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CBD Retailers in Crisis as Legalization Expands

Eighteen states and Washington D.C. have legalized recreational cannabis. CBD is legal in every state except Iowa and Idaho. Some definitions are in order if we wish to discuss the competing business models for CBD, or cannabidiol, and THC-based products like marijuana, edibles, etcetera. THC-based products are developed, designed, and sold for one primary purpose: to get inebriated. The upper limit of THC in these products effectively does not exist. As growers innovate, they bring more and more potent products to market all the time, and the market refer to these as high-THC products.

CBD, on the other hand, is essentially a wellness and lifestyle family of products that see product development, innovation, and differentiation nearly continually. Just a partial and incomplete listing of CBD product types includes CBD oils, CBD edibles, CBD flowers, CBD topicals, CBD drinks, and CBD for pets. CBD can be referred to as extracts, low-THC products, and other names. In most markets, CBD refers to a hemp-based product that is no more than 0.3 percent THC by federal law.

By defining the different markets, products, and active ingredients in THC products versus CBD products, we are well on our way to defining different business models that will likely be developed for these very different markets. However, we are missing one important differentiator: cash flow. THC retail sales are expected to be more than $50 billion in 2026. CBD retail sales are expected to be $7.9 billion by the same period. The unease of CBD retailers always gets back to the likelihood that THC retail will simply overwhelm CBD, due to cash flow.

But what is the track record to date? States with legal recreational cannabis are being added to the list seemingly at every election, but this market only started in 2011, with Colorado and Oregon being the first two to pioneer it. There is not a lot of history here to analyze what is likely to happen when a state with legal CBD becomes a state with legal recreational cannabis. CBD retailers are in fact discovering that CBD foot traffic and revenue increase when a state adds recreational cannabis to the market. In fact, some CBD entrepreneurs are finding they can add CBD stores and wait for the market to grow so they can add THC retail when the market is ready. Some CBD retailers are sitting on underdeveloped retail locations waiting for the high-THC market to grow in their markets. They hope to get a license for medical and/or recreational THC when the law changes, but that may not be possible.

Some CBD entrepreneurs are opting to design their stores and retail experience as a reflection of the THC retail experience. And many in CBD retail believe THC dispensaries are more likely to add CBD SKUs to their stores than CBD retailers will add high-THC products to their inventory.
But when trying to determine what the business prospects are in a market for CBD retail that overlaps with THC retail, there are two more factors we need to look at: THC retail is fairly monolithic. The dispensaries are a state-run monopoly. Depending upon the state, they have different levels of regulation and they are limited in their ability to market and promote their products. Essentially, once they get a license, dispensaries purchase inventory, put it on display, and sell it to their customers, who are probably defined by geography. The customer comes to them in the dispensary and they sell at a margin that guarantees a decent profit. They cannot sell online.

Dispensaries can innovate to some degree by developing new edibles, providing new delivery systems like inhalation, ingestion, oral absorption, and topical. They can also innovate new concentrations of THC products like dabbers, which deliver the entire (potent) dose in a single breath. In the end, however, all these innovations are variations on technologies that have existed for many years.

CBD Versus Dispensaries: Is There Really a Crisis?

Compare a dispensary’s business environment with a CBD retail chain. The CBD market is less regulated and more competitive. CBD has only recently become popular and intrinsic to many people’s lives. The process of marketing to CBD customers is very much oriented to education; every customer has a need to find out more about what CBD can do and how it does it. In fact, the most popular items in CBD stores are pet products and beauty topicals, high-margin items that would probably not be sold in a THC dispensary.

\One of the biggest growth products in some CBD stores is a weight-loss product that store owners are very enthusiastic about. They have also been developing beverages that they can put on the store shelves. And CBD retailers have been moving lots of products through online stores, requiring them to develop expertise in an entirely different retail model, though many stores want to retain their in-store wellness experts, which is difficult with the online retail model.

Where Is the Industry Headed?

In short, CBD retailers must become experts in marketing to the largest group of customers they can find. They have to innovate constantly, and adjust their positioning and messaging for new products becoming available that have strong sales potential. What many CBD stores have found is that when recreational marijuana becomes legal, the CBD products lose their stigma and potential customers become more accepting. THC customers want to come to CBD stores and want to learn more. In fact, CBD stores have found that when adult-use marijuana has been legalized, CBD business increases, in mature markets like Colorado and new markets like Arizona.

The CBD retail environment is one of aggressive, innovative marketing and lots of information to educate customers. Dispensaries are relatively inexperienced in marketing because the customer usually knows what they want when they walk into the store. So maybe the future for a dispensary-CBD environment is not “either-or.” Maybe the best and most challenging model is for these partnerships between dispensaries and successful, innovative CBD retail chains. With a good partnership, everyone will make money.

We are in the middle of a cannabis revolution in America and Cannabutter Digest has everything you need to stay up to date. Check back often for the latest news, exciting products, delicious recipes, and more!

 

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A cannabis lifestyle magazine and blog that covers the latest in the industry, including news, product reviews, recipes, and more. With an experienced editorial team of experts from all walks of life, we want to take the stigma out of using cannabis.