Five years ago, the notion of cannabis as a convenience category seemed improbable. At that point, cannabis was almost exclusively defined as marijuana: a substance illegal on the federal level and limited to marijuana-only dispensaries in the few states that had passed adult-usage laws.
Then came the 2018 Farm Bill.
Paving the way for hemp-based cannabis options and leading to a slew of investment, innovation and consumer interest in cannabidiol (CBD) and other hemp-derived products, the Farm Bill put us in a very different situation than five years ago.
A situation where convenience retailers can—and increasingly are—participating in the national cannabis market.
As evidenced by the nearly 40 hemp or CBD-related booths at the 2021 NACS Show. “We saw a large number of CBD products at the NACS Show last year in Chicago, as well as 2019 in Atlanta, when they were featured together in a CBD specific pavilion,” said Jayme Gough, NACS research manager. “I think retailers have plenty of opportunities to talk with suppliers, ask about the products, and ask about the customers as they do their research,” she said.
“Over the past years, we’ve seen a growing acceptance of CBD products by both retailers and consumers,” said Daniel Yepes, senior marketing director for CBD maker Reliva. “For convenience retailers, CBD is an important revenue stream.”
The U.S. CBD market hit $2.2 billion in 2020 and an estimated $3.5 billion in 2021, according to Nielsen. By 2025, U.S. CBD sales will reach $6.9 billion, Nielsen projects. For context, the current hard seltzer market is $4.1 billion.
Promising, yes, but CBD’s place in convenience is far from clear, thanks in large part to the U.S. Food and Drug Administration (FDA), which hasn’t approved ingestible CBD products for sale in the United States. That stance is the reason NACS does not yet gather data on CBD sales. “As a national association, NACS can’t track items that are not federally legal for sale,” said Gough. “We will be able to provide category data when that happens—if that happens—and we’re planning for it.”
That leaves retailers with a slew of questions as CBD—and other hemp-based products—remain in regulatory limbo. Here are five of the most pressing questions facing the category as we enter 2022.
The big thing for 2022 is going to be where synthetic and semi-synthetic cannabinoids fall in general acceptance and legality.
1. IS CBD A REAL CATEGORY...OR JUST A PLACEHOLDER FOR MARIJUANA?
If retailers were skeptical of CBD’s staying power before the COVID-19 pandemic, 2020’s brick and mortar sales data offered little reassurance. “The market actually saw a large decline in 2020,” Gough said. “Some sources had the market down as much as 6% from the previous year. Prior to that we were seeing triple-digit growth.”
One explanation posed by those skeptical of CBD’s staying power is that CBD consumers might also be looking at THC. And as more and more states legalize THC for adult recreational use, those consumers lost interest in CBD. For context, BDSA data showed marijuana sales in legal markets grew 46% in 2020.
Even prior to 2020, many retailers expressed concern about CBD’s staying power, wondering if consumers were really interested in the hemp-derived option or just looking for a legal alternative to marijuana.
Data in states where marijuana is legal suggest that’s not the case.
According to BDSA, a provider of market research solutions for the global cannabinoid industry, studies of U.S. cannabis consumers show that 20% use only CBD and 64% use both CBD and THC. Just 16% use only THC. What’s more: 22% of dispensary edible sales are CBD-only products.
“The concept of CBD being a placeholder may have been an accurate statement early on,” said Zach Bader, director at MMS Distribution LLC. But “consumers now understand that CBD does not have a psychoactive effect, especially compared to THC or marijuana. CBD is thought to have other benefits, more akin to a supplement than an effect-driven product like marijuana.”
“There’s a demographic that’s looking for CBD; they’re not looking for the high,” said Don Rhoads, president and CEO of The Convenience Group LLC. “CBD has a purpose and, in many minds, a benefit. It’s real, and it’s going to remain a viable category for us.”
2. WILL WE EVER GET REGULATORY CLARITY?
The quick answer? Yes...but probably not this year. “I continue to think that if we want a consistent federal ingestibles policy, it’s going to come from Congress forcing FDA’s hand, not FDA issuing regulations of its own volition,” said Jonathan Havens, a partner at Saul Ewing Arnstein & Lehr LLP and a former FDA regulatory counsel.
Since the passage of the Farm Bill, the FDA has maintained that ingestible CBD products cannot be marketed without FDA approval, arguing that the agency needs more data to determine how—or if—it will grant such approvals.
Historically, the agency has taken a largely hands-off approach to CBD products, absent such products bearing aggressive therapeutic claims. And even then, FDA has sent warning letters to brands, rather than retailers. In 2021, the agency rejected two applications to market CBD under the New Dietary Ingredient pathway; and it has issued numerous official calls for data, most recently the October 2021 Cannabis-Derived Products Data Acceleration Plan.
The name, according to Havens, suggests more urgency than the plan itself. “Unfortunately, it strikes me as more of the same,” he said. “I’m not seeing anything that suggests FDA is going to tackle CBD rulemaking anytime soon. If the industry wants a fix, it needs to rely on Congress.”
There are several bills, or anticipated bills, in both the U.S. House and Senate that strive to solve the CBD issue, most notably the Cannabis Administration and Opportunity Act (which includes provisions on CBD in addition to the broader legalization of marijuana). But the likelihood of that—or any stand-alone bill—passing right now is unlikely.
“Given the current makeup of the Senate and the needed 60 votes to pass cannabis reform, I’m not seeing a path forward in the near term,” Havens said.
He added that while ending the federal prohibition on cannabis is unlikely anytime soon, aspects of various legislative proposals in and around the cannabis space could become law. While Sen. Chuck Schumer and Sen. Cory Booker have said that piecemeal cannabis reform would not come before comprehensive reform that addresses, among other things, social equity, they might be starting to realize that it’s either incremental reform or nothing at all.
“Perhaps CBD gets added to a must-pass measure,” Havens said. “But if that were a possibility, why hasn’t it happened yet?”
3. WHAT FORMATS WILL GROW IN 2022?
The limbo happening on the federal level has led to limbo in terms of the availability—and therefore sales—of many ingestible products. “Customers are still sorting out how they want to consume this product,” Gough at NACS said. “There are a lot of moving pieces right now. As a retailer, it’s really tricky to navigate.”
But, perhaps, getting less tricky as we learn more about that CBD shopper.
“We’re seeing growing consumer acceptance of CBD as a lifestyle product and demand for new formats to suit consumers’ needs,” said Yepes, citing Reliva’s addition of an on-the-go beverage mix as an example of a new format designed to meet consumer demands.
The key to unlocking which formats CBD consumers will purchase, according to Bader of MMS Distribution, is looking at which formats are most accessible and easy to use for new shoppers.
“What are people more comfortable consuming?” he said. “That’s where edibles have grown.”
Data from The Brightfield Group show that edible, drinkable and ingestible forms of CBD experienced some of the most growth in 2021. In its 2021 Mid-Year U.S. CBD Report, the cannabis research firm projected CBD beverages would grow 71% in 2021 (the most of any subsegment), CBD gummies 41% (the second most) and tinctures would remain the most-purchased format (18% of all CBD sales).
As a retailer, Rhoads is seeing CBD beverage growth firsthand at his stores, describing the category as “on fire.” Rhoads noted that he has offered CBD beverages for a little over a year, playing around with different regional offerings and keeping about 12 SKUs, primarily still, sparkling and flavored waters, in a dedicated cold merchandiser. “Beverages seem to work well in the convenience model,” he said. “It’s a grab-and-go item, and it doesn’t take a lot of explaining.
“The way convenience is going to remain relevant in this category is to provide consumers with what they want,” continued Rhoads. “I think the beverage category is that kind of category for us. We’ve had outstanding growth in my stores: If we have it, it sells.”
Consumers now understand that CBD does not have a psychoactive effect, especially compared to THC or marijuana.
4. WHAT’S THE DEAL WITH DELTA-8?
During the past year, delta-8 has come into prominence as, at least theoretically, a way for mainstream retailers to sell THC-like products.
What exactly is delta-8? Cannabis site Leafly describes it as “a cannabis compound that has become popular because of its similarity to delta-9 THC, the main compound in cannabis that gets you high, causing euphoria, happiness, sedation, symptom relief, and much more.” Unlike THC, delta-8 is derived from hemp. Unlike CBD, it’s a synthetic cannabinoid: Most delta-8 products are made by extracting CBD from the hemp plant, refining that into CBD isolate, then synthesizing that CBD isolate into delta-8.
This is important because of how the Drug Enforcement Agency (DEA) classifies different parts of the hemp and cannabis plant. CBD and other hemp-derived compounds may be legal under the DEA’s stance, but synthetic cannabinoids—like delta-8—are not.
“As a trade association, our position is that the DEA believes that this is a synthetic version of marijuana,” Jon Taets, NACS director of government relations, said at the 2021 NACS Show. “It’s different than CBD, where you’re dealing with the FDA and potential fines. The DEA, if they choose to enforce, they have the authority to do so. NACS advises caution.”
To date, the DEA has not yet chosen to take enforcement action against retailers or manufacturers of delta-8.
“Lack of enforcement doesn’t mean legality,” warned Havens. “It just means lack of enforcement. But as people are selling products that arguably have a similar chemical structure to delta-9 THC and are marketed to have a similar effect as delta-9, I think DEA could take enforcement action under the Federal Analog Act.”
Havens added that there is an unanswered question in his mind about what DEA means when it says that “synthetic” delta-8 is illegal, whereas delta-8 extracted from hemp (as long as it doesn’t have more than 0.3% delta-9 THC) is legal. “My understanding is that much of the delta-8 on the market today is made by taking hemp-derived CBD and synthesizing it into delta-8. Would that qualify as ‘synthetic’? I don’t think we have a good answer from DEA.”
On the state level, more and more are passing outright bans or restrictions on delta-8 sales. At the time of publication, Havens knew of over a dozen states that had enacted some form of delta-8 limitations, and four more states were considering it. “Unless a state says it allows delta-8, it could be risky to sell it,” he said.
5. WHAT’S NEXT?
When looking at the future of the hemp and CBD category, experts suggest looking at the entire cannabis plant—not just CBD or THC.
“CBD companies currently offer a pretty wide range of products,” Mike Sill, the CEO of CBD company Sunday Scaries, wrote in an op-ed for Forbes. “Nevertheless, this diversity will increase as more companies introduce products that hyper-concentrate on each of the over 100 minor cannabinoids found in the hemp plant.
Bader agreed. “CBD is one compound,” he said. “The big thing for 2022 is going to be where synthetic and semi-synthetic cannabinoids fall in general acceptance and legality.”
Delta-8 is perhaps the most well-known synthetically produced cannabinoid. But Bader said the technology behind delta-8 allows cannabis companies like his to explore options of combining other cannabinoids like CBN (which is thought to have nonintoxicating pain relief properties), CBG (an anti-inflammatory) and more for products that offer a more tangible effect than CBD (which behaves more like a vitamin or nutritional supplement).
“CBD came out into the market and the whole world expected effects,” Bader said. “If hemp products could deliver those effects in a legal and safe way, it could be really big.”
Rhoads said the regulatory uncertainty and newness of the category make it difficult to predict what’s next, but he agreed that it’s likely to grow beyond just one cannabinoid like CBD.
“I see a day where hemp, CBD, THC and more move into our craft beer category, our wine category, providing new products that serve different needs than what we’ve historically offered folks,” he said. “It’s really exciting.”
CANNABIS FAQ: WHAT'S LEGAL, WHAT'S NOT
Visit www.convenience.org/CBD for news and legal information to help you navigate the gray areas around the sale of CBD and CBD-related products. NACS stays on top of changes in both federal and FDA policy that could modify the current information.