CBD Category Holds Promise for Convenience Channel

NATIONAL REPORT — More "wellness" categories like cannabidiol (CBD) are nestling into new homes — convenience stores — thanks to a neighborhood phenomenon taking shape: the c-store as the new "micro-pharmacy."

That's how some industry experts describe it, explaining that convenience stores solidified their position as both essential businesses and essential to their communities during the pandemic, a trend that is very much continuing as consumers seek alternative solutions to their health needs and their desire to be healthier.

"The demand for non-prescription treatments to address pain, energy and sleep issues will continue to grow, and as individuals seek healthier options to alcohol, cigarettes and sugar, they often see CBD and hemp products as potential alternatives," said Brian Cox, CEO of Bartlett, Tenn.-based SurgePays, a supplier of top-selling items and prepaid products to c-stores and gas stations. "This will help c-stores not only maintain those customers and revenues, but also grow revenues as this product category continues to boom."

Cox acknowledges that CBD is still in the infancy stage, yet is evolving. "As the industry matures, we are seeing more focused products, often using CBD as a catalyst to combine with other ingredients with known benefits, such as a sleep gummy with CBD and melatonin, or an energy CBD with caffeine."

C-store shoppers are gravitating toward CBD product forms that align with familiar and popular forms in mainstream categories, such as beverages, noted Mike Luce, president and co-founder of Chicago-based High Yield Insights, a provider of data-driven insights into the cannabis market and related products.

"While starting from a relatively small share, CBD-infused drinks have shown tremendous growth," Luce reported. "Shoppers have been keyed in on functional beverages for years, and a blend including CBD looks right in line with that trend."

Other formats that are time-tested and still selling well are CBD gummies and pain creams, according to Kevin Liebrock, general manager at Castle Rock, Colo.-based Prana Principle, maker of CBD skincare, topicals and bath products.

Matt Zehner, senior insights analyst at Chicago-based Brightfield Group, which recently released its 2022 midyear report on CBD, pointed out that the biggest CBD product type being sold in convenience stores as of 2022 is vapes, followed by beverages. Gummies also have seen a significant rise in convenience channel sales in the past year, he added.

While online sales of CBD products flourished during the height of the pandemic, many consumers have shifted back to in-store purchases — convenience stores included.

In fact, roughly 34 percent more consumers are purchasing CBD through c-stores today than they were toward the start of 2021, according to Brightfield Group's findings. "C-stores are expected to remain a sizable and growing channel for CBD sales with the third-highest compound annual growth rate through 2027," Zehner said.

The FDA Factor

Regulation and/or guidance from the Food and Drug Administration (FDA) is seen as a key driver for the CBD category moving forward. According to Brightfield Group, 2027 sales are forecasted to be $4 billion or more greater if regulatory reform occurs by 2024 than if no such changes are made. If federal regulation were to be implemented by 2024, overall sales are expected to reach $11 billion by 2027.

Currently, CBD is not regulated by the FDA. It cannot be an ingredient listed in any supplement or claim to alleviate a medical alignment, according to Michelle Donovan, a cannabis attorney with the Clark Hill law firm, based in Detroit. "Each state has its own rules and regulations when selling food, drugs and cosmetics, so it's important to check each state's requirement," she told Convenience Store News.

Retailers are cautioned to not carry any CBD items that make far-fetched claims. "While the federal government untangles hemp-derived products, the category has to monitor itself. The product must match what's on the label and be backed up by test results," Luce said.

Zehner agrees that high-quality, lab-tested products are a must. "Ensuring that stocked items are created by reputable, experienced producers will help to turn purchasers into loyal CBD customers," he said. "Having goods that adhere to high manufacturing and testing standards will also mean that retailers won't have to switch the brands they carry upon federal regulations that will raise the bar."

Clinical trials will continue to expand what we know about CBD, which will increase the demand, according to Cox of SurgePays. "It is important for retailers not to get ahead of themselves or the FDA. They need products from reliable, consistent manufacturers to build foot traffic for the category," he echoed.

From a merchandising perspective, Prana Principle's Liebrock believes that it would behoove c-stores to get hemp and CBD products out of the locked case. "This really hurts sales and doesn't give the products a chance," he said. "Stores would see much better results if they merchandised CBD in line with other health and wellness items."

As consumers want to experiment and learn more about CBD, it is important to have a small quantity of trial packs at lower introductory price points in stock, Cox advised. This approach can be furthered by the same retailer stocking larger, better-value items for those consumers who come back for more.

The key is having both, and making the trial items obvious. "Hemp and CBD products initially had very high price points that just didn't work well in convenience stores," Liebrock relayed. "By offering smaller-format products under $10, which are now widely available, c-store customers will be more likely to give CBD a try."