As more states legalize marijuana, CBD retailers face an identity crisis

Image of Harold Jarboe, owner of Tennessee Homegrown

Which has a brighter future - CBD retailers or marijuana stores? Harold Jarboe believes the answer might be neither. "If you could buy (marijuana) pre-rolls at a gas station, people would not go to dispensaries," said Jarboe, owner of hemp-based product maker Tennessee Homegrown. (Photo courtesy of Tennessee Homegrown)

Legal and lightly taxed, CBD operators have enormous business advantages compared to their colleagues growing and selling high-THC cannabis and its extracts.

But how will they fit in the overall cannabis industry when all THC levels – think recreational marijuana – are legal?

That’s an open question, and one that’s becoming more pressing for hemp cultivators, processors and retailers as one state after another opens the door to retail marijuana.

Franny Tacy is a CBD retailer who’s right in the middle of the debate.

She owns an eight-store chain of CBD retailers in the Southeast, Franny’s Farmacy, all of which bear a striking resemblance to THC retail stores.

Budtenders stand behind glass jars of hemp flower and explain the differing effects of different strains or varieties.

At the same time, Tacy has applied for a license to sell high-THC marijuana in Connecticut, which passed a law last year legalizing adult-use marijuana sales.

Will she pivot her older stores to THC shops when those markets become legal? Not necessarily.

“They can absolutely coexist,” Tacy said of the two types of retail.

She doesn’t anticipate the demise of low-THC brick-and-mortar stores.

After all, some of her hottest sellers are pet products and beauty topicals, items seldom available in adult-use stores in states where they’re legal.

“Parts of (the industry) will streamline, but it will still be differentiated,” she told MJBizDaily.

Small but powerful

THC might be a lot harder to sell in the United States than CBD, with significant legal hurdles and no online or cross-state sales opportunities.

Still, the THC market dwarfs that for CBD.

Recreational marijuana sales in the U.S. are projected to top $50 billion by 2026, according to the 2022 MJBiz Factbook.

By comparison, the MJBiz Factbook projects hemp-derived CBD sales to hit $7.9 billion by 2026, a figure that includes e-commerce sales still off-limits for THC retailers.

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In stores that sell high-THC cannabis, meanwhile, sales of CBD-dominant products have dipped in recent years, at least in California, according to Seattle-based cannabis retail analytics tracker Headset.

Still, CBD retailers with operations in both markets insist that store performance goes up – and not down – when higher-THC retail becomes legal.

“When adult-use (marijuana) becomes legal, the stigma surrounding the product goes away and people are more accepting,” said Ryan Sinclair, chief marketing officer for SunFlora, a Florida-based chain of franchised Your CBD Store retailers with more than 500 locations in the United States and United Kingdom.

“So we’re actually seeing an increase in business in states where adult-use (marijuana) has been legalized, both in mature markets like California and new markets like Arizona,” Sinclair said in an interview for MJBizMagazine.

Jerry Millen isn’t convinced.

The owner of an adult-use and recreational marijuana store about 30 miles west of Detroit, The Greenhouse of Walled Lake, Millen said that some CBD retailers appear to be “trying to squat” in locations where THC retailing isn’t legal, hoping they’ll make an easy pivot when the legal landscape changes.

“I see some putting CBD stores in cities and trying to pivot into THC,” he said.

“They think that’s going to get them a license for medical or recreational THC, and that’s not the case.”

Millen predicts more low-THC products in marijuana stores, not high-THC products in hemp retailers.

“I don’t think CBD-only retail is a viable business proposition unless you have like a staggering amount of online ordering,” he said.

Both in trouble?

Some longtime cannabis entrepreneurs wonder if both types of retail stores aren’t a little narrow.

Harold Jarboe, owner of hemp-based product maker Tennessee Homegrown, worked in high-THC cannabis in Washington state before starting his business in 2014.

Jarboe sells wholesale CBD products to other retailers and directly to consumers online from his Readyville, Tennessee, company.

His biggest clients are grocers and natural-products retailers, sales channels with broad product offerings.

Cannabis-specific retailing, he added, exists only because laws require it.

“Dispensaries are a state-run monopoly,” he told MJBizDaily.

“The only reason why there’s a dispensary in Denver is because you can’t buy it at a gas station. If you could buy (marijuana) pre-rolls at a gas station, people would not go to dispensaries.”

Future-proofing via brand development

Atlanta CBD retailer Lance Robertson doesn’t disagree with predictions that CBD-only stores (and maybe THC-only retailers) are endangered.

That’s why he said it’s important for stores to diversify their offerings and become known for customer service and education.

His store, CBD CITY in Atlanta, offers wellness coaching and yoga classes, services not easy to replicate online or in a gas station.

“You’ve got to find your niche,” he said. “We’ve created an environment of holistic health and wellness.”

Robertson pointed to hamburgers as a good example.

Burgers are legal and easy to replicate.

But one can easily find a McDonald’s and a Burger King thriving across the street from one other, because the two burger chains have managed to differentiate themselves, he pointed out.

“They built their market share. We can do that,” Robertson said. “You have to build up your brand loyalty, your brand base, and figure out how to add value and coexist.”

Hemp Editor Kristen Nichols can be reached at kristen.nichols@mjbizdaily.com.