Taking the health and wellness industry by storm, CBD is proving itself to be a sort of modern panacea. Sales have been growing sharply from 2018 to 2019 at a whopping 700% increase1 and many take this intensifying demand as a strong indicator of its effectiveness. Despite this, the facts surrounding it are still quite vague. Additionally, marketing buzz often drowns out existing information based on studies. This creates further confusion among regular consumers who often base their buying decisions on anecdotal evidence and since these users are also looking to CBD for faster relief from their pains and ailments, they tend to be more accepting of prices that may not be justifiable. Is this the main reason why CBD oil is expensive?
Pricing in an unregulated industry
Since the CBD industry is unregulated, it is expected to see high average prices and inefficient price structures.2 Take for example the price difference among different CBD oils and tinctures which offer CBD at its least diluted form. Low-end oils can start at around 5 to 10 cents per milligram but the more premium ones go up to 15 cents upward which means CBD oils can go anywhere from $10 to $150 or more. To give an example, here’s the price difference between a few popular brands:
- Full-spectrum CBD: Lazarus Naturals’ High Potency Full Spectrum CBD Tincture, 750mg, 15ml bottle contains Organic Hempseed Oil, Fractionated Coconut Oil, Hemp Extract and sells for $32. Meanwhile, 4 Corners Cannabis Shop’s CBD Oral Tincture, 500mg, 15ml bottle uses MCT Oil, CBD Dominant hemp extract and Limonene (orange extract) and is priced at $109.99.
- Broad-spectrum CBD: cbdMD’s Broad-spectrum CBD Oil, 300mg, 30ml that uses MCT oil and natural flavoring, costs $29.99 while Green Roads’ Mint Breeze Broad-spectrum CBD Oil 300mg, 30ml bottle, contains Glycerin, MCT oil, Natural Flavor, Sunflower Lecithin, Sunflower seed oil, and Hemp Seed oil, sells at $44.99.
While differences between the ingredients of these products, like carrier oils and aromatic extracts, are very minor, the dosage of CBD per milliliter that they provide is actually the same. By dividing the price of the product by how many mg of CBD it contains, it shows that the price of CBD alone varies from brand to brand. Even with the information on the manufacturer’s website, it can be difficult to explain this kind of price difference. This usually leaves consumers wondering if premium CBD oil is expensive or actually worth it, or if there is something wrong with the cheaper ones.
CBD’s Journey: From Hemp to Bottle
Producing CBD oil is expensive. The process of getting CBD into some of its purest forms – oils, tinctures, and isolates, is quite long. There are many steps from the farm to the shelf that drive up its total cost. However, it may be surprising to know that a significant portion of the cost is not even concerned with production.
The cost of producing hemp for CBD
Like any other crop, hemp farmers need to spend on seeds, labor, farm equipment etc. Because of this, the location where CBD hemp is grown will largely affect its price. In the US, the cost of starting and running a hemp farm is dependent on each state’s hemp statutes and can vary greatly. For example, those looking to grow hemp in Vermont will only have to pay $100 to farm in less than 0.5 acres or produce less than 500 pounds of hemp in dry weight3 but in Oregon, growers will first have to pay a $1000 certificate fee and $250 application fee to the Oregon Liquor Control Commission (OLCC)4.
Meanwhile in Nevada, a grower has to pay $500 for the application fee, producers $100, and handlers $1000, in addition to the $5.00 per acre/.33 per sq. for indoor grows plus additional fees incurred by the Nevada Department of Agriculture. This makes hemp more expensive in Nevada where dried flowers cost around $200, as opposed to $100 for the same in Vermont.
Processing hemp and extracting CBD
There are also numerous uncertainties in farming CBD hemp. Every farmer may do it differently, especially that there is no authority they can rely on for guidance. One farmer can choose to use a decorticating machine to process his harvest while another may choose manual labor from harvesting to drying. Even the way the hemp is dried and cured will have a large impact on the quality of the CBD. However, high-quality CBD can fetch a significantly higher price that can make the trouble of farming worth it.
Extracting CBD drives up the cost even more. Even though CBD buds can already be used after being dried and cured, more CBD users prefer to use sublingual oil for a number of reasons:
- it can be ingested without smoking/vaping
- its effect lasts for much longer compared to vaping/smoking
- its possible to use CBD without other cannabis compounds
3 popular extraction processes
In CBD Isolates and How They are Processed, we discussed how complicated extraction is. It is largely dependent on what kind of extract the producer wants to produce (full-spectrum, broad-spectrum, isolate). Commercial producers are likely to use one of the following:
- Carbon dioxide (CO2) extraction – this process uses carbon dioxide in liquid form as a solvent to break down the hemp biomass and pull out the CBD and other needed compounds like other cannabinoids and terpenes. This is a popular extraction method for large operations since it yields the purest CBD and CO2 is also non-toxic. However, the necessary equipment and skill requirement is costly. CO2 extraction machines usually cost around $135,000 and rotary evaporators and centrifuges at around $20,000.5
- Steam distillation – this is an old and crude method of extracting CBD by steam. The process is relatively cheaper and non-toxic. However, it is inefficient and the distilled CBD is not as pure. The amount of heat used in the extraction can also damage the CBD. The equipment alone for distillation can start at around $5000.6
- Solvent extraction – this method uses ethanol, butane, propane and other solvents that have a low boiling point to pull out the CBD. Although a relatively cheaper than CO2 extraction, it can be dangerous because of the flammability of the solvents. Also, the resulting CBD may still have traces of the solvent left. Similar to distillation, the apparatus for solvent extraction can start at $50007, but companies that use this may have to pay additional to equip their facilities to comply with safety standards.
The extracted CBD may have to go through additional filtration and refinement processes. For example, ethanol-extracted CBD is typically passed through winterization or short path distillation to remove unwanted compounds and particles.
As discussed in The Importance of 3rd Party Testing of CBD Products, reputable companies make it a point to get their products tested even though there is no legal requirement for them to do so. This is partly the reason for the price difference between cheap and premium CBD oils. For prices ranging from $100 to $300, such as Confidence Analytics test packages, third-party testing companies can screen the extracted CBD for pesticides, toxins, heavy metals, and other unwanted compounds so even if the extract comes from a questionable source (which is unlikely), the third party tester can attest to the quality of the CBD.
Marketing and compliance
CBD companies often find themselves in a vulnerable position given the ill-defined legal status of CBD in the US and certain parts of the world. This compels them to cover all their bases to avoid being shut down.
They will also require good legal representation for obvious reasons. They also need an in-house compliance officer to ensure adherence to the regulations of the state they are operating in.
Banking is also difficult for CBD companies since financial institutions typically do not want to be linked to the cannabis industry. These forces companies to find other businesses that will allow them to hold accounts, process card payments, payroll, etc. Most will have no other choice but to use offshore banks and this can drive up the cost considerably.
Some companies also intentionally raise the prices on their CBD products for two reasons. Either they are already a well-known brand, or they are looking to project an impression of exclusivity. This makes sense profit-wise since CBD is also a homeostatic supplement bought mainly by millennial men who have had higher education.8 In most cases, this is a big reason why CBD oil is expensive.
The current prices of CBD oils are to be expected even though they may not be justified. This is because the CBD industry is currently unregulated and the demand is continuously increasing. Even though CBD oil is expensive now, prices should go down once legal obstacles are lifted, regulation sets in, and production technology is improved.
- Alicia Wallace. CBD product sales are booming. Now the FDA needs to weigh in[CNN Business]
- Paul L. Joskow, Nancy L. Rose. The Effects of Economic Regulation[MIT Economics]
- Agency of Agriculture, Food and Markets. Hemp Program Registration[Vermont Official State Website]
- Industrial Hemp Certificate Application[OLCC]
- Stephen “Marsh” Schoenhard. The Economics of Extraction, Options for Dispensaries, Cultivators and Edible and Infused Manufacturers[CBE]
- Kenneth Morrow. The Economics of Extraction[Cannabis Business Times]
- Kenneth Morrow. The Economics of Extraction[Cannabis Business Times]
- CBD Usage by Demographics[DataTrek]