Why Is the US CBD Market So Attractive? – Market Realist

Overall, the US has one of the most attractive markets for cannabis companies. Compared to Canada, the US market is expected to have a huge appetite for medical and recreational cannabis products. Brightfield Group estimates that the CBD market could hit about $23.7 billion by 2023. However, regulatory hurdles could impact the US market. To learn about regulators and the cannabis industry, read Investing in the Cannabis Industry.

US CBD market

Currently, the CBD derived from hemp is the only way for cannabis players to enter the US market legally. Hemp was legalized in the US towards the end of 2018. Hemp-based cannabis extract, which is primarily CBD, doesn’t have psychoactive properties.

Canopy Growth (WEED) (CGC) has been building its hemp-based operations in the US. The company acquired AgriNextUSA for its hemp business. In addition, Canopy Growth is building an industrial park for its hemp business. Similarly, Cronos Group and Aurora Cannabis (ACB) are eyeing the hemp business in the US. These cannabis companies are developing or acquiring intellectual property for hemp products.

CBD products

The US will likely see products infused with CBD. As a result, there could be a variety of formats including CBD oil, beverages, and edibles for recreational consumption. In addition, companies are developing skincare and pets products. CBD products will also enable medical solutions. Medical solutions include reducing anxiety, relieving pain, and resolving sleep issues. Overall, the CBD applications seem unlimited. For example, HEXO developed a CBD-based oral spray called “Elixir.”

Brightfield Group conducted a study on CBD from hemp and CBD from a marijuana plant. The firm found that the only difference between the two was the terpene profile. The terpene profile is what gives cannabis its distinct smell.

Beyond hemp-based CBD products, traditional marijuana-based products will be a key focus for cannabis companies. Currently, marijuana isn’t legal at a federal level in the US. However, some states have legalized marijuana. Cowen & Co provided insights into recreational marijuana in states where it’s legal. To learn more, read Why Illinois Legalized Marijuana.

Another report by BDS Analytics and Arcview Market Research estimates that the US hemp-based CBD market could exceed $20 billion by 2024. When combined with THC, the market is estimated to exceed $45 billion. The report stated that most of the cannabis sales will take place in retail locations as opposed to dispensaries. 

Retail locations are going to be the main physical location for cannabis sales in Canada as well.

FDA boosts CBD

In the US, CBD products will have to get a green light from the FDA. However, the FDA is taking a cautious approach towards CBD. FDA has repeatedly stated that it would take a “sound, science-based” approach towards CBD products. The marketing will determine the amount of scrutiny from the FDA. For example, CBD products marketed as drugs will be different from products marketed as dietary and food.

Cowen & Co on the US market

California is one of the one states with an active recreational marijuana market. According to Cowen & Co., recreational cannabis sales in California grew 80.5% in 2018. However, California’s sales growth fell to 41.2% this year. Cowen said that cannabis sales are strong in California.

Cowen also found that the dried flower was a common format in California, Colorado, Nevada, and Washington. The company added that the dried flower format was losing to vaping—another marijuana consumption format.

Based on our observation, cannabis companies are moving aggressively towards other formats. Dried cannabis has become a commodity. So, adding value is the next step to the cannabis flower. Value addition gives the company an opportunity to build a unique brand, which would enable higher margins per product sold.

OrganiGram’s strategy

On Monday, OrganiGram (OGI) reported its third-quarter earnings. In the earnings release, the company spoke about its product strategy. OrganiGran is focused on value-added products. As a result, the company plans to focus on a few form factors. OrganiGram wants to establish its market presence within that form factor.

According to the company, vape pens represent over one-fifth of the form factor under the derivatives and edible segment. Initially, OrganiGram will launch vape pens. Infused beverages were the second-largest form factor, according to the company.

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