In an update to clients on Wednesday, Paradigm Capital analyst Rahul Sarugaser said the US Food and Drug Administration’s decision to set a date for its review of cannabis-derived compounds in food and drinks is a positive sign for the industry yet he warns investors to tread cautiously around companies currently marketing CBD-containing products which are not in compliance with FDA regulations.
On Wednesday, the FDA said its first hearing to review cannabis-derived compounds as they pertain to food, drinks and dietary supplements will take place on May 31. In its background to the hearings, the FDA said the legality of cannabis has been changing over time at both the state and federal levels, with currently 33 states along with Washington DC allowing medical use, while at the same time they point out that the use of cannabis and its compounds, including hemp and hemp-derived products, has increased dramatically in recent years, raising questions about their safety.
“Given the substantial interest in this topic and Congressional interest in fostering the development of appropriate hemp products under the 2018 Farm Bill, while also preserving FDA’s ability to protect the public health, FDA is holding a public hearing,” the Public Hearing document says.
Sarugaser says the hearings are a positive for the industry and, moreover, that the development will likely bring larger consumer packaged goods companies closer to moving into the cannabis space.
“While the 2018 Farm Bill was a boon for the hemp industry, the ambiguous regulatory status of CBD in food, drink, and OTC products—particularly as it now, explicitly, falls under FDA regulation—likely caused forward-thinking companies, such as Canopy Growth and Green Growth Brands, to temper internal expectations of a completely open US market. As the rules become clearer and regulatory risk is mitigated, however, we see forward-thinking, compliance-oriented companies benefiting, and we anticipate large CPG companies like PepsiCo, General Mills, and Anheuser-Busch InBev making moves into the cannabinoid product space,” writes Sarugaser.
The analyst nevertheless points to the ambiguities that currently exist in the US cannabis market, with companies like CVS signing contracts with hemp and cannabis companies Abacus Health and Curaleaf.
“Until the market gains more clarity from the FDA on how it will regulate cannabinoids, CBD in particular, we recommend caution be exercised around any players that are currently incorporating CBD in food, drink or nutraceuticals that do not comply with FDA regulations,” says Sarugaser.