Tobacco, CBD Tips From the Experts
By Hannah Hammond on Feb. 22, 2022MIAMI — When tobacco and CBD retailers and suppliers gathered at CSP’s Tobacco/OTP + CBD Forum in November in Miami, there was a lot to catch up on after a year of few in-person events.
Cigarettes accounted for more than $56 billion in sales during the past year as consumers found more occasions to smoke while working from home. Meanwhile, regulations from the U.S. Food and Drug Administration (FDA) on the tobacco category continue to grow. And sales of CBD and cannabis products show positive signs as consumers become more interested in products such as cannabis flower and vapor.
Here are insights on tobacco and CBD/cannabis from the event’s speakers ...
The Tobacco Consumer
Almost three in 10 convenience-store consumers purchase tobacco products when they come into a store, said Donna Hood Crecca, principal at Chicago-based research firm Technomic, CSP’s sister company. These consumers are nearly evenly split when it comes to gender, and more than half are white or non-Hispanic/Latino, according to a Technomic survey.
Frequent tobacco users are slightly less likely to work from home, “so they had slightly less disruption in their lives than other consumers,” Crecca said.
When it comes to how these customers choose one c-store over another for tobacco products, the top decision drivers are whether the consumer’s preferred brand is available, if it’s in a convenient location, if there are low prices, quick service and a wide variety of products, she said.
Millennials make up the largest group of tobacco buyers in c-stores today at 37%, followed by baby boomers at 28%, Gen Xers 22% and Gen Zers 13%.
Top Sales Drivers
The top five product categories by dollar sales really don’t change over time in the c-store channel, said Larry Levin, executive vice president of thought leadership at Chicago-based market research firm IRI. The cigarette, beverage/alcohol, energy drink, carbonated beverage and smokeless tobacco categories contribute 63% of sales to the convenience channel.
Cigarettes account for the most sales at $56.4 billion, and smokeless sales were $8.5 billion for the last year, Levin said. Cigarette growth was only up a fraction, though, 0.3%, while smokeless showed 6.2% growth.
Electronic cigarettes, while a smaller segment, showed 20.1% growth, more than other growth leaders such as meat snacks, sports drinks, nonchocolate candy and spirits/ale, Levin said.
“These kinds of data really emphasize the importance that the nicotine segment provides to the c-store channel,” he said.
Consumers are coming to the c-store channel more than any other to buy their cigarettes, cigars and electronic nicotine devices, Levin said.
For example, while cigarettes are 75% of c-store’s tobacco sales, 86% of the sales of cigarettes happen in c-stores for the channels that IRI covers, which doesn’t include tobacco shops, Levin said.
Regulatory Update
Between the PACT Act, ongoing premarket tobacco product application (PMTA) process and other potential FDA initiatives, there are a lot of regulation areas for retailers who sell tobacco to watch.
Here are some of the areas highlighted by Bryan Haynes, a partner specializing in tobacco-industry regulatory compliance and enforcement matters at Richmond, Va.-based Troutman Pepper:
- In 2021, Congress amended the PACT act to cover electronic nicotine delivery systems (ENDS). “In a nutshell what that means is if you’re selling ENDS products online, you need to comply with all applicable laws as if it were a face-to-face transaction,” Haynes said. The amendment, which took effect March 2021, only applies to transactions between states, he said. One thing to note on the PACT act, though, is it is not limited to ENDS, Haynes said. It applies to “any electronic device that, through an aerosolized solution, delivers nicotine, flavor or any other substance to the user inhaling from the device,” which could include products that do not contain nicotine, including CBD or herbal vaporizers. Haynes said the act levels the playing field between online retailers and brick and mortar, and he thinks, eventually, Congress will amend it to cover all other tobacco products.
- The FDA is still reviewing applications submitted for deemed new tobacco products by the Sept. 9, 2020, deadline. While it had a year to review them, the agency has said it needs more time due to the volume of applications. The FDA has authorized a handful of products while denying more than 300 as of press time. Several marketing denial orders (MDOs) have also been rescinded or stayed. Some decisions are being fought in court. A new standard from the FDA—one that stated the need for longitudinal cohort studies or controlled trials and said “unless you can prove that your flavored products are more helpful than your unflavored products to get people to reduce smoking consumption, you’re out” —is prompting some of this litigation, Haynes said. “It was totally out of left field, and naturally that prompted quite a bit of litigation,” he said. Moving forward, Haynes said, it looks like the FDA will give tobacco-flavored products a much softer touch than flavors or menthol.
- Haynes said regulation on synthetic nicotine may be coming down the line. The FDA’s Center for Tobacco Products (CTP) Director Mitch Zeller has been clear that he wants the agency to do something about synthetic nicotine products, but the question is how quick it happens, Haynes said.
Navigating Cannabis Regulations
Selling cannabis is complicated, especially when cannabis is illegal at the federal level but authorized by some states, said Jonathan Havens, partner at Washington, D.C., and Baltimore-based Saul Ewing Arnstein and Lehr LLP.
Thirty-eight states have authorized the sale of medical cannabis, and 19 of those states also have authorized recreational or “adult use” cannabis, Havens said. Other states are considering establishing such programs; however, marijuana is still illegal under federal law.
Havens described the difference between the cannabis plant family and its species, including hemp and marijuana. Hemp is the strain of cannabis that is grown for agricultural products while marijuana is known for the flowering tops of the plant, which are typically bred to have a high tetrahydrocannabinol (THC) content. Hemp contains 0.3% or less of THC and is what’s typically used in cannabidiol (CBD) oil, he said.
Per the 2018 Farm Bill, hemp was made federally legal under the Controlled Substances Act. One of the biggest misconceptions coming out of the bill, however, is that now that hemp is legal, people can do whatever they want with it and its derivatives, Havens said. Then-FDA Commissioner Scott Gottlieb said the legislation did not change the agency’s authority to regulate products containing cannabis or cannabis-derived compounds under the Federal Food, Drug and Cosmetic (FD&C) Act.
It’s also unlawful under the FD&C Act to introduce food containing added CBD or THC into interstate commerce, among other restrictions. But enforcing CBD products is not top of mind for the FDA.
“Essentially, the federal government is taking a hands-off approach as long as it’s not crossing state lines,” Havens said.
Retailers are also less likely to hear from the FDA if the cannabis products they sell are not making aggressive treatment claims, Havens said.
Havens laid out the three levels of risk when it comes to selling CBD. No to low risk would be not selling CBD at all, or to only sell topicals in states that permit them.
A low to moderate risk would be selling topicals and ingestibles in states that permit them and to make soft claims regarding products. A moderate to high risk would be selling topicals and ingestibles in all 50 states without regards to state-specific requirements and making aggressive therapeutic claims regarding products, he said.
When identifying what products to sell in their stores, retailers should look for a responsible brand, request copies of licensing documents and third-party testing documents, and ask the brand if it offers protection and support, Havens said.
The CBD Consumer
CBD purchasers have slightly differing demographics from tobacco consumers. About 28% of c-store patrons purchase CBD from any type of retailer or online one time a month, Crecca said. About 46% of the consumers are male, while 54% are women.
Millennials make up most of these purchases at 44% followed by Gen Zers at 28%, Gen Xers 19% and baby boomers 13%, she said.
Cost is the primary deterrent to purchasing CBD in c-stores, Crecca said. Forty percent of respondents said they expect CBD would be more expensive in c-stores, 33% said they don’t think of c-stores for CBD products, and 30% said they do not trust c-stores as retailers for CBD products, according to Technomic data.
Don Burke, senior vice president of Pittsburgh-based Management Science Associates Inc. (MSA), said most CBD purchasers spend between $1 and $30 per month, according to data from surveys collected in 2019 and 2020. While 42% of consumers who took the survey said they spent up to $30, 30% said they spent $30 to $100 on CBD a month, 18% said $100 to $200, and 10% spend $300 or more, which Burke said he found a little hard to believe.
“But the point is, the majority of them spent less than $30 bucks a month,” Burke said. “That’s just something for the retailers to keep in mind. And those of you that are producing a CBD item, the lower the price point, the better chance of getting trial and getting repeat purchase.”
Cannabis’ Future As a CPG
The U.S. cannabis market is expected to reach more than $41 billion by 2026, up from about $22 billion in 2021, Levin said.
Levin gave an update on what is next for cannabis as a consumer packaged good (CPG), using data from IRI and Boulder, Colo.-based cannabis research firm BDSA. California, Colorado, Florida, New York and New Jersey are expected to be the top U.S. markets in 2026, he said.
When it comes to formats, flower made up about 42% of dollar share by category for the first half of 2021. The second largest segment was concentrates, including vapes, at 30%, followed by edibles (14%), pre-rolled (9%) and others (5%).
“But what I think is really fascinating is you look at something like pre-rolled, … pre-rolled is a very, very small total of the market, but it’s growing 60%. So there’s these little pockets of opportunity,” said Levin.
U.S. cannabis edibles are dominated by candy and driven by gummies, he said. Candy makes up 68% of dollar sales spend in the edibles category. While beverages make up only 5%, there’s potential, he said.
“I think when we have this meeting in a couple years, we will start to see that beverage numbers are up way above 5%, probably doubling if not even tripling in importance, and an important source of growth,” Levin said. “The big issue will be understanding because I have a limited shelf set, what products do I have to substitute in order to make way for this emerging consumer?
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