• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

It's the Bigger Players Who'll Benefit as Cannabidiol Sales Are Cut by Covid

New CBD companies are finding it difficult to enter retail channels.
By DEBRA BORCHARDT
Jul 31, 2020 | 02:00 PM EDT
Stocks quotes in this article: CWBHF, YCBD

It seems the coronavirus is even hurting the cannabidiol (CBD) market which looked like it could potentially surpass the legal marijuana market. Last year's industry report from cannabis analytics firm BDSA and Arcview Market Research estimated that CBD sales in the U.S. would surpass $20 billion by 2024. Even a conservative viewpoint from New York-based investment firm Cowen & Co forecast that the market would hit $15 billion by 2025.

A new report from the Brightfield Group, "US CBD Market July 2020", warns those numbers will be much lower as a result of the impact of Covid-19 on shoppers. The report stated that there are several reasons behind the drop in sales. They range from lockdowns causing brick and mortar store closures, to shifts in retailers making deliveries and reducing impulse buys. Even the job crisis that is hurting consumer's wallets is causing consumers to pause when shelling out big bucks for a bottle of CBD tincture. The report stated that in 2020, the U.S. hemp-derived CBD market is projected to reach $4.7 billion in sales, with 14% growth from 2019 sales of $4.1 billion. The market had been expected to grow by over 30%.

"While top line growth in the category is far lower than we saw in 2019, many of the larger companies will actually benefit from the current situation. Covid will trigger an extinction event in the category that is causing at least half of the small companies in the space to fall out, benefiting those that remain," said Bethany Gomez, Managing Director, Brightfield Group. "Larger players that have a strong e-commerce presence like Charlotte's Web, cbdMD (and private companies like Medterra, Green Roads, CBDistillery and CBDFx) are well positioned to see strong top and bottom line growth over the mid to longer term."

E-commerce

Initially, brick and mortar stores were enjoying lots of customer traffic. It was a relatively new product for many and the learning curve was steep. Shoppers had lots of questions about products and brands. With marketing limitations as per the FDA, consumers really had to speak to someone in person to figure out what to buy and how much they needed. Now, nearly half (45%) of CBD consumers surveyed in June 2020 by Brightfield said they moved their CBD purchases online because of the coronavirus crisis. "Millennial shoppers are the most likely to have switched to e-commerce for their CBD needs, with 54% reporting switching from brick and mortar stores to online as they also increase their usage and spending during this stressful time. CBD market leaders have seen online sales increase dramatically in the first half of 2020 but are still making efforts to expand in brick and mortar retailers to set up for future success and broader brand awareness."

Charlotte's Web To Benefit

Brightfield said well-known and trusted brands that already had a strong DTC (direct-to-consumer) model already established would do best in this scenario. Charlotte's Web Holdings, Inc.  (CWBHF)  is sure to be happy to hear that. The CBD market leader reported slipping first-quarter revenue for the period ending March 31, 2020. Charlotte's Web delivered revenue of $21.5 million, slightly below last year's revenue of $21.7 million for the same time period in 2019. The company attributed the drop to lower business-to-business (B2B) sales, but also noted that direct-to-consumer (DTC) sales increased. DTC net sales grew by 29.4% through ongoing marketing and social media programs. The company said that year-over-year new consumer acquisitions increased 25% and conversion rates increased 77%. DTC net revenue accounted for 65.6% of total revenue in the first quarter compared to 50.2% for the same period in the prior year.

cbdMD

cbdMD Inc. (YCBD) is much smaller than Charlotte's Web but it too reported that its online sales increased. In May the company delivered its second fiscal quarter net sales of $9.4 million, a year-over-year quarterly increase of approximately 67%. The company said there was a significant shift to online sales as an overall percentage of net sales, with direct to consumer e-commerce online sales reporting 72% of overall sales, up from 67% from the prior quarter.

In addition to capitalizing on e-commerce sales, cbdMD also had great timing with regards to golf. The sport had been declining, but golf courses are seeing a surge of interest during the pandemic. The courses are open and people have more time to play. Two days ago the company inked an exclusive CBD partnership with 12-Time PGA Tour Winner and Two-Time Masters Champion Bubba Watson. The partnership will continue through the end of 2022 and includes prominent logo display and collaboration both on and off the golf course. Bubba will serve as a main headliner of the brand's premier athletic sponsorship program, "Team cbdMD," within its upcoming marketing and advertising campaigns.

Newbies Will Feel Pain

The report noted that new CBD companies are finding it difficult to enter retail channels as in-person sales calls have been paused and major trade shows such as Natural Products Expo West and NoCo Hemp Expo had been canceled. Gomez added, "Companies that had a heavy brick and mortar focus, like CV Sciences and Ignite, are going to have a more difficult path forward over the next year."

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Debra Borchardt had no position in the securities mentioned.

TAGS: Economy | Investing | Stocks | Trading | Cannabis | Coronavirus

More from Investing

This Is No Market for Commitment

James "Rev Shark" DePorre
Jul 6, 2022 4:55 PM EDT

After Tuesday's rotational moves, Wednesday was choppy. Here's why this is not a time to make long-term trades.

This Won't Hurt a Bit: Moderna Could Rally 25% From Here

Bruce Kamich
Jul 6, 2022 2:59 PM EDT

The stock is ready to make a recovery rally.

Can You Spot a Rally Coming for Spotify?

Bruce Kamich
Jul 6, 2022 1:26 PM EDT

Let's see where investors can go long on SPOT, according to my read of the charts.

Move Over Minnie, I've Got a Love-Hate Relationship With Disney

Stephen Guilfoyle
Jul 6, 2022 1:00 PM EDT

DIS has been no day in the park for investors -- in fact, it's been acting more than a little Goofy lately. But I see this ride down starting to turn.

DoorDash Looks Ready to Make a Dash to the Upside

Bruce Kamich
Jul 6, 2022 12:35 PM EDT

Let's review the charts and indicators.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:01 PM EDT PAUL PRICE

    A Recent Director Buy in Children's Place (PLCE)

    Four of the most recent insider trades in Children...
  • 07:34 AM EDT PAUL PRICE

    A $525,000 Vote of Confidence on Macerich (MAC)

  • 09:49 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Stop Wishing, Hoping, and Praying and Take Control...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login