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The FDA Just Showed Its Hand on CBD -- Is It Time for Investors to Fold?

Sean Williams, The Motley Fool

Motley FoolJuly 29, 2019


As some of you may be aware, cannabidiol is one of the two most popular cannabinoids, with the other being tetrahydrocannabinol (THC). THC is predominantly found in the cannabis plant, and it's the cannabinoid responsible for getting users high. Meanwhile, CBD can be found in the cannabis or hemp plants (very small quantities of THC are also found in hemp plants), with hemp being a considerably easier-to-grow and less costly plant, making it the preferred choice for CBD extraction. CBD provides no psychoactive effect.

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The allure of CBD is threefold. First, since it's a nonpsychoactive cannabinoid, it should appeal to a greater percentage of the population than products that contain THC. This makes it ideal to attract consumers who may not otherwise try cannabis-like products.

Secondly, CBD is almost always infused in derivative products (derivative meaning some other form of consumption beyond dried cannabis flower). Derivatives, such as vapes, edibles, infused beverages, topicals, and concentrates, almost always have considerably higher margins than THC-rich dried cannabis flower, which makes these products essential to the financial well-being of marijuana companies.

Third and finally, there are those aforementioned growth prospects. A recently released report from the Brightfield Group is calling for $23.7 billion in U.S. CBD sales by 2023, representing a compound annual growth rate from 2018 of (drumroll) more than 100%! That's leaps and bounds ahead of the general growth rate of the global cannabis industry, making CBD one of the hottest investment trends.

Unfortunately, CBD may not be the sure thing that every investors believes it'll be -- at least in the United States.


The FDA "shows its cards" on CBD, and no one should be surprised

The one thing standing between CBD and perceived greatness is the U.S. Food and Drug Administration (FDA). And this past Monday, the regulatory agency showed its hand on CBD for the entire country, and investment community, to see.


On Monday, July 22, the FDA sent a warning letter to Curaleaf Holdings (NASDAQOTH: CURLF) CEO Joseph Lusardi letting him know that his company's CBD products, including its lotions, pain-relief patches, tinctures, and vape pens, were all "misbranded drugs" that were being sold in violation of the Federal Food, Drug, and Cosmetic Act. The FDA also flagged its Bido CBD products for pets as being unapproved and unsafe.


More specifically, the FDA wrote that Curaleaf is "illegally selling unapproved products containing cannabidiol (CBD) online with unsubstantiated claims that the products treat cancer, Alzheimer's disease, opioid withdrawal, pain and pet anxiety, among other conditions or diseases."


As a result of this warning letter, which will require Lusardi's response to correct these deficiencies within 15 days, Curaleaf lost its topical partnership with pharmacy giant CVS Health (NYSE: CVS). As a reminder, CVS Health announced in March that it would carry Curaleaf's topical products in roughly 800 of its stores in eight states, with CBD expected to be a means for low-margin pharmacy chains to drum up foot traffic to their stores. It's unclear if CVS will look elsewhere for its CBD supplies, especially with Walgreens Boots Alliance and Rite Aid following suit with cannabis products in their own stores shortly after CVS. 


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