Business ideas for 2020: CBD

The CBD boom is expected to go from strength to strength in 2020, here's what you need to know.

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By now, you’ve probably heard of CBD. It’s everywhere, in oils, face cream, ice-cream, tea, chocolate, rum, and almost any food/beauty product you could think of. An army of acolytes discuss how it’s helped everything from aching joints to insomnia, and sales are booming. Despite this, confusion reigns regarding what it actually is and how it might act on the body, as well as the relationship to cannabis, and its legal status.

Let’s start with the facts. CBD is not weed and will not get you high. The letters stand for cannabidiol, and it’s one of the chemical compounds found in cannabis plants. The stuff that gets people stoned is THC (tetrahydrocannabinol) and it’s this that makes smoking cannabis illegal. CBD products produced in the UK however only use the CBD part of cannabis, and often use CBD extracted from hemp – cannabis plants bred to have fewer flowers and a THC content of under 0.3%. Essentially, the virtual absence of THC is what makes CBD products legal.

As for how it works, there’s still a lot of debate about what CBD actually does to the body, and even whether it does anything at all. The most credible medical trial on humans was conducted by Great Ormond Street Hospital, and found CBD significantly reduced seizures for children with a severe, drug-resistant form of epilepsy known as Dravet syndrome. A 2011 study in Brazil also suggested that CBD helped to reduce anxiety levels. However, medical trials use much higher doses CBD than what is generally commercially available and so this doesn’t prove that high-street CBD products have any effect at all.

The internet, though, abounds with anecdote after anecdote discussing how CBD has eased the pain of aching joints, cured insomnia, or even lessened the pain of cancer treatment. If this isn’t simply a global placebo effect, experts think CBD stimulates the production of endocannabinoids, which help to reduce physical pain and mental stress.

However, these claims are not proven and CBD cannot therefore be medically marketed, it can only be sold as a generic supplement, with any beneficial impact on specific conditions hinted at rather than stated. Ashley Rossiter, Managing Director of MirrorMe PR, has experience promoting premium CBD brands and offers the following advice: “You’ll find a lot of medical claims surrounding the virtues of CBD from a brief search on the net but, as a brand, you can’t use or link to these claims in any way. The CBD industry is currently under-regulated and this poses a problem for both the consumer and the industry as a whole.” Ashley notes you also need to be careful with your online promotion: “CBD is currently an unapproved pharmaceutical and supplement with Google Ads, and you’ll find the same ad policy with social media platforms like Twitter, Facebook and Instagram.”

Is it coronavirus-proof?

As we’ve stressed in the main article, there are a lot of unfounded claims made for the effects of CBD, one of which is its immune-boosting potential.

If you sell a CBD product, we would caution against marketing it as some sort of anti-corona treatment, which would be unethical and could land you with a lawsuit.

Probably the most benign claim you can make is that it can help to treat anxiety. And in these anxiety-inducing times, that alone could be a major selling point.

Why CBD is a good business idea

Away from the claims and counterclaims regarding the effectiveness of CBD, one thing is undisputed – the market is huge and is only going to get bigger. According to research commissioned by the Centre for Medicinal Cannabis (CMC), 1.3 million users are spending £300m per year on CBD (larger than the combined size of the UK Vitamin C and D markets). By 2025, the market is expected to be worth just short of £1bn, larger than the entire UK herbal supplement market in 2016. Moreover, sales of CBD are not just being driven by trendy millennials looking for the next big thing but cutting across demographics. The elderly are using it to treat chronic pain associated with various conditions, while younger consumers are more likely to be buying CBD to reduce anxiety and combat insomnia.

The report also stated that while CBD products are being sold on UK high streets, the majority of UK consumers prefer to purchase online. It also noted that “UK consumers are currently paying high prices for CBD products”, indicating compelling market opportunities for companies that effectively meet the needs and desires of the target market.

Is it Brexit-proof?

As CBD is such a rapidly evolving area, it’s very difficult to say how it might be affected by Brexit. It currently sits in an awkward space where it’s not licensed as a medicine but is sold as a generic health supplement. It seems likely that more stringent regulation and testing will be applied to CBD in 2020 but, until more is known about the future relationship between the UK and EU, it’s impossible to hypothesise about whether the UK CBD industry will be forced to comply with EU regulation or whether an independent UK will make its own rules.

Brexit could also impact CBD production. Farmers must meet very specific conditions to be able to legally grow hemp in the UK so almost all UK CBD producers import CBD, often from other European countries. If the UK does leave the single market (as the Conservative party has promised), then this importation could become more complicated and expensive. Finally, there’s the ever-present risk that Brexit could negatively impact the UK economy overall, and reduce discretionary spending, potentially impacting the sales of CBD in the UK.

CBD business opportunities

CBD Aver

It seems likely that the real future of the UK CBD industry is in dedicated CBD oils and capsules rather than CBD being added to food products (commonly known as CBD edibles). Paul McCourt, founder and CEO of CBD producer Celtic Wind Crops, points out that “CBD in its oil form compared to an edible form is at least 50% more absorbent, as CBD edibles have to go through the digestive system.” He also notes that CBD gummy bears are particularly problematic as they are marketed and appeal to children, and advocates “a daily limit when it comes to the serving of CBD edibles”. Others in the industry take a more moderate view, with Brett Horth, CEO of Green Stem CBD and Canna Creations stating that CBD edibles “are a valid method of consuming CBD and a popular one with consumers”. However, the CMC’s report into the UK market found that: “Over 70% of UK consumers are purchasing tinctures/oils or capsules, suggesting a desire to use products systematically and at higher ‘therapeutic’ doses for CBD.” This therefore seems like the sensible option for a long-term business model rather than attempting to cash in on the current craze for CBD edibles, which bears all the hallmarks of a fad.

In terms of how to enter the industry, the primary routes are to either become a CBD producer, importing CBD and manufacturing oils and other products, or to become a CBD retailer and act as a marketplace for CBD products. Those with existing CBD knowledge may also be able to offer consultative services to companies operating in the CBD space.

Anyone wanting to enter the UK CBD market really needs to be aware of the regulations that affect CBD and how these might change in 2020. Currently, CBD is an under-regulated sector and research from the Centre for Medicinal Cannabis (CMC) indicates that this is already having some concerning impacts. The CMC analysed 30 CBD oil products available in the UK and found that 38% had less than 50% of the advertised CBD content, and one product contained no CBD whatsoever. George Glaisher, co-founder of premium CBD brand Aver, therefore echoes the views of many when he notes that “it is quite clear that the CBD market is in need of regulation to both standardise quality and ensure safety for consumers”. Fixing this is difficult though – CBD is currently controlled by the UK Food Standards Agency (FSA) but experts argue that the FSA lacks the resources to patrol the CBD market effectively and will need to work with industry bodies like the Association for the Cannabinoid Industry (ACI), a CMC initiative that aims to enforce minimum standards for the nascent CBD industry.

This stance is controversial however. Some producers, including Aver, believe that the FSA should work with the ACI to produce a standards framework but some question the CMC’s authority and promote an alternative approach. Dylan Mortimer, the founder and CEO of CBD producer Karma Coast for example, argues that “self-regulatory bodies like CannaPro are setting industry standards and protecting companies with legal aid and guidance”, while the CMC “seems set on taking the industry for ‘Big Pharma’ by introducing impossibly expensive licensing laws”.

Therefore, while the industry at large agrees that ensuring the quality and credibility of CBD products is paramount, there’s not yet agreement on how to go about this. Many producers are already acting unilaterally, conducting lab tests and publishing the results to reassure anxious consumers. This arguably reflects the direction in which the industry is heading and should be carefully considered by new entrants.

Is it sustainable?

The sustainability of CBD is a complex issue that needs to be discussed in terms of both manufacturing and supply to the UK market. As growing cannabis is illegal in many countries, CBD is generally produced from hemp, a cannabis variant that contains far lower amounts of the THC compound that gives cannabis its psychoactive qualities. Hemp is a hardy crop that has been grown for thousands of years and requires little water to grow, ticking two key sustainability boxes. However, the major downside is that harvesting hemp is a very costly and labour intensive process, with the result that hemp production costs roughly six times more than wood pulp production. In terms of agriculture though, hemp is a relatively sustainable crop.

The problem is it’s almost impossible to legally grow hemp in the UK, as the UK government issues a very small number of licenses and requires lots of information and testing. In practice, virtually all the CBD products produced in the UK import the CBD they use from somewhere else in the world. This is often from a US state with relaxed drug laws, and so the carbon footprint of these products can be significant. If hemp was permitted to be commercially grown at scale in the UK, it would have a transformative impact on the sustainability of the UK CBD industry.

Insider opinion

Given the amount of confusion and hyperbole surrounding CBD, it’s not surprising that existing businesses operating in the space stress the need for producers and retailers to be knowledgeable and credible. George Glaisher, co-founder of premium CBD brand Aver, states: “The most important thing for any CBD retailer is being reputable and transparent. The CBD industry has a murky history, and therefore partnering with the right suppliers and manufacturers is absolutely integral to ensure that the customer has trust in you as a brand.” Echoing this, Dylan Mortimer, founder and CEO of Karma Coast, advises those looking to enter the UK CBD market to: “Be genuine, be passionate, be in it for the right reasons, only purvey the best quality, don’t cut corners, consistently update your knowledge base, educate yourself and your clients, and be innovative.”

Looking further ahead, Ben Little, founder and director at Fearlessly Frank, a marketing and innovation consultancy currently working with a CBD brand about to enter the market, believes social and influencers will be key to brand success: “The war for customers will be fought on social media, branded content, and celebrity endorsement.” He’s also bullish on the overall prospects for the UK CBD market, arguing that: “We are just scratching the surface of the potential of cannabidiol and the faster someone can get past the naive and narrow minded legal debate and understand and manage the negative issues linked to addiction and abuse – the sooner we will find the real value of CBD as a potential solution to issues such as climate change, sustainable packaging, anxiety, depression, and obesity.”

Written by:
Alec is Startups’ resident expert on politics and finance. He’s provided live updates on the budget, written guides on investing and property development, and demystified topics like corporation tax, accounting software, and invoice discounting. Before joining, he worked in the media for over a decade, conducting media analysis at Kantar Media and YouGov, and writing a wide variety of freelance pieces.
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