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The Legality Versus the Reality of America’s CBD Industry

Despite the FDA’s Pronouncements, CBD is Now America’s Fastest Growing Legal Industry and is Here to Stay

 

In December, when the Agricultural Improvement Act, commonly referred to as the 2018 Farm Bill, was signed into law, there was a general sense of exuberance in America’s hemp and CBD industries. But, as the saying goes, the “devil is in the details.” To some, the Farm Bill created more issues than it solved.  

 

The Farm Bill, removed hemp and derivatives of the hemp plant, including CBD, from the Controlled Substances Act. It allowed for the production and sale of hemp on an interstate basis, for any use, including both the production of flower and CBD.

 

The Farm Bill’s provisions regarding CBD were initially generally misinterpreted throughout the hemp and CBD industries. Especially for the CBD industry, the Farm Bill seemed to provide all participants in the industry with a “green light” to move forward, full-steam ahead.

 

This led to an attempt by the U.S. Department of Agriculture (USDA) and the Food and Drug Administration (FDA) to provide clearer guidance.  The USDA indicated that it intended to regulate the growing of hemp and the FDA indicated that it would oversee any products that contain hemp or CBD that are sold as topicals, drugs, dietary supplements or as food additives.

One item of confusion regards interstate commerce, which was allowed for by the Farm Bill. Individual states were delegated with the authority to refuse to allow sales of hemp or CBD products in their state.

 

Because of the media attention regarding the benefits of CBD and the passage of the Farm Bill, the FDA was forced to get involved. In the past, the FDA has refrained from regulating marijuana products produced under state-legal regulatory regimes and generally avoided regulating CBD-derived products produced from hemp, despite not having only the authority to do so, but technically the requirement to do so.

 

For the FDA, regulating marijuana or CBD was something that the agency wanted to avoid.Immediately after the signing of the 2018 Farm Bill, the FDA Commissioner at the time, Scott Gottlieb, published an update on hemp and CBD regulations, restating existing policies, but reminding the public that the Farm Bill did not necessarily change the FDA’s authority to regulate products with cannabis and its derivative. The FDA update indicated that due to the increased public interest in cannabis, the agency needed to quickly clarify its regulations.

 

The FDA update indicated that CBD was not “Generally Regarded as Safe” (GRAS) as a food additive and that CBD was not approved as a health, wellness nor nutritional supplement. What led the FDA to take this position is that prior to the Farm Bill being signed into law, CBD was illegal and no CBD producer nor marketer had gone through the process of seeking to have CBD approved as a food supplement to be GRAS, “Generally Regarded as Safe.” Likewise, no CBD producer nor marketer had sought FDA approval for CBD to be sold as a health, wellness or nutritional supplement.

 

One other complication is that under FDA regulations, CBD is an “Active Pharmaceutical Ingredient” or API in an approved drug, GW Pharmaceutical’s Epidiolex. Epidiolex was approved by the FDA last year as a drug to treat forms of childhood epilepsy. The FDA’s position is that CBD can not be added to food or health, wellness nor nutritional supplements because of the Drug Exclusion Rule. The Agency’s regulations do not allow APIs proceeding with clinical trials, nor approved as drugs to be used in food or dietary supplements unless they were marketed as such prior to public investigations into that drug. Because Epidiolex was approved as a drug these regulations mandate that CBD can not be used as a food supplement nor for health, wellness nor nutritional purposes.

 

Cosmetic products are also a subject of confusion. The FDA indicates that “Ingredients not specifically addressed by regulation must nonetheless comply with all applicable requirements, and no ingredient – including a cannabis or cannabis-derived ingredient – can be used in a cosmetic if it causes the product to be adulterated or misbranded in any way.” The FDA considers cosmetics adulterated if they contain “any poisonous or deleterious substance” which could harm users.

 

In other words, just because an ingredient is not prohibited as a cosmetic additive, doesn’t doesn’t mean it’s safe for its intended use. This is true for all cosmetics, including those containing CBD. The bottom line, CBD cosmetic products are currently a grey area as long as medical or health claims are not made.  

 

Today, CBD remains subject to the FDA framework that’s in place, but the FDA is working on providing potential pathways for products that contain CBD. The FDA also continues to monitor CBD products that claim therapeutic or medical benefits, similar to other non-CBD health, wellness or nutritional products.

 

The safe harbor that most major CBD marketers are taking is to avoid making any medical or health claims, until a new FDA framework is in place.  Also, small and large producers and marketers of CBD, including national retail chains are simply ignoring all the FDA issues. The general conclusion is that because of all the media attention about CBD, the popular support as well as support from both sides of the aisle in Congress, that the FDA will leave the CBD market alone until such time as the FDA adjusts its regulations to allow this new market. The one exception is the FDA will continue to go after marketers that are making medical or health claims.  

 

CBD and Major Retailers

 

It’s only been a few months since the Farm Bill was signed into law and already the CBD industry has exploded. Media coverage about CBD is everywhere, from NBC to the Wall Street Journal, to the New York Times to Forbes. But until the Farm Bill was signed into law and CBD was removed from the Controlled Substances Act, the industry consisted primarily of small manufacturers and marketers, and for the most part, larger retailers stayed on the sidelines.

 

Earlier this year, both CVS and Walgreens announced within days of each other, that they would begin selling CBD products in a total of 2,300 stores. Rite-Aid also announced a CBD strategy. For now, these drug chains are limiting their CBD products to topicals, avoiding ingestibles such as tinctures, capsules and edibles.  

 

In April, the national health and wellness brand, GNC announced that they would sell CBD topical products in selected stores in 23 states, the District of Columbia, and online.

 

Also in April, the national retailer, the Vitamin Shoppe, announced that they were selling CBD softgels and intended to start selling CBD drops. The Vitamin Shoppe has approximately 800 stores throughout the United States. The CBD products will initially be available at Vitamin Shoppe stores in 14 states, Washington DC and Puerto Rico. Seen as a “shot across the bow” of the FDA, the Vitamin Shoppe will not limit its offerings to topicals but is also selling ingestibles. This move goes counter to numerous FDA pronouncements indicating that CBD is not approved as a food additive because it’s not “Generally Regarded as Safe,” nor as a health, wellness nor nutritional supplement. This Vitamin Shoppe strategy that they would sell ingestible CBD products is a game-changer.

 

Other national retailers who are now marketing CBD products include Sephora, Barney’s and Neiman Marcus.What’s significant for the CBD industry is that the steps that these national retailers have taken are major developments. Despite FDA regulations, the sale of CBD products by these national chains with thousands of stores is a game changer and is a confirmation that CBD as a product category is here to stay.

 

The Consumer Opportunity

 

A January 2019 survey consisting of approximately 2,500 consumers, indicated that almost 7%, reported that they had used CBD.While the CBD product category is relatively new, and its legal status needs to be clarified by Congress or the Food and Drug Administration (FDA), one growth driver of the market is the multitude of product categories of CBD or products containing CBD that are available for consumers. These include CBD oil in tincture form, capsules, edibles including gummies, vape pens, beverages of all types and most recently food products.

 

There are many variables affecting projections of the size of the CBD market, including resolution of its federal legal status. The Wall Street firm, Cowen & Co. has projected that CBD products could result in $16 billion in annual retail sales by 2025. With increasing consumer awareness of the many benefits of CBD, it has been conservatively estimated by Cowen that 10% of U.S. adults could be using CBD in some form by that year.

 

For 2025 the breakdown of projected annual revenues of CBD by categories is $6.4 billion for health, wellness and nutritional supplements (nutraceuticals), $4.5 billion in topicals, and the remaining products, including food and beverages consisting of $2.5 billion in sales.

 

 

 

It’s also clear that a consumer who is using for example a tincture or capsule, will likely be inclined to augment his or her CBD regime by adding CBD-infused beauty and cosmetic products, beverages or food items. The premise being that more CBD is always beneficial, and that specifically beverage or food items provide an opportunity to add some additional CBD to one’s daily diet.

 

 

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