CHICAGO — It may be the understatement of the year: Regulations around the sale of cannabidiol (CBD) beverages are, at best, inconsistent. With significant variations from state to state and county to county, retailers must be well versed in the sales laws of their specific locations to know what’s allowed and what’s not … and how that might change tomorrow. Along with this regulatory ambiguity comes the slow legal and social acceptance in some areas of the country, a situation making some retailers hesitant to discuss the topic in depth, CSP has found.
This gray area, however, has a silver lining: The segment is expected to grow as laws change, restrictions loosen and acceptance grows.
“It is undeniable that the era of widespread national cannabis prohibition is coming to an end, as evidenced by the recent domino effect of state-by-state legalization measures,” says Tara Rozalowsky, vice president of beverages and edibles at Smiths Falls, Ontario, Canada-based Canopy Growth.
Coupled with looser restrictions is the growing interest in cannabis and cannabidiol products, including curiosity about their taste and potential health benefits, says one West Coast retailer who requested anonymity.
Retailers Watching Closely
Retailers CSP spoke with are paying close attention as the CBD beverage industry slowly grows amid murky regulation of hemp- and CBD-infused beverages (versus THC- or cannabis-infused drinks).
“There are a lot of questions being asked about THC-infused beverages, which today can only be sold in compliance with state cannabis laws, for example, at licensed cannabis dispensaries in states where cannabis beverages are permitted,” says Jonathan Havens, a partner at the Baltimore and Washington-based law firm Saul Ewing Arnstein & Lehr LLP.
Even beyond the legal questions, this potentially successful, niche category can be confusing.
“I think there is going to be a home for them once we can get through the state and local governments getting everybody on board ... on what’s going to be legal to sell.”
“CBD is one of the many cannabinoids that you can derive from the cannabis plant and, to make matters more confusing, marijuana and hemp are both cannabis,” Havens says. A product’s legality can depend on its THC concentration, how it’s grown, what’s in it and how it’s marketed, he says.
“For now, traditional retailers are focused on hemp and hemp-derived CBD beverages,” he adds.
Retailers uncertain what they can and cannot sell should check their state and local laws and defer to Havens’ tagline: “Know before you go.”
2018 Farm Bill
Further complicating matters, the 2018 Farm Bill, which opened the door for the sale of hemp, placed oversight of these products in the hands of the U.S. Food and Drug Administration, says Melissa Vonder Haar, a freelance writer and marketing director of St. Louis-based iSee Store Innovations.
“The Farm Bill of 2018 allowed for sale of hemp, including hemp-derived CBD, but granted the FDA oversight,” she says. “Because the FDA had already approved a CBD-based drug product, it’s taken the stance that CBD cannot be sold as a consumer good or supplement until the agency creates a pathway for approval. And they haven’t done that yet for ingestible products.”
“I would expect that in the next five to 10 [years], we’ll have federal marijuana legalization.”
But states have taken different attitudes, some following the FDA’s rules exactly, others enacting stricter laws, like California, Vonder Haar says.
Since the passage of the 2018 Farm Bill, anything ingestible has been in a legal gray area. Big picture, the FDA says edible CBD products are not approved for sale, but the FDA is also not going after retailers or manufacturers for making or selling ingestible products. Rather, they are pursuing companies making health-related claims regarding those products. Still many retailers are hesitant to get into this space “because they don’t want to be the headline that ‘FDA seizes illegal CBD beverages from (insert retailer name),’ for example,” Vonder Haar says.
Nonetheless, she is optimistic about CBD beverage sales down the road.
“I’m taking it for granted that sometime in the next five years, all of this is going to be cleared up,” she says. “I would expect that in the next five to 10 [years], we’ll have federal marijuana legalization.”
Evaluating Consumer Interests
The CBD category is still relatively young, Havens says, and marketers are still trying to understand consumer behavior and interests.
“The beverage category is a hot category whether you’re talking about hemp or CBD or just beverages in general,” he says. Beverages, he adds, have different flavors and properties, and consumers turn to them for various reasons, such as for a refreshing drink or the social aspect.
The CBD beverage market has different possibilities and can be viewed as a health and wellness product. It can also be viewed as a lifestyle brand, especially when compared to that of coffee or energy drinks, for example, which some embrace for the caffeine but others for the way it makes them feel. Drinking a CBD beverage for nutrients consumers find alluring could be a nice draw, Havens says.
Retailers embrace these products because of the range of consumer appeal along with the “very attractive” margin perspective, Havens says. It’s a natural evolution for beverages to be the next chapter in the CBD story, he adds.
“With beverages, consumers are seeking fast-acting product formats that fit seamlessly into their busy day and replace less healthy options such as sodas, coffees and energy drinks.”
One of the biggest CBD trends Rozalowsky sees in c-stores is that consumers are looking for the benefits they’ve heard about in familiar product formats.
“With beverages, consumers are seeking fast-acting product formats that fit seamlessly into their busy day and replace less healthy options such as sodas, coffees and energy drinks,” she says. In the United States, the market potential for CBD-infused beverages is extremely promising and might disrupt traditional beverage formats, she adds.
CBD use overall has become much more mainstream over the past two years, and even more so since the onset of COVID-19, Rozalowsky says, as consumers have reprioritized their physical and mental health. Boulder, Colo.-based cannabis market researcher BDSA projects the size of the CBD market in c-stores will grow from $220 million in 2020 to $390 million in 2021, $940 million in 2024, and $1.2 billion in 2026.
Third-Party Testing
The West Coast retailer has also seen growth in CBD-infused products, both new and well-known brands, over the past two years.
Along with product growth comes the need to increase protocols to test, via third parties, the levels of CBD and THC in CBD-enhanced beverages before placing them on shelves, the retailer says. Retailers want an understanding that the products are pure and have no potential health hazards, and the retailer’s company doesn’t put anything in its stores without third-party testing.
Many of these products being promoted as clean or tested include a QR code on their label, the retailer says, offering a quick way for retailers and consumers to check lab results.
Price points seem to be fluctuating, too, once higher and now dropping due to various reasons, including some manufacturers offering preferred prices to gain market share, the retailer adds.
Meanwhile, the CBD-infused beverage industry is trying to figure out the benefit of being first to market vs. waiting to see what consumer preferences materialize to avoid producing something the public ends up not buying.
Legal Skies Will Clear
Meanwhile on the East Coast, Kevin Platt, senior category manager at Nouria Energy Corp., Worcester, Mass., sees sunny days ahead for CBD beverage sales once legalities are ironed out.
“I think there is going to be a home for them once we can get through the state and local governments getting everybody on board ... on what’s going to be legal to sell,” he says.
Nouria, a chain of 146 stores in four states, has stocked Tretap CBD Sparkling Waters in a very limited number of stores in Maine and Massachusetts, where it is legal, for more than a year and a half. Sales have been “OK in stores where it is being sold,” he says. “It’s a new segment that the consumer is still trying when they do find it.” Platt adds that it’s difficult to talk about growth and demand because retailers are hesitant to stock the product, and thus “consumers are not walking into a c-store to look for that category yet.”
“Know before you go.”
Some of that hesitancy stems from inspectors in some local municipalities saying the beverages aren’t legal, “so we pull it off the shelves even though Massachusetts as a whole hasn’t come out and forbid that you sell it,” he says. “It is not legal in New Hampshire and Rhode Island. So, it’s still a gray area with mixed messages even in Massachusetts, where some towns are allowing sales. But you go over to the next community, and they say, ‘It’s not legal to sell CBD.’”
He adds, “[I hope] the government takes some type of action and gives some guidance on what can be sold and in what channels. Then it’s definitely a viable option for us that I think most c-stores will jump on board with.”