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A) it's a horrible idea from a security standpoint
B) all the anti-piracy groups would probably have a heart attack and attempt to shut it down in any way possible
C) it's a lot more expensive for the band to pay for this type of distribution compared to CDs
D) it will most likely end up as e-waste
For point c, it's actually cheaper depending on how they do it. One of my favorite artists, mc chris, has done USB discog sales for over a decade. He charges like 100 for it last I saw, but it's also a custom USB along with having like 10-20 albums and Eps.
It would be much more expensive to press, bundle and package/ship that many CDs in comparison to a single USB drive. And since it's also merch, point 4 is unlikely. He's never cared about his music being pirated (and even has lyrics about his music being 'forever free for the poor kids', so B isn't an issue either.
Option a is basically do you trust the artist, which one would hope they're trustworthy, but they could also Sony you if they weren't...
That's pretty cool, but at what quality? MP3? AAC? M4A? FLAC? You don't know until you buy it and plug it in, you know that a CD is going to be WAV files which is uncompressed audio mastered at the best quality possible, which you can then rip to your desired format. If whats on the USB drive isn't FLAC, you're limited to what they gave you.
It all depends on if you're doing it yourself or if you have someone that's already setup to do it as a business. After a quick search, I found a site that will do 100 CDs with inserts and jewel cases for $255, I'm sure the price goes down with the more you order. The same site offers custom USB drives with silkscreen printing (how else are you going to know what's on it amongst all your other flash drives assuming you intend to keep it?) is $330 for 100, so if the artist is actually putting multiple CDs onto a single USB drive than it definitely is cheaper for them, but I'm not sure how many bands would actually do that.
That's one artist, lots of artists care about their music being pirated because it cuts into their revenue, which they get very little of in the first place (referring to CDs, not streaming which is a lot better for them in terms of revenue). IDK how old you are, but I'm guessing you don't remember Napster/Limewire/Kazaa. Also, a lot of the time it's the companies that own the rights to the music that care the most because they're the ones that get like 70% of the profits.
Ah, yes, the good old Sony rootkit.