2023 Pet Hemp/CBD Industry Outlook

We at Hemp Well thank you for your partnership and trust over the year(s) as you have helped us grow into a premium brand that consumers know and trust. This ‘2023 Pet Hemp/CBD Looking Forward’ is our guide to help you navigate the future: covering the areas of potpourri, growth, consumer polls, regulatory risks, advertising restrictions, buyers, and our goals.

Potpourri

To begin with and maybe the most important aspect is to understand that the financial groundwork for Hemp Well is quite different than most that are in the marketplace. Hemp Well did not raise large amounts of investor funds to get into the game, as we were already in the game. This allows us to “lead the pack” by never having to play catch-up. That means we have been able to never sacrifice quality, ingredients nor net weights. And, we believe in deliberately adding products that the marketplace is ready for.

The CBD health marketplace has seen great growth but maybe not to everyone’s expectations. Some big investors that funded their businesses on unrealistic growth in the market have recently exited our space. One of the differences between them and Hemp Well is that we built our business on the “backs” of dedicated and long-time staff, great advisory partners, creative and enthusiastic management, awesome and supportive partners like you, and personal investments.

Today, as we have built our brand in several key areas, our CBD products are sold exclusively through independent pet specialty stores, while hemp seed oil and hemp seed powder based products are sold at big box retailers like Target, Amazon, Meijer, Chewy, and Walmart.

Our overall sales continue to grow within this category (45% YOY) as awareness grows. The single biggest driver for growth.

Our distribution channel strategy would rarely work with any other product. Given the delineation between CBD and hemp seeds, coupled with state level regulations, our approach has worked amazingly well. Big box retailers offering Hemp Well (hempseed) products brings tremendous awareness to our exclusive CBD resellers. Hemp Well leads the pack in introducing hemp as a supplement to pet owners (70%) who might otherwise be unaware of products like hemp seeds or CBD. Big box retailers shy away from the political, legal, and stockholder issues from selling CBD.

Throughout 2023, independent pet specialty stores will continue to benefit from higher margin MSRP CBD products while major retailers will benefit from increased awareness and sales within their pet supplement categories. Hemp supplements have and will continue to do great things for the pet consumer seeking to fill a need - that’s good for everyone.

Annual Growth Is Up, But How Much?

Internet and industry research firms state that annual global pet supplement sales are to reach an estimated $1.8 B and are expected to reach $3.1 B by 2030. A 6% compounded annual growth.

Another online report estimates a compounded annual growth of 31.8% for pet hemp/CBD product sales. The e-researchers estimate $250,000,000 global sales ($100,000,000 United States). Some online sites claim this number to be nearer $70,000,000 US sales.

Conversely, other online researchers suggest more than likely flat sales of hemp/CBD pet products through 2030. With supplements seeing even less growth.

The truth is - nobody knows. Sales of pet hemp/ CBD products remain the strongest through e-commerce sites due to retailer restrictions, hesitance of big box retailers, and the timing of CBD popularity with Covid restrictions. One of the challenges in finding reliable data is the myriad of long-tail brands that dominate the overall category on the internet. We hope that as brand leaders and established retailers emerge in the pet hemp/CBD category, industry wide data will be easier to extrapolate.

At Hemp Well when we talk about change both Gen Z ((born 1995’s to 2010’s) and Gen Y (1980’s to 1995’s) exhibit those attributes. Each also displays a high level of concern for maintaining the health of their pets. Data shows that this concern by Gen Y and Z does translate into purchase action for supplements, particularly for products that represent a set of shared values, like Hemp Well does.

What Is Your Pet's Preferred Supplement Delivery Method?

HempWell.com customer survey August 2022. 1093 respondents.

For a little more insight into growth, let’s look at Gen Z. Unlike their parents and grandparents, Gen Z is more into wellness and less into traditional pill formed supplements. If Gen Z is taking a vitamin, it is probably a gummy vitamin.

Our thoughts are that the growth of soft chews (dog gummies) will further cannibalize tablets and liquid supplements.

These younger generations of store buyers and parents, as they replace the older Gen X and Boomers, will have the single biggest impact on sales growth within pet supplements and the pet hemp/CBD category - allowing for new and exciting categories and brands to help grow the supplement category. It stands to reason that regular supplement consumers eventually become educated supplement consumers. We think that this group will eventually replace their current food purchases with more premium food products down the road.

Industry data suggests that Calming and Hip/Joint are still king while pet Gut/Immunity health is a rising star in 2022.

Both Hip/Joint and Calming products not containing hemp/CBD had their market share cannibalized by products that did include hemp/CBD. A recent Hemp Well customer survey suggests that hemp/CBD customers are mainly purchasing products like Hemp Well to assist with Calming/Behavioral issues and Hip/Joint concerns.

Why Did You Purchase Hemp Well?

HempWell.com customer survey August 2022.

Overall, the pet supplement industry is trending towards multi-functionable solutions. Simply put, multi-functional products have multiple ingredients intended to support different functions. Our Calming soft chews have the ability to address behavioral issues and support healthy skin.

Immunity / Gut Health products are expected to grow throughout 2023. Non-psychoactive mushrooms like Turkey Tail are akin to hemp/CBD. Hemp Well’s line of Immunity products will be available to all accounts early in 2023.

In our view, 15-20% YOY growth may be a realistic figure for the US pet hemp/CBD category within brick and mortar retailers. And, we believe that independent brick and mortar retailers have a great opportunity to grow their supplement sales at a faster rate than other sales channels. We believe that this is possible because of the 70% of the people that discover hemp and CBD through online information, 82% prefer to purchase in a physical store. Conversely, pet parents that discover pet hemp/CBD in a grocery store environment will turn to a pet specialty retailer for greater product assortment, knowledge and individual focus that can add to their pet’s life.

Regulatory Risks

Supplements have been and will always be at risk to increased regulatory oversight. Certainly, safety standards are important along with the consumer being able to lodge complaints. But, the biggest risk to craft, small-batch, supplement manufacturers is increased regulatory oversight.

The one-two punch of new regulatory decrees along with additional fees can cripple an already compliant manufacturer. That doesn't mean bad actors do not exist, it’s meant to mean that an open and responsible marketplace does a remarkable job of policing its own, particularly in today’s environment (National Animal Supplement Council).

Higher costs will slow natural, organic growth, but, more dangerously, eliminate that quality, craft, manufacturer where one additional cost is all it took for them to exit the marketplace. It simply costs money to do business with the government. Killing by regulation won’t help grow the market.

Changes to the 2023 US Farm Bill are not expected to have a significant impact on the pet hemp/CBD industry.

AAFCO does not appear ready to approve hemp in feed products in 2023. No hemp seeds or CBD in your dog or cat's food.

Last week (December 2022), the USDA stated that the U.S. Domestic Hemp Production Program regulation requiring any laboratory testing hemp for THC to be registered by the DEA has been delayed for a year. Action that would have put major strain on the overall domestic hemp industry.

Advertising Restrictions

When it comes to advertising little has changed in regards to the promotion of CBD products through Google, Facebook, TikTok and other major online properties. Although,there is a very good improvement in the environment for the promotion of hemp seed products that don’t contain CBD. Many of our partners do in fact promote hemp seed oil with zero interference or complication.

Advertisers may only promote non-ingestible, legally derived CBD topical products. Twitter Terms of Service Restricted Products

Here’s a couple interesting questions - if Hemp Well is limited in promoting its CBD products online, how does it promote itself in-store without cannibalizing other supplement products? Could products like hemp/CBD, and future disruptors like mushrooms, noticeably cannibalize existing supplement product sales? Absolutely they can. Much like raw food trends can impact supplement sales, and how hemp seed oil took a bite out of fish oil sales.

From our experience, the promotion of hemp/CBD leads to more health conscious pet parents and promotes the sale of other natural supplements and quality food products. Progressive, active ingredients like Hemp/CBD have the potential to eat into the sales of lower-priced, inferior, kibble feed products.

Buyers

In each store, buyers will determine their course for animal supplements through their selection, visibility, and promotion of each inventory item. That means buyers must choose to allocate scarce resources either to the maintenance of a range of products tailored to heterogeneous consumer preferences or to the efficient production of a small number of products.

In addition, buyers must choose the degree to which they periodically cull the product line. Vigorous selection removes poor performers from the product line, but this action simultaneously impairs the buyer’s ability to monitor changes in consumer preferences. Empirical evidence from the computer workstation industry reveals that the ideal choice of product variety depends on the competitive ecology of the industry. Product variety becomes less valuable as the total number of products on the market increases, but it increases in value as uncertainty makes the accurate prediction of demand difficult.

Hemp Well 2023 Goals

TRAINING. In 2022 we participated in store level training opportunities, store direct Zoom meetings, and viewership of hempwell.com/training enjoyed almost 20,000 unique trainees in 2022. Store level employees are eager to learn and Hemp Well is committed to expanding its training reach.

MARKETING. Our marketing team has developed new marketing materials for use on and off line. As of November, our website experienced a major overhaul to support the daily users we enjoy. We have a growing list of creative deliverables for training, promotion, marketing and digital uses that can be found in our partners portal, https://hempwell.biz/.

ADVERTISING. We will increase our digital ad spending to support brick and mortar accounts - paid for and managed by Hemp Well. Our digital ad program will be made available to all distributors and chains in 2023. In 2022 we spent an average of $18 per month to support each participating dealer location. If you are on Hemp Well’s website check out “store finder.” If your store isn’t listed on the map we’ll mail you a buck ($1). And send your logo.

SPECIALTY PROMOTIONS We saw increased lift through the promotion of unique manufacturer coupons (scanbacks) and geo-fencing strategies that drew more shoppers into stores. We will continue to invest in our retail partners advertising programs. Particularly those programs that return real value for our trading partners and Hemp Well.

SALES SUPPORT. Expanding the sales department (internal and external) to support existing and future customers.

PRODUCT LAUNCHES. 2023 will be our most ambitious year with over 12 new unique items in the pipeline or in limited distribution.

Final thought

The easiest impact in growing awareness is by letting pet parents know that products like hemp/CBD exist. By educating Hemp Well’s partners through effective training we can double down on all marketing efforts. The customer becomes aware and the salesperson has knowledge. That’s a good position to be in.

Thank You,

Team Hemp Well

Sources

https://aws.amazon.com/marketplace/pp/prodview-zsofe5epgwbqe#usage

https://www.custommarketinsights.com/report/pet-supplements-market/

https://www.statista.com/statistics/1343614/pet-supplement-sales-growth-by-type-us/