Joe: Coming up on this episode of "CPG & CBD University Podcast," this is the first part of our series looking at CBD as an ingredient, changes in consumer trends, the drop in the price of CBD, and a new look industry landscape begs the question. This is the "CPG & CBD University Podcast" and it starts right now.

I'm Joe Agostinelli, host of the "CPG & CBD University Podcast." If you're a returning listener, welcome back to our podcast and if you're a new listener, we are glad you found us on your podcast platform of choice. Reminder for all video episodes on the Global Widget YouTube channel and the YouTube channels of our brands. And if you're watching the whole video episode, you'll recognize my guest if you have followed our podcast along throughout its journey of the first 90 or so episodes we're on to now. Welcome back to our podcast, from the Brightfield Group, marketing director Connor Skelly. We previously discussed this topic on our transition episode to the "CPG & CBD University Podcast" and now we kick off our series to look to the question, CBD as an industry or an ingredient? Recent report from the Brightfield Group looked at this very question, so Connor's back to tell us all about it. Hey, Connor.

Connor: Hey, Joe. Thanks for having me. Great to be back.

Joe: Any time. I always enjoy our podcast episodes. How are things in Chicago?

Connor: Hot. Should be all right soon but hot in the morning.

Joe: Same as Florida.

Connor: Yeah.

Joe: But fear not, you'll have winter soon. We'll just cool off a little bit to the 80s so...

Connor: Yeah. But two months of summer here are soon gonna be over.

Joe: So, Connor, no secret that the CBD industry doesn't look the same as it did prior to the pandemic and, you know, why is that?

Connor: The obvious short answer is COVID. Before the pandemic, we were estimating about 3,500 brands in the space. Now that number has been cut to around half. And store closures, limited sales for a lot of the retail-focused brands, and stunted consumer discovery because of the lower foot traffic which was a big driver of adoption. You know, however, many brands either strengthened or pivoted to their e-com business. The massive drop in the price of hemp led many brands to launch promotional campaigns where many brands were experiencing a hit on revenue but not necessarily a hit in sales volume. And their promotional campaigns were offering, you know, free products and trying to recreate that trial experience that they couldn't create in-store. And so, they were able to build that awareness and acquisition through their own website and begin that path of loyalty for a lot of consumers.

And, you know, over the last year, innovation hasn't slowed down at all. Minor cannabinoids like CBN and CBG continue to make their way into products and a lot of brands are to incorporate other functional ingredients like, you know, melatonin or L-theanine, there's so many of them, to better position their products for need states like sleep or focus. And meanwhile, while all of this is happening, the FDA is yet to really provide any regulatory guidance on CBD which is further eliminating a number of categories including, like, the key, you know, food and beverage category for CBD.

Joe: And we'll have more on CBN in an upcoming episode of our podcast and then more on the functional ingredients in part two of this series. Breaking down those points a little further, first on the regulatory front, you know, how has slow regulatory rollout really limited the growth of ingestibles?

Connor: Yeah, I mean, the current regulatory environment that these brands are operating in, it's essentially...it's artificially restricting this market, right. The demand is there. New products are launching every day with the variety of ingredients that include CBD and consumers are increasingly purchasing them. You know, beverages are a great example of this. You know, there's the obvious competitors like Cokes and Pepsis of the world, and these new CBD-infused products are lining the shelves alongside their newer products and targeting similar consumers or need states. And, you know, because of the gray legal market, these larger CPG players are...you know, they're holding off.

Joe: And we talked about consolidation. You mentioned about 3,500 companies, you know, back before the pandemic. Obviously, a lot of those companies now have been...you know, with the consolidation no longer there. So what factor, if any, has that consolidation played in the industry and change in the landscape?

Connor: Yeah, I mean, you know, there's definitely the extinction event side of it from COVID but as far as, like, the more recent consolidation, especially this year, it's ultimately a natural evolution of any growing CPG market. It's happening from multiple angles too. We're seeing a lot of M&A activity in both the Canadian and U.S. cannabis markets for CBD brands as those licensed producers and the MSOs, they continue to expand their portfolios to fill more of that wellness bucket, which their cannabis brands may or may not be positioned for. And there's a number of CBD brands expanding into cannabis as well. So, it's really happening from the flipside too. And this is further blending the CBD, cannabis, cannabinoids in general in the conversation of overall wellness. I mean, and it also helps that the federal government has increased conversations around decriminalization or legalization. So, more capital is entering the entire cannabinoid market and it's kind of lifting all the bugs and accelerating a lot of the M&A activity that we're seeing now.

Joe: And that transition into wellness provides some insights on the question, is CBD really an ingredient? Does functional ingredient seem to be the main advertised product feature now?

Connor: Yeah, yeah. And yeah, as I referenced before, functional ingredients like, you know, mushrooms or botanicals or melatonin or...they're making their way into CBD formulations. They've primarily showed up to, you know, make sure the brands are covering their bases on any health claims. You know, you can't say that your CBD gummies help with insomnia but if there's melatonin, you can. So, you know, and there's a million examples of this, which raises the question, you know, is CBD just another ingredient brands have in that, you know, innovation belt? You know, and is it the go-to wellness ingredient?

You know, it's starting to face more competition with other ingredients like ashwagandha or reishi mushrooms that are...the language on them and the packaging is similar to a lot of the language that you'll see on CBD products. So, you know, in my opinion, CBD is an industry solely because of the regulatory environment it currently operates in. You know, once the FDA makes the decisions, especially in the food and beverage space, you know, it'll just be another ingredient brands can use to appeal to specific consumers and position their products in a specific way.

Joe: So to wrap up the first part of our series, what are some of the key takeaways, you know, from the report?

Connor: So, you know, definitely CBD brands expanding their product lines outside of, you know, the traditional CBD norms. It's funny that, like, I can use the word traditional for what is really, like, a three-year-old market and you kinda get what I mean. You know, [crosstalk 00:07:36]...

Joe: It just goes to show you how quick this industry changes. I mean, three years ago, now it's all of a sudden traditional.

Connor: Right, exactly. And, you know, the second generation is where we're seeing a lot of the better branding and packaging around CBD products. Some of the minor cannabinoids are starting to get brought in and now there's even, you know, next generation beyond that is starting to incorporate a lot of these functional ingredients.

And the other thing is the overall blending of cannabis and CBD into the larger health and wellness space. And it's happening from a ton of different angles. You know, from, like, celebrity wellness brands that may be doing...playing both sides there with CBD and cannabis, you know, and then to all of the M&A activity, you know, into actual legislation too.

And, you know, the last thing is, you know, once the FDA provides guidance, that should have a very strong ripple effect across the global cannabinoid market. That will signal to companies of all kinds that CBD and cannabis are further entering the mainstream and continue to see consolidation, continue to see competition from the larger players.

Joe: Well, Connor, thanks as always for joining us. A lot of great information in that report. And folks can visit obviously the website, www.brightfieldgroup.com to see that report and along with other reports and some great blogs that you guys put out in regards to the industry. Connor, thanks for joining me.

Connor: Thanks again, Joe. This was great.

Joe: Something tells me the industry will continue to evolve and we'll probably have another report to discuss and not too long from now.

Connor: Yeah, absolutely.

Joe: And before you know it, we'll be doing our year-end review as crazy as that sounds.

Connor: Yeah. I know. It'll come fast.

Joe: Connor Skelly, marketing director for the Brightfield Group. My episode on...my guest on this episode, excuse me, of the "CPG & CBD University Podcast." And as I mentioned, you can take a look at all their reports and latest industry research by visiting www.brightfieldgroup.com. Link is in the podcast description. Thank you for listening to this episode of our podcast. Don't forget to hit that subscribe button wherever you get your podcasts to get notifications of new episodes each week. I'm Joe Agostinelli, host of the "CPG & CBD University Podcast." Thanks for tuning in.

These statements have not been evaluated by the Food and Drug Administration. CBD products are not intended to treat, cure, or prevent any disease or condition. Always consult with your personal physician about CBD and using CBD products. CBD should never be used by anyone under the age of 18. This podcast is not intended to provide legal advice regarding the legal status of CBD and CBD products.