Hemp's Path to Retail

A look at the complexities, uncertainties and possibilities related to hemp in grocery
Illustration by Sven Hauth

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.

CBD products
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.


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