The cannabidiol (CBD) health and wellness market is on the verge of huge growth as major US companies begin to sign retail distribution deals with CBD product companies.
CBD products represent one of the fastest growing segments in the cannabis market as well as the US$4 trillion health and wellness industry. In 2019, a number of major US brick and mortar retailers have begun to carry CBD products. As in any consumer packaged goods market, the battle for shelf space is critical for CBD companies hoping to achieve higher margins and greater market penetration. The ability to find a partner for retail distribution deals and sales agreements could be a huge differentiator for CBD product companies as they move forward.
In March, CVS Pharmacy (NYSE:CVS) introduced CBD topicals, including creams, sprays, roll-ons, lotions and salves, into more than 800 of its stores across eight states. Walgreens (NASDAQ:WBA) followed its rival a week later, proclaiming that it will begin selling CBD infused creams, patches and sprays in nearly 1,500 stores across nine states. “This product offering is in line with our efforts to provide a wider range of accessible health and wellbeing products and services to best meet the needs and preferences of our customers,” said Walgreens spokesman Brian Faith.
GNC Holdings (NYSE:GNC) followed suit in April, offering CBD-infused topicals in select retail locations and online in 23 states and the District of Columbia. “As the market changes, GNC is committed to offering high-quality, innovative products that are being introduced in new categories like CBD,” said Ken Martindale, chairman and CEO of GNC in a press release.
In June, Fox Business News reported that grocery chain Kroger (NYSE:KR) joined the growing ranks of CBD retailers, offering topical products in 945 stores across 17 states. “Like many retailers, we are starting to offer our customers a highly-curated selection of topical products like lotions, balms, oils and creams that are infused with hemp-derived CBD,” said a Kroger spokeswoman.
Even big-box retailers are also considering wading into the CBD waters. According to a report by the New York Post, Walmart (NYSE:WMT) and Target (NYSE:TGT) are researching the potential upside to stocking their shelves with CBD infused products from topical creams to drinks.
How retail distribution influences the CBD market
The wave of retailers angling to capture market share in the emerging CBD health and wellness sector follows the December 2018 passage of the US Farm Bill, which removed restrictions on the hemp industry. Hemp contains less than 0.3 percent THC, the psychoactive ingredient in cannabis. While cannabis remains federally illegal in the US, hemp is now considered an agricultural product and can be transported and sold throughout the country. CBD can be easily extracted from hemp plants, which can be grown using the same infrastructure and methods as cannabis.
According to data from the Brightfield Group, the global hemp-derived CBD market was valued at US$591 million in 2018 and has the potential to reach US$22 billion in 2022. New Frontier Data research shows 70 percent of hemp grown in the US in 2017 was used to produce CBD. As this market continues to grow, retailers have a significant opportunity to introduce CBD health and wellness products as a more natural way to ease anxiety, improve sleep and relieve pain.
Retail distribution partnerships on the rise
While Walgreens didn’t announce which companies they’ve partnered with to sell CBD products in their stores, CVS Pharmacy has inked a distribution deal with multi-state operator Curaleaf Holdings (CSE:CURA,OTCQX:CURLF). “I think that, in anticipation of the farm bill last year, many retailers were trying to come to a strategy for how they were going to address hemp,” Joseph Lusardi, CEO of Curaleaf, said in an earnings conference call. “We’ve got a number of potentially exciting partnerships in the pipeline.”
CVS Pharmacy CEO Larry Merlo said on CNBC that his company thinks CBD products are “something that customers are going to be looking for as part of the health offering.”
CV Sciences’ (OTCQB:CVSI) CBD oil will be featured on Kroger and CVS Pharmacy’s shelves. Yahoo Finance reported that CV Sciences CEO Joe Dowling said in a statement, “Kroger, CVS Pharmacy, and other leading national retailers are keenly aware of the increased consumer demand for hemp-based CBD products and they are partnering with CV Sciences because of our unwavering commitment to safety and quality.”
For now, CBD-infused topicals are the main product type making their way onto retail shelves, because the US Food and Drug Administration (FDA) has not yet approved adding CBD into food, drinks or dietary supplements. The FDA is expected to make a decision on such products by the end of 2019. FDA approval of CBD in a wider range of product categories could be a positive sign that more partnerships between retailers and CBD product companies are on the way.
As these major retailers choose CBD products to offer, they can be expected to look to existing distribution partners and established brands for CBD line extensions. CBD product companies with distribution arms are expected to have a smoother road to getting their products on retail shelves once the uncertainty in the regulatory environment is resolved.
Grant Froese, CEO of global health and wellness company Harvest One (TSXV:HVT, OTCQX:HRVOF), recently shared his company’s US strategy in an interview with the Investing News Network (INN). Harvest One has a diverse portfolio of brands, including Dream Water, Satipharm and Delivra. Dream Water beverages and powders, which promote relaxation and support restful sleep, have received the NSF International Certified for Sport designation that allows sports clubs and organizations, such as the MLB, NHL and CFL clubs to recommend the products to their players. Satipharm’s Gelpell capsules are designed to release CBD directly into the intestines to increase bioavailability and to ensure consistent dosing. Delivra’s LivRelief brand is one of Canada’s best-selling topical creams for natural pain relief.
Froese believes Delivra will give Harvest One “a head start in the infused topical markets.” The company is currently developing CBD formulations for this product line. Dr. Joseph Gabriele, the brains behind the development of Delivra’s products, is also working with Harvest One to infuse Dream Water products with CBD.
“We believe that we’re set up for success in the US. Dream Water is currently in over 30,000 stores across North America, including big chains like Walmart and Kroger,” said Froese, who prior to Harvest One enjoyed a nearly four-decade-long career with Canadian retail giant Loblaw Companies, including serving as Chief Operating Officer. “We’ll be bringing our Satipharm and Delivra products into the US as well, where we will infuse them with hemp-derived CBD. These products will then be released through our existing distribution channels when and where legal.”
Canada will soon join the US as a retail market for cannabis-infused products. The CBC recently reported that Health Canada will introduce new regulations in October 2019 that will legalize the sale of cannabis-based edibles, beverages, topicals and extracts. Legal sales of these products in big retail chains could start by the end of the year.
The CBD health and wellness market has reached a pivotal milestone now that major US retailers are serious about offering CBD infused topical products to their customers. Companies with established brands and existing distribution deals could be in the best position to capitalize on these developments, especially if the FDA approves cannabis-infused foods and beverages.
Disclaimer: This INNSpired article was written according to INN editorial standards to educate investors.