In March, international pharmaceutical chain CVS Health, waded into the cannabis industry when it began introducing hemp derived cannabidiol (CBD) products to its stores. Cannabinoids retail products will be available to shoppers at more than 800 stores in the United States, including Alabama, California, Colorado, Illinois, Indiana, Kentucky, Maryland and Tennessee.
In a statement, CVS said the decision to carry hemp-derived items was based on growing demand for alternative care options. And CVS isn’t the only pharmaceutical chain jumping on the “CBD bandwagon”. Walgreens also announced it was going to start selling CBD infused products in March 2020.
Cannabidiol is a component of the cannabis plant that does not produce the same psychoactive effects as marijuana. In December 2018, the federal government legalized hemp-derived CBD and as a result, the market has exploded. This “explosion” lasted till end of 2019, when the FDA decided not to allow the ingredient in food and food supplements due to the lack of investigation. The FDA has approved only one CBD product, a prescription drug product to treat two rare, severe forms of epilepsy.
But consumer interest in cannabidiol and other phytocannabinoids is increasing as well. According to a study by market research firm High Yield Insights, 40 percent of adults are interested in trying cannabidiol.
The survey included among 2,000 consumers. Of those respondents who said they were interested in trying CBD, 42 percent said they were motivated by how increasingly easy it is to access these products. Forty-four percent cited the availability of unbiased research as a motivating factor. And 34 percent said they received a recommendation from a physician.
As interest in this new famous ingredient among consumers increases and more and more stores open their doors to cannabidiol-infused products, the time is right for dealers looking to cash in.
So here’s what you need to know to make it as a CBD retailer.
For more information on how to start your own cannabis business, click here.
Understand the Law
While cannabidiol was effectively legalized in 2018, there are still restrictions on the sale of CBD products both from the FDA and the Federal Government. The purchase, sale, or possession of hemp-derived products is legal in all 50 states. However, products containing cannabidiol derived from marijuana (not hemp), are still illegal in states where marijuana has not been legalized. To be classified as industrial hemp, a plant has to contain no more than 0.3% tetrahydrocannabinol. Conversely, some marijuana plants can contain as much as 30% THC. The more potent a plant is, the stronger the possibility of psycoactiveness and addiction.
In addition to this distinction, the retail of cannabidiol products continues to be restricted in some instances. Some states, including Texas, Nebraska and North Dakota, continue to have their own restrictions on CBD. And the U.S. Food and Drug Administration prohibits the addition of CBD to food and drinks.
Build a Reliable Supply Chain
According to a recent report by investment banking firm Cowen, in 2018 retail sales of CBD consumer products reached between $600 million and $2 billion. By 2025, Cowen predicts CBD products could conservatively generate $16 billion in retail sales.
As a result of the booming market, sellers could face issues with their supply chains. Product manufacturing can already be fickle since it relies on plant material, which is subject to sometimes unpredictable factors such as climate. And when hemp farmers struggle, it can drive up the cost of your supply. Do your research and find a diverse array of farmers and extractors to keep your costs low and avoid disruption when issues arise.
Additionally, it’s important for retailers to search around for the best price from the start. In Nevada, hemp farms are struggling to keep up with booming demand for the flower necessary for CBD production. As a result, growers report prices of up to $350 a pound for quality, high-CBD varieties. That’s nearly 10 times what midgrade hemp flowers sell for in Colorado where farmers are swimming in hemp. Colorado produced half of the nation’s hemp in 2017 and as a result hemp purchased in this state is relatively cheap. However as demand shifts that could change.
That’s why it’s important for retailers to do their research to ensure they have a reliable and consistent supply chain. Build relationships with your suppliers so that when and if the winds change, you know you won’t lose your supply.
Utilize Innovative Marketing Methods
Last year, Chicago-based firm CBD Marketing released the results of a study looking at how generational preferences affect consumer engagement with dietary supplement brands. The study found that in order to be effective, a supplement brand cannot assume one message or marketing tactic will work for all consumer ages and types. According to the report, each age-specific user group relates to supplement products based on their own preferences, experiences and interests.
In order to reach different age and demographic groups, CBD sellers must implement separate marketing campaigns designed to appeal to different audiences. For example, millenials are more engaged with influencers on social media who can serve as brand ambassadors for your product. Conversely, while more individuals in the boomer generation are on social media, they prefer to do their research and are looking for proven benefits.
It’s also important to understand what you can and cannot say in your marketing campaigns as a broker. In 2018, the National Association of Cannabis Businesses (NACB) released national regulations for cannabis advertising. According to the regulations, advertising cannot include false or misleading information, advertising cannot target minors, and advertising cannot depict a person smoking, inhaling or ingesting cannabis products.