Cannabidiol, or CBD, occupies a peculiar space in the U.S. healthcare universe right now. Extract it from the hemp plant, and it's legal. Extract the identical chemical from the closely related marijuana plant, and it's a Schedule I controlled substance. When it's sold by a mainstream pharmaceutical company, after being tested and approved to treat epilepsy, it's a legitimate drug. But other companies can sell CBD without any of that regulator-reviewed scientific testing by calling it a "supplement." Put it in a cream or lotion? Acceptable. Put it in food or drink? That's against the rules...but the FDA mostly ignores the companies that do it.
Next month, the Food and Drug Administration will hold its first public hearings on whether to allow the compound to be legally used as an ingredient in food and drink, and in this segment from MarketFoolery, host Chris Hill and analyst Emily Flippen consider what it could mean for businesses in and around the legal marijuana space, the supplements segment, and the food and beverage sector.
A full transcript follows the video.
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This video was recorded on April 3, 2019.
Chris Hill: The Food and Drug Administration announced its first public hearing on legalizing CBD in food and drinks. Speaking of food and beverages. That's going to be on May 31st. We had talked last week about CVS and then Walgreens starting to sell CBD lotions, topical cannabis products, in their stores. This will certainly be an interesting hearing to watch unfold. When you look at this in your role, not just as an analyst but as co-advisor of one of our marijuana investing services, who stands to benefit from this?
Emily Flippen: There's a lot of companies that both stand to benefit and lose from the potential outcomes of this hearing. To be clear, a lot of people who are interested in this space don't necessarily spend all their day researching the industry like the analysts here do.
Hill: Right. The listeners have jobs.
Flippen: [laughs] Exactly!
Hill: They're going to school, they have jobs. They're like, "No, that's why I listen to you people."
Flippen: So, to clarify the difference between cannabis and CBD and THC. CBD is derived from the hemp part of cannabis, which was legalized in December. However, you'll see CVS, Walgreens, they're selling CBD products, but they're topical products. They don't have to go through the FDA to get approval. Anything that involves CBD that's being sold as a dietary supplement, that's what's affected by this upcoming hearing. Right now, virtually every company that's selling CBD is violating FDA orders by selling it as a dietary supplement. They haven't been very proactive in going after these companies unless they've been the companies that are making extremely egregious claims -- like that CBD will cure cancer or Alzheimer's. Those are the companies they're going after. But for basic companies that are just selling CBD oil and saying, "It's a dietary supplement, order online!" the FDA is acknowledging, "Hey, you're outside the bounds. We're not going to go up against you, but we are going to put a hearing on and determine whether or not CBD, A. should be sold as a dietary supplement; and B. should be sold in food and drinks." At the moment, you can't put CBD in any sort of edible or drinkable product. It's interesting, CBD is acting in this space where it's both a drug, because there is a CBD-based drug that has been FDA approved for epilepsy, and also acting as a dietary supplement. Those two things are naturally against each other. You're not going to be able to go and buy a controlled substances off the shelves of your local grocery store. The FDA has a big job ahead of them, determining how they're going to handle CBD if it's both a drug, but also being used as a dietary supplement.
Hill: Depending on the outcome of this hearing, do you expect to see another wave of investment, in the same way that last year we saw large companies, whether it was Altria, Coca-Cola, Pepsi, either making direct investments, or at least reportedly looking into investments? Should we expect some other wave coming depending on the outcome of this?
Flippen: Yes, for sure. I'm a big fan of making unsubstantiated claims. [laughs] I really do believe that the FDA is going to give approval for CBD to be used once it's proven safe and effective in things like food and drinks. I fully expect, once the FDA has given that final stamp of approval, we're going to see a huge wave of investment into CBD, which is why I said I think companies stand to both benefit from it and lose from it. If you're one of the companies that's making these egregious claims, yeah, they're going to crack down on you. But if you're one of the companies that's selling your products maybe a little bit under the table, admittedly, at this time, once you get that approval, it opens up so many doors.
Chris Hill has no position in any of the stocks mentioned. Emily Flippen has no position in any of the stocks mentioned. The Motley Fool owns shares of PEP. The Motley Fool recommends CVS. The Motley Fool has a disclosure policy.