Retailers See Promise In CBD And Hemp Products
Thanks to the passing of the Farm Bill in late 2018—containing a provision legalizing hemp, a species of non-psychoactive cannabis that CBD can be extracted from—hemp and CBD are on major retailers’ radar.
The CBD market is moving towards mainstream retailers and is projected to be over $20 billion in sales by 2024 . Walgreens, Sprout, CVS, Ulta Beauty, GNC Holdings, Urban Outfitters are just a handful of retailers offering or looking to offer, CBD products to consumers.
According to Christina Hartwell from Little Mary and Jane, ”the industry is on the verge of moving beyond merely CBD and exploring the full spectrum of Hemp (Cannabis Sativa L).”
The potential of CBD and hemp products appears to be endless due to newly emerging scientific data.
“The industry is on the verge of moving beyond merely CBD and exploring the full spectrum of hemp (Cannabis Sativa L). Scientific studies thus far have been somewhat limited due to the stumbling block of THC due to potential adverse side effects and regulations. However, the studies being done on full-spectrum hemp and the multitude of cannabinoids in the plant are promising, CBN is beginning to come to the forefront and is potentially more beneficial for treating insomnia and anxiety than isolated CBD,” Hartwell added.
Retailers jumping in
Several retailers for natural supplements are expected to have CBD on their shelves. Dillards Department Store, a chain with a total of approximately 292 stores in 29 states, is beginning to roll out several Hemp Depot while-labeled CBD products. Kroger announced in July another 1,000 locations in 22 states where their grocery stores will begin to carry CBD products.
“Because of the tremendous range of products in which CBD is a fit, we expect to see it on shelves, literally, everywhere. Wholesale order numbers are climbing dramatically, which is one of the first signs of significant market expansion. When we started, we were taking orders for small companies ordering 500 units at a time. Large company orders are projected to reach 100,000+ units in the next 18 months, which is going allow wholesalers like Hemp Depot to manufacture products on a larger scale, thereby reducing CBD product prices by the end of 2020 to a forecasted $20 to $30 as with standard vitamin supplements,” said Andy Rodosevich, CEO and cofounder of Hemp Depot .
In July, adding to the momentum, Toronto-headquartered Abacus Health Products announced new retail purchase orders from CVS for its line of CBDMEDIC pain relief and skincare products, sold to consumers via retail chains and the company’s e-commerce platform.
“We are encouraged to see the continued interest and growth in CBDMEDIC among leading retailers throughout the United States. In particular, the fact that CBDMEDIC products are now being positioned in-line demonstrates the acceptance of our over-the-counter products within the traditional pain relief and skincare categories and we look forward to seeing the continued growth in the number of retail locations in which CBDMEDIC is available,” said Perry Antelman, the CEO of Abacus Health Products, maker of CBD CLINIC and CBDMEDIC.
Also in July, Green Growth Brands announced a deal with American Eagle to begin selling its CBD-infused body-care products — including muscle balms and lotions — in nearly 500 of American Eagle’s stores and online, with sales expected to begin in October. This follows apparel retailer Abercrombie, which also plans to sell GGB’s products in more than 160 stores across the U.S.
“The cultural conversation around CBD is growing and I think we are beyond CBD being only for early adopters. The push to major retail outlets like Kroger, Walgreens, and CVS seem to support that,” said Paul Miller from Lokus Nutrition .
The FDA is in the midst of creating guidelines for CBD manufacturers and will likely eliminate some manufacturers currently participating in the CBD boom and open the door to some large scale, mainstream manufacturers. The details of the FDA regulations will inform the specifics of how large the OTC piece of the CBD pie becomes.
“We’ve seen major chain retailers like CVS, Walgreens, and Whole Foods start to include CBD in their product mixes. The larger the entity, the more likely they are to stick with topical products until the FDA provides clarity,” said Kate Heckman from Stratos CBD .
When it comes to CBD oils, presently only 10% of demand is being filled by present growers. The industry has increased by 200% from 2017 to 2018, with about $618 million in sales last year with projected $22 billion by 2022.
“A lot of people want to get into this arena. Some of the problems we are working on are standardization of the industry, genetic variations, for patents and lab certification. It is the wild west, with little or no standard dosages or diagnosis for the public to rely on,” said John Sation, clinic director, and research coordinator from Hair & Scalp Clinics.
The recent FDA warning letter to Curaleaf on July 26 serves as a wake-up call to the industry about statements in marketing or social media that imply that these products can be used to treat medical conditions.
“It’s in the best interest of the industry to be careful and conservative with any label claims being made. With the passing of the 2018 Farm Bill, each state department of agriculture must submit a state management plan to the USDA outlining how various aspects of hemp cultivation and processing will be managed within their jurisdiction,” said Dr. Sean Callan, CEO of Precision Botanical .
While the opportunity is real, risks remain. According to David Gross from Strategic Value Partners , players in the space should tread carefully as the regulatory framework is currently only taking shape:
“Don’t be first here. By all indications, the FDA appears poised to take aggressive and decisive action, as evidenced by the Curaleaf warning letter, against companies who manufacture, distribute, and retail CBD products. Moreover, the Drug Enforcement Agency (DEA), Department of Agriculture, and financial regulators (i.e., FDIC, OOC, and Federal Reserve) remain unknowns. In the near-term, any benefit you might receive from being first is far outweighed by the business and reputational risk of a potential FDA action or a multi-state federal raid at your warehouses.”
Inside Kroger’s push to sell — and regulate — CBD
Last summer, Kroger began selling cannabidiol products at over 1,000 of its stores across the country. The country’s largest national grocery chain joined the CBD boom in stocking topical CBD products like oils, balms and creams.
Kroger, along with Rite Aid, Walgreens and CVS, has been on a mission to introduce CBD use to mainstream shoppers since the hemp-derived compound was decriminalized in 2018.
With hundreds of stores, largely located in the Midwest and the South, Kroger has quickly become one of the biggest brick and mortar CBD sellers by footprint, with plans to become the go-to hub for large CBD producers.
The cannabidiol market is expected to reach $20 billion by 2024, so it’s no surprise that large retailers like Kroger find it lucrative to go all in on CBD. Since announcing the decision last July, Kroger has added Charlotte’s Web, The Yield Growth Corp., CV Sciences Inc. and Aurora Cannabis, among other big players in the space to its growing list of CBD brand offerings.
The strategy is presented as part of Kroger’s multi-year plan, Restock Kroger, to compete with Walmart and Amazon and cater to today’s shopper habits. The investment costs, which include building out in-store pickup and delivery options, along with on-trend product additions like CBD, have been reflected in its missed earnings. For example, in December, the company’s bullish efforts to modernize its stores saw it miss quarterly revenue estimates by 0.33%. However, the early success seen by some of the most popular CBD brands around shows promise for Kroger’s long term business strategy.
Last July, CBD producer Charlotte’s Web began product distribution through 1,350 Kroger store locations across 22 states, which has since expanded to 1,497 locations. The partnership has been credited in helping the Colorado-based company post strong retail sales, which increased by 66.4% during the third quarter of 2019. Shortly after the launch, Charlotte’s Web CEO Deanie Elsner noted that 53% of the company’s revenue came from retail outlets, including deals with national chains like CVS and Kroger.
Tony True, chief customer officer at Charlotte’s Web, confirmed “Kroger has continued to be a strong partner in the development of the rapidly emerging CBD category,” going on to say that Charlotte’s Web has since experienced “significant distribution gains across the Kroger network.”
The Kroger partnership has further raised customer awareness of what CBD is and how it’s used in newer markets, which True said will continue being a big focus moving forward. On this front, Charlotte’s Web and the retail chain plan to continue offering Kroger’s various shoppers “the right products.”
Similarly, last summer CV Sciences also became one of Kroger’s first CBD vendors when it started selling its PlusCBD’s Oil Roll-On at 945 Kroger stores. The company said that its total quarterly retail distribution increased by 18% from June to September 2019, thanks to stocking PlusCBD products at 1,350 Kroger-owned stores. The company’s national retail presence has been a major source of sales for CV Sciences , which posted a $12.6 million revenue last quarter.
CBD industry’s push for FDA’s approval
The lack of regulation is currently a major hindrance for the hemp category as it seeks further growth. With both Charlotte’s Web and CV Sciences having independently advocated for it, it’s confirmed the need for large grocers like Kroger to help push legislation through. Kroger now wants to have a say in the government’s anticipated regulatory. According to a public disclosure this week, first reported by Cannabis Wired, Kroger Co. plans to spend nearly $200,000 on government lobbying in 2020, an effort it first began last year. The funds will go to “issues related to the regulation of topical products containing CBD oils and hemp-derived products following the implementation of the 2018 Farm Bill,” according to the filing . Kroger will specifically target U.S. Congress members, the Department of Agriculture, the Environmental Protection Agency and the Food and Drug Administration, which still hasn’t approved of wellness claims made by CBD brands.
Kroger didn’t respond to a request for comment.
“As more big box and regional chains get involved in selling CBD, policy lobbying is expected to increase,” said Colby McKenzie, principal at Enlighten Wellness, a retail tech startup that creates educational CBD merchandising displays for store chains, including Ray Food Place.
“Retailers like Kroger want CBD to be categorized like other nutraceutical or ‘ bioceutical’ products,” which are considered non-medical pharmaceutical alternatives , which McKenzie explained would keep CBD from becoming exclusive to pharmacies. This is because as long as CBD remains a dietary supplement, retailers are only required to stay away from labels making false claims, like cancer curing, to be able to sell it legally.
Currently the majority of Charlotte’s Web’s channel partners only sell CBD topicals “while awaiting legal and regulatory clarity from the U.S. Food and Drug Association,” said its last earnings report. “Topicals account for less than 15% of our sales at independent stores that carry both our topical and ingestible CBD product lines,” according to the company, indicating even greater revenue potential from ingestible CBD products being sold at national chains like Kroger. For CV Sciences, “ further regulatory clarity will expand availability of ingestibles, which account for many of our top selling products,” according to the company.
Early investment in CBD regulatory efforts is a longterm strategy for Kroger in order to maintain its position as a retail power player. The supermarket chain’s push for FDA approval isn’t just a safety precaution, it ensures long market share growth down the line. According to McKenzie, when you have an emerging category as lucrative as CBD, “it’s understandable that major beneficiaries like Kroger want to have a voice in regulating it.”