Here's What Last Week's FDA CBD Hearing Really Means for Cannabis Stocks

Ten hours of testimony, more than 100 individuals speaking, and still a lot of unanswered questions. That's the quick overview of the public hearing held by the U.S. Food and Drug Administration (FDA) last Friday to get feedback on regulations for cannabidiol (CBD).

This public hearing included presentations from several representatives of companies with a lot of money riding on what the FDA ultimately decides. Those companies included Corbus Pharmaceuticals (NASDAQ: CRBP), CV Sciences (NASDAQOTH: CVSI), GW Pharmaceuticals (NASDAQ: GWPH), Medical Marijuana (NASDAQOTH: MJNA), and Zynerba Pharmaceuticals (NASDAQ: ZYNE).

But what does last week's FDA hearing really mean for cannabis stocks like these and the many others that hope to profit from what could soon be a multibillion-dollar U.S. hemp CBD market? Here are three things you can expect.

1. More confusion and volatility for longer than anyone would prefer

I wrote in a preview of the FDA hearing last week that the status of CBD products in the U.S. was currently "clear as mud." It isn't any clearer after the hearing. But no one should have expected any different.

The public hearing on Friday was just the first step for the FDA in establishing regulations for CBD. In one sense, the hearing isn't even over yet. The FDA will continue to accept public comments on the hearing through July 2, 2019. There's a lot of work to be done to define regulations that will bring clarity to the U.S. CBD industry.

The good news is that the FDA appears to recognize the need for urgency. Dr. Amy Abernathy, the FDA's principal deputy commissioner and acting CIO, who is leading a working group to explore how CBD products could be sold legally, tweeted on Friday that "given the rapid expansion of the market, timely clarification of the path forward is critical."

The bad news, though, is that the FDA probably won't move nearly as quickly as the industry would like. Abernathy's tweet also stated, "But it's our responsibility to ensure that the regulatory path is scientifically sound and in the interest of public health." That comment implies that the agency has a lot of data to review before it's ready to finalize CBD regulations.

Expect continued confusion for the U.S. CBD industry for the rest of this year and quite likely even longer. That confusion will probably translate to high levels of volatility for many CBD stocks.

2. Cannabis-focused biotechs seem likely to be protected

I think it was important that three top biotechs focused on the development of cannabinoid drugs were selected by the FDA to participate in the hearing. Corbus Pharmaceuticals vice president of pharmaceutical development and manufacturing Robert Discordia made oral comments. Alice Mead, vice president of U.S. professional relations for GW Pharmaceuticals' subsidiary Greenwich Biosciences, and Ray Mannion, vice president of manufacturing for Zynerba Pharmaceuticals, delivered formal presentations with slides.

Mead represented the only company that has actually won FDA approval for a CBD product, prescription drug Epidiolex, which treats two rare forms of epilepsy. She noted that "the FDA approval process is the only way to answer important questions about a drug," adding that "no one knew CBD was potentially toxic to the liver until we [GW Pharmaceuticals] conducted clinical and preclinical studies."

I suspect that Mead's point resonated with FDA officials. The FDA wants data to help guide decisions. And biopharmaceutical companies have the clinical studies underway that can give the agency the data it needs.

I also think that the FDA doesn't want to do anything that would negatively impact the efforts of drugmakers that are researching cannabinoid drugs. My prediction is that whatever comes out of the agency's regulatory guidelines for CBD, it will be to the liking of cannabis-focused biotechs like Corbus, GW, and Zynerba.

3. Tighter regulations could hit food and beverage products the most

Acting FDA Commissioner Ned Sharpless perhaps made the most important statement of the day on Friday. He said, "There are important reasons to generally prohibit putting drugs in the food supply," adding that cannabis compounds such as CBD aren't exceptions.

It seems probable that the FDA will take the hardest line on CBD products that are included in foods and beverages. The FDA will want to ensure that CBD is safe and at what levels.

Don't be surprised if the agency first establishes regulations for other types of CBD products, for example, cosmetics and pet products, then later finalizes regulations for CBD foods and beverages. Canada, which legalized adult-use recreational marijuana last year, still hasn't finalized its regulations for cannabis-infused foods and beverages.

All of this could especially impact the stocks of companies that are banking on hemp CBD foods and beverages. New Age Beverages (NASDAQ: NBEV) shares skyrocketed last year with the company introducing a line of CBD beverages. But its stock has dropped in recent days with the questions raised by the FDA hearing. Tilray's (NASDAQ: TLRY) purchase of leading hemp CBD food company Manitoba Harvest could also look iffy at least in the near term in light of the FDA's concerns.

What should investors do?

Does the uncertainty about what the FDA might do regarding CBD mean that investors should stay away from CBD-related stocks? Not necessarily. Actually, the lingering questions could create a great buying opportunity.

I think the best stocks to buy are those of companies that don't have most of their fortunes riding on CBD foods and beverages. The FDA seems to have a higher level of uneasiness with CBD foods and beverages than with other CBD products.

One thing to keep in mind is that you need to have a long-term perspective. There's no way to know how long the FDA will take to establish CBD regulations.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.