NATIONAL REPORT — With the passage of the 2018 Farm Bill and the legalization of recreational cannabis in half the country, marketers are confident that hemp and cannabidiol (CBD) products will become as common in convenience stores as beer and cigarettes. I thought it would be. However, the lack of federal guidelines for CBD consumer products, the illegality of cannabis at the federal level, and unfavorable financial laws have made large retailers and suppliers reluctant to enter these areas, which has slowed the growth of both sectors. It's slowing down.
CBD sales have fallen from a high of about $4.8 billion in 2021 to $4.2 billion today, according to Brightfield Group's report, “U.S. CBD's Efforts to Prosper.” By 2028, market researchers predict that CBD sales will only reach $5 billion without regulation. With regulation, sales could exceed $10 billion.
Cannabis market intelligence firm BDSA predicts that U.S. legal cannabis sales will increase from $29.6 billion in 2023 to $45 billion by 2027, accounting for 80% of global sales. Experts believe that growth could be even higher if financial and other regulations are eased.
However, there are some bright spots. Although independent retailers are the most prevalent, large convenience channel players such as Jacksons Food Stores, Yesway, Sheetz Inc., and Alimentation Couche-Tard Inc./Circle K are partnering with cannabis suppliers and We have successfully introduced products. From small vendors.
“CBD products are primarily sold by independent retailers,” said Alex Morrison, business analysis manager at Cadent Consulting Group, based in Wilton, Conn. “It's definitely difficult for chain stores. I think they are.” They're concerned about brand awareness, consumer trust, and regulation, and the regulatory environment means that partnerships with cannabis dispensaries aren't as advanced as they are in Canada. ”
Financial risks and obstacles
Operating a pharmacy in the United States is expensive. In addition to myriad regulations, it is illegal for large banks to finance cannabis businesses, and Section 280E of the Internal Revenue Code makes it illegal for companies to generally deduct gross proceeds related to the “trafficking” of Schedule I or II substances. It is prohibited to deduct business expenses. On the consumer side, Mastercard announced in July that it would ban marijuana purchases with debit cards.
“Partnerships with neighboring pharmacies are a work in progress,” said Agustín Rodriguez, a partner at Atlanta-based law firm Troutman Pepper. “There are a lot of compliance costs. You have to obtain licenses, monitor inventory, and track it throughout the system from tiller to retail sales. This requires special software. There are some smaller banking institutions that do, but they cost a lot of cash.
Matt Zehner, insights manager at Brightfield Group in Chicago, said these issues are severely hampering profitability. “Growth strategies are not working in cannabis and CBD. Financial risks are crowding out companies. Some companies are burning through large sums of money. The hype seems to be outweighing the profits. We are cautious about entering this space without regulation.”
Sen. Jeff Markley (D-Ore.) wants the fiscal situation to calm down. In April, Congress introduced the SAFE Banking Act of 2023 (S.1323). It protects federally regulated financial institutions that serve state-licensed marijuana businesses and allows them to make loans.
“This bill has been passed by Congress and has been introduced three times,” said Brendan Mitchell Chesebro, analyst and content manager at BDSA in Louisville, Colorado. “It's increasing a lot of risks,” he said.
Circle K has entered into a colocation pharmacy partnership but has not yet opened for business as of this writing. The chain is partnering with Green Thumb Industries of Chicago, owner of RISE Dispensaries. The plan is to build 10 RISE Express medical marijuana stores adjacent to 10 Circle K stores in Florida.
Fort Worth, Texas-based convenience store retailer Yesway is also “considering opening dispensaries in states where marijuana is legal,” said Alan Adato, senior merchandising and procurement manager. The specific timing was not disclosed.
standards needed
The CBD business is more developed in the convenience channel, but only a handful of major retailers are participating. Altoona, Pennsylvania-based Sheets began offering CBD products in select stores in 2019, including vape pens, tinctures, CBD tablets/capsules, oral pouches, and edibles. Yesway entered the category with CBD-infused water that same year and has steadily expanded its offerings.
In March, Yesway announced plans for an in-store CBD concept called Feel Good Shop+ in an agreement with Las Vegas distributor GPO Plus Inc. and its Distro+ division. Feel Good+ sells drinks, snacks, and vaping products on consignment.
Mr Adato said business was strong, with most stores having a “broad selection”.
“In stores, we saw a significant increase in sales of disposable e-cig products, especially with Delta 8, HHC and Hybrid,” he reported. “Other popular products are CBD-infused beverages and Delta 9. This category drives traffic as customers realize the benefits of a quick and convenient outlet to purchase CBD products. ” Yesway also offers CBD gummies, pre-rolls, and smokes.
Adato points out that this category is constantly changing. “We've evolved significantly. Customers are gravitating toward new and innovative items in Delta 8 and Delta 9 that can be consumed in a variety of ways,” he said.
The CBD business could be even stronger if the lack of U.S. Food and Drug Administration (FDA) standards didn't hinder growth and consumer acceptance. Adato added: “If this category becomes more regulated, consumers will be more aware and educated about CBD, which will provide more opportunities for suppliers and retailers.”
Without standards, quality and safety can be inconsistent, further discouraging large retailers from selling. “The formulation can be very different from what's on the label,” said Brightfield Group's Zehner. “Some brands don't have the highest testing standards, which can be quite demanding. This negatively impacts manufacturers who strive to make quality products.”
The FDA has not provided clear guidance regarding CBD as a food additive, but it has issued a warning to companies that make products that claim specific health benefits. As a result, “companies are becoming more cautious,” said BDSA's Mitchell Chesebro.
Jared Stanley, co-founder and chief operating officer of Chicago-based CBD oil supplier Charlotte's Web, says these issues have reduced the number of brands in the category from 4,000 a few years ago to 4,000 today. It is said that the number of companies has decreased to about 2,000.
“Consumers have turned away because they may have bought a product that wasn't up to the same standards as other products. This category has been in decline for two years,” he said.
In March 2023, two federal bills were proposed that could create uniform product guidelines.
The CBD Product Safety and Standardization Act of 2023 (HR 1628) authorizes the regulation of interstate commerce for foods and beverages containing hemp-derived cannabidiol and for other purposes.
The Hemp and Hemp-Derived CBD Consumer Protection and Market Stabilization Act of 2023 (HR 1629) would make hemp, hemp-derived cannabidiol, and other hemp-derived ingredients as dietary ingredients under the Federal Food, Drug, and Cosmetic Act. That is legal. with nutritional supplements.
