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The Coming International CBD Boom and How it Will Disrupt the Marijuana Business

By legalizing hemp, the Farm Bill sets the stage for a national and international trade in CBD that will dwarf the market for THC products limited to individual states.

Opinions expressed by Entrepreneur contributors are their own.

The Farm Bill that Congress sent to President Trump this week will pave the way for a fully legal hemp industry, bringing hemp-derived CBD products to the mainstream.

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CBD, or cannabidiol, is one of the cannabinoids found in the cannabis plant and occurs in both marijuana and hemp. Despite its current legally gray status, it’s widely used for a variety of conditions including insomnia, anxiety, depression, chronic pain, arthritis, PMS and nausea. The CBD market has predominantly grown organically based on word-of-mouth advertising, without large outside players, sizeable marketing budgets or strong distribution networks. Today, it’s a $590 million industry.

With hemp CBD legalization imminent, these products will begin making their way to the shelves of the country's largest chain retailers, which opens the door for not only existing players in the industry but for beverage, food, supplement, beauty and even pet food players to enter the market. By 2022, Brightfield Group expects the CBD market to reach $22 billion, overtaking marijuana.

So what are the implications of the Farm Bill for Consumer Packaged Goods (CPG) companies and the cannabis industry?

Expect CBD products from major brands on store shelves.

The Farm Bill gives a legal entry point for CPG companies to join the hemp space in the United States, just as Canada's legalization of recreational cannabis gave a legal entry point for CPG companies to enter the cannabis space. Both Constellation and Altria jumped in head first with multi-billion dollar investments into the Canadian Licensed Producers. There were rumors that Coca-Cola was going to follow suit, which the company patently denied saying “We have no interest in marijuana or cannabis. ... we are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world."

Marijuana makes sense as an immediate entry point for vice companies like alcohol and tobacco, but for non-alcoholic drinks, foods, beauty, skincare and pet companies, it makes much more sense to focus on CBD. It aligns very well with global trends in these industries as they look to future-proof their portfolios, capitalize on health and wellness trends, and mitigate pushback against carbonates, processed foods and pharmaceuticals.

Related: Coca-Cola Is 'In Talks' to Make Marijuana-Infused Drinks

CBD won't be restricted to any one state.

There is a lot of potential in the global marijuana market, but it will be a very long game. CBD can scale much more rapidly than cannabis, both nationally and internationally.

In the U.S., the cannabis industry is such a challenging place to build a scalable business model. If you want to sell a cannabis gummy in Washington, you need to cultivate, process, manufacture, test and sell your gummy all within the state, through state licensed businesses, complying with seed-to-sale tracking, while incurring a significant tax burden (280E) and dealing with other issues that eat at your margins, such as banking restrictions. If you want to sell your products next door in Oregon, you need to recreate your entire supply chain within Oregon, instead of simply selling across state lines.

Change comes incrementally in cannabis, with laws changing gradually to allow new product types or for more people to access them, but these markets typically scale up very slowly. While Constellation and Altria are planning for the future, there are no countries ready for a significant cannabis drink or pre-roll market, nor are there likely to be (beyond Canada) over the next five years. This is a long play and most of the hype around international cannabis markets is far overblown.

Hemp-derived CBD, on the other hand, is very scalable. As a newly minted agricultural commodity, hemp can be cultivated in Kentucky, processed in Colorado and sold in retailers around the country, leveraging economies of scale of which cannabis companies can only dream. While state cannabis laws have been designed to keep the players small, the political will for hemp is being pushed to generate jobs and opportunities in agriculture. That same appetite to keep companies small does not exist.

It is important to note the international potential of the industry as well. The Farm Bill does not place restrictions on imports or exports. This means companies can source internationally in the interim to create products for the US market that they can then export internationally. This is why so many Canadian LPs have been partnering or investing in hemp companies, including Livewell Foods for Canopy Growth and Hempco for Aurora Cannabis. International laws governing CBD are expected to be revisited in 2019, which is likely to set precedent for legalization as a supplement in international markets, which will permit international trade.

In short, while a truly global marijuana market is at least five to 10 years off, it is closer to 18 months for CBD and will be far less restrictive.

Related: Nevada Declares Marijuana State of Emergency to Avoid $100 Million Tax Shortfall

Expect a mass exodus of cannabis growers and cannabis brands into CBD.

Cannabis is a crowded market. In most established markets on the West Coast, there was a "green rush" to enter the industry and a hesitation to exit despite lack of success. Everyone has a mentality that this is a longer term play and they will be successful over the long run if they stick it out. Being a cultivator in a mature market is a rough place to be, as oversupply causes prices to plummet and eat away at margins.

The market is equally saturated with branded products. The Brightfield Group is tracking more than 1,500 brands operating in recreational states alone, many of which have few real points of differentiation versus the competition. We already see companies arriving at the conclusion that it makes more sense to focus on CBD with its national market potential and fewer regulations, than to fight it out in the THC market against hundreds of competitors under the cost of compliance and the restrictions of federal prohibition.

We expect many more companies over the next 12 months will go that direction, both on the cultivation side and on the branded products side. This will have the benefit of alleviating the oversupply issue in cannabis and helping to relieve the undersupply issues facing CBD.

Related: Silicon Valley VCs Were Eager to Hear About Our Cannabis Tech Firm but Reluctant to Invest

Hemp legalization may slow the expansion of medical marijuana.

CBD is so popular and so much less controversial than marijuana because it allows people to reap many of the medicinal benefits without the downside (or upside depending on who you're talking to) of intoxication. CBD is far more approachable for lawmakers and many more conservative patients or consumers because it feels like a nice compromise between advocates for legalization and prohibition. The question will inevitably arise: why do we need to legalize medical marijuana if CBD products are readily available in every pharmacy or supermarket in the country? Many patients who are hesitant to try marijuana will turn to CBD first to see if those products work. There are certainly medical conditions that are best served by products that are THC-dominant, THC:CBD combinations (which are reported to provide an entourage effect), or other cannabinoid profiles that can't be found in hemp-derived CBD. But there is limited scientific evidence to support this to date, which means it may be a harder case to make.  This may eventually push back on the growth in access to medical marijuana in more conservative states.

As hemp is officially legalized this week, there will be an immediate, messy aftermath as federal and state agencies determine how to move forward with regulations, and companies scramble to find their place in this new regulatory landscape. Once the regulations and noise have been sorted through, the result is an immensely popular, almost untapped industry that provides opportunities for entrance and rapid expansion, on a domestic and global scale. As CBD will be unfettered by the restrictions the cannabis industry faces, it is a much easier and more scalable entry point for consumer packaged goods companies, and a place of refuge from many of the cannabis industry entrepreneurs who are being squeezed by the pressure of competition and regulation.