Those who’d argue 2018 was the year of cannabis have stellar justification. The substance came into the year red-hot, having surpassed $9.2 billion in revenue in 2017—roughly $3 billion more than diapers, according to Arcview Market Research, San Francisco, a cannabis research firm.
Retailers have monitored cannabis like hawks in 2018, as new regulated CBD products—nonpsychoactive cannabis items—are making their way into stores. Beer and beverage companies such as Heineken USA, Constellation Brands and the Coca Cola Co. have expressed interest in cannabis-enhanced drinks, while others support the arrival of CBD candies in c-stores.
But like with any new product, retailers must consider the possibilities that stem from it and the long-term effect it may have on their stores.
Here are five things to know before investing in cannabis …
A version of this story appeared originally on WGB's sister site, CSP Daily News.
Exploring what cannabis and cannabidiols (CBDs) are and how they work is essential before bringing them into stores, said Nik Modi, consumer analyst with RBC Capital Markets, New York, a global investment bank, during the webinar “Is CBD The New Energy Drink?” This mainly means understanding the core differences between CBD and tetrahydrocannabinol (THC), CBD’s psychoactive counterpart, he said.
“Understand the nuts and bolts of the industry,” he said. “There’s a misunderstanding that these compounds (THC and CBD) are often combined.”
THC is psychoactive, while CBD is nonpsychoactive—meaning the latter doesn’t give users the “high” feeling associated with the drug. Modi says psychoactive ingredients provide feelings of euphoria, drowsiness, pain relief and muscle relaxation, while CBDs are neuroprotective, anti-inflammatory, anti-tumoral and can help with anxiety.
Cannabis has endured a bumpy ride over the past 80 years. In 1937, the U.S. government banned marijuana and the hemp leaf—another nonpsychoactive cannabis compound—by imposing hefty taxes on its production and sales. Thirty-three years later, the government classified hemp as a schedule 1 drug, a substance forbidden for medical use because of its high potential for abuse, according to the U.S. Drug Enforcement Administration (DEA).
But with CBDs on the rise, regulations for cannabis-based products have softened. In September 2018, certain CBD drugs with little to no THC were downgraded to schedule 5, meaning they possess a low potential for abuse and may be used for medical purposes, the DEA said.
“This marked the first time in over 80 years the government acknowledged the difference between hemp and marijuana,” said Modi.
And on Dec. 12, the U.S. House of Representatives passed the Senate-approved version of the Agriculture Improvement Act of 2018, also known as the Farm Bill, which, if approved by President Trump, would allow the industrial farming and state-regulated production of hemp, another nonpsychoactive element of cannabis. If approved, the bill will skyrocket the CBD market over the next few years, said Modi.
“If this proportion holds and the legal cannabis market reaches $47.3 billion by 2027, estimated by Arcview Market Research, the CBD market would be nearly $5 billion,” he said.
Experts believe CBD consumer sales could reach approximately $2 billion by 2022, said Modi. Moreover, CBD accounts for roughly 10% of all cannabis-related products sales in states where marijuana has been legalized for recreational use, according to Headset, a Seattle-based cannabis research firm. These states are Colorado, Washington, Alaska, California, Maine, Massachusetts, Michigan, Nevada, Oregon and Vermont.
The legalization of cannabis may also create more jobs throughout the country, and nearly 99,000 in California by 2021 alone, said Modi.
“By 2021, direct cannabis industry employment will top 291,500 full-time equivalent (FTE) jobs, with a total employment effect of nearly 414,000 FTEs across all legal cannabis states,” he said. “The legal cannabis industry may have been a key factor in lowering Colorado’s unemployment rate to one of the lowest in the nation.”
With CBDs surging, there’s no way to track which products are of the best—and safest—quality, said Floyd Landis, founder of Floyd’s of Leadville, Leadville, Colo., a full-spectrum and isolate CBD oil manufacturer. Landis suggests retailers act with caution and get guidance before investing so they know their products are genuine.
“Companies often offer a certificate of viability, but it helps doing your due diligence and contacting a lab if you’re not sure of the company you’re dealing with,” he said. “Because [CBD] is a new industry and there’s no oversight at the moment, there’s all kinds of games being played and risks being taken.”
Such due diligence includes asking companies to properly source where the CBD originally came from and to prove the products are free of any contaminants, said Landis.
Figuring out where CBDs and cannabis will fit in convenience stores is imperative before taking them on, Landis said. He believes the substances will best fit among edible and vaping products due to their small dosages compared to large beverages.
“Vaping and individual packaged edible products are a big hit,” he said. “These forms will provide ways for people to try CBDs in small doses. The c-store industry will allow customers to try them at a lower price point compared to other outlets.”