5 business takeaways from Target’s flip-flop on selling CBD products

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Target Corp. sent shockwaves through the marijuana industry last month when the retail giant quietly started selling CBD products, despite federal drug authorities repeatedly saying the cannabis compound is illegal.

It appeared to be a groundbreaking show of corporate leadership, with Target backing hemp attorneys and companies who argue that CBD cannot be classified as a controlled substance unless Congress passes a law.

But the sales proved short-lived. And the notable case offers lessons for those in the CBD business.

The legal status of CBD is under court challenge. And attorneys differ on whether CBD can be legally sold until the case – now before a federal appeals court in San Francisco – is resolved.

For at least two weeks and possibly longer, Target’s online store offered four CBD products, capsules and oils from CW Hemp, the Colorado-based company that supplies the popular Charlotte’s Web medicine for intractable epilepsy. (Minneapolis-based Target has given vague and contradictory statements about how the long CW Hemp products were available.)

After news of Target’s bold CBD experiment started leaking out, CW Hemp hired a New York publicist who declared in late September, “The hemp-derived CBD industry has officially gone mainstream.”

Not quite. Reporters started spreading the news. Within hours, Target got cold feet, yanking the products and telling reporters without explanation that the company decided against selling CBD after all.

What happened? It’s tough to say. Target and CW Hemp clammed up. Neither business responded to multiple calls and emails from Marijuana Business Daily about the case.

But while the Target CBD mystery may never be solved, the case offers five important lessons for the industry, according to attorneys, activists and longtime CBD producers. Marijuana Business Daily distilled five of their best takeaways.

1. The CBD market potential is real

Target selling CBD like any other nutritional supplement is great news, hemp activists say. It shows the demand for CBD is strong, and that major corporations see profit potential in selling it.

Even if Target had no idea that CBD is in a legal gray area, the corporation almost certainly knew it could make money selling CBD.

“It’s extremely positive that Target had it up for even a brief moment, because it shows the national market for this health product is real,” said Colleen Keahey, executive director of the Hemp Industries Association, hemp’s oldest industry group.

2. CBD companies must tread carefully when marketing their products

CW Hemp rose to national fame with the help of the media. First, local newspapers in Colorado wrote about its Charlotte’s Web medicine. National newspapers picked up on the story. And then CNN profiled Charlotte’s Web on a prime-time show seen by millions.

Market analysts who have reviewed the nascent hemp market say that as a direct result of media coverage, CW Hemp enjoys consumer recognition shared by no other CBD or hemp brand.

For an industry that faces huge marketing and advertising restrictions, media attention can be the best way for entrepreneurs to build consumer recognition.

But press attention carries some risk, too, industry veterans say.

Large corporations don’t always welcome attention for taking risks. Unlike publicity-hungry cannabis entrepreneurs, big corporations are accountable to shareholders and may change their minds about pushing the envelope when reporters start calling.

“Our laws need to change before any major retailers get involved, bottom line,” said Charles Larsen, CEO of Global Hemp Group, which has headquarters in Vancouver, Canada, but also operates out of the United States. The company contracts with hemp producers to sell raw hemp used in a range of industries, from pharmaceuticals to the automotive industry. 

3. CBD companies and smaller retailers can use corporate jitters to their advantage

Target’s CBD flip-flop could be great news for entrepreneurs who want to enter the CBD market without getting trampled on by a big company such as Target, which has much deeper pockets and more influence.

“As long as the big boys sit on the sidelines, it gives little boys like us a chance to be successful. We can build our brands,” said Bob Crumley, president of Founder’s Hemp, which grows and processes hemp into CBD products in Asheboro, North Carolina.

Just a few weeks after Target yanked the CBD oils, a much smaller Colorado-based grocery chain announced it was carrying hemp-based CBD products.

Lucky’s Market – a natural-food grocer with 25 stores and a cash infusion from grocery giant Kroger Co. – bragged about its decision and even needled Target for pulling back.

“We’re not afraid to be disruptive and pave the path and be pioneers,” Sindy Wise, Lucky’s director of apothecary, told The Denver Post after the early-October announcement. Kroger, which is based in Cincinnati, acquired a “significant” financial stake in Lucky’s in 2016. 

Looking ahead, market research firm Brightfield Group predicts that the market for hemp-derived CBD products could balloon to $1.65 billion by 2021. That’s a lot of money that could be made by smaller companies as long as the Targets and Walmarts of the world stay out of the market.

4. Think about supply considerations before going big

CW Hemp sold out even before Target yanked it from its website, according to a CW Hemp publicist. Neither side has answered questions about how that happened, but the supply issue underscores CBD’s slender market status.

CBD isn’t yet available in great quantities. Even the biggest CBD producers may not have enough product to “go mainstream,” as CW Hemp boasted.

The United States has about 8,300 acres in hemp production as of 2017, according to industry estimates. By contrast, the nation had more than 90 million acres growing corn this year, according to the U.S. Department of Agriculture.

“You could combine every CBD company out there and there wouldn’t be enough CBD to supply a Target,” Crumley said. “We have a ways to go.”

5. CBD is not a top enforcement priority for the feds

Tough-talking federal drug enforcers who insist that a cannabis crackdown is just around the corner were silent after Target started selling CBD.

The lesson there is obvious – even if CBD products remain too risky for a corporate giant, CBD isn’t that risky to sell.

Target executives who oversaw the CBD offering aren’t in handcuffs. Neither are the CBD producers. You can bet that Target’s smaller competitors have taken notice.

One day, Crumley predicted, CBD could be like bread or milk, broadly available but sold mostly under store labels or regional brands.

“The big guys are going to sit on the sidelines and let all the legal stuff get worked out, then they’ll swoop in,” Crumley predicted.

Kristen Nichols can be reached at kristenn@mjbizdaily.com