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This National Grocery Chain Will Carry CBD in 17 States

Sean Williams, The Motley Fool

In case you haven't been paying attention, legal cannabis is a big-dollar business model. Having generated $12.2 billion in global (legal) sales in 2018, according to figures from Arcview Market Research and BDS Analytics, the worldwide weed industry could make a run at $50 billion, or perhaps $75 billion, in annual sales by the time 2029-2030 rolls around, based on various Wall Street estimates.

But when it comes to hot-button marijuana topics, arguably nothing is drawing more interest at the moment from consumers or investors than the rise of cannabidiol (CBD).

Two miniature shopping carts, one of which contains a cannabis flower, the other of which holds vials of cannabidiol oil.

Image source: Getty Images.

Here's why CBD is the hottest thing since sliced bread

Cannabidiol, along with tetrahydrocannabinol (THC), are the two most popular cannabinoids from the cannabis plant. THC is the psychoactive cannabinoid that gets users high, whereas CBD is the nonpsychoactive cannabinoid best known for its perceived medical benefits. I say "perceived," because while there's plenty of university-level data to suggest that CBD offers medical benefits for the treatment of pain, glaucoma, epilepsy, and a host of other ailments, the U.S. Food and Drug Administration (FDA) only recognizes two official benefits of the cannabis plant or its cannabinoids.

The buzz surrounding CBD is simple: People really like the idea of getting the potentially medically beneficial aspects of CBD without the associated buzz that comes with THC. That means CBD products can draw in both cannabis users as well as consumers who want nothing to do with the "high" aspect that THC-containing cannabis products can bring.

It's also important to understand that cannabis isn't the only source of CBD. Hemp plants, which are far less finicky than cannabis plants to grow, are often rich in CBD. Growing hemp for its CBD extracts is an increasingly popular practice in the U.S., especially since the 2018 farm bill legalized industrial hemp production and hemp-derived CBD products. For instance, Canada's largest pot stock by market cap, Canopy Growth, will be pushing into possibly more than a half dozen U.S. states as a hemp processor in the months ahead.

Suffice it to say, with a market of up to $22 billion per year on the line for CBD products in the U.S. by 2022, per the Brightfield Group, brand-name businesses want in.

A CVS pharmacist aiding a senior woman with a product-buying decision.

Image source: CVS Health.

Retailers far and wide want their piece of this potential $22 billion pie

For example, earlier this year we saw the nation's three largest pharmacies -- CVS Health (NYSE: CVS), Walgreens Boots Alliance (NASDAQ: WBA), and Rite Aid (NYSE: RAD) -- announce their intention to carry CBD topicals in their stores. If you're wondering why topicals and not edibles, beverages, or other dietary supplements, it's because the FDA has forbidden CBD as an additive to food, beverages, and dietary supplements for the time being, making topicals the safest route for retailers. However, the FDA is reviewing a possible change to this policy, and is in the process of taking public comments, concerns, and rebuttals on CBD as an additive into July.

CVS Health has begun offering CBD topicals from Curaleaf Holdings in approximately 800 stores in eight states, with Walgreens pushing CBD topicals into roughly 1,500 locations nationwide. As for Rite Aid, it will slow-step its entrance by offering CBD topicals in Washington and Oregon to start.

Even nontraditional retailers have stepped up their game to offer CBD in store. Designer Brands, which was formerly known as DSW, teamed up with Green Growth Brands to offer CBD-based balms and creams in 10 of its stores as a trial. During the 10-week test, Green Growth's Seventh Sense line of topicals had a 74% sell-through rate, leading the duo to expand this partnership to 96 U.S. stores.

We've also seen upscale retailer Neiman Marcus, Ulta Beauty, and teen and young-adult accessories store Urban Outfitters testing out CBD products in select locations and online.

A shopping cart heading down a stocked supermarket aisle.

Image source: Getty Images.

CBD's next stop: This national grocer

However, what we haven't seen is a truly national food retailer latch onto the CBD movement. Plenty have said they're looking into its potential, but none had made the leap official...until now.

On Monday morning, June 10, The Detroit News announced that national grocery chain Kroger (NYSE: KR), which has well over 2,700 branded food-retail stores nationwide, would begin carrying CBD topical products in 17 states, including Michigan. Keep in mind, though, that this doesn't mean every branded store in these states will carry CBD products; 28 of Michigan's 120 Kroger-owned stores will not sell them.

What we know right now is that these products will range in price from $3.99 to as high as $59.99, although Rachel Hurst, Kroger's corporate affairs manager for the company's Michigan division who spoke with The Detroit News, didn't divulge any of the specific brands that Kroger would be carrying. Also, as with CVS Health, Walgreens, Rite Aid, and so on, Kroger will stick with topicals and avoid additives in food, beverages, and dietary supplements to steer clear of any pushback from the FDA. 

Kroger's move into CBD should be, at the very least, a very modest positive for the company. It could help increase foot traffic, which along with attached fuel stations makes Kroger more of a one-stop shop for consumers' needs.

More important, CBD products tend to be pricier and bear juicier margins than most grocery-store food or beverage items. As with CVS Health, Walgreens, and Rite Aid, Kroger's front-end margins are typically razor thin. The addition of CBD products may only have a marginal impact on total sales, but the higher margins may prove impactful. We'll have to wait a couple of quarters to get an official ruling one way or the other.

With Kroger taking the leap, don't be surprised if other major food retailers, and even giants like Walmart and Target, soon follow.

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Sean Williams owns shares of CVS Health. The Motley Fool recommends CVS Health, Designer Brands Inc., and Ulta Beauty. The Motley Fool has a disclosure policy.