CHICAGO — Despite the nascent chaos and regulatory uncertainty that continues to swirl around the sale of cannabidiol (CBD) products, c-store retailers are still hopeful about the promise of the subcategory.
That excitement stems, in turn, from grassroots consumer exuberance about the promise and potential—real or rumored—the new products may have in the areas of health, wellness and beauty care. Many people are trying CBD products themselves and even giving them to pets. And suppliers of CBD products are poised and ready to satisfy all those curiosities.
“We are seeing greater adoption, and stigmas are being reduced. That’s an opportunity for retailers and manufacturers who have maybe been slow to adopt to think, ‘Maybe I need to be part of this because it’s big.’ The direction it’s heading is really positive,” says Larry Levin, executive vice president of Chicago-based IRI. “We are seeing a movement into mainstream markets for CBD, and this is … just the tip of the iceberg.”
As CBD moves into the mainstream, which retail channel will emerge as the leader?
C-stores represent only 19% of total consumer packaged goods (CPG) dollars, but when it comes to the approximately $125 million in hemp/CBD sales in markets measured by IRI, its share is 56%—or three times bigger in terms of market share, according to IRI. The c-store channel rang up $70.8 million in CBD sales in 2019. That said, all mainstream retail channels will see growth in the next five years, according to BDS Analytics.
“The early strength of sales in c-stores emphasizes the importance of the channel,” Levin says. In fact, 73% of the growth in the CBD industry in retail channels measured by IRI came from c-stores.
“We have the opportunity to own this category,” he says. “Unless there is some major setback to the industry, pushback or lawsuits, I can’t imagine … that this thing’s going to slow down anytime soon.”
‘In Great Shape’
“The CBD category is in great shape,” says Jon Bunch, director of marketing and business development for Carmi, Ill.-based Martin & Bayley Inc., operator of the Huck’s c-store chain. “There is so much curiosity in the market that will help increase the organic growth of the category. This category continues to grow because of innovation and people requesting more delivery methods for CBD.”
Until recently, Bunch had no experience in the category. He spent 15 years on the wholesale and vendor side of c-stores in general merchandise and moved over to the retail side two years ago with Huck’s. He spent nine months learning about CBD, cannabis and hemp and collaborating with other category managers before bringing CBD products into the stores. Now he’s passionate about being able to provide a quality product that customers want. Huck’s carries gummies, vape, tinctures, topical creams, energy shots, capsules and a line of pet treats and tinctures.
“It’s an exciting category to be a part of,” says Paul Crozier, sales manager of cigarettes, tobacco, CBD and lottery for Sheetz Inc., Altoona, Pa., and CSP’s 2020 Category Manager of the Year for CBD. “Right now, it’s pretty early. We’re learning, testing new items and assortments. For us, it’s pretty small, but there’s a lot of upward potential. Where it will have more of a runway is when more people understand what the product is and what it isn’t.”
The need for education “is going to put onus on the retailers to make sure that [they] can help consumers, because a lot of people may be really confused when they come in,” Levin says. “The retailer has to be ready to answer questions that he or she may not have to answer in a normal c-store transaction. So education is really critical in this channel.”
Retailers need to stay on top of all the available information on a product. Yesway, West Des Moines, Iowa, keeps a record of certificates of analysis, or quality assurance documentation, on file so stores can reference them as needed, said Alan Adato, merchandising and procurement manager, during a recent CSP “At Your Convenience” podcast. “We want to make sure that our stores are comfortable with the product, which, in turn, will make our customers feel comfortable that we’re providing quality products that have been vetted and that are safe,” he said.
While the sale and marketing of CBD products is still illegal in many areas of the United States, the U.S. Food and Drug Administration (FDA) has so far limited its punitive actions to issuing warning letters to CBD manufacturers who have made health claims on their products. No retailer has received a warning letter yet and probably won’t as long as retailers aren’t making their own independent health claims on the products, according to attorney Jonathan Havens, a partner and cannabis specialist with Philadelphia-based Saul Ewing Arnstein & Lehr, who spoke recently at CSP’s 2020 Convenience Retailing University conference. But that doesn’t mean retailers won’t feel the sting, he said, pointing to the negative press drugstore chain CVS saw when its CBD partner Curaleaf received a warning.
“Getting a warning letter is really a death knell in this space,” Havens said. “The warnings are going to brands ... but have an effect on retailers.”
The 2018 Farm Bill does not preempt state law, meaning states do not have to allow CBD sales in their state. The result has been a patchwork of regulations. Some states have indicated that they will follow FDA guidance, while others have passed laws more permissive than the FDA statute.
“We are seeing a movement into mainstream markets for CBD, and this is … just the tip of the iceberg.”
The biggest challenge for CBD products right now is “the opposite of tobacco,” Bunch of Martin & Bayley says. “Tobacco regulations pose a big challenge. With CBD, it’s the lack of regulation and clarity with the FDA that poses the challenge. On the municipal, county, state and federal levels, it’s not at all clear yet.”
Meanwhile, the types of legal CBD products may soon expand. A bipartisan group of lawmakers introduced legislation earlier this year that would amend the Federal Food, Drug and Cosmetic Act to include CBD in the definition of dietary supplements, which would allow CBD to be marketed in food, beverages and nutritional supplements.
Another challenge in offering CBD products is that consumers don’t typically think of c-stores as places to buy wellness products. Also, the price point is typically higher than that of most convenience merchandise; therefore, inventory turns become especially important. For example, some CBD products come in cases of 24.
“You don’t want to have higher-cost items just sitting around,” Crozier of Sheetz says. “So you need to make sure you’re getting inventory turns, and you have to be really smart in managing your inventory.”
For c-stores, the category is “a higher dollar ring and maybe less [frequently bought] due to purchase cycles,” Levin of IRI says. And much of what is being sold is in the form of vitamins or supplements. “Oftentimes it’s a multiuse product, so the customer is not coming in every couple of days buying CBD products. The purchase cycle is going to be a little bit longer than maybe some of the other products that are traditionally sold ... in that channel.”
Working with new vendors in a new category is both an opportunity and a challenge, says Crozier, whose responsibilities also encompass tobacco. “You have to be mindful of who you partner with,” he says. “A lot of these guys are people no one has worked with before. Do they have appropriate insurance? Are they doing third-party testing on potency?”
Retailers should be wary of CBD suppliers that make health claims, because the FDA is still developing standards for CBD-infused products, especially for products people may eat or drink, said Jacopo D’Alessandris, president and CEO of E-Alternative Solutions, Darien, Conn., who spoke at the recent Tobacco Plus Expo in Las Vegas. As regulatory agencies such as the FDA begin to establish rules, many suppliers will disappear, he said.
“There are lots of cowboy brands,” D’Alessandris said. “When the sheriff comes to town, a lot of companies will have left.”
Crozier declined to discuss what specific products Sheetz carries, but he describes it as a broad offering. The assortment has changed several times since Sheetz introduced CBD products in May 2019. It merchandises the products in a dedicated fixture behind the counter and sells them only to customers 18 and older.
Crozier’s goal for 2020, along with staying on top of regulations as they solidify, is figuring out what products really resonate with consumers.
At Huck’s, Bunch’s goal for CBD products this year is to expand the category. Right now, the chain displays the products only on the countertop. He is looking into more CBD items for center store and the cold vault.
“Who would have ever thought CBD would take off like it has?” Bunch says.
—Additional reporting by Angel Abcede and Brett Dworski