With a majority of Americans favoring the legalization of cannabis for both medicinal and recreational use, and with the convenience channel representing the largest number of outlets of any retail class of trade, it would seem rather logical that this channel would have strong potential for the distribution of cannabis.
I believe there is current evidence that should cannabis gain the legal status necessary to be sold at conventional retail outlets, there is strong potential for it to sell very well in the convenience channel. Yet the path to this happening, while rather strong in the long term, is still on questionable timing.
One likely opportunity is The Secure and Fair Enforcement Banking Act (SAFE), which has been passed by the House five times, but was stripped from the defense spending bill last December by the Senate. While this bill will not legalize cannabis on a federal level, it does allow for safe banking practices for any firm involved in the sale of cannabis where state law allows.
In April, the House passed the Marijuana Opportunity Reinvestment and Expungement Act (MORE), but this bill also did not receive the support it needed in the Senate.
Currently, 37 states have some form of cannabis legalization, with 18 states having legalized cannabis for recreational use. In 13 states cannabis remains totally illegal.
While support at the federal level for cannabis to be considered legal is gaining momentum, it will still be up to the individual states to make the ultimate decision. Many believe that more states will be encouraged to take steps to legalize cannabis, if the federal government does pass some type of positive legislation.
Despite the limited number of states where cannabis is recreationally legal, current estimates are that recreational cannabis dollar sales represented over $8 billion last year, with total cannabis sales around $25 billion, an increase of over 35% versus the previous year. For perspective, this makes total cannabis sales just less than half the size of the cigarette market in the U.S.
So if it is becoming more likely that cannabis will be legal in more states, it remains to be seen when cannabis can be sold in retail outlets like convenience stores. While many believe that step is very likely to happen, it will follow the surrounding turmoil that will make it legal at both the federal and state levels.
So, what is the current evidence that suggests cannabis is likely to sell very well in convenience stores? Many convenience stores, but not the majority, have been selling products such as Kratom, Delta 8 or Delta 10, all of which have reportedly some similar effects to those of cannabis.
As shown in the graph above, Kratom, by far the top selling of these three items, will this year outsell CBD in the convenience channel, according to the InfoMetrics distributor shipment data collected by Management Science Associates (MSA).
The strong growth of Kratom this year has been significant — it is currently selling at about a 50% greater level than CBD.
Further, this growth is likely considerably understated. Due to the legal uncertainty around products such as Kratom, Delta 8 and Delta 10, many established distributors do not provide these products. Many convenience retailers that sell these items purchase them from smaller, less established distributors or purchase them online directly from manufacturers that do not report their data.
The high level of sales for Kratom may be the strongest evidence to date of the potential for cannabis sales in the convenience channel.
One suggestion for retailers interested in positioning their outlets as a future potential destination for cannabis is to possibly enhance their vapor category.
MSA data has shown that when cannabis is consumed it is most often inhaled, the same as with current CBD products. Interestingly, as shown in the graph on p. 52, in terms of CBD sales the convenience channel trails in vapor development as compared to both tobacco outlets and all other classes of trade (food, drug and mass).
Retailers that establish themselves as a destination for vapor items should benefit when cannabis becomes available.
A second opportunity for retailers is to establish a robust, reliable age verification process. When regulations are developed on how, where and to whom cannabis can be sold, the convenience class of trade with a strong history of managing the tobacco and alcohol categories, and with the adoption of up-to-date processes to manage the sale of regulated items, will have a distinct advantage over other retail channels.
The growing sales of Kratom in the select retailers currently selling the item strongly suggest that cannabis will have great potential in the convenience channel. A little preparation by convenience retailers is likely to pay rewards when federal and additional state regulations are developed.
Don Burke is the senior vice president of Management Science Associates (MSA), a data management and analytics firm. Burke has 20-plus years of CPG experience working across the cannabis, tobacco, grocery, confectionary and beverage categories. He can be reached at [email protected]