Heated CBD competition challenges revenue growth, returns

Current conditions in the natural-stores channel will make it difficult for CBD companies selling into that space to produce consistent revenue growth and profits.

There are more than 1,000 brands of CBD products, making it difficult to stand out from the crowd. In response, some manufacturers are giving merchandise away just to get shelf space in the channel.

If you’re invested in CBD companies, now would be a great time to assess (or reassess) the sales channel mix of those investments to understand how this stiff competition could impact the returns.

On the firm’s third-quarter 2019 earnings call, management at CV Sciences cited the current climate as the reason for posting a huge miss on revenue expectations ($12.6 million versus estimates of $18.6 million) and guiding fourth-quarter revenue to $10.6 million-$12.6 million, well below the consensus expectations of $20.4 million.

The company believes current conditions are unsustainable but gave no indication of when they believe conditions might change.

One potential catalyst for change is the highly anticipated regulatory framework from the U.S. Food and Drug Administration (FDA) for how CBD can be added to products.

The belief is that regulations from the FDA will establish quality and consistency guidelines that many competitors won’t be able to meet, and subsequently, they will be forced to exit the market.

We’re not convinced that FDA regulations, whatever they ultimately are, will limit competition in a way that many companies are hoping for.