Red Lights in a Green Rush: The Unique Challenges of CBD x CPG

As the average consumer becomes more and more aware of the link between diet and the oh-so coveted state of “wellness,” more and more food and beverage companies are advertising products that claim "function." And thanks to the hectic state of modern life, chief among the functional CPG category are products specifically focused on relaxation and stress reduction. CBD, or cannabidiol, a non-psychoactive chemical compound found in the cannabis plant, is one of many ingredients making this claim. Yet the use of CBD in food and beverage products is a relatively new phenomenon — and the legal landscape surrounding it is still evolving.

For CPG brands containing CBD, this evolving state has led to a set of unique hurdles stunting their growth. In this article, we will unpack these hurdles, their origins, and explore how innovative brands are overcoming them.

THE CBD “GREEN RUSH”

In 2018, the US Farm Bill legalized the cultivation and sale of hemp. This deemed CBD legal and federally de-scheduled it from the Controlled Substances Act. Suddenly, CBD was in the hands of the FDA instead of the DEA. This legalization paved the way for the widespread use of CBD in a variety of products, including food and beverages.

The market became oversaturated with CBD companies in response. “The industry went from a handful of rebellious little players pre-2018 to thousands of brands, all going after a trendy ingredient, but one that was still unlearned,” says Jeff Henretig, former CFO of Lord Jones. Though the ingredient was technically in the hands of the FDA, the agency provided little oversight — leaving the industry unregulated and the general public uneducated.

“This quickly created a reputation of ‘snake oiliness’ around CBD,” says James Reina, founder of Jibby Coffee, a CBD coffee and matcha company. “There were a lot of bad players out the gate. In trying to be opportunistic on a new ingredient, these cash-grab brands opted for lower quality ingredients and put out bad product.”

Distributors began taking on these products left and right without thoughtfulness, and slowly began to witness them underperform — leaving both retailers and consumers with a negative percep- tion of CBD. “Companies who are actually putting out high quality CBD products now need to work extra hard to overcome the reputation set during the peak of the Green Rush,” says Reina.

Distribution Challenges

With lower quality CBD products initially setting the tone for the industry, many distributors and retailers are unwilling to take a chance on the category. And without federal regulation, most chain retailers’ hands are tied. “Even if they see value in the category, without great compliance at work, retailers can’t justify taking on the risk,” says Reina.

Spirits and wine distributors, who operate within state-by-state frameworks, seem to be the most feasible partners for CBD food and beverage products. While this is a good workaround, these distributors still can only work within the network of retailers willing to take on CBD products.

Increased Costs

The added costs of including CBD in a food or beverage brand arise in nearly every aspect of the business, ranging from expensive insurance to pricey copackers and comanufacturers; with only a handful of facilities specializing in manufacturing CBD products, there is little competitive pricing. There are also elements that most emerging CPG founders never would have predicted prior to launch: “There is a special payment processor we have to use on Shopify for regulatory purposes, which is far more expensive than the typical setup,” explains Reina.

And where other brands can reasonably budget for marketing expenses, CBD marketing is murky. While most CPG brands utilize paid ads on Facebook and Google to promote their product, brands containing CBD are largely left out of this opportunity. "You'll quickly get auto-flagged into their drug category, which is not allowed to promote," says Reina. This hurdle impacts these brands twofold — it prohibits them from reach ing target purchasers, and from accessibly educating prospective consumers on the benefits of CBD and proper usage.

HOW BRANDS ARE OVERCOMING THE CHALLENGES (FT. JIBBY COFFEE)

From retailer to end consumer, the greatest hurdle faced by CBD brands can be summed up in one word: trust. With a fraught history and minimal regulation, the CBD category today has been placed in the metaphorical doghouse for many. But Reina is confident in Jibby's ability to regain consumer trust — starting at the product level. "All of our coffees and matchas are Fairtrade Certified. This is helping customers trust the quality of the brand as a whole.”

Jibby has also made it as simple as possible to research their CBD without lifting a finger. "We are conducting third-party lab testing for everything, from CBD potency and microbials to heavy metals, residual solvents, pesticides — everything. All of our test results can be accessed via QR code on the back of each can."

Beyond full ingredient transparency, Reina believes that brands need to thoughtfully educate their consumer on functionality. "CBD is a fantastic ingredient. It can alleviate anxiety, it can boost your mood — but it's not an instantaneous thing," he says. "Brands need to honestly communicate expectations."

Looking Ahead

As of 2022, the major retailers in this space are limited to GoPuff and Sprouts. But Reina is confident that it's a "domino effect." These trailblazers have inspired major players including Circle K and the MLB (yes, like the stadiums) to take on CBD products in the next year.

We are also seeing movement on the advertising front: Google recently updated their ads policies to allow for the promotion of certain pharmaceuticals and topical, hemp-derived CBD products in some locations. Though this initiative doesn't apply to food products, founders in the space are optimistic about this momentum.

Reina acknowledges his conflicting feelings towards CBD as a CPG founder: "It’s a double edged sword, right? It’s our key differentiator, but it also causes many roadblocks. But I believe that's the natural recipe of any emerging category."

By Jenna Movsowitz