Delta-9 THC is psychoactive but not as potent. It offers a more clear-headed buzz, with less chance of anxiety or paranoia that is associated with delta-9 THC. The effect is dose-dependent, so if they take a larger amount, it can offer similar effects to delta-9 THC. As more and more states are allowing legalizing marijuana, and talks of legalizing it in Texas are already in the works. There is a chance that they might not act on regulating delta-8 THC if Texas is to legalize marijuana eventually.

Some critics are worried that federal legalization of cannabis could send cash-strapped dispensaries into the arms of alcohol, soft drink, and tobacco giants. Canada-based Canopy Growth Corporation have also stated their intentions in selling drinks containing THC next year to compete with beer, rivaling Anheuser-Busch InBev AB, which controls 42% of the North American beer market. Do you hold a positive or negative outlook on new corporations diving into legalized cannabis?

In my opinion, being part of the 24-39 age group of consumers, just because a big name backs up their own CBD line (like Martha Stewart), it doesn’t make me want to lean towards their products more versus products that have been on the market since CBD became legal. Maybe it’s because of my knowledge of how CBD products are manufactured and are often white-labeled with other brand names, it doesn’t sway me to buy it more. I would probably try it at least once, but I have more trust in companies that have been in the business since the beginning. I feel that since the pandemic, people are wanting to support small businesses more, which doesn’t make me too worried about those large companies. I would say I have a positive outlook for big companies to get into legalized cannabis. It’ll help weed out the lower quality CBD 

NeuroXPF, a CBD company based in Nevada, have stated that their products prevent COVID-19 by boosting the user’s immune system. The FDA and FTC issued a joint warning letter asserting that the claims are unsubstantiated, which violates the Federal Trade Commission Act. Do you see any concerns in supply lines, potential contamination of products, or any other logistical issues?

When choosing CBD products, the average consumer would have to do their own due diligence in selecting respectable CBD companies, as CBD is not regulated by any governing body for quality control. Most companies quality control themselves by sending finished products to third-party testing labs to ensure potency and transparency in their products. Since the CBD boom in the past few years, we did notice a lot of gimmicky or low-quality CBD companies go under. It’s like natural selection- the best companies will survive. As long as CBD companies continue to offer high-quality products, they will continue to stay in the business.

I don’t see the concern in the supply chain yet as there are many more CBD growers and processors that are driving the cost of raw materials down right now. Many CBD professionals already know that they cannot have any medical claims on their products. It’s important to stress that CBD is an investigational supplement and claims are anecdotal. There have been more clinical studies published with supporting data for different health uses or diseases, but because the FDA hasn’t given CBD their official seal of approval, we cannot legally claim anything. It all goes down to having the right wording to educate people where to find their information, but we just can’t use it to sell our products directly by having it on the label. It’s about educating consumers in a smart way that will not get us in trouble legally.