CBD Industrial Analysis: 3 Ways the Bubble Will Pop

A quick internet search about CBD would bring up various products such as CBD tinctures, gummies, capsules, and vapes. A closer look would direct you to the therapeutic benefits of CBD oil, such as reducing inflammation, boosting energy levels, improving focus, and moisturizing skin. Moreover, a concise definition of CBD oil and whether it is legal would complete your quest to know about CBD.

Even with the ever-rising popularity of CBD oil, the bubble will pop, eventually. More people are embracing CBD as an integral part of their daily lives. Students use it to improve concentration, while people with insomnia use it to improve sleep quality. This is not meant to discourage you from using CBD oil but to make you more aware of the reputable brands that will stand the test of time. We shall take a closer look at CBD, its legality, and how the market bubble will eventually pop.

What is CBD?

CBD is a non-psychoactive chemical compound found in hemp. Hemp and marijuana are plant strains of the cannabis plant. They both contain various cannabinoids such as CBD, tetrahydrocannabinol (THC), cannabichromene (CBC), and cannabigerol (CBG). However, hemp has higher CBD levels while marijuana has higher THC levels. CBD is becoming more popular because of its non-psychoactive nature and therapeutic properties.

According to Watt & Karl (2017), CBD has antioxidant properties that stabilize free radicals, which fasten the skin aging process by causing the appearance of fine lines and wrinkles. Atalay, Jarocka-Karpowicz & Skrzydlewska (2020) suggested that CBD has anti-inflammatory properties that help reduce muscle pain and inflammation.

Moreover, Grimison et al. (2020) explained CBD has anti-emetic properties which improve stomach health and gastrointestinal health. Sales et al. (2018) suggested that CBD has anti-depressant properties that help reduce high stress and anxiety levels, alleviate depression, and improve mood.

Is CBD Legal?

The FDA has not given official approval to CBD oil products. So far, it has only approved Epidiolex, a drug-infused with CBD oil, which is used in treating rare forms of epilepsy.

However, this does not render CBD oil illegal. Congress passed the Farm ill in 2018, which led to the removal of hemp from the legal definition of marijuana. Despite hemp being considered legal under federal law, state governments were mandated to develop laws regulating the use of CBD in their states. Seventeen states have legalized CBD for medical and recreational use.

CBD Industrial Analysis: 3 Ways the Bubble Will Drop

Regardless of how fast a product or service gains traction, it is common for the market's competitive bubble to burst at some point. Why does the market bubble eventually burst? Learn more about cbd industry growth

Major Factors Driving Competition

The Desire To Grow or the Desire for More?

Every company would want to grow to make more profits and eventually reduce production costs further. CBD brands are not left behind. Since more people are becoming enthusiastic about CBD oil, new CBD brands are emerging and are setting up customer-friendly services to outdo their competitors. For example, offering discounts and special giveaways would sway consumers to use their brand more often than their competitors. Simultaneously, massive layoffs have been witnessed because of overambitious growth projections, which aim to use more technology instead of human resources. This is aimed to improve profits while reducing business costs further dramatically.

Additionally, the FDA is sending warnings to various CBD brands. These warnings are meant to discourage shady people in business from continuously selling substandard products while ensuring that the consumer uses high-quality CBD oil products.

Illicit Cannabis Trade

Obtaining a license to legally trade CBD oil products can cost up to $ 1 million. This drives people in business to trade cannabis illegally as they seek to maximize profits and minimize losses and business costs. Unfortunately, consumers are also likely to purchase illegal CBD products from legal stores, even though some of these products are of high quality. Taxes can cost up to 70%, proving highly disadvantageous to dispensaries, health centers, and local stores that legally sell CBD oil because they can compete against a succeeding black market.

How the Industry Bubble Will Pop

Regulation

As mentioned before, the FDA does not regulate most CBD oil products. However, that may change soon enough.

The US House of Agriculture committee is making legislation forcing companies to treat CBD oil products as dietary supplements. Therefore, CBD vendors would be unable to sell low-quality CBD oil products since the CBD oil quality won't only be handled by the company processing it. This move may reinforce consumer confidence in CBD oil at the expense of illicit CBD vendors.

Mismanagement

A common practice while consuming CBD oil, especially when you are a new CBD user, is to consume small amounts of CBD and gradually increase your dose with time.

Large companies are shut down because they eat more than they can chew. Industry experts with limited business knowledge are blinded by the present instead of looking into the future. The assumption is that more people will continue purchasing because CBD is growing more popular. Therefore, large amounts of capital are being pumped into the business, which is used to build extravagant infrastructure, overpay employees and unnecessarily hire more employees than the company requires. Eventually, when the growth is not as rapid as they calculated, the company is left with large debt amounts and grumbled stockholders. Even if the company reduces its scale and removes the CEO, stockholders would opt to withdraw their investments, leaving the company to collapse.

Consolidation

Consolidations can be beneficial but sometimes disastrous. Even though industry experts insist that the CBD market is "mature for consolidation," the stiff competition and the continuous emergence of CBD brands will make it difficult for consolidated companies to thrive fully. Moreover, more companies are publicly traded, so potential investors would choose the company they have more confidence in. Learn more about cbd yoga

The Bottom Line

CBD oil has grown more popular in recent years. More CBD brands are emerging, selling CBD oil at discounted prices to fend off competition from other CBD oil brands. Even though this is meant to improve customer confidence and raise profits for CBD companies, there is a looming fear that the market industry will pop, eventually. The illegal cannabis trade is one of the factors driving competition. As regulations concerning CBD are intensified, more vendors look forward to selling their unlicensed products to potential consumers because they want to raise profits and reduce production costs. Mismanagement, regulation, and consolidation are just some of the factors that may cause the industry bubble to pop. This is because mismanaged companies would be shut down, while stringent regulations would discourage vendors who sell low-quality CBD oil products

References

Atalay, S., Jarocka-Karpowicz, I., & Skrzydlewska, E. (2020). Antioxidative and anti-inflammatory properties of cannabidiol. Antioxidants, 9(1), 21.

Grimison, P., Mersiades, A., Kirby, A., Lintzeris, N., Morton, R., Haber, P., ... & Stockler, M. (2020). Oral THC: CBD cannabis extract for refractory chemotherapy-induced nausea and vomiting: a randomized, placebo-controlled, phase II crossover trial. Annals of Oncology, 31(11), 1553-1560.

Sales, A. J., Crestani, C. C., Guimarães, F. S., & Joca, S. R. (2018). Antidepressant-like effect induced by Cannabidiol is dependent on brain serotonin levels. Progress in Neuro-Psychopharmacology and Biological Psychiatry, 86, 255-261.

Watt, G., & Karl, T. (2017). In vivo evidence for therapeutic properties of cannabidiol (CBD) for Alzheimer's disease. Frontiers in pharmacology, 8, 20.