Five Steps for Companies Moving into CBD Space Are Highlighted in Report
BOSTON, MA (March 26, 2019) – Since the passage of 2018’s farm bill removed hemp from the federal list of controlled substances, hemp-derived cannabidiol (CBD) has seen a flurry of growth and new product activity ― and companies would be remiss not to pay attention to this emerging opportunity, according to a new report from L.E.K. Consulting.
CBD is a chemical found in both hemp and marijuana, two different strains of the cannabis plant that reportedly offers relief from anxiety, inflammation and chronic pain, among other therapeutic applications. And as hemp doesn’t contain enough tetrahydrocannabinol (THC) to produce marijuana’s euphoric high, its acceptance as a commodity crop has skyrocketed.
While hemp-derived CBD is legal in all 50 states, the Food and Drug Administration (FDA) still doesn’t allow the interstate sale of CBD in food, beverages and dietary supplements. They’ve also clamped down on companies that either make specific claims about the therapeutic properties of CBD or are less explicit about how much is actually contained in their products.
“Despite these murky regulatory waters, consumers’, and consumer companies’, enthusiasm has only grown. For a category that didn’t even exist just five years ago, consumer CBD products have really become a phenomenon that’s poised to enter the mainstream. And with competitors already crowding the field, the best bet for many companies might be to start planning a move into the market now,” says Maria Steingoltz, Managing Director at L.E.K. Consulting and coauthor of CBD: This Cannabis Extract Is Creating a Different Kind of Buzz.
For the report, L.E.K. examined 639 products that contain CBD ― but not THC ― and found they span a full range of types, formats and brands. Based on this and social media analysis, tinctures and dietary supplements are the most common CBD products, while beauty is catching up rapidly with a growing portfolio of lotions, balms, bath products and more. But food and beverage producers are also staking a claim in the growing field, and CBD-infused food and drink top the list for culinary trends in 2019, according to industry research.
“To avoid run-ins with the FDA, CBD brands tend to be circumspect about their claims. That has resulted in a confusing medley of products that requires some effort to sort out,” says Steingoltz. “By our analysis, these offerings break down into four main types of benefits: restoration and recovery, calming and mental wellness, productivity and performance enhancement, and relief from pain.”
The L.E.K. report highlights five steps that consumer companies, manufacturers and investors can take to get a leg up in the CBD market:
- Forge relationships with national retailers. While online or direct to consumer has been the distribution channel of choice for CBD, increased interest has been shown by specialty stores (like Sephora and GNC), luxury retailers (such as Neiman Marcus) and mass merchandisers (Target is an example).
- Proactively develop an Amazon strategy. Despite Amazon’s current restrictions on CBD, players should develop a strategy now so that they can be at the forefront of Amazon’s inevitable entry into CBD distribution.
- In beauty, go beyond skin-deep. As the beauty industry has been relatively quick to jump on the CBD trend for anti-aging, anti-oxidant and corrective skincare products, many other categories ― think haircare, cosmetics and fragrances ― could take advantage of these same restoration and recovery claims.
- Arm consumers and channel partners with information. With unfamiliarity in much of the market, plan on educating consumers, distributors and retailers so they can rationally evaluate CBD products ― and make their choices with confidence.
- Expect competition from Big CPG. The bigger food and beverage brands, like Coca-Cola, are already exploring investments in CBD. To win, make authenticity part of the consumer engagement strategy and focus on distribution channels where Big CPG is weaker, such as specialty retail, convenience stores and Amazon.
About L.E.K. Consulting
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business leaders achieve practical results with real impact. We are uncompromising in our approach to helping clients consistently make better decisions, deliver improved business performance and create greater shareholder returns. The firm advises and supports global companies that are leaders in their industries — including the largest private and public-sector organizations, private equity firms, and emerging entrepreneurial businesses. Founded in 1983, L.E.K. employs more than 1,400 professionals across the Americas, Asia-Pacific and Europe. For more information, go to www.lek.com.