All Eyes On Cannabis: The Budding Opportunity

As more states legalize cannabis, Tobacco Business investigates the profit potential for tobacco stores and smoke shops.

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Cannabis Dispensary

Marijuana is top of mind. With tobacco businesses increasingly under pressure, is the Almighty Bud an answer to profit prayers? Is it just about ancillary opportunities or will marijuana eventually make it to tobacco-store and smoke-shop shelves? One thing is certain: More industry observers are joining the discussion.

“To me, the discount tobacco outlets have the biggest opportunity and upside—they are the tobacco superstores, the category killers where you find the broadest assortment,” David Bishop, managing partner of Balvor LCC, in Barrington, Illinois, tells Tobacco Business. He recognizes that in states where recreational use of marijuana is now becoming legal, “we’re seeing shifts in combustible products,” and while there’s “not huge crossover” in terms of dual usage, it does exist, and “the percentage of adults in the U.S. that use marijuana is getting closer to the percentage of adults that use cigarettes”—13 percent vs. 15.2 percent, respectively, according to Bishop. From a tobacco retailer standpoint, cannabis is an “extension of serving their core customers,” Bishop maintains.

Cannabis Dispensary

From the flip side, regarding the sale of combustible and edible cannabis products, “It will be an interesting opportunity, but I’m not sure most tobacco stores will be able to make that leap,” says Don Stuart, managing director of Cadent Consulting Group in Wilton, Connecticut. The way he sees it, the one-stop shop for a total experience is the way of the retail world and what consumers want these days—and in cannabis, that is best-served by dispensaries. There is also the matter of obtaining state licenses to sell cannabis, as well as having the proper financial and security backup.

The Accessories Piece
The most obvious “starter” opportunity for tobacco retailers is already happening: Tobacco stores and smoke shops are selling alternative accessories, especially in states that have recently legalized cannabis medicinally, recreationally, or both.

Multi-use vaporizers and ceramic/glass/metal pipes were identified as emerging product segments in smoke shops/discount tobacco outlets by top industry sources; more specifically, 64 percent of smoke shops and discount tobacco outlets are now selling multi-use vaporizers, and a whopping 73 percent are now selling ceramic/glass/metal pipes, according to collective research from the 2017 State of Tobacco Retailing by Balvor LLC, Convenience Store News, Tobacco Business Magazine, Governing.com, and Balvor LLC analysis based on research from Gallup and the Pew Research Center.

This is all taking place while the consumer stigma against cannabis is weakening. According to the same research, 59 percent of consumers support the legalization of marijuana, and 63 percent live in states where it’s legal for either purpose.

So, in markets like Colorado, California, Washington and Oregon, where cannabis is legal for both medicinal and recreational purposes, “it makes very practical business sense for many tobacco outlets or smoke shops to seriously consider the accessories piece,” Bishop advises.