NACS gathered an exclusive group of 50 convenience and fuel retailers in Las Vegas on December 10, 2019, to explore “The Future of Cannabis in Retail,” the first NACS one-day pop-up event. Experts and advisers were on hand to provide retailers with an up-close look at the nascent legal cannabis marketplace.

As the number of states with legal cannabis use grows—34 states have medical marijuana use laws, and 11 states and the District of Columbia allow adults 21 and older to use marijuana for recreational purposes—convenience retailers are wading into this emerging opportunity to continue to serve their customers.

Because responsible retailers have been selling legal age-restricted products for decades, they should be well-positioned to manage cannabis sales if and when full legalization arrives. As Henry Armour, NACS president and CEO, noted in his opening remarks, in our stores, “we check 2½ times the IDs that TSA does on a daily basis.”

Although alcohol, tobacco and even gasoline sales are tightly regulated, selling cannabis products involves many extra layers of rules and regulations at the local and state level—even as marijuana remains illegal at the federal level. “Take all that and turn it up to 11,” said Nevada dispensary operator Brandon Wiegand. That’s not to mention the implications of hiring and retaining a workforce that may use cannabis for medical or recreational purposes.

What’s more, as Dr. Nick Jikomes, principal research scientist, Leafly, told pop-up attendees, “Cannabis isn’t like other products you sell in your stores. There’s a lot of variation and not a lot of quality control.”

Indeed, it’s a new frontier for the convenience industry.

The FDA and the Wild West

The December 2018 passage of the Agriculture Improvement Act (Farm Bill) removed industrial hemp (and, by proxy, hemp-derived cannabidiol, or CBD) from its previous classification as a Schedule I controlled substance under the Controlled Substances Act, making it legal to produce, distribute and dispense. The Farm Bill, however, didn’t alter the authority of the Food and Drug Administration (FDA) to regulate the interstate sales of food and beverages containing the substance (hemp seed-derived food ingredients don’t require FDA approval).

The FDA hasn’t yet approved hemp-derived CBD in edible products, but Rick Maturo, associate director of client services, Nielsen, Cannabis Practice, said he’s hopeful that in the next six months, the agency will grant regulatory approval for hemp CBD in ingestible products.

If the FDA acts, expect intense competition in the ingestible space. About one in two U.S. adults say they are likely to use a CBD product if legal, according to Nielsen.

Tinctures currently are the most-used form of CBD—at 32% of CBD users—followed by edibles, topicals, vapes and flowers. Beverages only account for 10% of use, mainly because they aren’t yet FDA approved. Among the frequent c-store shopper demographic, inhalable products (vape, flowers and pre-rolls) are expected to be the most likely consumed forms of cannabis, Maturo said.

Nielsen projects that the U.S. hemp-based CBD market could be a $2.25 billion to $2.75 billion industry in 2020. The research firm said its conservative projections account for an ambiguous regulatory environment. By 2025, legal cannabis sales are projected to grow to $40 billion, with marijuana accounting for the bulk of the market, according to Nielsen.

The Basics for Laymen

The NACS cannabis pop-up was all about education—from understanding the legal implications of selling CBD and cannabis products in stores to educating c-store staff to answer questions about unfamiliar products in a c-store environment, when shoppers are likely more pressed for time than the typical dispensary consumer.

“Consumers crave guidance and information on CBD products,” said Melissa Vonder Haar, marketing director for iSEE Store Innovations and emerging categories writer for NACS Daily and NACS Magazine. “Educating them is key to building trust. But c-store customers spend an average of three to four minutes total in the store and just 21 seconds interacting with our employees. At cannabis dispensaries, the ‘budtenders’ guide consumers through their purchases.”

Maturo suggested that c-stores partner with CBD manufacturers to educate staff and customers and keep marketing materials on hand to answer questions.

In “A Cannabis Primer: Hemp, CBD, THC and More,” Vonder Haar used a chili bowl analogy to help explain the different components: tetrahydrocannabinol (THC), the main psychoactive compound in cannabis, versus CBD, a naturally occurring non-psychoactive compound found in cannabis; terpenes, scented molecules found in cannabis and other plants that add flavor and aroma; and flavonoids, which are groups of polyphenolic compounds that act as secondary metabolites.

In other words, Vonder Haar explained, cannabis is the chili, CBD and THC are the meat and beans, and terpenes and flavonoids are the spices and other secret ingredients that make for a delicious bowl.

It’s important to note that varying doses of cannabis, like all drugs, don’t affect individual users in the same way. That’s because everyone has a unique physiologic endocannabinoid system of cannabinoid receptors and enzymes that synthesize endocannabinoids. No two endocannabinoid systems are the same, so no two people experience cannabis in the same way.

Lori Stillman, NACS vice president of research, explained the five need states of cannabis users. People who are looking to:

1. Treat themselves
2. Relax
3. Manage pain
4. Have fun with friends
5. Enhance other activities

The Chemistry of Cannabis

Jikomes of Leafly, a Seattle-based company that tests cannabis strains and operates a CBD and cannabis database and marketplace, walked attendees through the science of cannabis and how the lack of standardized testing and regulatory oversight has led to inconsistency when it comes to the quality, potency and makeup of CBD products in the market.

“If people buy a case of Bud Light at a convenience store, they don’t have to worry about whether it’s going to give them a buzz or not,” Jikomes said. The alcohol content is regulated. “That’s not the same as we’re seeing for the CBD and cannabis space today,” he said. “If I go buy a pack of cigarettes I don’t have to worry about whether there’s nicotine in it because these products are highly regulated. They’re mature, they’ve been around for a while, so you know you’ve got the consistency from package to package. That’s not true for cannabis products today.”

Leafly researchers found that about half of all CBD-containing products they tested from retailers across the country had CBD content close to what was advertised on the label—and half didn’t. In fact, 10% of products contained no CBD at all, Jikomes shared. “So when people go buy CBD product … there’s going to be a lot of people who say the product didn’t do anything for me.”

There are three basic types of cannabis flowers on the market today in terms of THC and CBD levels, and each has a different personality, Jikomes explained. There are THC-dominant flowers (high levels of THC and very little CBD, which is about 80% to 85% of the cannabis market today). “CBD-dominant products include hemp-derived CBD products that have high CBD levels and low THC levels, so they are not going to have intoxicating effects, but they are psychoactive.” There are products in the middle that have similar levels of both THC and CBD and have intoxicating effects but feel different from both THC-dominant products and CBD-dominant products.

“Our job now is to teach consumers what type of cannabis works for them,” Jikomes said. Like coffee, CBD can have psychoactive effects—a perceptible change in mood—for some people but not intoxicating effects. Some plants can produce CBD with low levels of THC; current government regulations don’t allow for anything higher than 0.3% THC in hemp-derived CBD products.

Advice From Cannabis Retailers

Pop-up attendees heard from companies working in the legal cannabis space in the United States and Canada, and all warned about the regulatory hurdles they confront each day.

“Regulatory compliance is the most challenging part of the business,” said Wiegand, regional general manager, The+Source|NV Organic Remedies, which operates dispensaries in Nevada. “It’s inconsistent, which is probably the most maddening part,” he said. Regulations vary by locale, so his company models policies for each dispensary on the jurisdiction with the strictest regulations, which in his case is Henderson, Nevada, to achieve some operational consistency.

There’s a strict seed-to-sale chain of custody tracking system for cannabis products, from accepting deliveries of stock to waste disposal—everything has to be accounted for down to weighing and reporting “green” waste. Retailers face higher costs for capital and banking services in the cash-intensive business, plus limitations on what operating expenses they can deduct for tax purposes.

Still, Wiegand offered an encouraging outlook for convenience retailers in the cannabis space. “I think convenience stores are very well positioned to take advantage of this market in the future,” he said. “You already do age verification in retail today, probably better than any other channels.”

The business opportunity for legal cannabis is massive for c-stores, but retailers should understand that cannabis sales will disrupt tobacco and alcohol category sales in c-stores, Jeremy Bergeron, vice president, alternative channels for Quebec-based Alimentation Couche-Tard, the parent company of Circle K, told attendees. Canada has legalized recreational marijuana use and sales. “Those sales come from somewhere. There’s only so much disposable income out there from consumers.”

Considerations for Employers

Don Rhoads, president and CEO, of the Vancouver, Washington-based Convenience Group and Rochester, Washington-based Landrace Brands, a cannabis retailer, envisions that his Washington state c-stores, where marijuana is legal, will one day have a store-within-a-store with a separate door for legal cannabis sales. “It’s slowly going to evolve into our storefront,” he said. “We are the right industry to make it happen,” he said.

Rhoads has 150 employees at his c-stores and about 60 employees in the cannabis space. “Most of those folks are millennials. They’re 23-38, and they love the cannabis space. It’s a space where they feel they can move the needle,” he said.

When cannabis might become legal nationwide is anyone’s guess. Scott Sinder, partner, Steptoe & Johnson, highlighted recent FDA warnings sent to 15 companies selling CBD products in ways that allegedly violate the Federal Food, Drug and Cosmetic Act. “We are in this unregulated land, and you have products that are technically illegal under federal law,” Sinder said, so selling them “can expose manufacturers and potentially retailers to liability.”

Without any inklings of legalization from the Trump White House, any action is coming at the state level, Armour said. “Right now, today, the deck is really stacked against us.” He noted that the states where marijuana is legal all prohibit sales in convenience stores. And with the election year ahead, Armour cautioned about expecting things to change anytime soon.

“If there’s anything this industry likes it’s a challenge,” Armour said. “We’re used to evolution, revolution.” To succeed in the cannabis marketplace, “We have to be the most respected, socially responsible retail channel” and “very serious about protecting youth and our communities,” or the door will close, Armour said. “The second thing is we have to energize and activate. This will not come to us. If we’re passive, this is not going to be an opportunity for us.”