Although a large sector of cannabis products remain illegal under U.S. federal law, state-legalized cannabis and cannabidiol (CBD) from hemp will translate into billions of dollars in revenue, according to research from Nielsen, New York.

From marijuana sold via licensed dispensaries where it’s legalized for recreational use to hemp-derived products that are emerging at retail outlets, cannabis could generate new revenue for those that can capitalize on related opportunities. It could also pose significant risk for suppliers and retailers that choose to turn a blind eye to the current and projected growth of cannabis.

In 2018, Nielsen estimated total sales of all legalized cannabis in the United States would reach $8 billion. This includes sales of hemp-derived CBD. With newer recreational markets such as Michigan and Illinois opening up for business in 2020 and more states likely to follow suit, Nielsen predicts that sales of all legalized cannabis in the United States will reach $41 billion by 2025.

Think broad with cannabis and its CPG impact

Recent developments related to hemp-derived CBD highlight why companies need to think broadly when it comes to cannabis. In the United States, as of December 2018, hemp became an official agricultural commodity with the passage of the Farm Act. And, although there are still FDA restrictions on hemp-derived CBD as an additive in ingestible products and topical products marketed as therapeutic rather than cosmetic, several major U.S. retailers are now selling non-ingestible forms of hemp-derived CBD.

As legal restrictions loosen, the process of bringing a hemp CBD product to market, including the leveraging of mainstream distribution channels, could soon mirror that of other CPG products.

Legalized cannabis won’t be a win for all

Substitutability of existing category purchases by cannabis purchases—in certain situations and occasions—is part of the risk equation. For instance, a substantial portion of cannabis-interested adults are also beer and other alcoholic beverage drinkers. On the flip side, those who figure out how to leverage cannabis-related situations, occasions, products and partnerships may reap the rewards.

The legalization of various hemp CBD products, the potential for widened recreational marijuana legislation and the growing popularity of hemp-seed and oil-based products will create opportunities to pursue new revenue streams.

Early adopters will be rewarded

It’s more important than ever for brands and products to prepare for the demands of cannabis-interested consumers before the gates open to even broader assortment, distribution and messaging.

The brand landscape in the marijuana space is exploding with hundreds of emerging brands seeking to capitalize on the growth opportunities. In 2014, the marijuana market was one of consolidation, where each marijuana producer, extractor and edibles manufacturer operated as its own individual brand. Today, the competitive landscape is more diverse, as are the needs of an expanding population of legal marijuana users. There were just 166 marijuana brands across two legalized states in 2014. By 2018, there were over 2,600 marijuana brands across four legalized states, which represented 10 times as many brands in Washington and over 7 times as many in Colorado in their early days.

In just four years, the face of legalized recreational marijuana has changed dynamically.