CBD: A category on the cusp of success
While there is no doubt that this is an exciting time to be in the cannabidiol, or CBD, industry, it also is a time of great uncertainty for manufacturers in the fledgling space. With the passage in December of the Agriculture Improvement Act of 2018 — better known as the Farm Bill — hemp, including hemp extracts, derivatives and cannabinoids, is no longer a federally controlled substance. The bill does state that the hemp has to have a tetrahydrocannabinol, or THC, concentration of not more than 0.3%.
While the deregulation appears to open up opportunities for retailers to start selling CBD products that offer everything from pain relief to better sleep, so far, many merchants are not exactly rushing into the CBD business. The Food and Drug Administration announced that introducing food with CBD into interstate commerce still is unlawful and that the agency is working on pathways for the lawful marketing of these products.
That has not stopped manufacturers from eagerly developing products and coming up with ways to merchandise CBD capsules, oils, creams and even pet products. The thought process, it appears, is that once the FDA gives complete and final approval to hemp products, retailers will rush to get in line to carry them.
“The retailers are waiting for the FDA regulatory platform to be written,” said Paul Carpenter, partner and founding member of New Leaf Pharmaceuticals, based in Newtown, Conn. “They don’t want to put products into a planogram and then have it yanked off the shelf. That’s a difficult position for them.”
The Farm Bill allows farmers to plant hemp seeds, said Jason Mitchell, president of MetaCan, which makes Roswell, Ga.-based HempFusion products. That means there will be more farms growing hemp plants, but it does not necessarily mean retailers are going to get into the hemp or CBD business right away. Still, some smaller merchants are carrying CBD products. “They may be independent compounding pharmacies or family-owned chains,” he said. “They are starting to expand their offerings.” Other retailers, including health food stores, regional chains, spas and salons, and online sellers have entered the category, too.
Some retailers are hinting that they will soon offer such topical products as salves and creams, but not such ingestibles as capsules and gummy bears. That is a prudent approach, according to Tony Tomassini, chief marketing officer of Functional Remedies, based in Superior, Colo. “Retailers see the opportunity, and they want to capitalize,” he said. “We applaud anybody who is more concerned with being right than being first. That’s our conservative way forward — go to market right versus right now.”
Functional Remedies, which manufactures hemp oil products, is partnering with retailers to educate consumers about the category. “Educating the buyer and the consumer is of utmost importance to us, especially in this stage of the game,” Tomassini said. “We want them to make informed decisions about buying any product in this category.”
Consumers and retailers make informed decisions by reading the research, and much of the research points to benefits of CBD for pain relief. “It seems like a lot of those therapeutic effects from medical marijuana are due to CBD,” said Murdoc Khaleghi, a physician and senior medical advisor for Telford, Pa.-based Elevate Hemp. “What makes pain really interesting is it is definitely one of the more common problems we see in medicine. We’ve never had good therapy for pain, and that is part of the reason for the opioid crisis.”
Many topics are going to be researched now, said Laura Fuentes, co-founder, CEO and compounding pharmacist at Deerfield Beach, Fla.-based Green Roads. “Now that hemp is not a Schedule 1 narcotic, universities are going to be able to do research,” she said. In fact, Green Roads, which manufactures CBD oil, edibles, pain cream and other products, is working with the University of Florida to research growing patterns of hemp in the states.
Fuentes said that there is much contradictory information available, new CBD companies popping up daily and a slow-moving regulation process that hasn’t fully matured, which makes consumer confusion a challenge. As a result, Green Roads is working to make CBD facts more transparent. Green Roads products are pharmacist-formulated with custom proprietary product formulas, using an advanced clean extraction process. Green Roads also utilizes multistage third-party lab testing to ensure product potency, quality and safety, and includes QR codes on all packaging, linking products back directly to the third-party test results.
There has been much research, and more to come, on how CBD affects specific areas of the brain. The science will help retailers, especially drug stores, to become more interested in participating in the space. “All of the big chains are now looking at this,” said Brad Halpern, chief marketing officer at Los Angeles-based Be Tru¯ Organics. “The industry is waiting to explode.”
What retailers should do
When the industry does explode, retailers can position themselves as the ideal place to buy CBD products. “Many consumers don’t feel comfortable purchasing these products from the smoke shops that have traditionally carried them,” said Jason Roth, CEO of Boulder, Colo.-based Mile High Labs. “They would much rather buy it like they do any other medicine or supplement — from a trustworthy pharmacy or drug store.”
He cautioned that hemp makes many stops along the way to becoming CBD. “Data can become misconstrued, and packaging mislabeled,” Roth said. Retailers should ask such questions as where the hemp is grown, whether it has been tested for contaminants, how it is processed, and whether the manufacturer extracts the CBD on its own or purchases it from another company.
Consumers assume that retailers have done this due diligence, according to Courtney Roundy, founder of Salt Lake City-based Harmony Hemp. Manufacturers can help by offering such information as farm-to-lab traceability, certificates of analysis and other information. “Know your supplier is legitimate,” he said.
Some retailers, especially the drug store chains, already have wellness initiatives, so it makes sense to partner with suppliers that have similar missions. “We genuinely care about the customer,” Roundy said. “This is all about wellness. Treat your system not your symptoms.”
The top segments in CBD are sleep, anxiety and musculoskeletal pain, said Scott Raybuck, president of Cleveland-based ZuRI CBD Supply. Baby boomers, with their ailments, knee and back pain, and sleep issues, are the prime purchasers of CBD. “The 50-plus age group is by far the biggest,” he said. Pet products, such as for separation anxiety, also are gaining popularity.
What is driving the CBD boom, Raybuck said, is that it is an ingredient that the body has been missing. Humans and animals have endocannabinoid systems, and if they are not consuming cannabinoids, the systems are deprived. He likened it to taking supplements to make up for an iron deficiency.
This essential nutrient explanation is one that many manufacturers use. “Hemp is a very edible plant and a huge source of nutrients,” said Ryan Lewis, founder of Las Vegas-based Global Cannabinoids. “People didn’t realize we need hemp in the diet. As people get more educated, hemp becomes more accessible.” The analogy he used: a lack of vitamin C can result in scurvy. CBD has neuro-protecting capabilities, which suggests that a lack of it plays a role in the rise of Alzheimer’s and other degenerative brain diseases, he said.
Even though manufacturers can explain many benefits related to CBD, the products do not fit neatly into one category the way vitamins or analgesics do. Retailers might wonder where to merchandise the products.
A dedicated hemp section is the best way to merchandise the products, said Blake Patterson, president of Denver-based MarketHub, a company that works with manufacturers and retailers to set up Hemp Health Zones for any class of trade. “We are seeing more and more retailers gravitate to compartmentalization theory, where my pet lives next to my pain, which lives next to my anxiety,” he said. “It sounds completely chaotic, but it’s the best way to introduce a new category for now until there’s brand loyalty.” He also said that packaging plays a role, and labels that have such callouts as “calm” or “serenity” are effective because consumers shop according to need states.
Drug stores should merchandise CBD products differently from mass retailers, said Perry Antelman, CEO of Abacus Health Products, based in Woonsocket, R.I. “You go to drug stores because you have one or two things you want to pick up,” he said. “If you are looking for something for pain, you make a beeline for the pain section. If you have a product that was CBD-based and it’s on an endcap, you walk right past it.”
Mass retailers, where shoppers spend more time and there is more opportunity for stocking up purchases and impulse buys, are better places to put CBD products on an endcap. “People are waiting in line for a cash register, and they look around,” Antelman said.
While merchandising is one key element for success in this new category, Antelman said education is the most important matter. Retailers need to be able to differentiate which companies are offering safe and legal products, and which companies simply are jumping into a newly lucrative category. The latter, he said “are running to the green rush.”
While the term “green rush” once referred to entrepreneurs moving to states where medical and recreational marijuana have been legalized, the term also refers to new businesses cashing in on the hemp industry. “The cannabis/CBD/hemp green rush is unlike anything experienced in retail,” said TJ Stouder, co-founder and CEO of Denver-based Holistik Wellness. “Consumers across all demographics are rushing to stores looking for any buzzword in the category, ready to buy.”
Matt Wolf, CEO of Denver-based Uleva, described the state of the CBD category at mass retail with this scenario: “It’s almost like a herd of wildebeest in a river bank, dipping their toe into the water, trying to decide if they want to jump in or if there are crocodiles,” he said. “Uleva believes it’s croc-free and the water’s fine.”
There will be much growth in the near future. “We are excited with the growth potential in the next 12-to-24 months,” said Todd Davis, CEO of Cave Creek, Ariz.-based CBD Unlimited. “We project the CBD industry to exceed $2 billion in sales by late 2020. Education and the customer’s positive therapeutic experience have been the foundation of our products in the early development of this nascent industry.”
CBD has the potential to be a multibillion-dollar category, MarketHub’s Patterson said. “It covers so many things — anxiety, pain, sleep, inflammation, beauty,” he said. “You look at all these different pieces, and you look at demographics, it’s for every age group, male, female and the family pet. It’s phenomenal.”
This story is part of a Drug Store News Special Report on the CBD Category. To see the full report, click here.
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