Retailers Signal Increased Commercial Interest In CBD
Rite Aid Corporation (NYSE:RAD), CVS Health Corp (NYSE:CVS), and Walgreens (NASDAQ:WBA) recently announced plans to sell cannabidiol, or CBD, products in 2,500 stores across 19 states. The stores will only sell topical CBD products, such as chapstick, lotions and body sprays. Rite Aid also announced it will stop selling e-cigarettes in an attempt to address an increase in teen smokeless tobacco use. The move by the three pharmacy chains could signal the beginning of commercial interest and production in CBD products.
Whether due to society's increasing anxiety, or millenials' willingness to pursue alternative medicine,CBD has been lauded for its ability to treat everything from back pain to anxiety. The compound can be found in everything from energy drinks to body spray, and some consumers even feed it to their dogs. The Agriculture Improvement Act of 2018 legalized hemp and hemp products, including CBD, though it included some restrictions. In 2018, Brightfield Group, a cannabis market research group, predicted that the CBD market would reach $22 billion by 2022. Cowen and Company, an investment banking firm, predicted that retail sales of CBD would reach $2 billion in the United States in 2018. If these predictions are correct, CBD is on track to become a commodity crop in the United States, necessitating the formation of a new supply chain that could grow as quickly as demand for the product.
"It is inevitably coming to big box retail," said Colton Griffin, CEO of Flourish Software, a cannabis supply chain software company. "The more immediate reason it's not already there is mostly because of legal and regulatory reasons. And of course, the supply chain is being built overnight, which is exciting."
There are certain challenges intrinsic with transporting CBD products because of CBD's close relation to cannabis, which is still illegal at the federal level. CBD products must contain no more than .03 percent THC, and could be subject to frequent checks and stop points. However, this additional regulation means transporting CBD products will be inherently transparent. This transparency may make CBD products one of the first commodity crops to have true transparency at all levels of harvest and transport, making any issues with the crop easier to trace after the fact.
Regulation of hemp products alone, without legalization of marijuana, could create supply chain issues and additional costs. Each state may have different regulatory standards for THC content, and waiting for regulatory checks may increase transit times for shipments, increasing prices for carriers hauling the loads. Regulated commodities also have regulations on the carriers that haul them, which may make finding carriers for the loads of CBD products more difficult as demand for the products increases over time.
"Right now there is so much ambiguity with the law that is going to present more short-term challenges," Griffin continued. "When you're moving any product you need proper documentation with it. As long as operators have proper documentation and are operating within the framework that is being set by the state and federal governments, I don't see it being any different to ship than any other regulated commodity."
From a supply chain perspective, there have been a number of businesses starting overnight from the growing to extraction stages in preparation of increased demand for CBD. According to Griffin, it may not be long until several large retailers are selling their own brands of CBD products.
"There are large amounts of money being invested in the infrastructure to commercially grow the stock and extract the oil," Griffin stated. "There are professional operators coming in and setting up real businesses to provide products that are clearly in demand, and at the very early stages of understanding what those products can do for people."
While some retailers such as Rite Aid, CVS and Walgreens have jumped at the chance to test consumer interest, other larger retailers have steered clear until clear regulations are established. Walmart and Amazon, for example, have stated they will not be selling CBD products, with Amazon going as far as to remove any CBD products from its website.
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