THE OFFICE for National Statistics (ONS) released more troubling news on the state of the UK’s economy this week, revealing that concerns around the cost of living led to ‘feeble’ growth in July, a month usually blessed with increased spending due to warm weather.
With little detail given on what help businesses can expect from the government to meet soaring energy prices, which according to the Federation of Small Businesses (FSB) have risen 424% and 349% for gas and electricity respectively since February, many small businesses are preparing for the worst.
Though these are undoubtedly difficult times for all, for small and medium sized (SME) CBD companies across the UK it marks the latest in a string of barriers to growth or even survival.
Facing the latest squeeze on consumer spending, skyrocketing costs, bank account closures and a costly, inhibiting Novel Foods process, CBD businesses are now being forced to diversify their offerings and alter their products to make them more financially viable.
‘Little Guys Dropping Off’
Phil Patterson, who co-founded the Northern Ireland-based CBD brand Real Cannabis Club in 2019, told BusinessCann that his company has been feeling the pinch since the start of the year.
“Certainly the fall in discretionary incomes has impacted us really since March of this year. It’s tremendously worrying to be honest.”
This has meant that, alongside his two co-founders Peter Henderson and Matthew Mccartney, he is no longer able to work for the company full time.
The squeeze on discretionary spend, which according to recent research from Grant Thorton will see retail and consumer industries miss out on £24.9bn in spending this financial year alone, is forcing CBD companies to explore ways to bring down the cost of their products.
Mr Patterson explained: “You’re left with two choices as a small business. You can lower the quality of your product and with it the price, and you can put an inferior product out there in the market. You can dilute your ethics and integrity around that.
“Or you can stay strong, but keep your product as it is, a good therapeutic product, but know that no one can afford it.”
Real Cannabis Club is far from the only CBD company considering altering their products, or turning to other sources of income to make ends meet.
According to Siân Phillips, Executive Director of the Cannabis Trades Association (CTA), one of Europe’s largest cannabis trade bodies, many smaller companies are turning to diversification.
She explained the looming cost of living crisis will ‘possibly wipe the companies out, but also possibly make them reconsider their marketing options so that CBD isn’t the entire focus of their business… What I’m seeing is a lot of little guys dropping off.’
One of the CTA’s largest members is understood to have recently launched a pharmaceutical business to supplement income.
Cefyn Jones, head of the CBD and hemp advisory service Hemp Hound Agency, echoed this, stating he’s seen a lot of businesses move into selling nutraceutical products or general accessories to find ‘any way to get those extra pennies’ and ‘increase their full sales potential’.
Lack of Flexibility
As the cost of living crisis applies fresh pressure to CBD SME’s, many are finding that their avenues for diversification or support are being severely hampered by barriers which have dogged the industry for years, significantly exacerbating their struggle.
First and foremost is the ongoing Novel Foods process, which even for companies like Real Cannabis Club that have had their products added to the Public List, continues to present problems.
Mr Patterson said: “Our products are on the Novel Foods List which is a positive, but the regulatory process around that was quite hellish at times to be honest, and quite prohibitive.
“Having a climate of uncertainty hanging over us has been tough. Having that lack of clarity has been incredibly prohibitive to raising capital to getting into physical stores. Basically, it’s totally hamstrung us.”
Not only has the Novel Foods process prevented Real Cannabis Club from being able to access private and public funding, but it is also understood to have made it much more difficult to receive Government support.
“We applied for everything really. I know a lot of other businesses in a similar position did secure government help, support, loans, grants and all the rest of it. Because of Novel Foods, because we’re in the CBD slash cannabis space, it has proved incredibly challenging to get any support.”
Other institutions, such as banks, also continue to use the ongoing uncertainty surrounding CBD to justify blanket bans on dealing with companies with any connection to cannabis.
According to Mr Patterson, his company’s business account with Tide was shut down just this week, a development he said will ‘cripple us’.
“No other bank will take us. We’ve no debt, and they’ve given no explanation, no extenuating circumstances.”
Mr Jones added that the lack of flexibility in the Novel Foods process meant many companies were trapped, now left with no choice but to eat cost increases from their current suppliers.
“I know one of the big companies on the list turned around to its licensees and said we’re going to have to raise our wholesale prices by 10-20%. What happens to all those licensees that are trapped by that?
“It’s not just the smaller companies that are affected. I think we’re just starting to witness the fallout.”
He explained that he was also aware of a number of CBD companies turning to cold pressing techniques to create CBD products in efforts to avoid the expensive and time consuming Novel Foods process altogether, a practice BusinessCann understands is somewhat of a legal grey area.