Cannabidiol, or CBD—a term once exclusive to “stoners,” hippies and free spirits of the counterculture—has rapidly evolved into a household word shared by conventionalists and bohemians alike. Embraced by some as the most revolutionary discovery since penicillin while simultaneously shunned by others as a fleeting fad doomed by impending government regulation, CBD is arguably the hottest, and most ambiguous, retail topic of 2019.
Touted as an elusive elixir that offers a number of physical and mental health benefits, CBD caught mainstream attention with the passage of the Agriculture Improvement Act of 2018, also known as the Farm Bill, which removed hemp from the Controlled Substances Act (CSA) and legalized industrial hemp cultivation. Practically overnight, hemp-derived CBD products—and the correlated hype around them—had flooded the market. From the young to the elderly, male and female, to even infants and pets, there’s a CBD-based product for ostensibly everyone and everything.
But what is CBD? And, more important, what is it not?
In literal terms, CBD is one of the 104 chemical compounds, known as cannabinoids, found in hemp or marijuana plants that works with the endocannabinoid system in the human body to regulate bodily functions. It is nonpsychoactive, unlike its notorious sibling, tetrahydrocannabinol (THC), and offers an alluring, all-natural option for consumers seeking holistic relief for countless conditions including pain, anxiety, inflammation and spasms, sans the lethargic side effects of its prescription counterparts.
In broader terms, hemp-derived CBD is a new wellness phenomenon that’s increasingly making its way into considerable health, beauty and food and beverage applications. Vitamin shops, cafes, pet stores, hair salons, pharmacies, grocery stores and more have the possibility to cash in on this cash crop, which analysts project will be a multibillion-dollar business within five years.
However, while the 2018 Farm Bill has been integral in paving a path toward the category’s consummation, the course is not without obstacles. National hemp regulations from the U.S. Department of Agriculture (USDA) are pending, and the scope of the U.S. Food and Drug Administration’s (FDA’s) authority to ban CBD from food, drugs and cosmetics remains obscure. As such, retailers and manufacturers are searching for direction through the intrinsic maze of hemp’s complexities and uncertainties, with some boldly marching head on, others proceeding with caution and many awaiting a finalized map before diving in.
While the pathway is indeed hazy, experts agree that one concept is clear: Budding opportunities are embedded within the weeds.
Unpacking the 2018 Farm Bill
As retailers prepare to venture into the precarious CBD landscape, it is important to first examine the terrain at hand, because the passage of the 2018 Farm Bill sparked equal parts excitement and confusion in terms of next steps for business operators. Cannabis enthusiasts rejoiced at the bill’s landmark removal of hemp from the CSA, provided it contains no more than 0.3% THC on a dry-weight basis, as well as the legalization of the sale, cultivation, possession and transport of industrial hemp across state lines for commercial purposes.
However, the bill leaves several yet-to-be-determined caveats—paramount to which tasks the USDA to determine national hemp regulations “as expeditiously as practicable,” based on findings of a yearlong study of the 42 existing hemp states’ progress to “determine the economic viability of the domestic production and sale of industrial hemp,” to be submitted to Congress.
Additionally, the bill allows states, territories and Native American tribes to submit their own hemp-growing regulation plans—including inspection procedures that must be conducted at least once annually, bookkeeping on land used for hemp cultivation and disposal plans for hemp that exceeds the THC limit—to the USDA, but it does not provide states with any guidelines as to how hemp should be regulated or manufactured.
The air around CBD is even foggier, because the compound can be derived from both hemp and marijuana plants. Yet only hemp is exempt from the CSA and marijuana remains a Schedule I controlled substance, which makes the distinction between hemp-based and marijuana-based CBD crucial.
Erica McBride Stark, executive director of Washington, D.C.-based National Hemp Association, says that CBD lies in the limbo of being “neither a controlled substance nor FDA approved.” States have taken it upon themselves to decide how it will be treated, with many allowing CBD as part of a medical program, others legalizing it and four states banning it altogether, McBride Stark says.
At the time of the Farm Bill’s passage, FDA Commissioner Scott Gottlieb said in light of the proliferation of products containing cannabis, the agency planned to “advance new steps” to better define its public health obligations in the area and would continue to closely scrutinize products that could pose risks to consumers and, if so, issue warnings alongside taking enforcement actions.
The Business of Hemp
Annual U.S. hemp-derived CBD retail sales estimates
Source: Hemp Industry Daily, 2018 Farm Bill Report
Barring the Buzzword
The passage of the 2018 Farm Bill could very well mark the first step toward nationwide marijuana legalization, but CBD advocates should caution against lumping cannabis and CBD into the same retail category, advises Blake Patterson, co-founder and president of hemp category management provider MarketHub Retail Services, based in Denver.
While the stoner connotation around cannabis is slowly subsiding, there are distinct categorical differences between cannabis and CBD—in terms of not only legalities but also consumer comprehension and acceptance—that must be extrapolated. Because CBD is so new and obscure to the average consumer, Patterson says, introduction to the category typically exposes several pertinent questions:
- Is this pot?
- Is this illegal?
- Will this get me high?
- Will I fail a drug test?
For cannabis, the answer to each of these is yes, but the same is untrue for CBD.
“If the first four questions from a consumer are all of those things, that means that there’s a distinction that they’re looking for,” Patterson says. “So if we confuse the two in any situation, then we’re just adding to customer confusion, and that means not the death of a category, but not realizing the opportunity of a category.”
Experts believe the realization of the CBD category depends greatly on its representation by the industry as solely a health and wellness category, independent from cannabis and all the legal ramifications and consumer qualms that are tied to it. What’s more, just as the categorical distinction between CBD and cannabis thus far remains hazy, labeling also poses a challenge, says Jessica Lukas, VP of consumer insights for Boulder, Colo.-based BDS Analytics. Retailers must “push for consistent or at least clear labeling and communication from all products carried in the store,” Lukas says. Otherwise, “[it] will do the consumer and the industry a disservice if every product is labeled differently,” she says.
Given the lack of regulation—coupled with the influx of products and excitement around hemp-derived CBD—industry terminology is tremendously inconsistent, causing confusion for both consumers and retailers new to the category. Most notable is the discrepancy between the terms “hemp extract” and “CBD”; they are, in fact, not technically interchangeable. Although hemp is now legal, the FDA says CBD cannot be used in food or dietary supplements because it is listed as “an active ingredient in a drug product,” called Epidiolex—an FDA-approved treatment for epilepsy, owned by GW Pharmaceuticals. As such, the FDA considers all other CBD products to be “adulterated” or “misbranded,” according to Hemp Industry Daily’s recent Farm Bill report.
“That three-letter term is representative of a pharmaceutical medication,” Patterson says. “When you put that on the label, you are in fact impersonating a pharmaceutical drug.”
However, the FDA has only sporadically enforced its ban on adding CBD to food, drugs and cosmetics. And while further regulation remains in limbo, companies and retailers are generally left to their own discretion, with some taking the risky route toward CBD terminology—latching onto the phrase’s mounting momentum—while others have chosen the direction of discretion, identifying their products as hemp extracts.
Despite the ambiguity, neither term is technically wrong—yet. Such will only be determined after crucial components of the 2018 Farm Bill are finalized. However, Patterson sees the vagueness as an opportunity for the hemp industry to come together to determine consistent nomenclature, which will ultimately help drive education, acceptance and, of course, sales.
“The way that retailers are approaching the category, even in the same class of trade, is completely different,” Patterson says. “While I think CBD is a buzzword right now, we have a unique opportunity to really change the lexicon and drift more into a hemp extract.”
Heed the Red Flags
Hemp-derived product terminology may, for now, be subject to a company’s will, but there are certainly several federal regulations that lack that same flexibility, particularly in terms of product labeling and sourcing. Per the 2018 Farm Bill, CBD products must be derived from industrial hemp that was cultivated in the U.S., ideally by a USDA-backed crop rather than one with only state-level protection, according the Hemp Industry Daily report, which further cautions business owners at every level to keep meticulous records to prove the products they produce or carry are derived from legal hemp.
Fairway Market, which recently launched its own line of hemp-derived CBD products, said it took every precaution possible when researching the category, sourcing its products and vetting potential hemp industry partners. Made from a custom, proprietary blend of essential oils and full-spectrum CBD—which includes additional beneficial compounds from the hemp plant, including CBN (cannabinol), CBC (cannabichromene) and CBG (cannabigerol), versus other products that contain just the isolated CBD compound—the New York-based retailer’s hemp-extract products are non-GMO, pesticide-free and made from hand-picked hemp grown on sustainable farms in the U.S.
“We’ve invested a lot of time and energy and research in development with our partner, and we stand behind it, and we’re in this for the long haul,” says Jason Bidart, VP of private brand programs at Fairway Market.
Due diligence is essential, says McBride Stark of the National Hemp Association, adding that the comprehension of the term “hemp oil” is key prior to entering the convoluted category. “Think of CBD oil as an essential oil, much like lavender or peppermint oil,” she says, referencing how companies in the past have incorrectly marketed CBD oil as hemp oil in an effort to work around some of the category’s legal challenges. She recommends retailers seek hemp companies that provide third-party testing data and certificates of analysis. “For a reputable store to carry CBD, if due diligence has been done on the legal status in their state, it is important to do due diligence in the specific company or brand to be carried,” she says.
Proceed With Caution
One red flag would be a company making health claims, such as implications that a CBD-based product can cure an ailment or treat a specific disease—regardless of the growing research behind the health benefits of CBD—because this directly conflicts with the Farm Bill’s assertion that hemp-derived products with such claims must be approved by the FDA. In addition, business owners are also cautioned against linking to scientific studies backing the product’s value; the FDA has a limited list of studies that are deemed acceptable for use in advertising. Plus, the data that is currently available is generally incomplete in scope, given the limited number of retailers that have stepped into the space, Patterson says.
“The only other data that exists is that from a dispensary perspective, and that to me is not something that should be equated here,” he says. “That particular customer that’s walking into a dispensary where THC is sold is [part of] a completely different data set. This market hasn’t been born enough to really measure anything at this point.”
While the hemp-derived CBD market has soared in recent years, the lack of data regarding existing hemp-derived CBD sales—combined with the ambiguity of how such products will be regulated and sold—makes it difficult to accurately predict sales. However, the Farm Bill certainly opens the doors for mainstream retailers, such as Walmart and Target, to begin merchandising hemp-derived CBD products, and as more retailers enter the space, more sufficient data will become available. Given these projections, hemp-derived CBD retail sales are projected to reach the $6.1 billion to $7.5 billion range by 2023, Hemp Industry Daily estimates.
Retailers That Are Paving the Way
While the CBD landscape may seem daunting from a legal perspective, many grocery retailers are diving in head first and see the 2018 Farm Bill as an opportunity to take their crop of offerings to new heights. E-commerce is one of the most exciting opportunities coming to light, says Amanda Nelson, nutrition program specialist for Portland, Ore.-based New Seasons Market, which has been carrying CBD products since before the Farm Bill was passed. Nelson says the new regulations open up distribution opportunities such as grocery delivery for hemp-based products across state lines.
However, many consumers are in the dark in regard to the ins and outs of hemp, which provides an opportunity for retailers to connect with these shoppers through education. While putting better-for-you items in a designated section of the store—instead of incorporating them throughout—is often frowned upon from a merchandising perspective, it is an approach that is widely recommended for CBD until consumers become more knowledgeable about the category.
MarketHub Retail Services co-founder and President Blake Patterson identifies himself as a “huge believer” in category compartmentalization, and advocates that CBD products—from pain relief to coconut bites and tinctures to salves—all need to “live in one spot. Putting it next to the Tylenol is not going to work.”
For the most part, retailers are keeping CBD in its own section of the store, usually under lock and key. Betty Bailey, wellness department manager for Alfalfa’s Market in Boulder, Colo. store, says the arrangement gives her team a chance to connect with shoppers and help them navigate the new offerings.
Alfalfa’s keeps its hemp items in a case that it dubs the “hemporium,” which Bailey says is “great for many reasons because it protects against theft but also really encourages dialogue with customers” and allows staff to “interface with everybody that comes through to purchase it.”
To further its CBD outreach and education, Alfalfa’s featured a “New Relaxed You” New Year’s campaign, which Bailey said was a great success because shoppers are “always excited about hemp promotions,” and it attracts new customers who otherwise might pass the section by or be intimidated by price points.
New York-based Fairway Market, which recently debuted a private brand CBD line, takes a similar approach with the products in a segregated locked case, and promotes them through social and blog posts, pamphlets and its monthly magazine to “educate consumers and make sure they know we’re in the business,” according to Jason Bidart, VP of private brand programs for Fairway.
Downers Grove, Ill.-based Fresh Thyme Farmer’s Market also carries an array of CBD products in its wellness department, including body lotions that it integrates on shelves, and a more extensive selection of oral formulations in a locked glass case.
Photograph by WGB Staff
Looking forward, Jourdan Samel, co-founder of Boulder, Colo.-based Evo Hemp, says that while he also recommends keeping CBD in a designated section of the store, these products may be able to move into other aisles once they become more widespread. Lucky’s Market, which Samel names as a leader in the space, is expanding CBD outside of the designated section but with ample signage to point to CBD-based products.
While retailers’ legal teams often get in the way of the ability to carry hemp products, Samel says he’s surprised to see that drugstores such as CVS and Walgreens, which are strongly considering going forward with carrying edible hemp items, are more open to the category than retailers such as Whole Foods Market, which has remained “extremely cautious.”
Realizing Grocery’s Potential
Examining the smaller specialty health food stores and smoke shops that have pioneered CBD paints an optimistic picture of the category’s future in grocery. For example, natural food stores have seen a more-than-impressive 162% increase in sales of hemp-derived CBD products over the past 12 months, according to Chicago-based cannabis market research firm Brightfield Group.
While CBD is certainly still a niche market, a glowing opportunity for competition lies in the fact that sales of these products tend to perform poorly in marijuana dispensaries where they are overshadowed by cannabis-based CBD and THC products, according to the report. Additionally, new opportunities to gain consumer trust are likely to emerge as larger, well-recognized manufacturers move into the space.
“As far as grocery is concerned, there’s trust implied there. There’s loyalty,” says Patterson. “I think they have a unique opportunity to further build that loyalty with the customer. And maybe even accentuate it, and that’s ultimately what this category can do for the standard grocery retailer.”
CBD’s migration onto grocery shelves has the potential to move the category into the mainstream due to the sheer number of outlets available compared to the smaller sum of natural grocery stores and smoke shops. For example, if only 20% of natural grocery stores and 80% of smoke shops carry CBD, the retail footprint would exist in only about 9,700 stores. Yet, if penetration moves into just 20% of conventional retail channels—including convenience stores/gas stations, drugstores, supercenters, warehouse/club stores and grocery stores—the footprint could expand fivefold to 51,000 stores.
The emerging market for CBD and hemp-infused products is giving rise to an onslaught of new products, which represent an approachable point of entry for consumers to explore cannabinoid’s array of health benefits, such as energy boosts, mood stabilization and reduced anxiety. To help retailers gain a better handle on the medley of options, WGB breaks down the field of contenders vying for shelf space in the budding category into three camps: topical, drinkable and edible, including candies, snacks and desserts.
With hemp-extract tincture the most pervasive and highly popular form of CBD, the beverage industry has significant opportunity to implement the compound into a number of ready-to-drink varieties. Canaccord Genuity, a financial services company, estimates that the U.S. market for CBD beverages could achieve a value of $260 million by 2022.
Additionally, known as a safe and natural alternative to opioid prescription medications, CBD is appearing in a number of topical products that are useful for pain relief, including bath bombs, body lotions and muscle rubs. What’s more, research has found a correlation between CBD and beauty benefits, such as reduced wrinkles and inflammation.
Combining CBD with chocolate helps prolong and double the effect of anandamide, a cannabinoid found in dark chocolate that works as the body’s own antidepressant and pain reliever, resulting in a calm, soothing effect. King Karl Chocolate is USDA-certified organic and made from the company’s secret Swedish recipe, available in milk and dark chocolate varieties with 90 milligrams of CBD concentration for an SRP of $20 per bar.
Gummies are emerging as one of the most popular and approachable vehicles for CBD, popping up in grocery store cases and often found in impulse buy locations such as at the checkout counter of a convenience store. Reliva’s version offers perks such as 0% THC and is non-GMO and gluten-free. Each package features 10 squares containing 10 milligrams of high-quality CBD that are independently tested and date-coded for freshness.
With CBD oils at the forefront of trends in the category, Blue Bird offers a sample pack that allows curious newbies to test out different formulas, including Classic Hemp Blend, Bluebird Signature Blend and Hemp Complete. Each 10-mL bottle contains 250 milligrams of cannabinoids and is tested by third-party laboratories for potency and purity.
Whether seeking treatment for aches and pains, relief from stress or a better night’s sleep, Elevate Wellness’ Hemp Extract Soft Gelcaps are designed to provide an all-encompassing effect on consumers’ overall health. Each gelcap features 25 milligrams of full-spectrum CBD and is pharmaceutically produced and tested in the company’s FDA-registered cGMP facility. The product is available in a 30-count package for an SRP of $54.99.
With product safety a top concern among CBD users, this pure organic hemp apothecary brand recently earned its USDA certification for U.S.-grown hemp. Designed to support and help maintain the body’s overall wellness while promoting a healthy endocannabinoid system, the company’s line of full-spectrum organic hemp extract features Classic and Peppermint varieties that can be dropped into anything from a glass of water to a relaxing hot cup of tea.
Sproutly’s water-soluble cannabis solution, Infuz20, is designed to be formulated into beverages ranging from coffee to water. Different from other CBD beverage companies, Sproutly uses technology that doesn’t alter the cannabis compounds during extraction. With the hemp ingredients recovered from the plant in their naturally water-soluble form, the product can be combined with other water-soluble micronutrients, such as vitamins, minerals and antioxidants.
This product offers an opportunity for consumers to kick their morning cup of joe up a notch with a scoop of high bioavailability, water-soluble CBD powder. The powder does not contain any extra flavors and has up to 10 times better absorption in the stomach than oil-based extracts, according to the company.
New Age Beverage Corp.’s Bob Marley-inspired 15.5 ounce cans contain 25 milligrams of pharmaceutical-grade CBD per serving. While the drinks are available only in states where cannabis is legal, the company is in talks with two of the largest U.S. retailers in the convenience and grocery channels and provides a glimpse into the future of CBD penetration.
The Alkaline Water Co. is dipping a toe into the CBD category with 10 milligram-infused water bottles that quench thirst while providing the benefits of CBD. The company investigated potential CBD-related partnerships in 2018 and says that it has made “great progress,” so retailers may see new applications available in the future.
Infused with CBD, arnica, turmeric and a proprietary blend of essential oils, this premium organic product is designed for maximum anti-inflammatory relief. Packed with pain-fighting ingredients, the balm works to increase circulation, ease aches and pains and provide users with overall comfort and well-being. Quanta’s core technology uses quantum physics to manipulate and stabilize electron spin in naturally occurring elements to increase performance in the body, resulting in what the company calls “Polarized Cannabis.”
Axia Medical Solutions offers the first medical-grade CBD skin-care product on the market. The products include a moisturizer, tissue renewal, exfoliator, cleaner and toner. Each product contains CBD concentrations formulated for the product’s intended purpose, ranging from 10 milligrams for the cleanser to 300 milligrams for the tissue renewal formula.