CBD is everywhere, or so it would seem to both casual observers and industry insiders. With the passage of the Federal Farm Bill in 2018, which included the legalization of industrial hemp, on a federal level, CBD products became legal to source and sell in the U.S.
Manufacturers, distributors and retailers have been rushing to take advantage of this new category in hopes of boosting profits, increasing market basket size and luring new consumers. Countless articles stream across desktops as retailers anticipate a gold mine across a variety of trade channels. The change in the law has also created new excitement as this product line reminds many of the energy drink craze a decade ago. So what’s the best way to capitalize on CBD? My advice: HURRY UP and WAIT!
The Farm Bill in signed into law in 2018 segregated industrial hemp from marijuana, which had both been included in one description and classified as a schedule 1 drug, making it as illegal as selling or possessing heroin. Way back when, hemp was commonly used for making ropes, clothing and variety of other uses.
Modern technology now allows a grower to produce plants with only trace amounts of THC, the chemical in marijuana that produces the euphoric effect of “getting high.” Furthermore, the CBD elements can be separated out from the plant in order for consumers to reap benefits like pain relief, better sleep and relaxation.
Unfortunately, CBD is not legal in all states, and even in states where CBD is legal, a wide variety of regulatory laws have been passed from what products CBD can be included in to specific state labeling requirements and certification procedures; moreover, some states currently allow CBD to be sold in only certain retail establishments. Retailers must check with each jurisdiction they operate to determine if they are allowed to sell CBD and what requirements the products must comply with.
The opportunity that CBD represents has resulted in hundreds of suppliers popping up overnight, but unfortunately, most of them have no history with the c-store trade, and references are scarce or non-existent. Every supplier I’ve spoken to has explained they have the finest plant source for
CBD, the cleanest extraction process, the purest ingredients; however, they can’t all be perfect.
I have also found a number of suppliers making false or misleading statements regarding the legality of sale in various states, or they have been unfamiliar with labeling requirements. In addition to checking with local jurisdictions, retailers must proceed with caution in vetting their suppliers in order to prevent the disappearance of suppliers in case a product doesn’t sell or laws change, similar to what occurred in the e-liquid category.
A good supplier should be able to provide a written guarantee of sales, along with naming the retailer as an additional insured entity in case of any future litigation with their particular product. Also, don’t assume UPC’s are present or that they are assigned correctly. One supplier review showed the same UPC being used on the same size product, though there were a half a dozen flavors available in that size. Ah, the joys of dealing with newbies!
CBD is available in multiple formats, different sizes and different strengths. It’s rather easy to get to a few hundred SKUs in a matter of moments if you’re not careful. The category includes edibles such as gummies, tincture liquids, pre-filled tanks with liquid, creams, pills, cigarettes, loose leaf hemp, coffee, tea and who knows what else is out there. Normally, it would be easy to design an assortment on retail pricing tolerances you’ve seen in your stores, but many retailers have been surprised at the sales dollars these products can generate with some items selling above $100 based on size and strength.
The best route is to establish a space you’re comfortable with and fill it up with a wide range of price points and sizes. Since you’ve taken my advice and chosen a supplier or two that has given you a guarantee on their products, you should be able to refine your shelf space and return the slower sellers once some patterns have been established.
The CBD Fit
Each retailer will have to determine how much space they are willing to dedicate to this category. We know at the moment that CBD sales will continue to increase based on availability and its current popularity. However, the retailer that can maximize their return on investment on CBD should be ready to expand it because the margins are currently healthy, and they are extra sales. But beware: this product is showing up across multiple channels including “fresh” retailers, discount and drug stores, and freestanding CBD retailers.
Product proliferation will certainly continue for the foreseeable future as more retailers chase the additional sales dollars provided by CBD. It’s important to be first on the street if possible in order to establish your location as the familiar place to purchase the products before you find yourself competing with multiple nearby locations. Ensuring your store has bold and engaging points of sale (POS) will go a long way in announcing you have the product and separating yourself from other retailers that are selling the product.
The Food and Drug Administration (FDA) has stated that CBD should not be considered an additive to food and beverage products until guidelines have been issued. However, many of these products are already for sale in the marketplace citing a provision in the law for compounds currently undergoing research. To date, the agency has issued warning letters to three companies that have health claims regarding their products, though most experts do not anticipate the agency pulling thousands of products out of the marketplace while these things are sorted out.
As with most products, employee training is important for both adhering to regulations and engaging customers. It’s important to note that the FDA prohibits any health claims from being made on the products you are selling. This also affects what your employees can say to consumers, who are doing a lot of inquiring about CBD. It is not permissible to say, for example, that CBD it will rid you of arthritis. However, if the clerk has personal knowledge that someone she knows said it helped them with their arthritis, that is OK. Some suppliers have detailed guides on how the products is produced, maintained and how it can be sold, and this is a good place to start.
While there is always a bit of discomfort on behalf of retailers when delving into a new product category and the need for some historical background of sales and assortment, the CBD market seems to be a worthy cause to throw some caution to the wind and dive into it quickly. That does not mean doing one’s homework isn’t in order; however, this is truly a product that has rewarded those retailers who are first on the street with being able to quickly build a base of customers. As we know, acquiring a customer from the onset is much cheaper than attempting to procure one from a competitor.