Updated January 7, 2021
Updated January 7, 2021
The Europe of today has tremendous opportunity but also faces various challenges, many of which are unique to this region and its multi-faceted, interlaced yet separate markets and regulatory systems. The CBD market and framework surrounding it are no exception. The sights of many - at home and abroad - have been set on Europe’s potential as a CBD powerhouse, given its size and citizenry's spending power ($17 trillion USD combined GDP in 2017), as well as increasing interest in natural wellness solutions among local populations. But each player that enters this market, or elects to expand across it, must be prepared to contend with the patchwork of CBD regulations and limitations that apply to each market, their frequent changes, and how those influence the successes or failures of different product formats, distribution strategies, marketing efforts, and consumer segments.
Many have indeed been up to this challenge, successfully navigating the systems of one or several countries to grow and build brand recognition and loyalty. A number of chain stores now stock CBD products on their shelves, as well as tobacco shops, boutiques, spas, and more. As such, CBD has made great strides in the region alongside generally stagnant medical cannabis markets. And though it may lose this lead as medical markets open further and allow for products beyond pharmaceuticals, permit for more qualifying patient conditions, etc., the vast and growing presence of CBD in Europe should not be overlooked by those looking to set themselves up for growth and sustainability in Europe in the long term. Now that much of the region has decided to adopt and enforce Novel Food regulations on CBD, there is what will likely be a viable (if costly) path to the formal market that will make it easier to offer product in a safe environment with a sustainable supply chain, to confident consumers.
Brightfield Group’s European CBD market sizes and the reports that follow reflect the state of the markets in countries where CBD has been well-established or markets are emerging, accounting for not only country-level reactions to European or UN-level guidelines, but local approaches to regulation as well as market tendencies, potential, and purchasing patterns that have unfolded in each country. Products being sold in violation of declared formal policy, eg tinctures being sold without Novel Foods authorization, are not accounted for, though they are discussed where relevant for context.
Europe’s CBD market was estimated at $405 million in 2019 and is expected to grow to nearly $1.6 billion by 2025, with a forecast CAGR of 35
The largest CBD markets in Europe today are those of the United Kingdom and Germany, which will make up roughly a US $290 million and $90 million market in 2020, respectively. The UK is expected to remain a market leader over the medium-term, though Germany’s growth is expected to outpace that of the rest of Europe – especially as Novel Foods-authorized products enter circulation, driving it to become the second-largest European CBD market at $617 million by 2025.
Europe boasts several strong economies and many consumers around the region are seeking alternatives to tobacco and pharmaceutical use, looking instead to natural solutions like supplements and dietary changes. These are needs that CBD has been shown to appeal to effectively, and tapping into this market - or even some small part of it - has the potential to be very lucrative. For example, Europeans have been spending nearly $13 billion per year on vitamin and dietary supplements alone, and general wellness purchases are likely to remain relatively stable during and following the COVID crisis given what a priority maintaining good health has become. Thus, there remains a good deal of white space in the health and wellness realm that CBD companies have only just begun to pursue.
CBD has grown rapidly despite fears and uncertainty around the implementation of Novel Foods, as well as unclear laws and inconsistent enforcement at the local level. Now that a number of countries' regulatory approaches have been laid out clearly, and a landmark CJEU ruling on the Kanavape legal case set a new, clear and supportive standard for CBD regulations in Europe, those interested in the industry have had many fears assuaged with much more concrete and reliable pathways to commercialization laid out. It is expected that Novel Foods will permit for the legal and safe production and sales of CBD products beginning in 2021, when the first products have made their way successfully through the authorization process. This will lead to a boom in not only investment and production, but consumer uptake. Furthermore, in 2018-19, the opening of mainstream channels like grocery, pharmacy and natural food chains to CBD retailers was a boon to the industry and having the official blessing of the European Commission, UK FSA and state governments will certainly lead to vastly expanded opportunities on the distribution front as well.
Regulations
The European Commission reclassified CBD-infused ingestibles as a Novel Food in January 2019, prohibiting the presence of the cannabinoid in ingestible products - the most popular CBD products (oils/supplements) - without pre-market approval. As such, many countries around Europe have put a hold on the sales of CBD products outside of smokables (vapes, flower), topicals/cosmetics and pharmaceuticals pending their formal authorization from the Commission, and the UK has developed its own similar authorization system through the FSA.
A landmark ruling by the European Court of Justice (CJEU), finalized in late 2020, found that it would be ‘contrary to the purpose and general spirit’ of the 1961 UN Single Convention to consider CBD a narcotic, despite that the cannabinoid is technically an “extract of cannabis”. This ruling not only invalidated a French blanket ban on CBD, but was also binding on EU institutions, including the European Commission and its Novel Foods Committee, and other Member States - irrespective of the UN CND’s decision not to deschedule CBD. The move essentially legitimized European CBD across the region, put the onus on countries to justify regulatory moves before enacting them, and opened the door for a thriving market.
A full discussion of current regional regulatory frameworks is available on the Regulatory Review page.
2019 and 2020 ushered in hundreds of new competitors of all stripes - local, international, start-ups, well-funded public companies, vaping companies, tincture producers, a vast wave of new cosmetics brands and lines. While many have sustained operations, some are leaving the space as regulatory issues and wider challenges (such as the vaping illness crisis, COVID-19) continue to take their toll, thus the market is nearly constantly in flux. Several of those that have successfully established a place in the European CBD market are highlighted in the detailed profiles available on the Competitive Landscape page.
Ingestibles | Much of the interest in CBD surrounds its use as a health and wellness product to support physical and emotional health – typically sought out in the form of ingestible daily supplements. These ingestible product categories have done very well historically, but will see some dips due to the recent implementation of Novel Food standards and regulations. Tinctures and capsules combined are expected to drop from 33% of Europe's 2019 market to 22% of the 2020 market, but eventually recover and drive 45% of the market in 2025.
Smokables | Contrary to their growth in the United States, in Europe, CBD vape and flower have done very well as a tobacco substitute, even with the backdrop of a wave of North American vaping lung illnesses seen in late 2019 as well as COVID-related respiratory concerns. CBD smokables are broadly available in most countries as vape cartridges, in the form of flower or hash, as well as pre-rolled cigarettes – and sometimes even offered as a snuff or chew product. These smokable products fall outside the purview of the Novel Foods regulations and are thus expected to consistently capture a decent portion of the market over the coming years as CBD further normalizes and expands, though consumer focus will continue to move away from flower and toward vaping as the market grows and evolves. Thus CBD vapes are expected to have 25-28% market share throughout the forecast period, while flower will drop from 19% in 2019 to 7% in 2025 in Europe.
Topicals (Cosmetics) | These products are gaining popularity for their appeal to both physical (creams, patches) and emotional (bath bombs) well-being, and are an area of interest for many companies as they, too, fall outside Novel Foods. Europe has seen topicals/cosmetics rise from 13% of the market in 2018 to 18% in 2019, with that figure expected to grow to 24% by 2021.
Since 2018, the market has become increasingly sophisticated and diverse as it has gone mainstream, with CBD being picked up by mass retail channels in all of the largest (and some of the smaller) markets of Europe. This has led sales through pharmacy, natural food and grocery, and even petrol chains to rise significantly, and marks the increasing normalization of the product. This will continue to be the most promising channel moving forward, as consumer reach is tremendous, and these distributors provide opportunities for manufacturers of legal product to target virtually any consumer segment.
Particularly in their beginnings, smokable CBD products garnered popularity as tobacco substitutes in Europe, leading vapes and flower product to become widely available at tobacco shops, smoke and head shops across the region. These channels are expected to continue to drive a great deal of traffic and weather the COVID crisis well, as tobacco shops - considered "essential" - remain open widely throughout the region.
E-commerce remains popular in the region and has seen a sustained uptick as retail outlets close due to COVID-19. CBD leaders are quickly pivoting their strategies and resources to new demand stemming from this channel.
The prospect of Novel Foods enforcement and lack of clarity on the part of authorities have presented a dilemma to industry players for some time. Those wanting to compete in the European CBD market have had to perform cost-benefit analyses to determine whether participating in the authorization process would be financially feasible as well as worth the expense and time committed. This has been especially problematic where the black and gray markets continue to thrive with few, if any, consequences to selling consumers a wide array of products sans authorization.
Furthermore, the European Commission declared 18 months after opening up to plant-based CBD Novel Food applications that it would defer to the UN Single Convention of Narcotic Drugs’ definition of CBD as a narcotic, putting all applications on indefinite pause while it collected feedback. This threw potential and current applicants into a challenging and unexpected situation which was not clarified until December of 2020, when the Commission walked back its statement and began processing applications again following a long-awaited CJEU ruling. While the case was pending, the UK elected against treating CBD as a narcotic and opened a path to legally commercializing product within its borders with a valid Novel Foods/FSA application or authorization – thus ushering in a flood of interest in the domestic market while the European Commission declaration got sorted.
Now that the largest markets in Europe have drawn a first "line in the sand" on CBD policy and there is clarity at the regional level, well-capitalized competitors are feeling more confident that working to formally authorize product is worth the cost. While the first stages of the authorization process will take time - particularly with delays across agencies due to COVID - and cause hiccups in the markets for tinctures, capsules and edibles, the UK and European Commissions’ policies have set the stage for a more viable, sustainable and formal market over the long term. The formal adoption and enforcement of this regulatory framework sets up the market for investment by larger (particularly CPG) entities and will lead to vast growth beyond the five-year projection period, especially once any potential data protections (i.e., patents) lift beginning in 2026.
Though much remains to be seen about how the European markets will respond to the economic, social and health effects driven by the COVID-19 pandemic over the longer term, the initial months of its presence in Europe have put some downward pressure on the region's CBD markets due to retail outlet closures, general fears surrounding going out, and competing budgetary priorities, among other things. It is expected that market sizes will see dampened growth globally throughout 2020 and into 2021, and that the pandemic will have more drawn-out effects on CBD spending resulting from higher unemployment rates, stretched budgets and decreased disposable income levels over the longer term. This is reflected in Brightfield Group's market sizes and forecasts, which incorporate country-specific economic factors such as GDP per capita and unemployment rates - as well as how they will be influenced by COVID-19 - in order to best assess the future CBD landscape.