(A version of this story appears in the February issue of Marijuana Business Magazine.)

From mom-and-pop shops to corporate chains, everyone in the retail business knows that a carefully chosen location is key to success.

The cannabis industry is no exception.

Although regulatory requirements, license availability and market demand will vary from place to place, marijuana and hemp retailers on the hunt for a killer location might benefit from:

• Understanding both immediate local markets and regional trends.
• Creative thinking to find underserved locations—particularly for smaller players.
• Carefully considering the potential benefits and drawbacks of buying versus leasing.
• Identifying future markets before local officials start writing ordinances, then engaging early.

Think local, but also regional

Prospective cannabis store operators need to get intimately familiar with the area where they want to open, advises Michael Lord, chief operating officer at Colorado cannabis firm LivWell Enlightened Health, which operates 22 dispensaries across the state.

“Google Earth does not articulate a true representation of boots on the ground,” Lord said. “I think a lot of people are siting (stores) in areas that perhaps they’ve never visited, putting locations (based on) just what looks good on a map.

“It can vary in a neighborhood from street to street. … And I think that businesses, at the end of the day, still have to have a finger on the pulse of the communities that they operate in.”

Stephanie Goodman, CEO of Michigan cannabis real estate brokerage Bricks and Mortar Group, also recommends doing regional market research in surrounding areas.

“You might think you’ve got this great spot and they’re only going to issue two licenses in the city, but immediately next door, it’s unlimited (licenses),” she said. “Knowing those types of things helps you forecast for future sales.”

That means doing your homework.

“Know your market — population, demographics, regulations, etc.,” said Franny Tacy, CEO of Franny’s Farmacy, which has eight franchises in four states.

“We have made choices to postpone development of Franny’s Farmacy CBD Dispensaries in certain states that do not allow smokable hemp flower because it is a top quantity sold product, revenue generator and driver to brick-and-mortar locations.”

Carving out your own niche

Elev8 Cannabis founder and CEO Seun Adedeji, who opened a single dispensary location in Oregon before expanding into Massachusetts, believes smaller, less-capitalized businesses can benefit from opening in smaller towns.

Adedeji focused Elev8’s Massachusetts expansion on border towns near New Hampshire, New York and Vermont, where acquiring real estate is cheaper than in bigger cities.

“The beauty is, because of the limitations of licenses, each of those small towns are only giving out two recreational licenses,” Adedeji said. “So your value still increases.”

Smaller towns might have their charms, but a border strategy such as Adedeji’s can also work within cities.

Erbn Green Cannabis Co., a small Canadian retailer that opened its first location in the competitive Toronto market in October, found a location in the uptown area of that city.

It might not be a hot address compared to the city’s downtown core, but Chief Compliance Officer Farrell Miller said the location meets demand in an underserved market near two suburbs that opted out of allowing cannabis stores. Erbn Green’s second location is in Picton, Ontario, a small community with less competition for cannabis store licenses than in big cities such as Toronto or Ottawa.

“This town is getting really known for wineries and tourism,” Miller said. “We eventually see cannabis aligning with those things.”

To buy or to lease?

Elev8’s Adedeji got burned when the landlord for his first Oregon store declined to renew the lease and he had to find a new location. As a result, Adedeji is a strong proponent of retail operators buying real estate instead of leasing.

“For anybody looking to get into a leasing option, have a 10-year lease with an option of an additional 10 years,” he said.

In Michigan, real estate broker Goodman said marijuana’s federal prohibition contributes to landlords’ hesitancy to lease to cannabis businesses.

“We’re seeing more private funding on the purchasing side, and they’ll lease back to the operator,” Goodman said.

For well-capitalized players, buying and then executing a leaseback deal can bring advantages. LivWell’s Lord said the company acquires some properties, then sells them to partners who will lease the locations back to the dispensary operator.

“That allows us to go and execute and use that capital for continued expansion rather than having it tied up in the real estate itself,” he said.

Tacy at Franny’s Farmacy, however, favors leasing.

“Keep your capital and use your money to make money,” she said. “Landlords are more willing to negotiate leases now especially with the commercial real estate climate of COVID. I strongly encourage a short-term 3-5 year lease option with the ability to extend.

“Even though hemp is federally legal, it is not business as usual for banking, advertising, credit card processing or for finding a great retail space. COVID has proven that cannabis is a more than just recession proof, it’s pandemic proof.”

Get a head start

Smaller players might score an advantage by identifying potential markets before regulators start offering licenses, then engaging local officials early, Goodman said.

“In that scenario, I’d recommend that you start working with the city before they’ve written any ordinances and then work with them to get the ordinance written for what you want to do,” she said.

“We’ve seen quite a few of those work out. They do like local businesses, but it’s a longer play. It might take six to 12 months to get that done.”

Goodman also recommends spending time engaging with the local community.

“We’ve worked in a lot of cities where the residents are completely terrified of cannabis businesses,” she said. “But once they start to get to know you, and there’s actually a face associated with the business that wants to come in, it’s different.”

Ivan Moreno contributed to this report.

Crediting the CBD company’s forthrightness, a federal judge in New York federal judge has dismissed a lawsuit against Massachusetts-based Curaleaf from investors who argued the company misled them about legality of its CBD products.

The investors sued when Curaleaf’s share price fell in 2019 after the U.S. Food and Drug Administration sent the company a warning letter for claiming its CBD products could treat a variety of diseases.

The suit was among a raft of class-action lawsuits in the past three years challenging CBD makers for allegedly misleading investors and making unfounded medical claims. The Curaleaf case was filed shortly after the FDA sent Curaleaf a warning letter.

Judge Brian M. Cogan said in his ruling Tuesday that Curaleaf “publicly and repeatedly acknowledged” in its stock listing statement that the FDA had not yet approved its CBD products for any medical purpose. Cogan said the company also noted it could be subject to enforcement action for “promotion of an unapproved drug.”

“The company clearly disclosed the risk that the FDA could act against it and that the FDA had done so to other companies selling similar products,” Cogan said.

“Describing this risk in terms of potentiality rather than certainty – when certainty of enforcement could not be known anyway – does not violate securities law.”

Law360 first reported on the decision.

After the FDA’s letter to Curaleaf on July 22, 2019, the company discontinued many of the products regulators cited, and removed some of the claims it made about its products.

Investors contended that the company did not explicitly say its products were illegal, but the judge rebuffed their argument.

“There is no requirement that a company disclose its risk in any magic words preferred by plaintiffs,” the judge said in the ruling.

An attorney for the investors told Law360 they were evaluating their next steps.

The case was filed in U.S. District Court for the Eastern District of New York.

“We look forward to focusing on the company’s growth and continuing to serve our customers and patients nationwide,” Curaleaf said in a statement after Cogan’s ruling.

Curaleaf also sells high-THC marijuana products in states where they are legal. Cogan also noted Curaleaf’s forthrightness on its THC business activities.

Caraleaf told investors in a 2018 Canadian filing that it “will derive a substantial portion of its revenues from the cannabis industry in certain states of the United States, which industry is illegal under United States federal law.”

A coastal Texas smoke-shop owner facing criminal marijuana charges after a police raid Tuesday says the cannabis flower, vapes, gummies and other products taken were legal hemp, not illegal marijuana.

Faded Smoke Shop owner Alexandra Degollado faces charges of manufacture or delivery of a controlled substance, the Victoria Advocate reported.

One of her store employees was also charged during the Tuesday raid in Port Lavaca, a town of about 12,000 on the Texas coast southwest of Houston.

Degollado’s attorney, Lisa Pittman, told newspaper that the store owner relied on legal certificates of analysis that showed the products were made legally.

Texas allows the production and sale of hemp, but not high-THC cannabis. The shop had a current license to sell edible CBD products, a requirement under Texas law, the newspaper reported.

Local police have said the seized products contained elevated THC levels.

“People have to understand that, right now, (marijuana) is still illegal. I realize it might be legalized in a few years, but it is still illegal here,” Port Lavaca Police Chief Colin Rangnow told the paper.

North Carolina CBD maker cbdMD has hired Sibyl Swift, a former U.S. Food and Drug Administration official as a consultant to lead the company’s regulatory efforts and prepare products for certifications.

Swift served in various roles at the FDA from 2014 to 2020, most notably as the associate director for research and strategy in the agency’s Office of Dietary Supplement Programs, where she worked on science, research, compliance, enforcement and policy initiatives.

In 2020, Swift served as the senior vice president for scientific and regulatory affairs for the Natural Products Association, where she addressed regulatory policies related to new drug investigation (NDI) notifications, FDA guidance and claims substantiation.

cbdMD chairman and co-CEO Marty Sumichrast said Swift’s experience and new role demonstrates the company’s commitment to meeting “the highest regulatory standards for quality and safety.”

cbdMD Inc. trades on the NYSE as CBDMD.

Federal regulators that go after companies for false advertising recently weighed on sanctions against CBD companies, with one urging the agency to focus on opioid manufacturers and another warning against a chilling effect on legitimate cannabis research.

Rohit Chopra and Christine S. Wilson, two of five members on the Federal Trade Commission, recently published statements in response to enforcement action against six CBD sellers, Cannabis Wire reported. It was the first CBD enforcement that resulted in monetary judgments.

Chopra said in his statement that while he supports the actions taken against the CBD companies, “Going forward .. the FTC will need to refocus its efforts on health claims by targeting abuses in the substance use disorder treatment industry, shifting attention toward large businesses, and making more effective use of the FTC’s Penalty Offense Authority.”

He said he is “concerned that we have largely ignored Congressional concerns about unlawful opioid treatment practices.”

Wilson, meanwhile, said the FTC must be cautious with enforcement action so it doesn’t “chill” the new industry.

“The Commission should be careful to avoid imposing an unduly high standard of substantiation that risks denying consumers truthful, useful information, may diminish incentives to conduct research, and could chill manufacturer incentives to introduce new products to the market,” Wilson said.

The U.S. Drug Enforcement Administration is asking a federal judge to dismiss a lawsuit from the Hemp Industries Association over an extraction rule that meany fear will wrongly criminalize temporary byproducts of the plant during production.

The DEA says in a filing Tuesday that HIA is challenging “a hypothetical regulation or policy concerning manufacturing byproduct” of hemp, and the case belong in an appeals court, not a U.S. district court. Law 360 first reported the development.

At issue is whether the DEA is simply updating its policies to comply with the 2018 Farm Bill, which removed low-THC cannabis from the Controlled Substances Act, or whether the DEA is making an illegal power grab by saying that hemp extracts are Schedule 1 controlled substances during a portion of the extraction process when the plant’s THC levels spike above what’s allowed.

South Carolina CBD maker RE Botanicals is also a plaintiff in the lawsuit.

Last month, a federal judge ruled against HIA and RE Botanicals on their request to force the DEA to clarify how it intends to enforce its policy over temporary hemp byproducts.

(Editor’s note: This story is part of a recurring series of commentaries from professionals connected to the hemp industry. Larry and Jackie Berg are co-founders of CBD Marketing Hub, a digital-to-door agency focused on CBD and cannabis marketing.)

Seismic advancements have dominated the CBD market over the past decade with some of the industry’s largest brands seeing double- or triple-digit year-over-year growth.

Although constant growth has been the watchword of this past decade, constant change now defines it. And there’s plenty of that ahead in 2021.

Our team at CBD Marketing Hub has identified some of the watch-worthy trends for CBD products this year below.

More market segmentation

Niche market efforts will become larger and more formalized as brands continue to seek out less crowded consumer segments. This will further diversify and differentiate each brand and achieve higher ROIs on exploratory segmented marketing efforts.

Growth of the CBD beverage market is reflective of the trend.

More than 60% of infused-beverage drinkers are new to CBD, according to Mike Luce, the co-founder and president of High Yield Insights, a market research firm.

A recent CBD beverage study released by High Yield Insights and InnovateMR revealed just how much leg room there is in the CBD beverage segment. Among 4,200 survey respondents, only 28% report finding “a (CBD) product, brand or format that works for them.”

With Gen Zs and Millennials comprising the majority (62%) of new CBD beverage converts, along with a clear opportunity to expand existing delivery methods to better fulfill consumer preferences, we project exponential growth in this segment.

CPG modeling

Brands will move toward proven CPG consumer models focused on brand family extensions, including the marriage of complementary products and product iterations. Watch for SKU innovation and laser-focused consumer segmentation.

Whether brands elect to emulate Procter & Gamble’s “family of brands” model or create line extensions of existing brands, future success will be predicated on understanding consumer market entry and adoption trends.

Gummies are a great gateway, according to High Yield Insights, which reports that six in 10 new CBD market entrants try gummies before exploring other CBD products.

Black and Hispanic consumer marketing efforts

Cultural competence, particularly among the nation’s largest brands, will continue to improve.

We expect to see more focus on niche marketing as consumer brand loyalty shifts toward the brands that consumers believe “see them.” More brands will concentrate on the growth opportunities within the Black and Hispanic consumer market, which have remained relatively untapped by CBD companies.

One of the first signals of brand dominance in this segmented market is the introduction of unique campaigns specifically built to appeal to Black and Hispanic consumers, as well as Spanish language advertising, packaging and support.

Focus on need states, such as stress and anxiety

Exploding anxiety rates and associated mental health issues will provide hemp and CBD brands with new opportunities to promote the efficacy of CBD.

We already are seeing increased focus on this niche, need-state market, which can be tricky to navigate due to advertising restrictions. Brands are finding value in workarounds that allow brands to leap over ad restrictions via targeted keyword searches.

More than 25% of new market entrants purchased CBD to cope with pandemic-related stress and anxiety, according to High Yield Insights.

With more than 83% of U.S. employees reporting mental health issues, and a whopping 67% of U.S. employers projecting a mental-health crisis within the next two years, we project heightened partnership and growth opportunities in CBD products focused on stress, anxiety and sleep. 

Expanded product development and marketing

Catch-all CBD product development and messaging (“CBD is good for everything and everyone”) will be replaced with more targeted product innovation and marketing campaigns.

Enhanced CPG engagement

Expect more CPG-driven mergers and acquisitions, investments and joint ventures to flow into the CBD and cannabis markets.

Larry Berg can be reached at [email protected]. Jackie Berg can be reached at [email protected].

To be considered for publication as a guest columnist, please submit your request to [email protected] with the subject line “Guest Column.”

Hemp businesses walk a fine line when describing the health benefits of their products: Make a claim without evidence or wording that misleads consumers, and soon the legal fees will pile up.

The U.S. Food and Drug Administration has guidelines for acceptable claims to make on labels for dietary supplements – the closest fit for certain hemp products, although the FDA does not currently consider CBD or any other hemp extracts a dietary supplement.

Claims by dietary supplement makers often fall under what are called “structure/function” claims. Saying “calcium builds strong bones” is an example of a structure/function claim, according to the FDA. Another example would be, “Vitamin C supports a healthy immune system.”

“Structure/function is essentially when you would like to make a claim about how the ingredient or product affects a structure or function of a human being,” said Douglas Kalman, vice president of Scientific Affairs at Nutrasource, a company that helps brands with health product development and market entry.

But just because structure/function claims are allowed, it doesn’t mean companies get to fudge the truth.

The U.S. Federal Trade Commission, which oversees advertising and marketing, says “claims in advertisements must be truthful, cannot be deceptive or unfair, and must be evidence-based.”

The agency has already gone after CBD companies that claimed their products treated diseases including cancer, high blood pressure and Alzheimer’s.

Steering clear of legal action

Kalman, who spoke recently on a webinar on labeling claims, has this advice for companies to make sure what they say about their product can withstand legal scrutiny:

• Have a scientifically backed study so the results can be translated into structure/function claims, with substantiated evidence.
• Not every company can afford to conduct a study, or a finished product to do the study on, so promoting the effects of a particular ingredient using established research might be best option available. Still, Kalman urges companies to work with an attorney and any relevant agency to vet the claims before putting them on labels.
• Work with an accounting firm that understands the IRS tax codes that can be utilized by dietary supplement companies, including ingredients. Kalman said there are research and development tax credits available to help with certain expenses, such as salaries or equipment.

When making a structure/function claim, products must have a disclaimer reading: “This statement has (or These statements have) not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease.”

“The disclaimer must appear in bold type on the same display panel as the structure/function claim,” according to the American Herbal Products Association’s guidance.

Legal victory

The importance of proper labeling and research to substantiate a claim was highlighted this month in a federal case where a customer sued Target Corp. over a vitamin called biotin, which the retailer sold under its private label Up & Up.

Biotin was marketed as supporting healthy hair and skin. The plaintiff in the case bought it to help with hair loss, but he said he received no benefit.

The 9th Circuit Court of Appeals ruled in Target’s favor, with one judge writing that, “Simply put, manufacturers may make structure/function claims about a nutrient’s general role on the human body without disclosing whether the product will provide a health benefit to each consumer.”

Further, the court found that the claim regarding biotin was not misleading and that it was backed by scientific evidence and contained the proper disclaimer, according to Natural Products Insider, which reported the decision.

“This is a big win for the industry,” said Erica Stump, an attorney whose law firm represents food and dietary supplement companies.

“Now the 9th Circuit is out there saying that these are valid structure/function claims and they have been substantiated by competent, reliable, scientific evidence. It doesn’t matter that it didn’t work on this one person.”

Ivan Moreno can be reached at [email protected]

Hemp-derived CBD energy drinks manufactured by the UK brand Trip have been stocked in Queen Elizabeth II’s Windsor Farm Shop, UK tabloid The Sun reported.

According to an unnamed source in the report, the drinks have been popular with patrons of the shop, which was founded in 2001 after the Duke of Edinburgh proposed selling goods from the Royal Estates and other small suppliers to support local business.

The shop did not comment specifically on stocking the CBD beverages, with a spokeswoman saying only, “The shop sells a number of widely-available soft drinks. Stock varies throughout the year.”

Trip manufactures CBD oils, energy drinks and coldbrew coffee.

(This is the second part of a two-part story from Hemp Industry Daily examining the developing hemp markets on tribal lands in the United States. Read the first installment here.

For more detail about tribes growing hemp, check out Hemp Industry Daily’s Hemp & CBD Factbook, available for purchase here.)

Hemp and CBD companies have been working with American Indian tribes since the 2018 Farm Bill created a legal pathway for tribes to produce hemp and commercial outlets for selling it.

Some mission-driven food, beverage and CBD manufacturers have developed or are working to set up supply-chain partnerships with tribes to provide fair-trade, living-wage economic impact opportunities to American Indians — communities that are often impoverished and suffer high unemployment rates.

Companies navigate tribal relations

Cultural barriers and a lack of communication can complicate partnerships between tribes and corporations, according to Tim Houseberg, a Cherokee Nation citizen and co-founder and vice president of the Native Health Matters Foundation in Oklahoma.

“Unfortunately, half of the thing about dealing with Indian tribes is the culture … which means great deals are lost all the time because the business men didn’t know the culture,” Houseberg said.

“It also means bad deals are done all the time because of the culture of corruption in Indian tribes.”

And not all companies looking to do business with American Indian tribes have the tribes’ best interests at heart, causing lost money and assets, and sullying tribal nations’ appetites for working with outside commercial entities.

That’s why partnerships must be approached with utmost care, according to Andrei McQuillan, global head of sales and marketing at EcoGen Biosciences, a vertically integrated hemp and CBD company based in Grand Junction, Colorado, that has plans to work with the Turtle Mountain Chippewa Nation and Winnebago Tribe this year.

McQuillan, who is of indigenous heritage, said that some hemp companies may not have the perspective necessary to see how working with tribes can provide hemp partnership opportunities.

“From an agricultural standpoint, these are agrarian cultures historically — they have been farmers through their heritage. They have fertile, vast lands, and their economies have been undersupported by agriculture,” McQuillan told Hemp Industry Daily.

“They also have some cultural social issues … that can be addressed by hemp and hemp-derived products. So it’s a product that not only can benefit their economy, but that can benefit their culture.”

Success stories

Manufacturers like Evo Hemp, a Boulder, Colorado-based CBD and hemp foods company, have committed to paying farmers significantly higher prices, without having to drive up prices for consumer products.

Evo Hemp began working with Alex White Plume, a veteran American Indian hemp producer from the Oglala Sioux Tribe of the Pine Ridge Reservation in South Dakota.

White Plume was impactful in advocating for using industrial hemp as a way to revitalize his community, which is still in one of the most impoverished areas in the country, with an 87% unemployment rate and an average adult life span of 55 years old, according to Ari Sherman, Evo Hemp co-founder.

The reservation had previously been targeted and raided for growing hemp in the late 90s.

“We found this great partnership with Alex where he would be able to have him and his family cultivate the hemp right there on the reservation, and we would create supply contracts that would allow them to get a significantly higher amount of income per acre, even than the CBD farmers, in competing states,” Sherman said.

Even after the CBD wholesale prices have plummeted significantly, Evo Hemp still maintains its mission to pay a fair market price to tribal hemp producer, paying five times the average price for CBD oil produced by its native partners to help them set up the production infrastructure needed, Sherman said.

“It’s still a very labor- and cash-intensive business, and because of the commodities market of hemp right now, it’s kind of plummeted,” he said.

“We’re in it for the story and we want this to be a big success and watch the Pine Ridge reservation get out of that No. 1 spot of the most impoverished community. … We want to make a real economic impact.”

Marketing benefits

The partnerships with tribes also benefit brands at the consumer level because their stories resonate both with retail product buyers and consumers.

American consumers, especially younger demographics, are “voting with their dollars” and gravitating more toward companies that focus on the “triple bottom line” of profit, people and planet.

They want to support brands that help to build a new supply and support economic development for indigenous populations, according to Eric Schnell, cofounder of BeyondBrands, which produces mood33 hemp-infused herbal teas and sources hemp produced through Evo Hemp’s tribal partners.

“One thing I’ve learned about being on the mission-based side of the food and beverage industry for two decades and data coming out the past few years on millennials … is that at this point 85% of consumers or more that are asked their opinion if they would pay a premium for a product that was based on a fair trade or mission based supply chain, the answer is they would,” Schnell told Hemp Industry Daily.

Laura Drotleff can be reached at [email protected]