Hemp-derived CBD: Regulatory uncertainty a bigger roadblock than COVID-19, says Caliper Foods; MAD TASTY remains ‘bullish’
The problem right now, of course, is that CBD is likely not top of the FDA’s priority list as it attempts to deal with a global pandemic, speculated Eversheds Sutherland partner Greg Kaufman, who will be speaking at FoodNavigator-USA’s ‘Where next for hemp and CBD?’ webinar on May 20.
“I’m not sure there is much bandwidth or motivation to tackle the regulation of cannabinoids right now. The CBD market is just not a priority and will likely remain in its current state for some time."
Attorney: ‘The CBD market is just not a priority [for the FDA] and will likely remain in its current state for some time’
“The latest FDA report did not give me much hope that regulations will be coming anytime soon,” added Kaufman, who was speaking to us after CBD American Shaman was hit with a lawsuit* alleging it falsely advertised its wares as containing ‘no heavy metals.’
That said, the above case only underscores the fact that the “industry needs and wants reasonable standards for quality, safety and labeling so the legitimate businesses can conduct business without the taint of the less scrupulous operators,” he argued.
“Until then, leading retailers may not be willing to put their businesses and reputations at risk.”
Caliper CEO: ‘The industry is in a state of purgatory’
Justin Singer, CEO and founder at Caliper Foods, which is using 20mg of water-soluble CBD isolate in his drink mixes, said sales through the firm’s website had been doing very well, and that development work with CPG companies looking to work with Caliper on CBD products was continuing during the pandemic.
However, most leading retailers will not carry CBD-infused food & beverages until the FDA lays out a regulatory framework for these products. And right now, the agency says adding CBD to foods or supplements is not legal, but at the same time says trying to shut the market down would be a fool’s game, leaving manufacturers in a state of "legal limbo."
‘What’s holding the industry back? It’s 100% the FDA’
While some commentators say firms that have dived into the CBD market before regulations were in place only have themselves to blame if their momentum is being thwarted, Singer says the FDA’s decision to send out warning letters to firms making egregious health claims, but not to engage in widespread enforcement action, had sent out mixed messages and left the industry in a state of “purgatory.”
“What’s holding the CBD industry back?" he said. "It’s 100% the FDA. We have any number of national brands that have created products that are ready to be released and retailers that are ready to put these products on their shelves, and they say we just need something from FDA saying this is OK.”
Although several states have now explicitly authorized the sale of foods and supplements containing hemp-derived CBD (Texas is the latest to propose such regulations), “The ex-attorney in me finds this so strange,” he said.
“There are few supply chains in our country that are as clearly interstate commerce as food; you can’t have a definition of CBD in one state that’s different to another. It doesn’t work. The federal government was set up to solve exactly this type of issue. It’s the worst of all possible worlds.”
Dosages and safety: ‘Comparing apples to apple trees’
FDA comments in its recent report that it is evaluating a path forward for supplements, but has “safety concerns about the use of CBD in food” were also confusing, he said.
“The average dose on the market [in foods/beverages] today is around 25mg whereas the safety studies [referenced by the FDA when it cites concerns about liver damage] are [on dosages of] 750-1,500mg [used in drug trials on products such as Epidiolex]… it’s comparing apples to apple trees.”
MAD TASTY COO: ‘Big retailers all believe this will be a huge industry but they are waiting for the FDA’
At hemp-infused beverage brand MAD TASTY – founded by OneRepublic lead singer Ryan Tedder - meanwhile, COO Dan Holland said many potential customers were also waiting for the FDA to weigh in before taking the brand on, although there was still considerable opportunity to grow in select ‘CBD-friendly’ states in the meantime.
“The big retailers and c-stores – their legal has put a hold on everything. They all believe this will be a huge industry but they are waiting for the FDA. I have 14 distributor contracts right now signed and it’s all predicated on FDA approval.”
But having a window of opportunity to grow before the big CPG brands get into the market may not be a bad thing, he said.
“We have a one to three year run at this to run at full margin because the big guys are too scared to enter right now, and I think we’ll see a whole new section in the store. In my 40 years of calling on retail, I’ve never seen a bigger acceptance from buyers or category managers for a product.”
MAD TASTY - which is backed by First Beverage (although Tedder retains a majority stake) – does not use the term CBD on pack and makes no claims about its products on its packaging or its website.
To date, it has struck deals with full-service distributors in Los Angeles, Austin, and Colorado supplying on- and off-premise accounts, and is also selling the product directly to consumers via its website, which is being upgraded this month, said Holland.
“We’re seeing 400% growth online and our new website should be up and running by the end of May. It will also include a portal on it for b2b customers, so if you’re in Chicago and you want to buy some product and test it in your coffee shop, all you have to do is prove you have a retail licence and we’ll ship to you.”
‘We’re blessed to have an ownership team that has the financial wherewithal to stay on task’
There will likely be a shakeout in the CBD market, with many smaller, poorly capitalized brands falling by the wayside, he predicted.
However, he said, “We’re blessed to have an ownership team that has the financial wherewithal to stay on task as long as we can control the burn, until this country gets back up and running. So we’re using this time in a very positive way [to improve the DTC site, and maintain relationships with retail customers and new prospects].”
Asked whether a product retailing at $5 a can is going to sell during a recession, he said: “Are they going to pay $5 for a can if it doesn’t do what they expect it to? No, but they will if they feel the efficacy.”
Where next for hemp and CBD?
Join the CEO of Vitamin Shoppe, the founders of hemp-infused beverage brands Recess and Mood33 and water-soluble CBD specialist Ojai Energetics, and Greg Kaufman at Eversheds Sutherland to explore the market for foods and beverages containing hemp-derived CBD at our FREE webinar, Where next for hemp and CBD? on May 20.