CBD Hemp Oil Market

Michael Porter’s five forces analysis determines the attractiveness and competitive intensity of the market. This is a useful tool to understand the strength of an organization’s current competitive position.

The five forces are very significant to develop strategy formulation. The potential of these forces varies from industry to industry. On combining these forces, the profitability of industry can be determined because it will help to shape up the prices that can be charged, the costs that can be borne, and the investment needed to compete in the industry. The five industry forces identified are the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, the threat of substitutes, and rivalry among existing competitors.

The components of each of the forces and the degree or impact of each component in the context of the global CBD hemp oil industry have been broken down and analyzed below.Bargaining Power of Suppliers

Bargaining power of suppliers in the CBD hemp oil market is moderate. In the global CBD oil industry, suppliers are raw materials manufacturers and, intermediates. The number of suppliers in the market is less which limits the supply of hemp to product manufacturers for raw material sourcing, thus leaving suppliers with high bargaining power. Switching cost of these suppliers is also medium as the suppliers tend to enter into long-term associations with the manufacturers. One of the key dominant factors includes the introduction of Farm Bill which will encourage the farmers to cultivate more hemp. As Europe and China are the major cultivators of hemp the absence of one dominant supplier and availability of hemp from the black market increase the bargaining power of suppliers. On the other hand, since the production cost & expensive materials are used for manufacturing of CBD hemp oil, only a moderate number of viable raw material substitutes are available, which further boosts the bargaining power of suppliers in the market.

Threat of Substitutes

The threat of substitutes in the global CBD hemp oil market is high. There are a variety of hemp products available in the market containing CBD compound. Other than oil, the CBD hemp products are available in various forms such as a cream, capsule or soft gel, gummies and natural isolates providing the same medical benefits. These products are available as both prescription and over-the-counter medications in the market. Also, the rising awareness about numerous types of hemp products increases the risk of threat of substitutes in the market.

Threat of New Entrants

The threat of new entrants is moderate to high in the CBD hemp oil market. Previously this industry had only thing stopping new comers from entering the market is the approval required by the government as limited licenses are issued by the government. By means of the Farm Bill this issue has been resolved and an increase in the threat from the new entrant is anticipated in the CBD hemp oil market. The market is also characterized by a moderate degree of brand loyalty.

Bargaining Power of Buyers

The bargaining power of buyers is moderate in the CBD hemp oil market. Patients and hospitals are the major buyers for the market. The presence of buyers in the market is high due to the increasing prevalence of chronic conditions, and rising demand for CBD based products for the treatment purpose. In addition, buyers are price sensitive, which moderately affects their bargaining power in the market. There are a smaller number of manufacturers of CBD based products in the world, which also affects the bargaining power of buyers. Additionally, switching cost is moderate for buyers as many alternative treatments are available at an effective cost.

Intensity of Rivalry

The degree of competition in the global CBD hemp oil market is moderate to high. The high degree of product differentiation among existing players increases the intensity of rivalry in the market. CBD oil manufacturing companies are trying to develop less expensive drugs to make treatment more affordable in the developing region. Moreover, demand for CBD oil is many times higher than supply. So, it also decreases the intensity of the rivalry.