TOB Magazine

All Eyes On:

The

Budding

Opportunity

As more states legalize cannabis,

investigates the profit potential

for tobacco stores and smoke shops.

By Renée M. Covino

[ 80 ]

TOBACCO BUSINESS

[

SEPTEMBER

OCTOBER

17 ]

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 kill-

ers 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 becom-

ing legal, “we’re seeing shifts in combustible

products,” and while there’s “not huge cross-

over” 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 Bish-

op. From a tobacco retailer standpoint, can-

nabis is an “extension of serving their core

customers,” Bishop maintains.

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, Con-

necticut. 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 dispen-

saries. 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: Tobac-

co stores and smoke shops are selling alternative

accessories, especially in states that have recent-

ly legalized cannabis medicinally, recreationally,

or both (see “Grass States” chart page 81).

Multi-use vaporizers and ceramic/glass/

metal pipes were identified as emerging prod-

uct segments in smoke shops/discount tobac-

co outlets by top industry sources; more spe-

cifically, 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 Maga-

zine

, Governing.com, and Balvor LLC analy-

sis based on research from Gallup and the Pew

Research Center.

This is all taking place while the consumer

stigma against cannabis is weakening. Accord-

ing to the same research, 59 percent of con-

sumers support the legalization of marijuana,

and 63 percent live in states where it’s legal for

either purpose.

“Right now might be the best time for

tobacco retailers to make money on accesso-

ries,” according to Bethany Gomez, director

of research for Brightfield Group, a cannabis-

focused market research firm. “They don’t have

to outlay a lot of capital or apply for a license;

they just try it with accessories. They have very

little to lose stocking cannabis gear and advertis-

ing accordingly.” Gomez believes that cannabi-

diol products are also helping to drive cannabis

consumers to tobacco stores for those who have

dabbled in that category.

Bishop believes that smoke shops and tobac-

co retailers have a much more favorable image

with certain clientele that don’t want to frequent

head shops to get their alternative accessories.

“From a generational standpoint, I do believe

Gen Xers and [baby] boomers are probably

more inclined to shop at tobacco stores for these

types of accessories, whereas millennials and

younger would probably have no reservations

[shopping at head shops and dispensaries.]”

So, in markets like Colorado, California,

Washington and Oregon, where cannabis is

legal for both medicinal and recreational pur-

poses, “it makes very practical business sense for

many tobacco outlets or smoke shops to seriously

consider the accessories piece,” Bishop advises.

The Leaf Piece

Of course, the leaf piece is another matter.

Bishop believes the specific state and local

markets will encourage or discourage the suc-

cessful tobacco retailer from considering the can-

nabis business. “It’s clearly a very market-specific

business,” and entrepreneurs will have to do their

homework, he says.

Tobacco retailers setting their sights on

any cannabis business “have to be comfort-

able with a certain level of uncertainty and be

willing to take a calculated risk,” states Bry-

an Meltzer, partner at New York-based Feuer-

stein Kulick LLP, a cannabis-focused law firm.

“If the industry is moving forward in public

support, I think some tobacco retailers have

expertise that can probably be applied to the

industry. It’s a difficult question that really

needs to be evaluated on a case-by-case basis.”

It will also be advantageous for tobacco

retailers to keep on top of emerging state poli-

cies related to cannabis in the states where they

ALTERNATIVE