As consumers meet with the stress and chaos of the COVID-19 pandemic and its disruption of daily life, finding ways to relax and unwind has taken on even higher importance.
The outbreak has come amidst a steadily increasing number of legal cannabis products, including its non-intoxicating offshoot CBD.
Many brands from both the THC and CBD sides of the ledger quickly found sales growth as consumers rushed to stockpile goods from nearly all CPG sectors, but cannabis suppliers and entrepreneurs are now wondering what their industry will look like once the crisis passes.
Sales Grow Amid Lockdown
Scott Riefler, chief scientific officer for CBD supplier SoRSE Technology, said his company has seen significant jumps in sales in the CBD space. He said consumer purchases were up and that there had been a 45% increase in B2B sales between February and March.
“In difficult times, whether they be recessions or mass events, things like alcohol, tobacco, and even chewing gum — these categories tend to accelerate rather than retreat,” Riefler said. “We’ve gone almost full circle in my lifetime from ‘you’ve got to do it in the closet’ to ‘in difficult times, let’s make sure the channels for this market are still open.’”
Since the start of the COVID-19 crisis, the cannabis business has maintained an inconsistent signal, however. It has found rapid rapid and often sporadic spikes, which vary by state, according to market research firm Headset, reflecting the constantly changing nature of the outbreak and its effect on consumer shopping trends.
Consumption types have changed in the COVID-19 era, according to Headset, with edibles emerging as the growth leader during the pandemic, with sales up 28% as of April 2. Beverage — to date has among the slowest growing and smallest sectors in cannabis — has seen sales boom, up 14%. Elsewhere, flower sales have increased by 12% and vape pens were up 9%. Pre-rolls and topicals were down 13% each.
Riefler said the increase in beverage and edible sales could potentially be driven by concerns around COVID-19’s respiratory effects, moving consumers away from smoking during the pandemic. However, while virus-specific stockpiling may be responsible for the sudden surge and volatility of cannabis sales, he noted that the growth is also in line with projections for the industry. It’s difficult, he said, to firmly say what sales have been driven by panic buying and which were to be expected.
“There is definitely an upward slope to the growth curve of the space and there’s going to be an associated curve that shows the growth curve between edibles, drinkables, confections and then combustion,” Riefler said. “But to look for the change in that curve as a function of the virus, I think it’s a little too early to extract that kind of a conclusionary data review.”
Jonathan Eppers, founder and CEO of CBD-infused beverage maker VYBES, however, more readily attributed the virus to a 600% month-over-month increase in online sales for his brand. While the brand’s retail business has taken a hit due to the closure of on-premise accounts and mom-and-pop stores (roughly 65% of its retail business), the company has turned to direct-to-consumer to meet rising demand.
That doesn’t mean retail is off the table though: Eppers said that the demand for CBD and other wellness products during COVID has led some retailers who previously avoided cannabidiol-infused products to begin conversations with VYBES. The brand recently signed with natural and organic food broker Presence Marketing “as a direct result” of the recent surge, Eppers said, adding that the company is still in the onboarding phase.
Justin Singer, CEO and co-founder of CBD company Caliper Foods and cannabis company Stillwater Brands, shared that some larger (non CBD) brands who had contracted with Caliper Foods for product development also seem more eager to move ahead quickly, driven by the sentiment of “maybe we’d rather have that revenue now.”
During COVID-based lockdowns, tourist traffic is off, and there were concerns that would cut into sales at recreational dispensaries in states that have legalized marijuana. But Singer suggested it may also provide companies with a better understanding of what the everyday consumer is looking for. Riefler said we won’t know for at least a month or two the actual impact of the tourism pause, but he anticipates it will be at least partially offset by the increase in local purchases.
Connecting with the Consumer
Due to lack of clear federal regulations, CBD products’ ability to advertise health benefits remains unclear. Nevertheless, CBD’s imputed ability to reduce anxiety remains a key selling point. Given the current state of the world, it’s only natural that shoppers would be looking for a remedy for stress, Singer said.
Rather than focus on all the benefits of CBD, gummy, tincture and shot company Sunday Scaries has always focused its messaging around anxiety, a move that is benefiting the company now, co-founders Mike Sill and Beau Schmitt told NOSH.
“We’re going to continue to do what we have done since we started, which is to transform a worrisome nation into a chill one,” Still said. “I think we’re in a good position compared to some other CBD brands in the arena because we’ve solely focused on the niche surrounding anxiety.”
In the past few weeks, the brand has seen organic traffic and sales increase, Sill said, indicating that shoppers are either searching for the products directly or for brands that perform well for keywords such as “anxiety” or “stress.” It’s further added to organic discovery by offering influencers free products to get through the crisis
Schmitt added that at the start of the COVID crisis, some millennial consumers declined to follow the call to isolate at home. As a company that largely targets this group, Sunday Scaries has tried to encourage its shoppers to heed warnings while striking a while striking a tone that avoids sounding critical.
Still, reaching consumers can be difficult. Singer told NOSH that sites such as Google and Facebook often block advertisements for hemp products. The company had (coincidentally) planned to step up its advertising on podcasts, a strategy that began rolling out in February. Regardless of the tactic used, Singer encourages CBD brands to not overpromise in their marketing content.
“People look at CBD and they keep saying ‘if it can’t cure cancer it’s a failure.’ And I say ‘that’s absurd,’” Singer said. “[It] just needs to make the world a little better.”
Of course there are legal ramifications for over-promising as well. Last week the FDA sent a warning letter to CBD Online Store stating that the ecommerce site had overstepped in insinuating its “products are intended to mitigate, prevent, treat, diagnose, or cure COVID-19 in people.” The website had published blog posts touting CBD’s anti-inflammatory effects on the disease as well as Facebook posts with copy including “Can CBD help with Corona Virus? Possibly! But one thing is for sure, it will help you relax when everyone else is panicking.”
One marketing tactic that has proven fruitful for brands is discounting, in part to help position CBD products as a “staple” necessary to get through this difficult time. For example, VYBES has dropped its price online by 30% and also released a smaller 6-pack offering, a move that Eppers said makes it “easier to splurge” for consumers. Meanwhile Sunday Scaries is offering 15% off to consumers, with another 15% donated to the United States Bartenders’ Guild.
Supply Chain Appears Steady
According to Riefler, of SoRSE Technology, the supply chain for CBD and hemp products is currently “in a consolidation mode,” spurred by an oversupply at the agricultural level that is unrelated to the current coronavirus crisis. THC is also in high supply at the moment, he added, suggesting that the sales growth is “very much welcomed by the industry.”
However, supply issues could become a concern if they are affected by variations in other agricultural ingredients that can be impacted by crop performance, or in materials that are affected by import restrictions. Coronavirus, he said, has led suppliers to go into overdrive to secure the flow of materials. For experienced food and beverage producers, Riefler suggested the outbreak likely won’t have a heavy impact. But those in other categories in cannabis, or newcomers to the industry, could feel the brunt of shortages.
“We’re finding that our clients who are having issues are having them elsewhere in their supply chain,” said Zach Hershberger, head of product at SoRSE Technology. “Any delays that are experienced are due to them not being able to source a flavor or an additive.”
Eric Schnell, co-founder of CBD beverage brand Mood33, said his company had previously purchased a year’s supply of cannabidiol at the beginning of 2020 as a standard security measure, as well as a way to show commitment to its agricultural partner, Evo Hemp.
“As beverage experts, we’ve been through a recession before in 2008 with Steaz,” Schnell said, referring to the tea brand he co-founded in the early 2000s. “We know what it’s like to have something not show up when you go into production, so we just did best practices in the beginning and locked up our most important ingredients, which happened to be our CBD.”
Singer added that he personally had already pulled away from using foreign ingredients or packaging, simply because of the nature of his business and the fear that even packaging could be seized by customs.
“We were operating in this legal grey area and this was predating the farm bill,” Singer said “We have always been worried about what happens in customs and if they are on the same page as the Department of Agriculture.”
What Havoc Might the Storm Wreak?
One major question facing the cannabis sector is how the already overburdened USDA and FDA will move forward with the regulation of hemp-derived CBD given limited resources and the need to focus on Coronavirus drug treatments and vaccines.
According to Schnell, there are “far, far fewer inspections” happening at retail stores as a result of the virus, though he noted Mood33 is already careful to obey regulations and is only selling in 22 states that are already “positive and receptive” to CBD-infused products.
But the economic climate may also provide the impetus for the federal government to move faster, said Singer. If hemp was regulated, he added, there would potentially be thousands of new jobs from agriculture to manufacturing to product development.
Technically, while hemp companies do qualify for Small Business Administration (SBA) loans, such as the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, some brands remain unclear if they will actually receive a loan once the distribution of funds begin. The law is clearer, however, that companies producing THC products do not qualify.
Private investors are also an option, but investment has also slowed. At Sunday Scaries, Sill and Schmitt were in the process of raising money when Coronavirus became a concern. Half of the total capital closed by February. Since then, the company has closed only one subsequent investor. The hope is that rising sales will spark interest moving forward.
Schnell recommended that CBD food and beverage brands ensure they are keeping cash on hand due to the changing week-by-week nature of the crisis.
“This storm though will possibly sink some ships,” Schnell said. “Some brands that didn’t have the cash on hand to survive something like this or were in the middle of fundraisers are definitely going to have difficulty.”
While capital can help the industry grow, historically it has proven to be a double-edged sword, Singer said. The CBD market has become increasingly crowded, he believes, after the passing of the Farm Bill inspired an influx of capital and new company formations. His hope, he added, is that the truly innovative, structurally sound businesses will survive the Coronavirus crisis by simply “being stable.” While this might mean that some ships will in fact sink, the end industry could be stronger.
“Operating through this crisis is going to require a degree of sophistication, capital and operational understanding,’ Singer said. “That will flush out some of the people who were just full of it, but [also] full of excess capital.”