CVS Has Taken a Small Step Into CBD Sales

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CVS (NYSE: CVS) has partnered with Curaleaf Holdings (NASDAQOTH: CURLF) to bring topicals, lotions, and creams containing CBD into its stores. The current deal only includes eight stores, but the two companies plan to roll out the offering to more locations in the future. The challenge for CVS is balancing its commitment to building its business around health and offering a product that has a lot of fans but does not necessarily do all of the things people say it does.

A full transcript follows the video.

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This video was recorded on March 26, 2019.

Shannon Jones: Next up for us, the largest retail drugstore, CVS, ticker CVS, is diving into the latest new health and wellness craze, that is none other than CBD. That's right, CVS has started selling hemp-derived CBD in several of its stores, with plans to expand with its partner, the cannabis producer Curaleaf Holdings, ticker CURLF. Dan, what can you tell us about this budding new relationship? See what I did there?

Dan Kline: [laughs] I do. So, this is a toe in the water. This is eight CVS stores, and they're only selling topicals, meaning that they're not entering the other major category for CBD, which is edibles. It's also important to recognize that while there's a lot of, let's call them purported, maybe in some cases proven, medical benefits for CBD, this is not a drug. This is not marijuana. Shannon, you've covered this more. Maybe you can explain the exact differences.

Jones: Exactly. CBD comes from hemp, not the marijuana plant, a cousin of the marijuana plant. Hemp more specifically was made legal thanks to the 2018 Farm Bill that was signed in to law back in December of last year. So now, all of a sudden -- and actually a little bit sooner than I thought that it would -- you're seeing this flood of these hemp-based CBD products. It does not contain THC. THC is what is known as the psychoactive agent behind the high of marijuana. This is completely separate. It's just CBD. As you mentioned, Dan, this is really just topicals: lotions, creams. Certainly it's interesting, because you can see how it could open the door for edibles. Canada is planning to open the door to edibles for marijuana. Of course, they've already legalized adult-use recreational marijuana. Edibles is the next component. Of course, the U.S. is much further behind. But at least for CVS, they're getting out early on the CBD craze, specifically partnering with Curaleaf with a lot of these topical creams and ointments.

Kline: Clearly, there's a demand. I live in West Palm Beach, Florida. Florida has loose standards on this. There is a CBD store, maybe not on every corner, but there's at least four or five of them within a couple-of-mile radius of downtown, where I'm sitting right now. This is CVS saying, "If people want this, we're not going to give it up." It's many ways like the supplements and additives and other things people take that are not necessarily proven science. Taking ginkgo biloba might help your memory. It might not. There's a lot of that with CBD. This is CVS saying, "Our customers are going to get this product. We should have them get it from us. At least they'll know that it is what it's supposed to be. They'll have more of an idea of how it interacts with other things." It's a very smart play, as long as they take it very slowly and very carefully. You're going to see CBD at the mall. You're going to see CBD in a lot of places. Why not CVS?

Jones: Exactly. With Curaleaf, Curaleaf is the first announced partner. It would not surprise me if CVS decides to add a lot more brands that are out there, some with much higher brand appeal, even. Curaleaf was at least first out of the gate with partnering to get this into CVS stores. The question that I have, Dan, is do you think this makes sense? You and I have talked before on the show about CVS being a company in transition. Do you think this plays in well with this whole concept that they're trying to build?

Kline: I think the challenge is, CVS is trying to build its brand around health. You have CBD -- which, again, I understand, please don't send me the tweets. There's some research that says it works for certain things. There's people who absolutely swear by it. But I think it's fair to say the science is still out. We're not entirely sure what the impact of this is. So, in many ways, it's like CVS selling caffeinated products. Are there benefits to caffeine? Absolutely. Can too much of it hurt you? Sure. It doesn't fit the wellness message entirely. On the other hand, there's people who think this is a curative product. As long as CVS sort of doesn't make those claims -- if they put out CBD and say it's going to cure whatever, that's not great. But if they leave it the way they market, say, vitamin C or any other vitamin, and people have their beliefs in what it does, then I think it can still fit that motif.

Daniel B. Kline has no position in any of the stocks mentioned. Shannon Jones has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.