The New CBD Tea Market
By Peter Keen
CBD tea, often called “hemp tea,” fits naturally into the fastest growing tea markets. The draw is wellness. Hemp-extracted cannabidiol oil has a reputation for reducing anxiety, calming the body, reducing inflammation, and relieving pain. Even before all the issues of legalization of hemp reach stability or even definition of basic regulation, it is being aggressively marketed and enthusiastically adopted. The CBD tea market is here now — well, sort of.
The details are blurred and trends unclear. Here are the main uncertainties, many of which will be reduced through market forces and regulatory clarification:
Ingredients and concentration levels
CBD stands for cannabidiol, a molecular compound that has almost exactly the same chemical structure as THC: tetrahydrocannabinol. Both are found in cannabis plants, along with over a hundred other cannabinoids and phytonutrients: 25,000 natural chemicals found in vegetables and fruits. THC is psychoactive. It directly and powerfully affects the body’s neural receptors, creating its noted mood-altering highs. CBD is not psychoactive and offers much the same benefits as medical marijuana.
THC keeps marijuana illegal, though over 30 states permit medical use and half that allow some degree of recreational consumption. CBD cannabidiol extracted from the hemp variety of the cannabis plant is basically legal, but with many state and federal loose ends in law, regulation, bans, and enforcement. The critical starting point in the ingredients for CBD tea and other products is to get rid of THC content and make sure it is below the federally accepted level of 0.3%. Hemp contains 0.3-1.5% but marijuana ranges from 5-12%. The most reliable source of CBD is “industrial” hemp farmed in the US.
There are two distinct types of extracted CBD ingredient: full-spectrum – “whole plant” – and isolate – 99% pure CBD molecule with no other active compounds. Opinions vary widely on which is better for consumers. The consensus is that full-spectrum is more suited to everyday consumption, because of its “entourage effect.” The claim here is that the CBD is enhanced in its beneficial effects by the many other cannabinoids, phytochemicals, and terpenes (aroma and flavor agents) that comprise the whole plant.
Isolate packs more CBD punch and offers more personalization and targeted specialization. You can add it in powder form to your morning coffee, for example. It contains no THC. It seems less effective than full-spectrum at very low and very high dosage levels. Almost all CBD teas are full-spectrum in nanoparticle form that is water-soluble, a key requirement: water and oil don’t mix. Isolate is very much an additive to a base “tea” that may include mushrooms, medicinal herbs, botanicals, and traditional black, oolong, green tea, and chai. Matcha is a growing segment. Where the tea is targeted to wellness – claims of direct medical impact are illegal – and functional value, such as aiding sleep, it is likely to use a herbal base to avoid caffeine. The therapeutic identity of CBD and THC as medical marijuana are apparent in the use of “dose” as a basic metric. Alas, there is no standardization of dosage. A list of the top 10 CBD teas published in late 2019 lists the amounts as 5 milligrams per tea bag for one of the strongest brand names and 63, 15, and 3.7 for four others. One CBD-infused matcha contains 200 mg per dose.
The range reflects a core problem across the entire CBD market. The illegality of cannabis blocked research. Only 100 scientists were registered by DEA to even possess samples for study and the only source was the University of Mississippi. Studies were tightly constrained and remain limited, even after the 2018 Farm Bill permitted hemp farming. As a result, there is little established and reliable measures of dosage, efficacy, and impacts. The difference between 5 and 200 mg in a CBD tea bag is an indicator of the gaps.
Overall, the consensus on what consumers should look for in CBD tea ingredients seems to be to pick (1) industrial hemp sourcing, (2) full-spectrum and (3) moderate initial dosage levels of 5-15 mg. The dosage is very much dependent on body weight and highly individualized. The common recommendation is to start small and adjust on a trial-and-error basis. Look out for drowsiness; this seems as intrinsic and personal an impact of the soothing nature of CBD as ravenous munchies are for pot.
Manufacturing, testing, and certification
Making a CBD tea is not a simple process of adding extracted hemp oil. Most critically, the CBD must be water-soluble. The extraction method strongly affects cost and quality. The emerging standard is CO2-based with many additional steps needed: stem separation through machines costing $2 million and on up, plus equipment for dewaxing the extracted oil, filtration, and testing. Testing is a critical requirement at all stages, for both quality control and legal reasons. All the best CBD tea brands use third-party labs and publish their certification of analysis.
FDA has no authority over CBD manufacturing. USDA is beginning to define a role. The current situation is best defined as a mess. A major medical journal reported in 2017 that 26 of 84 labels were incorrect in their statements of ingredients, 18 products exceeded regulatory THC levels, and a quarter of the total contained less CDB than claimed.
Pricing
The costs of top-quality manufacturing have resulted in very high CBD tea prices. These seem unlikely to hold. Many reflect the shortage of hemp harvests in the US, but the expected crops for next year are around double current output. Harvest costs in 2017 were $1,000-2,500 an acre. They are dropping to $300-600. Prices are volatile for supplies of isolate powder imports from China, Canada, and Europe. In May 2019, they suddenly fell by a full 30% from $6,000 a kilogram, mainly because of suppliers dumping excess inventory.
One major high cost is financing. With all the uncertainties of federal versus state legalization, major banks are not providing accounts or loans, and credit card processing is offshored, at an expense of around 10 times the normal business charges. Liability insurance is not available from usual providers.
Distribution is limited, with most providers operating intrastate. Even interstate transportation risks breaking state and or Federal laws. As a result, the prices of CBD tea are currently much higher than for even the best specialty teas. For a premium brand, with full certification and rigorous testing analysis, the low-end costs are $1 a tea bag, with $4 the average. CBD products are as yet not sold through Amazon or by Walmart and other major grocery chains.
Guessing the future of CBD teas
This is a new and volatile market that will take time to stabilize. Estimates are little more than guesses. Here are a few:
1. Demand will grow: even at current prices, many consumers are buying the teas, mainly for their perceived wellness benefits. The consensual estimates of the overall size of the wider CBD market are that it will be over $20 billion by 2022. At the least, the tea segment will be a functional product niche.
2. Branding will drive the market: the issues of quality, reliability, certification, ingredients, and labeling that are a problem are being countered by firms that have a first-rate reputation and set high standards of customer information. There are around a dozen or so standouts that are building brand equity and trust.
3. Prices will fall rapidly: once the legal uncertainties are resolved and supply of hemp increases, most of the excessive costs of harvesting, manufacturing, and financing will fall substantially and quickly. Major retailers and beverage producers have made it clear that they plan to enter the market and are developing products that exploit their advantages of scale and expertise. One example is Philip Morris’s parent company investing $1.8 billion in its Crono CBD acquisition for market and product development.
4. Consumer education will be of critical importance: CBD tea is not a simple product. Just the isolate/full-spectrum and dosage issues are bewildering. It seems likely that the market will be paced by stores that offer expert advice and by brands that make reliable information a priority.