What is the outlook for CBD beverages in Europe? - focus

Recent comments from regulators in Europe have left some in the food and beverage industry worried about what's ahead for the region's nascent CBD food market. Simon Creasey explores further.

In recent years, protein and plant-based drinks have been seen as the next big thing, the next product or stable of products that comes along and disrupts a category or creates a new category in its own right.

Now it's the turn of beverage products containing cannabidiol, or CBD as it's known for short, one of more than 100 chemical compounds known as cannabinoids found in the cannabis plant.

Over the past few years the market for products containing CBD in North America - including beverage items - has enjoyed spectacular growth. BDS Analytics estimates CBD product sales were around the US$4.1bn mark in 2019 and this figure is forecast to grow to as much as $20bn by 2024. 

The retail presence of such products in Europe is, so far, limited, with stockists tending to be independent health food and organic stores. Many CBD brands also sell direct to consumers.

That said, it's projected that the European grocery market could be similarly lucrative as the US for manufacturers of CBD products. However, there is a potential fly in the ointment. In January last year, The European Commission (EC) ruled products containing cannabinoids would be treated as novel foods, which applies to foods or ingredients that were not widely consumed before 1997.

Since then, countries like Germany and Belgium have put in place legislation aligning their national domestic laws with the EC's ruling, which means products containing CBD must receive government authorisation before they can be legally sold.   

Late last year, the UK's Food Standards Agency (FSA) also indicated it would follow suit and enforce the novel food ruling for CBD products. Despite confirming in a letter to the Cannabis Trades Association (CTA) earlier this month that the agency has "no current plans to immediately withdraw CBD products from shelves", the FSA said it "retains the right to change this stance if new evidence is produced that concludes CBD is not safe, or for any other relevant reason". 

Furthermore, in a report to the agency's board this week the FSA's chief executive said "it is important that industry puts these products through the authorisation process, as the process is there to establish more information about the products and their safety [and] to confirm that the products are what they say they are, and therefore to protect consumers. Industry must bring these products into compliance with the law".

So will Europe's legislation stifle the projected growth of this category in the region? Or is it merely a bump in the road this nascent sector can easily overcome?

Food and beverage industry experts say at the moment it's difficult to accurately establish how big the market for CBD products in Europe is - and therefore how big it could potentially become - because there has been a 'green rush' of companies launching products containing CBD in recent years. 

As one source puts it "people have been launching new CBD food products on what seems like a daily basis". But what it is accurate to say is it's a growing market.

"In the UK alone, sales of CBD products have increased by 99% in 2019, with Brits rushing to invest in the ingredient that is now used in copious health and beauty products," says Kamila Sitwell, co-founder of nutrition enhanced drinks brand Kolibri Drinks. "These include sublingual drops, gel caps, vape oil, gummy candies, various foods, soap, body lotion, lip balms and, of course, CBD drinks."

The sector is in similarly rude health across Europe. But then in January last year the novel food ruling came in, which according to Lorenza Romanese, managing director of the European Industrial Hemp Association (EIHA), has had "a negative consequence for the entire sector because of the lack of clarity" surrounding the ruling. 

Romanese says part of the problem is the EC's ruling isn't legally binding, while it is also being applied on a country-by-country basis, which only adds to the confusion. 

So far "there has been a lack of harmonisation" across EU countries, explains Romanese. "There is no certainty of law, the sector is nervous and investment has gone down. So there has been a huge negative impact after the change. If there are clear rules, the market will develop, but if Europe does not develop quite soon a positive hemp legislation the market will only survive [rather than thrive]. By changing the regulation, we need the political will and at the moment there isn't a clear political will."

Romanese says the EIHA is lobbying for a more sensible legislative approach. "We believe if the food business operator respects the naturally occurring level of cannabinoids in the plant in the final product then that is food. On the contrary if we take the naturally occurring level and increase it by up to 80-90%, that's novel food."

Thomas Mumcuoglu, founder of hemp food company Themptation, which manufactures a range of different CBD food items, including a hemp-based alcoholic RTD, also thinks a different legislative approach makes more sense. 

"We fully support some level of regulation for CBD in the UK, but would prefer to have a full traceability scheme like organic and even a national testing facility/programme," Mumcuoglu says. "For instance, when you see the Soil Association logo on a product, it's a guarantee of traceability and quality. Something along those lines would be best to protect consumers from cowboy products and sellers."

Mumcuoglu thinks in the longer term the EC's ruling won't dampen the appetite for CBD products. Rupert Leigh, founder of Jackpot Peanut Butter, which offers a CBD variant, holds a similar view. Leigh even believes there could be some potential upsides to the novel food ruling for manufacturers of CBD food and beverage products. 

"Whilst there are no known effects of cannabis and therefore to some degree CBD, that it's classified as a novel food is no bad thing where clinical trials across a range of categories and therefore products must be conducted as there are some brands that are appropriating their product without any sort of back-up," he says. "They cannot state any benefits until clinical trials have been conducted, therefore the consumer in our view is buying products that are price inflated due to the use of CBD on the label."

Christian Hendriksen, VP of international expansion at CBD extractor Mile High Labs, also believes in the longer term the introduction of legislation will be a "net positive" for the sector.

"I think there might be a short term bump in the road in terms of growth," says Hendriksen."It's costly and takes a lot of resources to put a novel food application together and get that filed so it will likely mean it won't be viable for a lot of small scale extractors to keep operating because they don't have the necessary capital and can't make the necessary investment into compliance and quality assurance standards around their products. From an industry perspective that means some companies might go out of business, but as a whole it means the products that persist are the ones where you can really demonstrate product safety."

He adds that if the extractor sector undergoes a period of rationalisation, food brands will have access to a smaller number of CBD suppliers who have the necessary compliance and quality assurance standards, and as a result over time he thinks the "larger FMCG companies and larger retailers will be more comfortable with this category".

This process has already begun to a certain extent. Mumcuoglu says he has been approached by some of the big manufacturers to produce for them and he thinks it is "inevitable the big players will move in to the CBD market over time".

Leigh concurs. "Larger FMCG brands have certainly been looking towards and investing in R&D and some have announced their early stage involvement into the category. My view is that where some brands can and will extend into this category, there are more 'heritage' brands that whilst they see the commercial benefit, they could not effectively extend as the brand restrictions are too tight. Larger businesses will probably invest in younger brands that have been able to manoeuvre and there is an obvious natural extension of their product portfolio. For jackpot, it ticks every box."

This process has already started to occur in the drinks sector, according to Kolibri Drinks' Sitwell, who says drinks manufacturers see CBD as both a threat and an opportunity.

"Alcohol consumption is declining globally and US data demonstrates that 9% of those who choose to abstain/moderate alcohol switch to CBD drinks," she explains. "Although alarmed by its initial popularity, beverage marketers today have started to see cannabis as an opportunity more than a threat. Rather than fighting a losing battle against a rapidly expanding industry, beer and spirit brands have embraced it - becoming an essential player in an exciting, emerging market.

"At the moment, some the most popular names in the beverage industry such as Corona and Modelo maker Constellation Brands, Molson Coors or Heineken are making the transition into the cannabis beverage space, indicating that the potential is now in the emerging sector."

The potential Sitwell refers to is, on paper, tremendous. Some industry experts believe the CBD food product category could be the biggest 'next big thing' to come along since the recession.

"CBD is certainly not going away, nor is it a fad," says Mumcuoglu. "The more research that's done, I think we'll find its popularity will grow, as well as interest in many other cannabinoid compounds."

So despite the new regulatory landscape that manufacturers of CBD food and beverage products are having to start operating within, it appears that growth of the category is set to continue unabated. As a result, we can expect to see all manner of CBD-related items hitting the shelves of the larger grocery retailers across Europe sooner rather than later. 

This article was originally published on just-drinks' sister site, just-food.

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