Recent reports from the CBD markets have been grim. But Martin Sumichrast, CEO of cbdMD, said his company’s experience leads him to conclude that the future is still bright for CBD firms that are properly capitalized and have good quality controls in place.
While some companies were badly hit by the retail shutdowns that accompanied the early and middle parts of the pandemic in the US, cbdMD was positioned to benefit, he said.
“We went right through the pandemic where things changed for a lot of companies,” he said. “Our strong suit is our direct-to-consumer capability, and that strategy has sustained us.”
“We were at about 55% online sales. Then the pandemic happened and—boom—the online sales share went through the roof. Now our ecommerce platform brings in more than 70% of total sales. We expect that number to skew back to about 60-40, and maybe even to return where it was,” he said.
Market contracted significantly in 2020
Predictions about the overall CBD market have not been rosy. In March, attendees at the NoCo Hemp Expo in Colorado were told that demand for the raw material was shrinking and prices were collapsing.
“We are asking people to please not plant hemp for cannabinoids this year unless you have already sold your crop,” supply expert Julie Lerner, founder and CEO of PanXchange, told the audience.
That glum view was corroborated with information disseminated at a virtual session of Informa’s Natural Products Expo West last month.
As reported in NutraIngredients-USA yesterday, attendees of the virtual event were told that sales of CBD finished goods had fallen by 6% in 2020, at a time when sales of dietary supplements overall jumped by 14%.
Even more marked was the drop in sales of shelf stable functional beverages featuring CBD. Those declined by 11% in 2020, according to the market research firm SPINS. And industry watchdog and research firm Leafreport found that more than 70% of hemp/CBD finished products brands had cut prices last year to try to hold onto consumers.
But that was 2020, and a recent report by Brightfield Group that forecasts that sales in 2021 will grow 15% year over year, and the overall market will hit $16 billion by 2026. Despite the sky is falling message from some quarters in the market, Sumichrast is holding fast to that view of growth.
“We grew by 77% last year and that’s all public information,” Sumichrast said.
Access to capital key to survival
Sumichrast said fulfilling the requirements for listing on the New York Stock Exchange has also helped the company survive and even prosper during this tumultuous time in the market. While other companies are scrambling to keep their heads above water, cbdMD can access capital that allows the company to take advantage of opportunities.
“We’re paying as much as 93% less for raw material than we did at the beginning in 2018,” he said. “And we have the capital to advertise and pick up market share during this period.”
With a company in the growth stage, there is always a question o
“I can use the sales and marketing expenses like a throttle,” he said. “We’ve gotten to 10,000 feet and to get to 40,000 feet, where we want to be, we have to add some more jet fuel.”f when it is big enough and has reached a sustainable enough level of growth so that it can start turning to finding corners to cut to make a leaner, profitable operation for the long haul. Sumichrast said the immediate opportunities are so pressing that that time hasn’t come yet for cbdMD.
Overgrown market ripe for pruning
Sumichrast said quick growth of the market after the signing of the 2018 Farm Bill brought hundreds of brands into the business, some of which were not able make good on product claims and were unable to put out products of consistent quality.
“It’s kind of like the e cigarette industry or the energy drink industry in their high growth phases. About two thousand to three thousand companies showed up after 2018. I wouldn’t even call them brands; more like single product entities. All of that is kind of getting washed out now,” he said.
“This happens in a lot of new industries. There are a handful of companies out there that do it right,” Sumichrast said.
“I think overall the business will continue to grow. Now it’s about the staying power,” he added.
Avoiding the commoditized hemp farming market
Sumichrast said his company made a conscious decision to eschew the vertical integration path so many other companies followed. The decision was to focus on securing the right sourcing with trusted supply partners and setting up a quality manufacturing arm in North Carolina. The company outsources the manufacturing of only a few products, such as its gummies and pet treats which require specialized manufacturing processes.
“I had people advise me that hemp farming was going to quickly become commodity with all of the tobacco farmers looking to move into it,” he said. “I’m no farmer; I can’t even keep a houseplant alive.”