Jack is a father of two kids and a husband, who suffers from stress and sleep-related issues. Has made CBD oil part of his daily routine in the hope it would help him calm down and sleep better.
He’s been taken CBD for a month now and just ordered two more bottles online as he is almost running out. He’s glancing over his historic orders and realises how much money he has spent on a few bottles of CBD oil.
“Blimey, why does CBD have to be so expensive?” he mumbles to himself. “That’s almost outrageous, I could buy several golf clubs for that price.” he thought. He closes the lid of his laptop as he has to drive his son to football training. “Tonight,” he thinks, “tonight I’m going to dig out how much I’ve spent on CBD this month.”
CBD oil is not only expensive in a few stores affecting a few brands, but it is pricey as a whole product group. But why is that? Why is CBD oil so expensive? It’s not because brands have such a high margin on the products. It’s because CBD oil costs so much to make.
Below are the most important cost factors that drive the price for CBD oil.
High cost of growing hemp
Growing hemp is a costly undertaking for several reasons. For most farmers growing hemp is a new venture and thus they lack experience with the plants. They also don’t have proper equipment yet meaning the process of growing hemp hasn’t been fully industrialised yet.
Some hemp varieties also have to be put into the ground as seedlings. Machines struggle to do that so it must be done by hand.
In the US hemp doesn’t have any approved insecticides or pesticides. This is good for consumers in a way because they receive a higher quality hemp product. But bad in another as weeding has to be done by hand for the first few months increasing the cost to farmers.
The plants will be hand-watered and monitored for nesting insects and aphids at the same time. Pruning is also done by hand. Such labour intensity requires full-time employees to be on-site at farms further increasing the cost of the end product. And when the costs for farmers increase, the price of the CBD oil does as well.
High cost of harvesting
Harvesting hemp plants is a science in itself as it has to be perfectly timed. The challenging part is to get the hemp within the 0.3% THC window. The CBD and THC content in a plant move together. When CBD goes up, so does THC.
The hemp plants have to be manually tested on a weekly basis to find the perfect harvest time. In the worst-case scenario, hemp can go from being legal one day to being illegal the next.
Such tests also look out for moulds and mildews. Presence of those can lower the value of the hemp biomass. Testing those hemp plants is not cheap and runs up to USD 300 per test.
Seasonal workers harvest the plants by hand. They cut the stems with machetes which is time-consuming and labour intensive.
Right after the plants have been cut they need to to be dried. This happens in a roofed facility where the plants are hung upside down on wires. The biomass needs to be well ventilated to prevent mould from building up in the centre of the plants.
Growers need to have several fans blowing continuously at the same time which adds to the already high financial burden. Temperature and humidity need to be kept at a constant level.
High cost of extraction
Extracting CBD from hemp is a lengthy and expensive process. Many hemp growers have decided not to deal with the extraction process any more. They are selling their hemp biomass directly to a CBD manufacturer. This, in turn, adds another party who needs to make a profit to the process
There are three main methods to extract CBD from hemp. Extraction through liquid solvents, through oil and CO2 extraction. The only way to get a solvent-free CBD product is CO2 extraction. That’s why most manufacturers have opted for this method.
But CO2 extraction is also the most costly of the three as it requires expensive equipment. It’s an industrialized process whereby the CO2 is brought to a supercritical state. In that state, it is run through the plant material to extract chemicals and flavours.
CO2 is in a supercritical state when it acts somewhere between a liquid and gas. The CO2 and oil mixture then stays at a specific pressure and temperature such that the CO2 rises to the top and the oil falls to the bottom. This allows separation of both component.s
Closed-loop systems for CO2 extraction cost a lot of money. Big CBD manufacturers use those systems as they can produce in bulk. Growing, harvesting and extracting CBD are three key cost factors for the industry and the main reasons why CBD is so expensive.
Refinement process (Winterization)
After the extraction, the raw oil needs to go through another refinement process called Winterization. In this process, the oil is mixed with alcohol and thereafter frozen hence the name of the process.
It separates the cannabinoids from waste compounds such as waxes and lipids. Once gone through the process the oil can reach a potency of up to 65%.
Third-party lab testing
There are scrupulous companies and a lack of regulation in the industry. Hence why third-parties are validating CBD products. There are various labs in the market offering different levels of services. Whenever you as an end-consumer come across a lab test make sure it’s from an accredited lab.
For the test, the CBD manufacturer will send a sample of their product to an independent lab. For the test to be legit the lab mustn’t be connected in any form to the CBD manufacturer. The lab will run their tests on the supplied samples. Afterwards, they will provide an unbiased analysis to the CBD manufacturer.
Tests from accredited labs are costly and are paid out of the pockets of CBD manufacturers. The tests are necessary though to prove integrity to the end-consumer. Some brands even go as far as triple-testing their products to provide 100% reassurance of the quality of their products.
Even though lab testing adds value, it can be so expensive that some manufacturers don’t do it at all. After spending about $35,000 to $40,000 per year on lab testing one manufacturer decided to install its own testing facility.
There is no requirement to test CBD products. CBD manufacturers do it to prove their quality products. But, inevitably it increases the price charged to end consumers.
Increased legal and admin costs
Even though CBD is legal in the UK and most states of the USA. But businesses in the supply chain for CBD products still count towards the high-risk group due to strict regulation.
That means certain operating costs can be ten times as expensive as those incurred by low-risk businesses. High overhead costs are another factor for CBD being so expensive.
High-risk businesses can’t rely on normal high-street suppliers for operational services. They need to find suppliers willing to take the risk. It’s not impossible to find those. But due to limited options prices charged are several times higher.
Many high-street banks are refusing to work with companies in the CBD industry. That means said companies have to find alternative ways to store their cash. They need to have constant access to it though to pay suppliers and their staff. Expensive offshore accounts are often the only solution available.
Loans are not available to high-risk businesses so they tend to be financed by equity.
Like banks, many payment processors are reluctant to work with high-risk businesses. Costs charged can be exorbitantly high as they are percentage based on transactions.
Sometimes there is no domestic payment processer willing to take the risk. The result is CBD companies have to look offshore. This could mean having to incorporate another company in the country of the payment processor. Something that adds even more admin costs.
Insuring a high-risk business can cost as much as ten times more than standard product liability insurance. There are four main product claims that CBD companies should be prepared for:
- Ingestible products
- Topical products
- Medical claims
- Legal disputes
CBD companies often have in-house compliance officers. They often support external legal advisors. Officers make sure marketing materials and labels follow country-specific regulations. They also check the CBD and THC content in the products so they follow the local law.
Will the price come down in the future?
The cost of CBD will come down in the future but it will take quite a few years. In 2019 CBD oil was 88% cheaper than it was in 2012. As more farmers opt to grow hemp over the next few years the price of CBD will come down. If it comes down to more affordable levels is to be seen.
In 2019, farmers for only 26,000 acres of soil in the USA decided to grow hemp on it. The US farm bill was introduced in 2018 which makes it fairly recent. As time goes by more hemp will be grown making it more accessible to manufacturers.
Regulation is also expected to ease around the world in the next few years. This would result in operating costs to come down significantly from today’s level. As long as the CBD industry will be treated as high-risk this will remain a major cast factor though.
Even though CBD is legal it is still treated as a banned substance by many companies. As more companies become educated about the industry this is expected to change in the future. It will open a greater choice of service providers to the CBD industry. Which further decreases operating costs.
CBD products will remain expensive in the near future. It is a result of the labour intensive process to grow and process hemp and high operating costs. Over the next few years, prices are expected to come down though. The regulatory landscape will ease and more companies are prepared to work with the CBD industry.
Are you interested in buying CBD but not sure where to start? Make sure you don’t waste your money and start out with a bad experience. There are a few things you need to consider before jumping the gun. I’ve written a handy guide everybody who’s thinking about buying CBD should read to get the best results out of the buying process. Check out the guide here.