CBD products will change the CPG landscape

In the last few years, the U.S. market for consumer packaged goods has grown rapidly with further growth expected in coming years. The CBD industry has also been growing with extremely rapid growth expected in 2019 and in the years to follow. CBD products appear in multiple industries labeled as consumer packaged goods (CPG). But it is unclear whether or not CBD products will add to the growth of consumer packaged goods or simply replace other products and become a dominant sector crossing CPG industries.

Consumer packaged goods are the everyday items that are replaced on a regular basis. These are also called "fast-moving consumer goods" and include such industries as beverages, beauty and household products. These industries have shown strong growth in recent years with the growth of the overall U.S. economy. In 2015, CPG sales were estimated at $635.8 billion with solid growth since continuing. Predictions for CPG sales in 2020 range from $721.8 billion on up. If a downturn is ahead, CPG sales will be falling from great heights.

Interestingly enough, CPG research reports do not typically discuss the growing U.S. market for cannabis including both marijuana and CBD. The effects of technological changes tend to dominate such reports along with concerns about regulatory shifts. To some degree the exclusion of marijuana is not so surprising given that legal marijuana is only available in a handful of states and that data gathering at dispensary point of sale has been conducted by relatively small firms. CBD products, on the other hand, are recorded as a segment of other industries except for that portion sold by dispensaries.

The move into retail cannabis analytics in the U.S., both marijuana and CBD, by industry giant Nielsen is set to change the landscape of consumer packaged goods by not only bringing legal marijuana products into view but also completing the picture of CBD's contribution across industries and outlets. Given that the 2018 Farm Bill has unleashed the potential for CBD product development and sales and that celebrities and major corporations are joining in, CBD is about to have a major impact on CPG industries across the board.

Prior to the passage of the 2018 Farm Bill, BrightField Group estimated that the hemp-derived CBD market in the U.S. would grow to $22 billion by 2022. Though a huge number based on previous years of CBD sales, overall that is a relatively modest piece of CPG estimates of a $721.8 billion market overall. In fact, if both predictions hold true, hemp-derived CBD would only be around 3.05 percent of the CPG market.

However, in a recent report, Jefferies analysts projected that CBD products were likely to provide 15 percent of skincare market sales. Yet Jefferies is not predicting a larger overall amount of CBD product sales. Rather, they are pointing to the fact that CBD is only present in specific industries, such as beauty and beverages, and not others, such as fashion. So what has been lost in many discussions to date is that CBD products are set to become a significant portion of specific CPG industries.

The largest CPG industries CBD will affect are beauty and skincare, wellness, primarily in supplements, and food and beverages. So rather than a mere 3 percent, CBD's presence in particular industries will be much larger. But the question on many business people's mind may well be whether or not CBD products will grow markets or simply replace other products. If the latter is the case, which seems quite possible, overall CPG sales will remain roughly the same as if CBD products were not part of the picture.

However, again, specific industries might see increased sales due to CBD. Jefferies analysts do maintain that "CBD products will likely replace existing non-CBD products and therefore...won't significantly enlarge the market size." But, then again, given the medicinal properties of CBD, "prescriptions for dermatological products" could be "replaced by over-the-counter CBD goods." So, instead of stealing sales from other CPG products, CBD beauty products could take sales from the prescription drug industry. Such might also be the case for supplements containing CBD given that many supplements and herbal products are already stealing market share from pharmaceuticals.

For CBD companies, the opportunities are quite powerful. A company like Green Growth Brands (CSE:GGB, OCT:GGBXF) will benefit from its focus on beauty and skincare products. Charlotte's Web, a wholly-owned subsidiary of Charlotte's Web Holdings Inc (CSE:CWEB, OTCMKTS:CWBHF) will benefit more from its focus on health and wellness. While Diamond CBD, a wholly-owned subsidiary of PotNetwork Holdings Inc (OTCMKTS:POTN) will benefit, at first, for its many edibles. However, given its broad product range, Diamond CBD has many options to expand its current lines of beverages, skincare and health products.

Of course, any of these three companies and others, as well, could be the target of acquisitions by larger companies in CPG industries from food and beverage to health and wellness to beauty and skincare. Given that acquisitions are a quicker way to enter a growing sector of one's industry, such companies as the above are likely to receive interest yet all three could decide to continue building CBD empires. The future is clearly rich with possibilities.