Retail Industry Faces Unknowns With Emerging Cannabis & CBD Category

NEW YORK — The retail industry is always looking to tap into the next big thing, and the same is true with cannabis and cannabidiol (CBD) products. However, with no products approved for market by the Food and Drug Administration (FDA), and states enacting their own regulations, navigating the emerging category for both retailer and consumer packaged goods (CPGs) companies can be difficult.

According to Nielsen, within the U.S. states where cannabis sales have been legalized, cannabis and CBD from hemp generated $8 billion in 2018.

"Needless to say, it's not an easy arena to navigate, especially for brands that would like to capitalize on the groundswell but aren't familiar with the minutiae of the sector. As a result, many U.S. brands and retailers are grappling with how to navigate the future of the CPG market — one where cannabis stands to be a true game-changer across an array of categories," said Rick Maturo, associate client director, Nielsen Cannabis Insights Practice.

The research firm projects that sales of all legalized cannabis in the United States will reach $41 billion by 2025. Nielsen further breaks that down to $35 billion from marijuana products and $6 billion from hemp-derived CBD products.

"It should be stated that these marijuana projections presume that 75 percent of the U.S. adult population will have consistent access to legal marijuana by 2025. Hemp-derived CBD projection presumes ingestible hemp-derived CBD products will be legally available at major retailers and across retail channels," Maturo noted.

The latest Nielsen Thinking Beyond the Buzz Survey (U.S.) 2019 found that more than 75 percent of those planning to consume cannabis will consume a CBD product (CBD-dominant marijuana or hemp-derived CBD) in the next 12 months if legally available.

With that in mind, the firm noted that hemp-based CBD sales in traditional brick-and-mortar stores across Nielsen's retail measurement universe inclusive of grocery, drug and convenience stores is exploding.

Nielsen retail measurement shows that sales during the latest four-week period (ended July 13) were three times higher than in the first four weeks of 2019. In addition, to date in 2019, hemp-CBD can be found in nearly 5 percent of Nielsen tracked retailers across the country.

As good as the numbers sound, CPG companies need to consider consumer fallout from adding cannabis and CBD products to its offerings.

Nielsen data shows that there is significantly more risk to a CPG company's brand/corporate equity with the introduction of marijuana-based products.

Notably, a recent Nielsen study found that nearly 40 percent of older generation groups stated that they would at least consider to stop buying a company's brand if it were involved with marijuana vs. less than 20 percent of younger generations.

"In some consumer segments, the potential loss of sales could be offset by a gain from those stating a likelihood to purchase more of a company's products if they were involved with marijuana," Maturo said. "Each company's situation is unique and is based on the current image as well as the consumer segments to which they appeal."

As the FDA reviews the space — and, according to many, moves closer to establishing guidelines — Nielsen addressed several key questions about the category. To read more of its insights, click here.