CBD 2.0: Why 2021 is the Dawn of a Promising New Era in the Hemp Industry

By Smoke Wallin, CEO of Vertical Wellness

When Tim O’Reilly coined the term “Web 2.0,” he referred to it as “the historical context of web businesses ‘coming back’ after the 2001 collapse of the dot-com bubble, in addition to the distinguishing characteristics of the projects that survived the bust or thrived thereafter.” 

As we enter Year 3 of federally legal Hemp CBD, I am calling 2021 “CBD 2.0” – a time to watch the rebound of surviving CBD brands that thrived in recent years. We are rapidly witnessing a fundamental shift from the early Wild West days of Hemp and CBD to an era that will lay a stronger foundation for national brands.

The Early Days of CBD – Jumping on the Bandwagon Before It Exploded

In 2014, after years of grassroots efforts, Congress initiated an experimental program that allowed Hemp to be legally grown in the U.S. for the first time since 1937, provided it was attached to a university. Fourteen states ended up participating in the program. It was quite restrictive but a huge step forward for the industry. This was pre-CBD 1.0, a period of a primitive CBD industry and initial consumer trials of the cannabinoid. 

During this time, there was a volatile gray/illegal market for CBD with questionable operators popping up all over brokering CBD from China and putting it into products with no testing, no truth in labeling, and zero reliability. It was truly the Wild West, and therefore it was common to have “brokers” claiming to have CBD that ultimately turned out to be illegitimate in myriad ways. The CBD market was a close cousin to the illegal cannabis industry, with many of the same players participating in both. 

Hemp CBD 1.0

Enter the Farm Bill, which passed on a bipartisan basis and was signed into law in December 2018. This laid the foundation for the early days of a truly national, legal Hemp industry- provided that each state set up a system and apply with the USDA. The excitement was palpable. It was a bit akin to a mini dot-com moment in terms of the number of startups, money flowing into the space, and news coverage. 

We saw a CBD Gold Rush with hundreds of new brands appearing out of nowhere. Farmers switched to Hemp production in mass, and hundreds of millions in investments were pumped into Hemp processing operations. National retailers began taking meetings with the anticipation of rolling out CBD products in 2019.

But amid the challenging fall harvest of 2018 and 2019, the Hemp growing, processing, and CBD ingredient side of the industry collapsed. In retrospect, it seems obvious that a frenzy of new investment and market participants in a brand-new, hypergrowth industry would cause oversupply. Also, the proliferation of startups, populated with inexperienced business operators, caused plenty of other issues that also set the industry back slightly.

Then, in a twist unforeseen by anyone but perhaps big pharma, the regulatory headwinds led by the FDA threw a wrench in the momentum towards retail adoption. The FDA’s position was that CBD ingestibles were unsafe until proven otherwise and therefore not permitted. This declaration caused most of the major retail outlets to cancel plans already in motion to bring CBD onto their shelves.

The resulting destruction of value in the industry was swift and massive. Seven of the largest hemp processors that raised over $400 million had failed by February 2020 (pre-COVID lockdown). The largest, GenCanna, had a reported $2 billion deal to go public in the fall of 2019, only to collapse into bankruptcy months later.

Enter CBD 2.0

The CBD industry will probably not experience enormous prosperity immediately, but we will soon clearly see the path forward for a thriving cannabinoid industry. Here is my case that 2021 is the turning point for CBD: 

  1. Only the strong survived the great destruction of CBD 1.0 – those of us remaining either pivoted, figured out how to turn a profit, or emerged with new focus on execution.
  2. The extreme loss of value made many investors cautious. This makes it a lot harder for new entrants to attain funding and for existing folks who are not executing to stay. 
  3. In spite of the FDA’s inaccurate proclamation against the safety of CBD, consumer demand for health and wellness products has only grown, with this previously existing trend only heating up even more in the age of Covid. Fundamentally, consumers want natural alternative solutions (to big pharma drugs) to address inflammation, sleeplessness, anxiety, pain, and other ailments. Cannabinoids increasingly demonstrate their proper role in solving this consumer demand. 
  4. Retailers who are coming out of a crazy year of focusing on essential supplies or being shut down are looking for new ways to grow. CBD is back on top of their list of growth categories and promising opportunities. 
  5. Efficacy matters. More and more companies and brands today are focused on the real impact CBD and other cannabinoids can have on people’s lives. Faster-acting products with clear and compelling uses will lead the growth.
  6. More legitimate, credible brands are emerging. Consumers want CBD, but they don’t know who or what to trust because of the lack of workable regulations and proliferation of unknown, unproven, generic brands. That is starting to change as premium brands are being backed by credible companies and honest leaders with proven track records. 

As Tim O’Reilly once said, “Pursue something so important that even if you fail, the world is better off with you having tried.” I believe “CBD 2.0” is not only upon us now, but a worthy endeavor for all dedicated participants in this movement that will indeed make the world better off. 2021 will prove to be the turning point in building a thriving, healthy industry that contributes to the societal good.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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