As the two largest retail pharmacy chains open their doors to CBD products, opportunities and challenges abound for the industry
In March, the two largest retail pharmacy chains in the United States — CVS and Walgreens —announced they would begin selling CBD products in select locations. To date, it was the most significant step into the cannabis space by American mega-corporations, signaling a new day for hemp farmers, processors and related businesses.
Scott Gottlieb, on his way out as head of the Food and Drug Administration, tweeted that he was “disappointed” about the news, as his regulatory agency has struggled to rein in the hottest trend in health and wellness.
Andrejs Bunkse, a lawyer with more than 20 years of corporate experience, told Marijuana Venture in an interview he was “stunned” by the announcement.
“It’s shocking to me how quickly that market has emerged and how widely it has proliferated,” he said.
And with two-thirds of his practice focused on the commercial cannabis industry, Bunkse is hardly a novice in this rapidly evolving space. He’s a board member of a vertically integrated group in Massachusetts, a board adviser to an operation in Pennsylvania and direct counsel for “several exceptional cannabis groups” in Arizona and California. He also has a small handful of CBD-focused clients and helps ancillary companies like the Arizona-based High Road Design Studio.
Although the back-to-back bombshells didn’t technically change anything in the realm of legal marijuana, he saw them as signs that the time might be right for some cannabis companies to cash out. Bunkse said “federal prohibition barriers seem to be getting more and more blurred,” considering the fact that CVS would be sourcing CBD products from Curaleaf, one of the largest marijuana companies in the nation.
“To me, that is a tipping-point moment, seeing those traditional pharmaceutical enterprises get directly and publicly involved,” he said. “It’s caused me to really actively tell my clients who are at all thinking about getting out and monetizing their investments, to hasten those efforts, because big industry is formally involved and not just in Canada.”
A Bigger Pond
In an interview with MSNBC, CVS CEO Larry Menlo said the company would initially carry topical products in eight states.
“Anecdotally we’ve heard from our customers who have used those products that it has helped with pain relief from arthritis or other ailments,” he said. “We’re going to walk slowly, but we think this is something that customers are going to be looking for.”
For makers of CBD products, the lukewarm embrace of major mainstream retailers represents new opportunities, but also new obstacles and competition.
“There’s an evolution that’s happening nationally in the CBD market,” said Skyler Bissell, CEO of OLEO, a manufacturer of CBD drink mixes. “The evolution is moving from independent, small retail chains to mainstream channels. When we define our strategy, everything we do is focused around servicing our customer base.”
OLEO’s target demographic is primarily the active lifestyle category, so its retail focus is on health food stores, yoga studios, gyms and similar outlets.
“As we grow, our focus will shift toward grocery and drug channels,” Bissell said.
Widespread acceptance has created a boom, particularly for established brands with a national footprint. Oregon-based Empower BodyCare, for example, now sells its hemp-derived CBD products in about 450 stores throughout the country and has seen a 265% increase in year-over-year revenue. Some of its top-selling accounts are in the Midwest, where cannabis has been traditionally villainized.
“I think because CBD has a much greater platform now, it has definitely piqued the interest of a number of retailers that wouldn’t have been interested previously, and I think consumers are becoming more educated about what they’re looking for in a CBD-infused product,” Empower founder and CEO Trista Okel said.
Empower was the first crossover company to be sold in New Seasons Market, a West Coast grocery chain with about two dozen locations.
“That market is doing great for us,” Okel said. “We’re doing really well in the stores, and we have a very loyal following.”
The adoption of CBD by major, mainstream retailers — CVS and Walgreens have nearly 20,000 total locations in the U.S. — helps develop some much-needed trust in the CBD space for consumers.
“There isn’t a lot of understanding in the general public about what products can and cannot be trusted,” Bissell said. “When those stores take the time to vet these product offerings, make sure to do tests and have all the appropriate paperwork, they are taking on the role of regulator in some way. That’s just going to make a huge difference over the next six months.”
Numerous studies of CBD products have shown many brands’ labels don’t match the amount of CBD they contain. There’s also a concern that products infused with less-than-ethically sourced CBD may contain pesticides, heavy metals or other adulterants.
“Those are dangerous, and I don’t think we’re going to find those types of products in mainstream retailers,” Bissell said.
Unleashing the Potential
Mainstream acceptance is not only opening the door to mainstream retailers, but also entirely new classes of trade. The estimated $70-billion-a-year pet products industry is one, for example.
“It’s an exciting time for CBD and the pet industry, and we look forward to continuing to disrupt this already-disruptive category,” said Bob Rubin, president of Therabis, a manufacturer of CBD-infused treats for dogs and cats that are sold online and through select independent pet stores nationwide. The company recently launched its Calm and Quiet line of soft chews for cats, developed by founder Dr. Stephen Katz, who has more than 25 years of veterinary experience.
The potential pet market — even just for cats — is enormous.
Rubin said a 2010 survey by the American Pet Products Association found that 24% of all cats suffer from at least one anxiety or fear issue — an estimated 22.5 million cats in the U.S. alone — and 67% of them are not treated in any way for their stressors or fears.
“Part of that is because 34% of cat owners do not think there are any viable solutions for their cat’s anxiety,” he said. “We hope that with the right retail partners, we can show cat owners that Therabis is a trusted option for keeping their cats at their social and emotional best.”
A Meaningful Opportunity
Despite the groundbreaking impact of the CVS and Walgreens announcements, Seth Goldberg, a partner at Duane Morris, said he wasn’t surprised about the entry of the big mainstream retailers.
“I wasn’t surprised because the opportunity is so meaningful,” Goldberg said. “My takeaway was that by selecting various states to go to, and in their announcements identifying that they were going to be selling CBD products in ‘select states’ that they had done the kind of careful analysis that participants in this supply chain need to do, because while we’ve taken away the controlled substance prohibition from a federal standpoint, you still have an uncertain regulatory framework with respect to the USDA and the FDA, and each state right now treats hemp and hemp products differently.”
Goldberg, like Bunkse, has substantial experience in commercial cannabis. A few years ago he spearheaded a cannabis practice group at Duane Morris, one of the largest law firms in the nation based on revenue, a few years ago. As part of that practice, he provides regulatory advice to businesses at all levels of the supply chain, including for cannabis products with and without THC.
From 2015 through most of 2018, he said, the cannabis industry was largely focused on adult-use and medical marijuana programs. In the few months leading up to the December 2018 signing of the Farm Bill, and increasing rapidly in the months following, he’s seen a flurry of new activity in the CBD space.
“For those of us who are working in the cannabis space every day, the CBD derived from hemp has really, at least for the time being, made THC products less of the focus right now,” he said. “The popularity of these products, the appeal to the mass market and the ability of traditional businesses to be playing in this space without the specter of criminal enforcement have really brought this product into the foreground.”
But even with the 2018 Farm Bill removing hemp from the Controlled Substances Act, the CBD business should not be viewed as a free-for-all. Laws that differ from one state to the next remain the order of the day. Existing regulations lack clarity, particularly for ingestible products. More rules are certainly on the horizon.
But it’s also going to take time for the regulations to be developed.
“Anybody who is involved in cannabis really needs to be asking the questions: What is going on with my local government? What is going on with my state government? And what’s going on with the federal government?” Goldberg said. “It really does require thoughtful analysis to make sure that stop signs and red lights aren’t being blown.”