Covid-19 and the CBD Category: Challenges & Opportunities 4/23/2020
The CBD industry was just starting to gain momentum in mass retail when the coronavirus hit the United States. The pandemic impacted CBD supply chains and posed a challenge to startup brands that depended heavily on outside investments.
At the same time, heavy CBD users stockpiled products in order to provide themselves with a means of self-care and to deal with the anxiety they knew would be coming with the quarantine.
In this podcast episode, ECRM’s Joseph Tarnowski speaks with Bethany Gomez, Managing Director of Brightfield Group, which provides market intelligence and consumer insights for the CBD and cannabis industries. They discuss how the Covid-19 pandemic has impacted the category, as well as the way consumers are shopping it.
She also provides recommendations for how CBD brands can best stay engaged with these consumers to stay top-of-mind with them once the pandemic is over.
Check out ECRM's Upcoming CBD Programs:
- Contract Services Program for Pharma, OTC Health, Supplement & CBD Brands: July 14-17, 2020
- Hemp/CBD Health & Beauty Care: Aug 23-26, 2020
- Contract Services Program for Beauty, Skin, Personal Care & CBD Brands: Oct 12-14, 2020
- European CBD Health & Wellness Program: Oct 18-21, 2020
- Pet and Pet CBD Program: Oct 25-28, 2020
- CBD & Hemp Food and Beverage: October 26-29, 2020
Listen to the podcast here (full video at the bottom of the page):
ECRM: Joe here with ECRM and I have with me today Bethany Gomez, Managing Director of Brightfield Group, which specializes in market intelligence and consumer insights around the CBD and cannabis industries. Bethany, thank you for joining us.
Gomez: Thanks for having me. It's a pleasure to be here.
ECRM: So before we get started, can you give an overview of Brightfield Group and what you guys do?
Gomez: Sure. So as you mentioned, we are a market research and consumer insights firm focused specifically on CBD and cannabis. So this is what we do. We've been on the market since about 2015 and we found pretty early on that in a market that is this fragmented, this nuanced and this fast moving, a single methodology is never going to solve all of your problems. So at Brightfield we pull in data from as many different resources as possible, from our own consumer surveys, from social listening, from interviews directly with brands and retailers and manufacturers, as well as a wide variety of additional digital and primary research sources. So we decided to put that research methodology to work and figure out what's happening in reaction to the COVID crisis and how that's impacting the industry.
ECRM: Excellent. Well there's so much going on. I mean at our sessions themselves, there was so much momentum happening with CBD and then all of a sudden this happened. So can you walk us through from once it started, once the pandemic started, through the self isolation and all that to where we are now as far as the impact to the category and the consumers' reaction?
Gomez: Sure. Well before COVID really started to hit, most brands' strategy involved getting on the shelves in as many brick and mortar retailers as possible. And initially, the biggest impact to the market was supply chain disruptions in terms of hardware or machinery pieces coming over from China or packaging, not being able to get packaging coming over from China. And then from big trade shows being canceled, that were really important for brands to be able to market to those key retailers. Those were the biggest concerns at early March and as we started to very quickly progress into quarantine and into self-isolation, we saw very spiky and very disruptive behavior, initially very large spikes both through brick and mortar and through e-commerce. And then, a consistent shift in brand presence from brick and mortar into e-commerce presence. There's a lot of shifts that that brands have to take themselves. But essentially, their whole 2020 marketing and sales strategies have gone out the window at this juncture. And so brands are essentially at square one right now trying to scramble and identify what the best way path forward is in our new normal.
ECRM: Yep. And, there's got to be a lot of challenges, especially for those newer brands that maybe were dependent on funding and that maybe just trying to get into mass retail. Where are they right now?
Gomez: It's definitely a very challenging time for small and upstart companies in particular; just about everybody in the industry was raising when this crisis hit. So this is not a great environment to be raising capital in unfortunately. There still are some investors that are making those investments. But that capital is certainly drying up and essentially there's a lot of those little guys that are going to fall out of the market. So it was already a very overcrowded competitive landscape and this is going to very, very quickly slim down that playing field.
ECRM: What about the difference between CBD selling at mass retail and CBD selling at dispensaries? Because I've seen last week I believe it was, I spoke with CBD Emporium and they're still open for business. They are an essential service in Arizona. So obviously sales are going on there, but with mass retail, some of them have CBD, some of them were looking to get it in and so what's happening between... What's the difference between both channels and what's happening?
Gomez: So each different brick and mortar channel is impacted a little bit differently when it comes to the crisis right now, as dispensaries and medical marijuana dispensaries in most states are considered to be essential services. So they're staying open. But most of them are impacted by a lot of the same challenges that retail is facing in general in terms of shift to click and collect, shift to curbside pick up and things of that nature. So sales – while they can still continue through many of those channels, they're definitely down in most of most of those areas. So some CBD specific retailers are able to stay open, others are not. We're seeing kind of most of the top brands see their wholesale orders declined by anywhere from 20 to 30% in that first month after quarantine.
We expect more of that to shift. And as we think about a lot of the strategies around both mass retail and independent retail, a lot of that was regarding in-store activations that are really important for being able to get your product moving. You really rely on those store clerk recommendations or those budtender recommendations or whoever that store clerk is, whether it's a pharmacist in the independent pharmacies or whoever that is. But in an environment where people are literally avoiding human contact as though their lives depend on it, you can no longer rely on that word of mouth to help promote your products. And so, that really changes the buying behaviors and that decision tree of consumers as they're looking to purchase products.
ECRM: It's interesting you mentioned that because I literally just had a column posted in MMR magazine about the importance of education for the sale of CBD products, especially in mass retail. And the whole premise of it was mass retailers can learn a ton from watching how dispensaries sell. And it was based on my visit to Planet 13 in Vegas and I went there and what impacted me was the fact that there's no lines. You're assigned the budtender, you go there and he let me ask him anything. I was there 10 minutes, I threw all these questions at him about CBD. He was more than happy to answer all of them. The challenge with mass retail is, it's all about turns. So you need to be able to put those resources behind that consultative sale but now you're not going to get that.
Gomez: Absolutely. And you know that's historically been a challenge. In CBD the equivalent of that is the CBD specialty retailers and a lot of the independent pharmacies and a lot of the independent channels had moved a significant amount of volume per store. Because they are able to provide a lot more of that education and that recommendation. But a lot of that is dependent on the brands being proactive about educating those store clerks about doing that type of in-store activations. It becomes more challenging when you're in mass retail. And the point of contact, might be a minimum wage store clerk, who isn't necessarily educated about CBD unless the brands have been proactive about educating them. Regardless right now that barriers breaking down, right?
So essentially brands can no longer rely on anyone else to make that recommendation for them to do their marketing for them, they have to do it themselves. And a lot of folks strategy this year was to get into as many brick and mortars as possible. You're really focused on just getting on shelf and try to educate store clerks in the process. And what COVID is really forcing is that you need to build that relationship directly with consumers. And if you as a brand build that relationship directly with consumers, that will not only benefit the retailers that you're on the shelves for because then you have that loyal consumer driving into your store to find the product there. But it will also benefit the brands through their e-commerce presence as well.
ECRM: Gotcha. So on the consumer side, what have you been seeing? I mean, was there a stockpiling with CBD the same way as toilet paper and all that?
Gomez: There was a stockpiling with CBD. We saw about 48% had already stockpiled CBD or were planning to do. A lot of others that were really looking to shift their behavior to online and be able to switch to those click and collect. Most major brands saw big spikes and e-com sales as a lot of retailers around the country have been kind of scrambling to shift their focus to online. There's been a great deal early on of that stockpiling. Now a lot of that is coming. So the question then comes to bear is that, did people just buy once so that they didn't run out of it and they're now going to decrease consumption or things of that nature? Or is that consumption going to stay high?
And what we're finding is that, particularly amongst heavy users, people who are using as a daily basis – people who really rely on these products for their anxiety, for their depression, for their chronic pain, for conditions of that nature, is that they're continuing their CBD consumption and actually planning to increase their CBD consumption during these times. For people who are more occasional users and it's much more of a novelty product, that are using maybe once a month or once or twice a month or things like that, that is really decreasing. They're planning to decrease their consumption if they do not consider it to be essential for themselves, their consumption is decreasing. So you know that it's those heavy users. It's those existing users that are going to drive the greatest amount of volume here through the crisis and beyond. And those are really the folks that brands really need to and retailers really need to build those relationships with and target.
ECRM: So now that communication, is such a key factor, I mean it always has been important but now that's really the only thing standing between you and that sale is digital communications.
Gomez: Exactly. You will never get your consumers any more captive than they are right now.
ECRM: And they have the time. The thing is they have the time now. They can dig into a little more information. Some of them are bored and they're looking for just something to do and so it's a great time. Plus I think it's important to be relevant in the context of what's going on. Like we talked about before, anxiety is such a big reason for consumers citing when they shop for CBD and anything that's related to what's going on now with coronavirus is definitely related to anxiety.
Gomez: Anxiety inducing times to say the least! But also, there's an increased focus on self-care right now. There's definitely an increased focus on mental health in general and protecting people's mental health through this. Obviously it's not natural for the entire population to spend six weeks indoors straight. So there's definitely an increased focus on mental health and on self-care. And as people can't go out, as people can't go out with friends, they can't do other things, this component of self-care and like treating yourself is certainly something that is really spiking.
So, we've seen a great spike in conversations around CBD for those purposes. Big opportunities for all the CBD bath bombs and those types of products right now where people need to relax, take a load off and be able to and enjoy themselves a bit during quarantine and as well as some of the more significant conditions in terms of relieving that serious anxiety and depression and certainly insomnia. All of which, are some of the top reasons why people use CBD. And those are certainly not dissipating during quarantine related to a global pandemic.
ECRM: Yeah, we're seeing the same thing on a health and beauty care side. Maybe people aren't buying color cosmetics, but they're getting bath bombs, they're getting face masks, they're getting home spa type treatments. Anything that's going to relax them but also kind of make them feel a little bit normal in these times. Plus again they have the time. So they may want to experiment with different things. What are you seeing as far as the types of CBD, whether it's gummies or flowers or tinctures and topicals, what types and dosages are they getting now and has that changed?
Gomez: Yeah, it's a really great question and it really has in that, that really comes to play a little bit more again about those heavy users as the ones that are really driving consumption. So we think higher dosage tinctures people want to stock up, they want to get the product to get the quantity that they need to make sure that they have enough to get them through this. Those tinctures, those capsules, a lot of those products that people use more habitually, as part of their daily routine are really flourishing. Categories like drinks and foods on the other hand are not necessarily doing quite as well. Gummies I would give as an exception because a lot of people treat gummies as the same way they do a daily vitamin. Right? It's part of their routine. It's definitely something that heavy users consume. But a lot of the more kind of novelty products are starting to gain a lot less attention.
ECRM: What about the flower, the smoking and vaping CBD, has that been impacted by the whole lung thing with coronavirus?
Gomez: It surprisingly hasn't as much as we thought it would. So we saw about a 4% decline in people who were planning to use inhalables, but only 4%, which when you consider that there's a global respiratory pandemic going on, you would think it might be a little bit higher. But people are pretty confident in their existing habits and they don't want to change their existing habits. So it's not necessarily the time to try to attact new vape consumers or new flower consumers. But your existing ones are not necessarily ready to jump ship yet.
ECRM: Well, speaking of new customers, are there any people trying CBD for the first time during this time?
Gomez: There are some. I will always say that there will be some new people that are trying it. There’s not as much negative buzz around CBD as there was a year ago. And a lot of the conversations around Coronavirus are helping to lead to that decline as well. It's not necessarily first and foremost in everyone's mind. So you don't see the same adoption uptake rates that we saw six to eight months ago. Whereas a year ago everyone's strategy was to go after the next wave of consumers, people who might be open to CBD but haven't necessarily tried it yet. As we come out of this and already are in a uncertain economic times, it's definitely a barrier to entry for a lot of people that haven't yet tried the products. So there's definitely some opportunity especially during quarantine to try to market to those people who are suffering from anxiety or depression or stress or searching that self-care Friday night bubble bath. But there is the bulk of what's going to be moving the market over the near term is going to be those existing users of which there are millions.
ECRM: Yep. I think that economy is part of it too. A lot more people are looking at their finances a lot closer, and they're going to cut out some things. So like you said, if they're not a heavy user they're going to say, "well do I really need this $50 jar or can I put it off?" You guys monitor social media conversations around CBD. What are people saying about it will specifically while they're stuck at home? What are the kinds of conversations that are going on?
Gomez: A lot of the conversations are around that self-care and around kind of reducing anxiety, reducing those chronic pain. The type of conversations aren't shifting that much. We're definitely seeing a significant trend towards self-care. That was already kind of one of the key topics that people were speaking about. But that definitely has accelerated during quarantine. There's been a lot of talk about CBD as potentially boosting immunity or its anti-inflammatory powers. There's certainly some nefarious conversations on social media about trying to position CBD as being able to cure Coronavirus and things like that, which is obviously quite opportunistic and a real kind of black eye for the industry. But certainly a lot of folks that are looking for stress relief, anxiety relief and that self-care treat yourself component.
ECRM: Wasn't there a few brands that got warning letters from the FDA because they were making those claims.
Gomez: There's been a lot of that. That's really the only thing you have to worry about from the FDA right now. The FDA has a lot of competing priorities at the moment, but they've been pretty specific from the beginning. Don't make health claims, don't make health claims, don't make health claims, don't make health claims. And certainly don't make health claims that your products cure a global pandemic when you have absolutely no research to back that up. So I think that's really a component that brands need to be watch out for. But if you stay in your lane, I think the FDA has a lot bigger fish to fry.
ECRM: Yeah, just a little bit. I think that one opportunity though is to jump into those social media conversations. Again, not making any claims, but just participating in them and finding out more about it and engaging with these consumers as a brand. And then just in that participation, you'll start to build that trust among them and I think that would help long term.
Gomez: Absolutely. It's absolutely the right time for brands to try to build that relationship directly with consumers. There are millions of consumers who already purchased CBD products that are not brand loyal yet. It's not a competitive playing field that is already sewn up. There's so many consumers' hearts left to win over and brands need to communicate directly to those consumers. It's always been the challenge in this space to educate without overstepping on claims. Most brands are getting quite good at the linguistic gymnastics that is necessary to operate in this space. But that is certainly important to maintain. But a very active digital and social presence is very important as well as considering discounting and the types of components that will help value-friendly shoppers make the decision to drive trial.
ECRM: Well great. Well those are the two recommendations that you've given already. So active engagement with the audience and maybe some discounts deliver value. What other recommendations would you have for brands and retailers selling CBD products during this time? Both to stay engaged but also to prep for when we get out of this.
Gomez: So your marketers are your most important people in the room right now; this is their time to shine. And that marketing is really going to be what makes the difference between a brand success or failure in this space. So, take that time and build that authentic connection directly with consumers. They're bored, they need to be engaged, they need to be entertained, they need to feel like your brand has a voice. They need to build that direct connection with you, that's really something that that is going to help. And that's going to help both with retailers and building that trust that you can help kind of curate products and be able to help drive that trust of consumers.
Brands should also be marketing to the point where they build their own brand identity that will help support retail that they're moving through once those doors start coming back open. So use those marketing efforts to be able to help drive sales through their retail channels. Because if they can drive traffic, if they can drive opportunities for those retailers now, they're going to be the favorite sons once the world goes back to, comes out of quarantine.
ECRM: Whenever that happens.
Gomez: Whenever that is.
ECRM: So what do you think's going to happen once this is over? What do you think the landscape's going to be like?
Gomez: Honestly, I think that about half of the landscape is going to fall out. So at the end of 2019 we were tracking more than 3,500 CBD brands operating in this space. We're expecting about half of those to not make it through, between the inability to access capital, the inability to make it to shelves of brick and mortar, the inability to court new retailers. A lot of them lost a lot of money from being tied up in these trade shows that they were never able to see an ROI from. So people will be emerging to a lighter competitive playing field, which will benefit the winners significantly. Those that can weather the storm, those that can come out, we'll be facing that lighter competitive playing field. So they'll need to adjust their strategies, their marketing strategies, their sales strategies, their product portfolio and their pricing strategies to be able to really optimize for the new normal that we're going to be coming out into. Because consumers purchasing decisions are going to be a bit different than they were before.
ECRM: Well, hopefully the damage won't be too bad. And we have a couple of virtual CBD related programs coming up, so at least we'll start to see a little bit of what's happening and hopefully that'll help some of these guys continue their momentum even though they can't meet with people in person. Although I am looking forward to eventually getting together in person again maybe by our November CBD sessions. We'll be able to do it again.
Gomez: That would be great.
ECRM: Thank you so much for all your insights and yeah, we'll definitely do this again, especially as we get down the line and we have these other sessions coming up.
Gomez: Perfect. Great. Well thanks so much.