For the past year or so, beverages containing cannabidiol (CBD) have been coming out of the proverbial woodwork. And that’s despite the assertion from the Food & Drug Administration (FDA) that it would continue to regulate products containing cannabis and cannabis-derived compounds in the wake of last year’s passage of the Agriculture Improvement Act (the Farm Bill). Indeed, a multiunit convenience-store operator in the South remarked, “It’s a crazy gray area. The government passed the Farm Bill last year, and CBD products have become the Wild, Wild West. Yet, the FDA is slow-dancing the entire matter,” leaving retailers confused and frustrated.

To be sure, the onslaught of beverages containing CBD, tempered by federal regulations, has left many retailers uncertain. While the Farm Bill removed hemp-derived CBD from its previous classification as a controlled substance, it didn’t alter the FDA’s authority to regulate the interstate sales of food and beverages containing the substance (hemp seed-derived food ingredients, however, don’t require FDA approval).

From a retailer is perspective, it is illegal under federal law. The FDA can come in and enforce.

At press time, the agency was planning its first public hearing on the matter, and at least one retailer was encouraged. “My hope is that we end up with constructive dialogue that is meaningful for the retail sector so that we can begin to introduce these products,” said Don Rhoads, president of The Convenience Group LLC, which operates 11 convenience stores in Washington. But he conceded, “It will take a diverse set of stakeholders sitting at the table to make it happen.”

Both marijuana and hemp contain more than 100 different compounds called cannabinoids that affect the human body differently. The two best-known cannabinoids are CBD and THC, or tetrahydrocannabinol, which is the main psychoactive component in marijuana. Unlike THC, CBD doesn’t cause a “high,” and it’s been touted as having health benefits.

Scott Sinder, general counsel for NACS and a partner with Steptoe & Johnson LLP, said that because beverages containing hemp-derived CBD have not yet cleared FDA hurdles, retailers assume some risk in stocking them. “From a retailer’s perspective, it’s illegal under federal law. The FDA can come in and enforce,” said Sinder, noting that state laws can add another layer of difficulty because they vary significantly in how they treat such products.

Despite the prohibitions, “the market continues to develop, and shelves continue to be stocked with these products,” Sinder said. He noted that the FDA has conceded that it’s not equipped to enforce the rules, and so, for retailers—even in states where recreational marijuana is legal—“it comes down to a risk assessment.”

Retailer Concerns

Ricky Wright, president and CEO of the Alkaline Water Co.—which plans to launch Soothe, a CBD-infused alkaline water, later this year—said that while many retailers are leery about offering the products, they’re generally “psyched” about the category’s potential opportunity. Wright said retailers typically become more at ease about the drinks when they know “there is a full chain of custody” in the production and distribution phases. A southern c-store operator, who requested anonymity, agreed. He said that while he’s comfortable offering nationally known CBD beverages in his stores, he recognizes that other retailers are skeptical. “I understand why there is fear,” he said. “There’s no regulation of these products. Unless you know who the supplier is, you could wonder, ‘Is it CBD or is it snake oil?’”

Ironically, the crackdown by the FDA may be helping to fuel demand for CBD beverages, one marketer said. Media reports about enforcement are “helping to build the noise,” commented Jonathan Eppers, CEO of Vybes, which markets a line of hemp-derived CBD beverages. “We’re seeing more and more interest from retailers, and we’re struggling to keep up with demand.”

Wright and Eppers believe that the convenience store channel will embrace the beverages when they’re federally approved. “C-stores will be early adopters,” the Alkaline Water Co. executive said, adding that grocers—due to public ownership—“will take their time” stocking the products.

Eppers said Vybes began appearing in c-stores earlier this year, and sales are outperforming expectations. “I didn’t think they would do as well in c-stores, but we’re seeing the opposite reaction,” despite their high price tag, the marketer noted. “I’ve been surprised to see an $8 beverage sell so well in c-stores,” Eppers said, “but people are looking for health and wellness products. They’ve gone through energy drinks, and now they want organic, healthier options that are functional.” Some c-store operators also are behind the product’s early success, Eppers added, because “they want to be first to bring something in, and to give themselves an edge over the competition.”

Rhoads also is bullish on the prospects for CBD beverages, despite the challenges he’s encountered. “I see the opportunity for CBD beverages in convenience stores as huge,” said the c-store operator, who also is a marijuana farmer in Washington. “I believe it will be a core category for c-stores.” Earlier this year, Rhoads was forced to suspend a pilot program for the beverages at his stores when his distributor received an FDA warning letter. The CBD-infused waters and sodas “did well” in their one-year test at the c-stores, Rhoads said.

Multitude of Brands

A plethora of CBD beverages have already launched or are in the works. In addition to c-stores, Vybes is sold in natural food stores, co-ops, some grocery stores, cafes and coffee shops in 21 states, Eppers reported. The brand launched last year in California, and today, it’s available in five flavors, packaged in 14-ounce glass bottles. Due to retailer concerns, Eppers said, “We guarantee our product. Some retailers have been concerned that if they spend $45 on a case, and it gets confiscated, they’re out the money. But we won’t make them pay for any product that is not sold.” While Soothe is not yet on the market, Alkaline Water is readying its distribution system, which includes a retail services agreement with E.A. Berg Associates for the c-store channel.

I've been surprised to see an $8 beverage sell so well in c-stores.

Major alcoholic beverage companies also have become active in the CBD space via partnerships with Canadian firms. Constellation Brands owns a 38% stake in Canopy Growth, while Molson Coors has a joint venture with Hydropothecary. Anheuser-Busch InBev, meanwhile, has formed a research partnership with Tilray, a pharmaceutical and cannabis company, to explore non-alcoholic CBD and THC beverages. And several small craft brewers have been dabbling with CBD beverages.

Beverages containing hemp seeds, meanwhile, which do not require FDA approval, are on the rise. FIFCO USA, for example, launched Hemptails, a flavored malt beverage made from organic, sterilized hemp seeds earlier this year. “We see these beverages as an emerging trend,” remarked Jennifer McCauley, brand manager, adding that CBD-based beverages are on the company’s radar.

Despite the U.S. government’s current stance on CBD beverages, there appears to be universal agreement that those regulations will change. Sinder foresees “full federal legalization” down the road. Vybes’ Eppers concurs. “I believe it’s just a matter of time before the FDA reverses course,” he said. Noting that the agency hasn’t taken any significant steps to enforce current regulations and “scare off retailers,” the marketer said, “There’s a confidence now that the challenges are short-term, and retailers are willing to take the risk.”

While marketers and c-store retailers aren’t expecting a quick resolution of the matter, they’re readying for the potential opportunity CBD beverages will bring. Five years from now, CBD- and hemp-based beverages will be “prevalent,” said McCauley. “The segment will grow.”