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Why CBD products are getting cheaper – WICZ

By Alicia Wallace, CNN Business

The CBD craze has mellowed out, but economics are working in consumers’ favor. CBD products have gotten cheaper, and it looks like they’ll stay that way.

Price wars, a supply glut, and a pandemic have driven down costs of the once-premium products that contain hemp-derived cannabidiol, the non-psychoactive cannabis compound touted as a health and wellness aide.

The increasing affordability of CBD was one of the key trends highlighted by the Brightfield Group, which conducts market research of the emerging CBD sector, in its latest US CBD market report slated to be published Tuesday.

“There’s persistent price compression,” said Bethany Gomez of the Brightfield Group. “At this juncture, we’re not expecting that to change.”

Brightfield analysts expect CBD product sales to hit $4.75 billion this year, up 14%. The industry’s rate of growth has significantly cooled off from its blistering pace last year when sales rocketed to $4.15 billion from $627 million in 2018 — a 561% increase, according to Brightfield data.

More people are buying CBD, and because of the pandemic, nearly 40% of 5,000 CBD consumers surveyed in June by Brightfield said they’ve increased their consumption, according to the report. However, the price drops across the industry will weigh down the overall value growth of the market, Brightfield said.

The CBD boom last year came on the heels of the December 2018 passage of the Agriculture Improvement Act, well known as the 2018 Farm Bill. That legislation removed the low-THC hemp and its derivatives from the Controlled Substances Act. Marijuana — which also is a varietal of the same plant but contains higher levels of the psychoactive THC (tetrahydrocannabinol) — remains a Schedule I, federally illegal substance.

While the Farm Bill left plenty of discretion to the US Food & Drug Administration to develop guidelines for CBD, the agency that regulates pharmaceuticals, food, cosmetics and additives has yet to formalize a policy.

CBD producers effectively believed the Farm Bill gave their offerings a green light, and products containing the hemp-derived compound — such as face creams, sports drinks, pet treats and tinctures — proliferated on the internet and in brick-and-mortar stores. Major retailers such as CVS and Walgreens started carrying CBD creams, balms and oils, and CBD companies began competing for their business.

“It’s Econ. 101,” Gomez said. “If you have a market with 3,000 brands vying for CVS, they’ll do anything they need to do.”

The pricing wars began in the second half of last year, driving down sticker prices by 20% to 30%, she said. The products got cheaper following the fall hemp harvest, which resulted in an oversupply of raw ingredients.

Those prices tumbled even further in recent months because of Covid-19 economic pressures and public health-related retail closures.

Bluebird Botanicals, one of the oldest hemp CBD companies, lowered its prices about 10 times since launching its product in 2013, but have held steady since 2019, Brandon Beatty, the company’s chief executive officer, told CNN Business. Beatty and his colleagues are “currently crunching numbers and are considering” dropping prices because of the pandemic.

Before Covid-19, Tennessee CBD company Kat’s Naturals had reduced its prices by as much as 30%, founder Kat Merryfield said. Since the pandemic, the company offered a 40% discount to individuals receiving social support benefits such as unemployment or disability.

The tincture dropper bottle of CBD oil that ran about $80 on average and sometimes upward of $100 is now selling for about $40 to $45 a bottle, Gomez, whose group conducted the CBD market research, said.

CBD is not currently regulated like a dietary supplement, but if it did receive approval to be marketed as a supplement in the future, sellers could highlight structure and function claims on its potential benefits.

That potential, however, hinges on the FDA.

The agency’s steps toward developing a regulatory framework have included hearing public comment, seeking research and conducting tests on CBD products.

“The agency is committed to protecting the public health while also taking steps to improve the efficiency of regulatory pathways for the lawful marketing of appropriate cannabis and cannabis-derived products,” the FDA stated in a March 2020 update on its efforts to regulate CBD. An FDA spokesperson told CNN Business that the office did not have an update beyond its March statement.

The lack of clear regulatory guidance combined with the stronger-than-expected price compression and potential Covid-19 economic pressures resulted in a downward revision of Brightfield’s future sales expectations for the industry.

Brightfield now anticipates hemp-derived CBD to be a $16.8 billion industry by 2025, down from expectations of nearly $24 billion.