Understanding Opportunities and Challenges for CBD Manufacturers

CBD is having a moment in the health and wellness scene despite the controversies surrounding the cannabis industry. It’s not every day that a novel product manages to gain global attention within a short span of time. The intriguing compound has even dominated the beauty, skincare and per industries — so much so that the CBD market is set to rake in £1 billion by 2025. 

One of the biggest factors contributing to CBD’s upsurge is the recent amendment made in the 2018 Farm Bill, releasing hemp and its compounds under the Schedule I controlled substance category. Accordingly, this means that it is federally legal to cultivate hemp and manufacture hemp-based CBD products, as long as hemp meets the standard 0.3% THC limit in the United States (US). The United Kingdom (UK), however, has more stringent rules when it comes to THC levels. For instance, hemp must contain no more than 0.2% THC, while CBD products must keep their THC amount below one milligram per container.

The nearly complete legalisation of CBD products across the US and the UK has been an excellent step towards a brighter future for many CBD businesses. However, this movement resulting in the emergence of a global CBD market has also led to several supply chain challenges. This article breaks down the opportunities and issues that many CBD manufacturers face in highly-regulated markets.

Why CBD Manufacturing Business is a Good Idea?

There are many great reasons to enter the industry, but it comes down mostly to two things: convenience and opportunity. CBD manufacturers focus on creating white label CBD products, from cultivation to CBD extraction and packaging the final output. They also handle laboratory testing to ensure that every product meets national regulatory standards. 

With these essential business aspects already taken care of, all that private labels and retailers need to do is focus on their advertising and marketing goals. On the flip side, manufacturers can skip the time and costs associated with advertising and marketing and rather concentrate on quality production. After all, manufacturers may lose a lot of prospective clients if their products fail to fulfil quality expectations. 

Selling CBD products in bulk to marketers and retailers is an excellent way to boost business revenue by providing wholesale distribution to a larger customer base and creating global brand awareness. Clearly, the CBD market is on an upward trajectory, which brings excitement to the manufacturing industry. In fact, more manufacturers worldwide are looking to invest in legal cannabis production, with market share foreseen to grow at a rate of 20% to 23% year-on-year in the next five years.

Considering the increased market competition, existing CBD manufacturers are willing to enhance automation and transparency in the supply chain to uphold customer success and increase market share as CBD sales continue to grow.

What Stands in the Way of CBD Manufacturers?

Despite the significant increase in market appetite for CBD products, not all manufacturers are able to take advantage of this opportunity due to a myriad of operational issues. These include:

>Poor Inventory Management

As global demand increases, many farmers and manufacturers alike struggle to keep up. The method of producing high-quality CBD products is an intricate one, starting with cultivation. Hemp growers must complete every step of the cultivation process to meet the demand. Unfortunately, many small farmers can only gather, at best, 50% of the crops because cannabis plants are sensitive to mould and pesticides. Significant crop loss can occur during and after harvest. Inadequate tools and facilities force many farmers to harvest plants by hand and hang them in barns to dry, resulting in mould build-up and improper storage of biomass. Not to mention, CBD extracts are abundant in female plants alone. 

To cultivate cannabis crops successfully, farmers need standardised methods that are tailored specifically to the drying and storage of hemp biomass. This way helps preserve cannabinoid concentrations and prevent mould build-up. Investing in efficient greenhouse facilities, for example, would be a significant help to hemp growers when it comes to controlling what they call the plant’s genetics and ensuring its growth. 

The plants must be tested at least 14 days before they are harvested to verify the THC content. Once harvested, the crops will undergo extraction methods and/or additional refinements to create a range of product forms. Extraction facilities are generally situated near the farm for a couple of reasons. Number one, equipment is heavy and shipping costs can be relatively expensive. More importantly, the more states it has to pass through, the higher risk of checkpoint confiscations there is, which can disrupt the entire production and supply chain. 

The job of manufacturers doesn’t stop at the end of the production. Once CBD products are created, they need to standardise raw materials, ingredients and formulas into cloud-based worksheets to ensure product consistency and compliance. The manufacturing process, in a nutshell, can be complex without efficient tools and workforces. Several manufacturing organisations struggle to recruit a new generation of workers necessary to improve overall operational productivity. While automation is an ideal alternative, a lot of manufacturers believe that experienced and value-driven workers can bring a lot of important skills to the table.

>MHRA Restrictions

As with product or service quality, many business owners would agree that half of a brand’s success lies in marketing. However, a significant issue that’s holding the industry back when it comes to CBD promotion is the complexity and constant amendments in the regulatory landscape. CBD is federally legal in the UK and many parts of Europe, but it’s still under strict regulations and clinical studies to verify its pharmacokinetic validity and safety.

Generally, in order to stay compliant with the Medicines and Healthcare products Regulatory Agency (MHRA) guidelines, manufacturers and merchants in the UK must avoid:

• Making any direct medical claims about their CBD products
• Offering any medical advice to treat or medicate specific health conditions with CBD
• Use any graphics, imagery or product labels that introduce CBD as a medicine
• Comparing CBD products with licensed medicines
• Making references to mental health conditions, including anxiety, depression, addictions, attention deficit, etc.
• Making references to different symptoms of pain, inflammation, etc.
• Making any health claims or wellbeing claims without hard scientific evidence

The MHRA restrictions surrounding CBD promotion are relatively confusing. Nonetheless, more CBD restrictions will likely change in the future, with more scientific and clinical studies surfacing CBD and its potential effects.

>Payment Processing

CBD manufacturers also face some hurdles in terms of payment processing, merchant services, and e-commerce, in general. The truth is that many banks and other payment processing platforms choose not to work with various CBD businesses because of the ambiguity concerning CBD’s legality and the differences in protocols across state lines. Whether online or in-store, payment transactions can be more challenging between larger companies exchanging bulk orders with limited banks providing payment processing services to CBD companies.

As expected, many retailers are reluctant to sell CBD because they view it as a high-risk industry despite the ongoing CBD legalisation movement. To say that CBD manufacturers can experience difficulties finding payment processing providers and prospective merchant services is no exaggeration. Even if they do find the ones that might be willing to work with them, other challenges may still arise.

For instance, incorrect assumptions towards CBD products containing small amounts of THC can drive negative public perception, which largely affects the merchants’ stature. CBD is non-intoxicating and generally safe to use, but the stigma surrounding cannabis plants remains quite a controversial topic. As a result, CBD manufacturers will have to face stricter rules and requirements in terms of chargebacks and declined payments.