The FDA Hearing on CBD Is Really Much Ado About Nothing
Whether you realize it or not, the marijuana industry is maturing at a pretty impressive rate right before our eyes. What had fairly recently been a drug that was considered taboo throughout most of North America and the world is now legal for medical purposes in more than 40 countries worldwide, as well as 33 U.S. states. Cannabis is also allowed for adult recreational consumption in Canada, Uruguay, and soon-to-be 11 U.S. states, once the governor of Illinois signs House Bill 1438.
But make no mistake about it, the rise of the legal marijuana industry has also been a bumpy ride. Its topsy-turvy ascent can perhaps be best illustrated by the Food and Drug Administration's May 31 hearing on cannabidiol (CBD) -- the nonpsychoactive cannabinoid best known for its perceived medical benefits.
The FDA sends mixed signals on CBD additives in food and beverages
The much-anticipated hearing featured more than 100 speakers, including industry researchers and scientists, health professionals, as well as advocates of CBD.
The heart of the matter is that the passage of the 2018 Farm Bill legalized industrial hemp production and hemp-derived products, including CBD, with a catch. Namely, legalization doesn't encompass adding CBD -- even hemp-derived CBD (it can be extracted from cannabis plants, too) -- to food, beverages, and dietary supplements, which are under the strict regulation of the FDA.
The May 31 FDA meeting was designed as the first step in hashing out what should be done with CBD as it pertains to food and beverages in the United States, with comments expected to continue to be taken by the FDA into July.
The initial takeaway from the meeting is that the FDA has its reservations about CBD and its effectiveness. This should surprise absolutely no one, especially considering that the FDA recognizes only two ailments that are aided by CBD: Lennox-Gastaut syndrome and Dravet syndrome.
In June 2018, GW Pharmaceuticals' (NASDAQ: GWPH) oral CBD-based solution Epidiolex was approved by the FDA as a treatment for both of these childhood-onset forms of epilepsy. Aside from GW Pharmaceuticals' lead drug, marijuana and CBD aren't recognized as having any (other) medical benefits. Thus, without additional clinical studies, which are costly and time-consuming, it could be difficult to sway the FDA -- at least without a protracted debate lasting many months.
Keep in mind, though, that the World Health Organization (WHO) recognizes CBD to be safe and nonaddictive. Then again, WHO also suggests that evidence of its effectiveness in treating certain ailments is limited, which is the primary reason for the FDA slow-stepping these hearings on CBD as a food and beverage additive.
Yet, in spite of its reservations, the FDA also appears to understand the importance of expediting an eventual ruling on CBD given its growing acceptance in the United States.
Why all the fuss?
Although a lot of attention was paid to this FDA hearing by Wall Street, cannabis enthusiasts, and investors alike, I'd contend it was really much ado about nothing.
From the standpoint of CBD's medical benefits, the FDA seems extremely unlikely to crack down on major pharmaceutical players such as GW Pharmaceuticals. The company has gone through the process of working hand-in-hand with the FDA to develop acceptable late-stage study protocols, meaning experimental cannabinoid-based medicines that meet their clinical endpoints can be verified and trusted by the FDA. Though there aren't too many FDA-approved clinical studies ongoing for cannabinoids or cannabis, what studies are underway appear to be safe from whatever the regulatory agency decides to do with CBD.
As for the other end of the spectrum (food and beverages), it has very little bearing for the consumer side of the equation. Even though edibles and infused beverages would represent an intriguing means of consuming CBD, it's not as if there aren't multiple other derivatives available in the United States. Depending on state law, consumers have their choice of vapes, concentrates, balms, topicals, capsules, and oils. Edibles and infused beverages would simply widen the selection a bit more.
Additionally, while CBD additives to popular brand-name foods could provide a temporary boost to sales or brand recognition, CBD is far from the needle mover that it's being made out to be.
For example, snack company Mondelez International (NASDAQ: MDLZ) has strongly hinted at adding CBD to its Chips Ahoy, Cadbury chocolate, Nilla wafer, and Nutter Butter brands. But Mondelez generates almost $26 billion a year in global sales. If it does move forward with CBD additives, assuming an FDA blessing, it's only going to be something of a novelty within a handful of its best-known brands. Management has already discussed leaving CBD out of its most family-oriented brands, such as Oreos. That makes CBD hardly a needle mover for Mondelez -- and most other beverage or snack companies considering CBD, for that matter.
All this isn't to say that I'm not keeping a close eye on what the FDA has to say about CBD. The point is that no matter what the agency ultimately decides, it's not going to have a lot of bearing on derivative choices for U.S. consumers, or sales and profit potential for brand-name food and beverage companies.
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Sean Williams 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.