C-store Retailers Weigh Viability of Cannabis Sales
More than 50 percent of adults over the age of 21 live in states that have legalized adult use of cannabis.
Renée M. Covino
NATIONAL REPORT — For the first time on record, regular cannabis use has surpassed cigarette use in the United States. This finding, uncovered in a Gallup poll in August, is just one data point that has caught the attention of a growing number of convenience store operators who are considering cannabis as a unique opportunity to expand and attract new customers.
Could marijuana be the convenience channel's next pot of gold?
Of the adult Americans who participated in the Gallup poll, roughly 16 percent said they currently use marijuana (the highest the polling organization has ever recorded), while nearly 50 percent said they have tried it. In the same poll, only 11 percent reported being cigarette smokers (the lowest recorded since Gallup began collecting data in 1944).
At the same time, Americans' views on marijuana are becoming less negative — 62 percent of adults aged 18-34 and 53 percent of those aged 35-54 said marijuana has positive effects on those who use it, according to another Gallup poll conducted in July.
U.S. legal cannabis sales are predicted to grow from $27 billion in 2022 to $42 billion in 2026, which would account for 75 percent of total global sales, according to BDSA, a cannabis market intelligence firm based in Louisville, Colo.
"Even in the most mature markets, we're seeing consumer participation continue to grow," said Brendan Mitchel-Chesebro, analyst/content manager for BDSA. "As of today, 95 percent of Americans live in a state that has at least some form of medical cannabis; this is excluding CBD-only programs." He added that more than 50 percent of adults over the age of 21 live in states that have legalized adult use of cannabis.
C-store partnerships around cannabis are blossoming in creative ways. In Canada, where recreational cannabis was legalized in 2018, Laval, Quebec-based Alimentation Couche-Tard Inc. (ACT), the parent company of Circle K, entered into a venture in 2019 with Toronto-based Fire & Flower, an adult-use cannabis retailer with more than 100 corporate-owned stores. ACT agreed to provide Fire & Flower with capital to accelerate its expansion strategy.
The alliance has since expanded to include the opening of seven Circle K co-located cannabis stores in Canada's provinces of Alberta and Ontario, operating under Fire & Flower corporate or technology licensing business models.
The companies intend to pursue more opportunities to expand the Circle K co-located store program. "Couche-Tard continues to see promise in the cannabis market and is committed to learning more about the space as it evolves both in Canada and beyond," said Alex Miller, the retailer's executive vice president of operations, North America. Couche-Tard believes it is a natural extension to pair its convenient shopper experience with the growing demand for cannabis products, he added.
In the U.S., Circle K entered into a lease agreement with Chicago-based Green Thumb Industries Inc., owner of RISE Dispensaries. This year, Green Thumb plans to launch "the test and learn phase" of a rollout of approximately 10 RISE Express medical cannabis retail stores adjacent to Circle K convenience stores in Florida.
"Convenience is a strong channel in retail, and people want more access to cannabis," said Ben Kovler, founder, chairman and CEO of Green Thumb. "The new RISE Express model is a huge step forward in making it easier and more efficient for patients to purchase high-quality cannabis as part of their everyday routine when stopping by their local convenience store."
This year is also expected to see Jacksons Food Stores enter the cannabis market. Jackson BevCo, which is owned by Boise, Idaho-based Jacksons Food Stores, is teaming up with CordovaCann Corp., a cannabis-focused consumer products and retail company based in Toronto. A managed services agreement (MSA) between the companies will facilitate the opening of cannabis retail stores inside or adjacent to c-stores operated by Jackson BevCo, which has 65 Big Smoke and Tobacco Connection stores in the western U.S.
The cannabis retail stores opened under the MSA will be owned and operated by Jacksons, which will pay Cordova a royalty based on a percentage of revenues generated. The first of these stores are slated to launch in Washington, Oregon and Arizona.
"The MSA will be mutually beneficial as it will provide a new and substantial revenue channel for Jacksons and accelerate the revenue and profitability of Cordova's U.S. operations," stated Taz Turner, chairman and CEO of Cordova.
But Not So Fast
While it is true that the convenience channel has a long history of selling age-restricted products safely and compliantly, and thousands of c-stores already sell non-psychoactive CBD (cannabidiol) products, industry analysts and experts say there's cause for a pause before more convenience retailers jump into the cannabis space.
"Dispensing marijuana legally in any U.S. c-store is impossible today," Agustin Rodriguez, a partner with the national law firm of Troutman Pepper, told Convenience Store News. He said the c-store/cannabis retailer partnerships involving medical marijuana are "an interesting way to get into it." However, he added that "it's clearly illegal under federal statute to lease to marijuana companies."
Of course, there is legalization at the state level, but "you currently have to have adult-only dedicated dispensaries to dispense the product legally," Rodriguez explained.
He also cautions c-store chains to think about the complexity involved in the dispensary business. "What's limiting about that is every one of those state territories has its own licensing regime and many, if not all, are designed to keep out large business to the extent possible and to encourage small-business ownerships."
The future viability and success of cannabis in the U.S. c-store environment will depend on several variables, according to Mike Wilson, vice president of trade strategy and operations for tobacco company Reynolds Marketing Services Co., headquartered in Winston-Salem, N.C. Those variables include societal perception, particularly on issues of public health and safety; federal and state regulation; product format; product pricing; existing entrenched interests; and c-store operators' willingness to engage in the sale of cannabis products.
"There are cannabis products today that fit within the definition of a fast-moving consumer good and, as a result, seem to be a natural fit for the c-store environment eventually," Wilson said. "As regulations and societal perception develop, the long-term viability of this category in c-stores will largely depend on the willingness of the c-store operators to participate in conversations and considerations on each of the variables listed above."
For marijuana to be successful in any mass retail channel, "it will essentially have to be ubiquitous in the U.S., and it has not reached that point yet. Plus, retailers risk alienating/offending a portion of their consumer base now," noted Alex Morrison, senior business analyst for Cadent Consulting Group.
Further down the road, though, he sees potential. "Cannabis is clearly an opportunity for c-stores at some point, but we are still five years to a decade out," he predicted.
When the time comes, Morrison does believe that cannabis will have the most success in the convenience channel because it is where most people already go to make their age-restricted purchases, including tobacco, alcohol and lottery.