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Now Coming to a Mall Near You: CBD Stores

The marijuana industry is evolving at an incredible rate. If we were to hop into Doc Brown's time machine from Back to the Future and head back to 1995, we'd find 25% support from the American public for cannabis legalization and not a single state in the U.S. that had legalized weed for medical purposes. What's more, the idea of attempting to legalize adult-use weed would have been almost laughable.

Fast forward to 2019, when two out of three polled Americans (per Gallup) now want to see cannabis legalized nationwide, and 93% support having a physician prescribe medical marijuana, according to an April 2018 Quinnipiac University survey. As support for pot has increased, so has the number of states that have legalized it in some capacity. Today, there are 33 medical marijuana-legal states, 10 of which also allow adult-use weed. In just over two decades, the cannabis industry has gone from strict regulation to promise and rapid growth at the state level.

Image source: Getty Images.

The Farm Bill's passage leads to high hopes for CBD products

But don't think for a moment that we've reached anywhere near an evolutionary peak for the industry. Following the signing of the Farm Bill in December, which legalized hemp and hemp-based cannabidiol (CBD) -- CBD is the nonpsychoactive cannabinoid best known for its medical benefits -- getting CBD products in front of a larger audience in the U.S. just became a whole lot easier.

For instance, Charlotte's Web Holdings (NASDAQOTH: CWBHF) is a producer and distributor of hemp-based CBD oils that could be found in more than 3,600 retail locations throughout the United States prior to the Farm Bill being signed into law. In the postlegalization environment, Charlotte's Web's access to retailers should blossom, providing ample avenues for the already-profitable hemp-based CBD oil company to find additional retailers to carry its products.

We're also witnessing what I'd deemed nontraditional retailers being willing to carry CBD-based products. Last month, designer shoe retailer DSW (NYSE: DSW) made waves when it announced that it was partnering up with Green Growth Brands (NASDAQOTH: GGBXF) to sell CBD-rich topical creams, muscle balms, and body lotions from GGB's Seventh Sense brand in 96 of its U.S. stores. In total, the deal between DSW and Green Growth Brands comes after a pilot program saw 74% of Green Growth's CBD products fly off the shelves in 10 DSW stores. It also doesn't hurt that Green Growth's CEO, Peter Horvath, was DSW's president between January 2005 and June 2008, so he understood the company's clientele and its needs.

Now, a new nontraditional player is entering the CBD product field: Simon Property Group (NYSE: SPG).

Image source: Getty Images.

Is a CBD store coming to a mall near you?

Say "Simon Property Group" and you'll have a lot of folks scratching their heads, because it's not exactly a household name. But this $65 billion real estate giant is the largest owner and operator of malls in the United States. Simon Property Group operates 107 malls, 69 premium outlets, and 234 income-producing properties in total globally, but primarily across 37 U.S. states. And what is it planning to do with all of these malls as anchor retailers like Sears Holdings and J.C. Penney struggle and shutter their doors? Well, open stores that sell CBD-infused products, of course.

This past Monday, Feb. 11, Simon Property Group announced that it'd be partnering with Green Growth Brands to open 108 shops in its malls this year that'll sell products containing CBD. It should be pointed out that while hemp-based CBD is legal, CBD derived from cannabis is still regulated at the federal level, with CBD additives to food or beverages, regardless of the source plant, still a no-no in the eyes of the Food and Drug Administration (FDA).

Though this partnership might not seem like a big deal for a giant real estate company like Simon Property Group, it's perhaps a bit more important than you'd realize. When looking at the company's malls and premium outlets in the U.S., nearly 22% of its inline and freestanding stores are due to have their leases expire between 2020 and 2022. By allying itself with Green Growth Brands and GGB's CEO, who happens to have a nose for the retail environment, Simon Property Group is likely derisking any potential negatives of lease expirations, especially if the U.S. economy were to slow a bit.

Image source: Amazon.

Expect more retailers to open their arms to CBD products

According to a report from the Brightfield Group, global CBD sales are expected to grow from just over $570 million in 2018 to approximately $22 billion by 2022. That's a compound annual growth rate of 147% for those of you keeping score at home. There's arguably a ton of opportunity with CBD sales, and that's likely to mean more retailers being willing to give CBD products a shot.

One area in which we could soon see CBD oil used as a means to drive an increase in foot traffic is pharmacies. Although front-of-house retail sales aren't typically the bread and butter of drugstore chains, drugstores that choose to get more aggressive with their stock of CBD products could instill a sense of loyalty among their customers. More importantly, loyal customers come back to these stores when they need higher-margin prescription medicines.

Also, don't overlook the possibility of an e-commerce giant like Amazon.com (NASDAQ: AMZN) stepping in and carrying CBD products. Amazon arguably has the best logistics and one of the lowest overheads among online retailers, and it wouldn't be hard for the company to make a deal with a distributor like Charlotte's Web to throw its weight around. The logistics of including CBD on its website might be difficult right now, but added clarity from the FDA in the future on CBD additives could give Amazon the push it needs to get involved in this high-growth space.

Long story short, continue to expect the unexpected when it comes to CBD partnerships.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends DSW. The Motley Fool has a disclosure policy.

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