By Jessica Lukas, BDSA, and Larry Levin, IRI
The market for cannabis continues to be a fast-growing, complex and diverse one. For CPG manufacturers and retailers, it represents tremendous potential for new growth streams, but also presents unique challenges and differentiators that make it unlike any other industry. We covered these distinctive differences in our recent webinar, What’s Next for Cannabis as a Consumer Packaged Good?
A Rapidly Transforming Market
Cannabis is now fully legal in 18 states, the District of Columbia and 4 U.S. territories, and the U.S. is propelling the growth of the global cannabis market. Legal cannabis sales nationwide rose 50% from 2019 to 2020 alone. BDSA estimates the market size of the U.S. legal cannabis market will reach $25 billion in 2021 and almost $48 billion by 2026. In other words, it may grow to rival the size of the entire U.S. over-the-counter market within five years.
Public opinions on cannabis use have also shifted dramatically. Recent BDSA consumer research found that 87% of U.S. adults agree that there should be some form of legal marijuana usage, and 63% agree that marijuana has medical benefits. And in states where cannabis is fully legal, 73% of consumers 21 or older are either consumers (43%) of cannabis or are open (30%) to consuming it, a number that has been consistently rising over the past three years.
But while cannabis has rapidly gained mainstream acceptance from consumers, the current regulatory environment still makes introducing new products and scaling nationwide extremely challenging and expensive. Every state is essentially its own country — you cannot move product across states even if it’s legal in two states that border one another.
This situation could rapidly change, however. BDSA predicts that federal legalization could happen as soon as 2022. For now, cannabis remains something that’s mainly sold in dispensaries. And while some retailers have taken hemp-derived CBD (hCBD) products to mainstream retail, including HempVana, which earned a spot on IRI’s latest New Product Pacesetters list, the big players haven’t gone there yet, opting to wait for regulations from the FDA before offering these products.
But this too is likely to soon change. BDSA predicts that while the U.S. legal cannabis market will reach almost $48 billion by 2026, the hemp (CBD) plus marijuana market will be $70 billion — with a whopping $17 billion of the hCBD-infused products being sold through general retail, approximately eight times its current size.
Many Formats and Uses
Cannabis also stands apart from many traditional CPG products in the sheer number of formats it is already available in — flower, pre-rolled joints, vapes, dabbable concentrates, edibles (including gummies, chocolates, taffy, beverages and more), tinctures, topical applications and more.
People tend to use cannabis and CBD products for a wide variety of reasons. Some use it strictly for medical purposes. Other consumers are interested in their health and wellness benefits. And many others use cannabis strictly for social and recreational purposes.
Usage and the reasons for usage likewise can vary greatly by product format. Forty-three percent of adults in fully legal states are cannabis consumers. Of those, 72% consume inhalables, and 62% of those inhalable users are consuming cannabis at least once daily. The number-one reported benefit for inhalables consumers is to relax and be mellow.
Topical cannabis is more associated with pain relief, the top reported benefit by consumers of those products. Better sleep is the top reported benefit for consumers of edibles. Users of CBD cite a myriad of health-related reasons for their use, the top four being pain relief, better sleep, and management of anxiety and stress.
Do CPG Rules Apply to Cannabis?
For now, the answer is both yes and no. Like with many other products, we have seen a shift in consumer behavior in response to COVID-19. In many fully legal states, online preorder for in-store pickup has recently become legal for the first time. And while delivery has long been a huge driver of sales and volume in California, it is now picking up in other markets where it is an option for consumers.
Like with other CPG products, price matters. But it’s not a factor nationally since individual markets remain very siloed at the state level, with the unique supply chains in each state leading to significantly different wholesale and retail prices. Likewise, brands matter, but we haven’t seen true brand dominance emerge in the way it has in many CPG categories. Brand prominence varies across different states, and we see brand rankings shift constantly.
If anything, product innovation is even more rapid than it is for the typical CPG category. While cannabis companies certainly engage in product ideation and positioning, they can’t take a two-year innovation process to get things right. Speed is essential for success, both in introducing new products and in expanding within and across markets.
A look at cannabis consumers also shows that the audience for these products is a very diverse, mainstream one that spans all demographics, similar to CPG. Stats on California cannabis consumers show a 50/50 gender split, 41% of users being parents, and 55% of consumers over 35 years old. California users do currently skew heavily toward individuals in the city and suburbs (84%), and toward those who have at least a college education (64%). Some of the population skews can be impacted because while states may legalize sales, some counties maintain bans on commercial cannabis activity, limiting potential purchasing, especially in rural counties. The average U.S. user of hCBD products doesn’t look much different.
A Bright CPG Future
We expect legalization to explode in the next year for both hCBD and regulated cannabis. Rapid innovation will continue to introduce new technologies and cannabinoids that reach even more differentiated and targeted audiences. As mainstream beverage, tobacco and pharma companies invest heavily in cannabis, we expect consolidation in the space to continue. And, well after the pandemic ends, e-commerce in the segment is here to stay.
The cannabis and CBD product markets are highly unpredictable ones, subject both to regulatory decisions and cultivated product availability seen with any agricultural product. But the overall trends are clear and undeniable: These products are becoming increasingly mainstream for medical, recreational and health and wellness use. Cannabis and hCBD are here to stay, poised for strong ongoing growth, and are quickly transitioning into CPG products that will soon be increasingly visible in a variety of retail environments.
Want to track what’s happening in cannabis in CPG? Reach out to your IRI representative or IRI@IRIworldwide.com and check out the latest cannabis info from BDSA here.