How Should OCS Operators Respond To The CBD Trend? Judiciously.

March 23, 2020
Consumers have shown interest in CBD, yet regulations are still developing

The 2018 Farm Bill legalized on a federal level the growing of industrial hemp, making cannabidiol (CBD) products an enticing retail opportunity. But in 2020, state and local laws still vary, and the Food and Drug Administration (FDA) has yet to regulate CBD products.

By 2025, the total U.S. CBD market could reach $24.4 billion, CBD and cannabis consumer insights firm Brightfield Group estimated in a 2019 report. As consumers buy into the market, government officials have taken steps toward determining how the retail sale of CBD products aligns with existing and evolving regulations. At the time of this writing, H.R. 5587, a bipartisan bill regarding CBD regulation, is on its way through Congress.

Consumers’ growing interest and the ever-shifting legal issues surrounding these products raise important questions for office coffee service (OCS) and pantry operators. We asked manufacturers and distributors of CBD products to describe the current state of CBD in retail and what operators should be aware of as they explore their options.

Legal issues surround CBD sales

Operators interested in selling CBD products need to be aware of the applicable laws, which are under review in several jurisdictions. While some states are relatively open to retail CBD sales, others have banned or limited them.

In May 2019, the FDA held a public hearing to gather information about the CBD industry, including safety, manufacturing, marketing and sales, and it has issued a series of communications regarding the industry. At the time of this writing, the FDA has asked for an additional $5 million in its FY2021 budget to support CBD-related regulation measures including developing policy, reviewing products and research.

“FDA must support oversight of increasing numbers of marketed FDA-regulated products containing cannabis-derived substances that may put the public at risk,” the budget reads.

With some indications that CBD may be helpful for anxiety, pain and other ailments, however, consumers have already taken an interest.

“There’s a lot of uncertainty, but why consumers want it is simple: More and more consumers are looking for natural ways, homeopathic care,” said Josh Rosenberg, CEO of PLNTSOP, a lifestyle brands company that supports company-owned assets and partnered brands as a fractional sales and marketing agency. PLNTSOP, or “Plants Optimizing People,” manages a portfolio of finished goods including organic coffees and teas, unattended retail equipment, clean meals on-the-go, and consumerand pet-focused supplements through ecommerce, B2B and traditional retail.

“They’re having success with it, and because it’s working, consumers — through word of mouth, personal use, personal success — are making the choice to opt in by saying, ‘I want to use it.’ So demand is going to create growth, which continues to drive availability well ahead of the government’s position on what role it should play within our body and our ecosystem,” Rosenberg added.

"They’re having success with it, and because it’s working, consumers — through word of mouth, personal use, personal success — are making the choice to opt in by saying, ‘I want to use it.’ So demand is going to create growth, which continues to drive availability well ahead of the government’s position on what role it should play within our body and our ecosystem,” Rosenberg added.

Opportunities available

Operators who want to sell CBD products to respond to consumer demand need to follow applicable laws. Ben Hoskins, corporate category manager at Vistar, noted the opportunity of CBD retail requires thought leadership.

“There’s quite a bit of learning we all need to do as an industry toward defining exactly how big this can be in automatic retail,” he said. “FDA regulations concerning the sale of CBD products is a critical step. Congress legalized CBD almost two years ago. I don’t have insight into how long FDA regulations will take, but very clearly, the consumer has stood up and showed CBD products are a commercially viable option for businesses.”

Vistar has made CBD products available for sale to all the operators it works with, Hoskins said. It has about 125 SKUs that are activated and ready to sell, and about 15 that are part of its “core set.” Offerings include consumables in snack and beverage form and topical products like lotions and nutraceuticals.

“Operators have to be very aware of the state and federal regulators while having a proper understanding of what is law versus what is recommended by the FDA,” Rosenberg said. “It’s really simple: Do not make a claim, and make sure what the product says it is in the bottle is what it really is. Those are the two areas where the ‘wild wild west’ of CBD entry with organizations [that] are bending or breaking the rules. And that’s why you have so much controversy about CBD in general, because people are being, in a sense, hoaxed by CBD brands that say, ‘I can reduce your stress, take my CBD.’ And that’s against the law.”

If operators follow the law, selling CBD can become an incremental source of revenue.

“As long as operators understand the rules of engagement, they can be in a very strong position to capture this revenue stream,” he said. “There’s controversy in opinion, but no risk if operators follow the regulatory agencies and their positions at the state and federal level. No one wants to break the law, so get informed before taking action. There are plenty of high-margin, high-use CBD products that operators can bring into their retail footprint without having any risk.” Rosenberg said convenience retailers have had success selling CBD gummies, topicals, hemp cigarettes and beverages.

While ingestibles are not supported at the federal level, many retailers are starting to follow state laws over the federal regulations. “Convenience retail, on average, sells seven packs of [CBD] gummies a week, at an average retail selling price of $20 per pack,” he said. Consumable beverages containing CBD are also doing well, with an average of four to five turns each day per brand, Rosenberg said.

Ryan Mack, director of food service at CBD products manufacturer Weller, said that Weller’s sparkling water infused with CBD is a big hit. “Sparkling water is popular and CBD is popular, so that’s a marriage made in heaven,” Mack said.

He added that it’s also a convenient package. “Employees already have a sparkling water at their desks, so if they can have CBD in it, the more the merrier,” he said.

Miguel Martin, president and CEO of Reliva CBD, said that based on market research company IRI’s fourth quarter 2019 CBD data report, gummies and tinctures are the leading forms of CBD products, accounting for roughly 50% of sales among all retail channels. He encouraged operators to offer an assortment of products that are attractive to consumers.

Precautions to take

Nevertheless, sobering complications remain, which operators need to address in order to sell CBD products.

Rosenberg advises operators to do their research to understand what laws apply to them, decide what’s best based on their understanding of the laws and work with a credible, educated company that has their best interests in mind.

“There are a lot of supply chain providers out there that are representing finished products without proper certificates of authenticity, labeling or liability insurance,” he said. ”Hold your supply chain accountable to these norms.”

Martin advises that operators work with a trusted wholesaler of CBD products as there is a significant amount of variance in the quality and compliance protocols between CBD manufacturers. Wholesalers have their own testing, insurance, indemnification and regulatory review processes to protect retailers. Given the complexity and difficulty in vetting every brand, this approach best protects retailers.

“There’s a vast difference in compliance and testing and certification that, in many cases, has no connectivity to price. It’s not always that the most expensive brands have the best quality,” Martin added. Operators should ask the CBD product supplier for a certificate of authenticity, or COA, that will verify the oils they use are what they say they are, Rosenberg said. He recommends working with reputable companies with a national presence or distributors that sell brands that have already been vetted. PLNTSOP has been vetted and certified by PFG/Vistar, which has a quality assurance organization that works with them to ensure compliance on both products and their packaging.

Operators also need to make good decisions on how to retail CBD products to avoid theft or shrink. Most retailers in the overall market have started selling the product in locked cases, Rosenberg said. “It is a high risk of theft product,” he said.

Some states have mandated age restrictions, according to a 2019 report published by legal firm Thompson Coburn LLP. Operators should consider offering CBD products through equipment that prevents underage employees from partaking. Fastcorp Vending provides a portfolio of versatile and customizable automated retail machines that provide age verification as an optional component, president Brian Weinstein noted.

The future awaits

With all the controversies and complications in mind, the specifics of how retail of CBD will resolve is intriguing.

“I think it’s really exciting to think that our industry could help bring this product to people where [consumers] are every day,” Hoskins said. “For the operator, the incrementality associated with that sale is potentially huge. People who are buying CBD products aren’t necessarily going to their vending bank or micro market on a daily basis, but to the extent that they understood that the product is available in that space, maybe it could bring consumers back to the table or to the table for the first time.”

“The CBD marketplace is vastly growing and becoming more and more mainstream. This will only continue to accelerate as regulations increase and there is more clarity in the available products and the ability to sell them,” Weinstein said. “CBD is a huge opportunity to significantly increase revenue with new products in the same venues that operators currently reside.”

About the Author

Mary Stroka | Associate Editor

Mary joined the AM/VMW team in January 2019 as Associate Editor. Her love of animals extends to her snack habits, as she frequently chooses animal crackers when they are available. You can reach her via email at [email protected] or at (920) 234-8145.


Photo by Kimzy Nanney on Unsplash
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