# CBD Market Size (supply/demand)

Hi all,

I’m involved in a pretty large hemp cultivation project for CBD (hundreds of acres) and have been evaluating the market as part of that. I think it’s critically important for all of us to understand where pricing of various products is headed (biomass, crude, distillate etc). I’ve been trying to match up the expected supply of CBD for 2019 with expected end-user demand and cannot reconcile the math. Here are the assumptions I’m using, hoping you guys can help.

2019 Acres Planted: 200,000 (Cowen research, hemp benchmarking studies)
Expected Yield: 50%
Acres Harvested: 50% * 200,000 = 100,000

Plants per Acre: 1,500
Biomass Lbs/plant: 1
CBD: 8%
Biomass \$ per % CBD: \$3.00

Total Biomass: 150 Million Lbs
Biomass Value: 100,000 * 1,500 * 1 * 8 * 3 = \$3.6 Billion

Convert Biomass to Kg Crude Oil: Divide by 28 (this is what processors have told us)
Total Crude Oil: 5.4 million kg

Convert Crude Oil to Kg Distillate: Multiply by 60%
Total Distillate: 3.2 million kg
Total Distillate value @ \$5,000/kg: \$16 Billion

I’ve seen estimates for the total end-user (not wholesale) CBD market being \$6-8 Billion in 2019 and as high as \$22 Billion in a few years. So how can the WHOLESALE values be \$3.6B for just biomass and \$16B for distillate??

The discrepancy is even bigger when trying to convert the distillate to retail/end user values:

3.2 million kg of distillate = 3.2 trillion mg of CBD (1kg = 1,000,000 mg)
A good value tincture bottle might have 1,000mg of CBD in it for \$50.
3.2 trillion mg / 1,000 = 3.2 billion tincture bottles. At \$50/bottle that is a market of \$160 Billion.

So what am I missing? I can imagine the CBD market is a lot bigger than people expect but the supply numbers are still >10x off. Is there massive loss in the process of converting planted acres to distillate that I am not accounting for? Or are we going to see massive (10x) price reduction in the values of supplied product?

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One thing I would ask is that \$22B estimate for global CBD sales or for North America only?

Another thing to account for is other cannabinoids such as CBN and CBG having a unique market as well as probably making up part of the overall acreage that is expected to be planted.

And last but most importantly is that all those projections are with current costs and estimates and realistically we will probably see a substantial drop in price for biomass, crude, distillate and isolate after 2019s crop is harvested.

Just my 2 cents

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It is for US sales only. But I’ve also seen other sources saying \$2.5B in US for same year. My working theory is that the market reports are looking at sales of CBD from processor to distributor/retailer - not the prices of end products with CBD in them.

Good point on CBN/CBG. Agree that prices likely will drop significantly after this years harvest.

I also think the market research people have no idea what they are talking about.

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All very good points made above and I say it is anybodys guess… one thing for certain is that market research firms are really good at one thing, and that is selling research to their clients and/or to the masses. I’m not suggesting that Cowen’s numbers are off, but there are too many variables to make such a broad assumption for an industry in its infancy. One firm suggests \$2.5B market while another suggests \$22B, with no substantive supporting data to back those projections.

For example, a possible indicator of where biomass prices could head can be seen in the hemp biomass futures market, where I’m seeing offers at \$1.5 per %CBD (Fall 2019 harvest). These prices are being offered from some experienced farmers who may (or may not) know what they are talking about, but with the acreage of biomass being planted monthly I think most will agree that average quality hemp will become a commodity much sooner than many expect. Cowen’s 200,000 acre projection could be accurate for 2019, but we will definitely see a significant increase in 2020 and beyond. The real numbers are difficult to project and we’ll probably see a huge shakeout as growers get their bearings while dealing with varying genetics, climates, harvesting & storing issues, and “hot” material.

One thing is for certain, prices all around will have to come down. In an industry where there are essentially no barriers to entry (today), the cream will certainly rise to the top and the difference will be made by the processors who implement strategies to survive the storm that will surely come. These are definitely some of the things that keep me up at night

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Ya the reports are real shady. The amount of hemp in the ground versus reported hemp acres is wildly low. Also trying to track sales numbers in a wildly un-regulated market is nearly impossible. This year we have probably 3 times the amount of hemp in the ground yet projected sales for next year only go up nominally. None of the reports really add up when you’ve seen the true scale of CBD operations currently going on

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@623 I know of 1 company in particular who now claims to be planting 75k acres and is planning to make 1 million kilos of isolate for the 2020 market.

Idk how you would sell the distillate nationally being that it would be hot unless remediated of THC. Isolate goes from those prices though and is much safer to bet on.

Easy answer is the price is going to tank. Look at Oregon rec market, totally unregulated and absurdly oversupplied, and now they are trying to pass law to ok selling the canna to othrf states, lol.
Then again, we might be lucky and the hype cycle hasn’t crested yet. Either way, a price crash is inevitable soon

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One thing to keep in mind, just look at the post from today of the person trying to sell 1MM lbs baled of 4% hemp “cheap” at \$3 percent point pound, noone wants it unless half price. The vast majority of the 200,000 predicted acres (about what I guess is planted this year too) will produce crap of that quality Soooo…

A million acres? And getting a yield of 1 kg CBD per acre? What kind of math is that?

That’s that 4% CBD that ends up being 2% by the time it’s milled to the lab and then the lab apparently setting half of it on fire lol

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Probably more profitable to just burn 2% CBD biomass to fuel the distillery than try to extract it

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Lol these guys who just built a 20 million dollar lab have to pay their bosses somehow. It’s why I’m not concerned with these “million acre “ farms and labs. Cause usually they don’t even have anyone on their team that’s done ANYTHING that large. So it’s going to be absolute shit product selling for 50% less then market average and doesn’t even kind of effect me

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Its not just 1 farm. Its thousands of farms they hope to get into tolling agreements with. Futures contracts and sharecropper agreements can both be written to include tolling in the terms

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An economist might say there’s a sloped demand curve. As prices fall consumption increases. Still a lot of people who don’t know anything about cbd’s.

I think the price is doubled at each stage. Extraction- packaged consumer product - retail. Farmers will always be the ones who get screwed in the line. I don’t have any evidence just my thoughts

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Hi all,

Thanks for the feedback. I’ve done some more research since posting and have some updates:

1. I believe 200k+ acres will be registered for hemp. However the amount that is actually planted with high-CBD seeds will be drastically lower. The main reason being cost - it’s cheap to file for acreage but coming up with the cash at \$4-8k per acre in seed cost is another story. Additionally, it’s impossible to tell from filings if people are planting expensive, high-CBD seeds or extremely cheap low-CBD hemp for industrial/other uses.

2. I’ve heard that a lot of crop was destroyed last year for being hot, which is another factor. Additionally, this year we will see lots of people entering without experience and thus lots of mistakes resulting in lost crop or low-CBD crop.

3. Bottlenecks such as drying and processing will separate the serious players from others. @logix I think you are spot on here.

4. Retail pricing per mg of CBD will come down drastically. Currently I calculate that \$/mg the consumer pays is >10x the price to acquire the CBD wholesale. For example, at \$5k per kg, the cost of wholesale CBD is \$0.005. If you look online or at the Cowen report, “budget” CBD products might be \$50/1,000mg, or \$.05 per mg. That is a 10x markup. This is not sustainable and I’d expect it to come down to 2-3x very quickly.

@broken_glassware I agree that looking to Oregon’s cannabis market is a good parallel of what happens with unregulated supply. However, unless I’m mistaken the issue was compounded by regulated (limited) demand, although the black market was probably still huge. In CA, the black market for cannabis still makes up 80% of the market. With hemp and CBD, we have mostly unregulated/unconstrained supply and demand. So both sides will grow very fast, although prices will fall across the board.

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We’ll see what happens

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I would say the biggest disruptor is going to be the end user becoming more educated, larger industries utilizing the product.
I still believe CBD’s role in combating the Opioid epidemic in North America will have the biggest impact on the market. Cannabidiol is an adjunctive drug that when isolated doesn’t produce the same effects of a full-spectrum product. Pain and anxiety are huge topics in the United States. I think the plummeting CBD Isolate prices are a good indicator that that market will fall more as more customers become educated. Cultivators that have thought out the challenges, prepared their fields, selected viable cultivar, and that are dedicated will see a promising return. End User utilization of other Cannabinoids will influence this change.
Thanks,