The Struggle between Retailer and Producer in CBD. The Race to the Bottom

When I decided to open a retail store and I started vetting vendors, I really didn’t think much about my relationship with my vendors. I thought, wrongly perhaps, that there existed a relationship between the vendors and the retailers; that they were, in effect, partners; they would work together to maximize profits and drive sales. Perhaps that’s from an old paradigm, before the internet. When I started I realized that Amazon was not in the CBD business and it was unlikely they would really get into the business and perhaps even if they did, I would still maintain some semblance of a captive audience of local CBD consumers. I see the retailer as providing a value-added service to the consumer that will create a loyalty and relationship with that customer. They would trust me to bring forth great brands to help them learn how to use CBD to improve their lives in so many ways. Later, as I started to look at brands for quality products, I also found there was a wide spectrum in the behavior of the vendors. Some were clearly selling shitty low-quality products to the mass market to make a quick buck, while at the other end of the spectrum was perhaps the classic do-gooder wanting to bring forth CBD as a medicine to be shared and understood by everyone. Generally, I preferred the latter and avoided the former. Having watched cannabis in Canada after legalization race to the bottom causing widespread industry carnage because of price discounting and oversupply, I reasoned the US CBD industry could go the same way, which is what’s happening. Not a day goes by when a customer walks into my CBD store and complains about the crap being sold at the gas station. Many CBD isolate brands I am sure are experiencing the same carnage and taking mid-sized CBD companies down with them. It feels like CBD wholesale prices are down at least 30% vs. last year, more at the end of the spectrum where CBD is most commoditized and less so at what I will call the craft end of the spectrum. The craft end of the spectrum is the interesting end, in my view.  Many customers will be loyal to a brand when guided.

Call it, CBD companies growing their own quality products doing over $500,000 in sales but less than $5 million in revenue. There’s a pyramid for sure and this would be the layer closer to the bottom. No one really knows how the CBD industry is stratified, yet. The craft producers, maybe they get all their hemp from one or two farms with a handful of strains, certified organic. These suppliers discount a lot less than those at the so-called top of the pyramid. At the top is Charlotte’s Web and anything other brands that might be called national brands. Bigger companies are like McDonald’s buying cows. They’ll buy hemp from anywhere. And there are a lot of companies out there that want to be national producers. Within that crowd are quality brands that will probably lower their quality to cut costs and push out the competition. Those brands are likely to come public with high margins but by the time they go public they will have already sold out on the way to becoming big. So when they come public investors will be looking at a margin history that is probably non-recurring. As a curator of fine CBD, I am sure I will end up dropping brands that discount aggressively. Quality at the right price wins the day. Whatever companies can manufacture and sell at that apex will win. The current list of participants may not be around in two years. These are ominous signs in a growing industry.  The producers are cannibalizing their retailers before the retail channel even develops.

Rob MacArthur, The CBD Curators, 475-619-9474 store, rmacarthur@thecbdcurators.com, www.thecbdcurators.com 180 Bedford Street, Stamford, CT 06901 @the_cbd_curator @thecbdcurators