Walgreen's New CBD Push Lets It Be Edgy Without Being Risky

Pharmacy leader Walgreens Boots Alliance (NASDAQ: WBA) will soon introduce cannabis-based products to some 1,500 stores in states where it is legal to do so in an effort to meet what it says are the needs of consumers looking for "a wider range of accessible health and wellbeing products."

Although legal weed is gaining greater acceptance in many quarters, big corporations are still leery about becoming too closely associated with it until it is legalized at the federal level. But topical creams, patches, and sprays that have been infused with cannabidiol (CBD), a cousin to marijuana's psychoactive compound delta-9-tetrahydrocannabinol (THC), seems a safer way to enter the market, letting a business appear relevant to a potentially lucrative demographic without risking running afoul of more staid consumer tastes.

Turning on their switch

There are over 100 cannabinoids, chemical compounds secreted by the flowers of the related cannabis and hemp plants, and CBD is legal for medical use in 46 states. When derived from hemp plants and not cannabis, cannabidiol is legal throughout the country.

The difference between them is that cannabis-based CBD contains as much as 30% THC, while hemp-based CBD has 0.3%, making it impossible to get high from the latter.

In December Congress passed the Agriculture Improvement Act of 2018, which clarified the legal status of hemp and its extracts as well as how they can be sold. CBD quickly gained a lot of momentum as a result, and has begun showing up in alcohol and a laundry list of products that are being hawked by retailers as diverse as shoe retailer Designer Brands (formerly DSW) and Walgreens rival CVS Health (NYSE: CVS), which announced last month it also would be selling similar items.

Not so fast

The problem with Walgreens and others touting that they're bringing products to consumers with potential wellness benefits is that the Food and Drug Administration is not exactly on board.

In a statement issued after the law's passage, Congress reiterated the agency's role in regulating the products, particularly when it comes to a product claiming it has a therapeutic benefit: "The FDA requires a cannabis product (hemp-derived or otherwise) that is marketed with a claim of therapeutic benefit, or with any other disease claim, to be approved by the FDA for its intended use before it may be introduced into interstate commerce."

And last week departing FDA chief Scott Gottlieb tweeted he was "disappointed" to learn CVS and Walgreens were selling CBD products, subtly warning them to tread carefully. "We'll be contacting them to remind them of #FDA obligations and our commitment to protect consumers against products that can put them at risk."

Not all CBD is created equal

The FDA's primary beef is whether CBD products are actually delivering any actual "health and wellbeing." The saying that the dose makes the poison sort of applies here, because although studies such as those conducted by the National Institutes of Health say CBD may have potential benefits in treating anxiety, insomnia, and epilepsy, researchers caution against confusing the high dosages of pharmaceutical-grade CBD given during clinical trials and the type of CBD acquired over the counter.

As one skeptic told the U.K.'s The Guardian, "It's the difference between a nutraceutical and a pharmaceutical."

Still, the market for such products could be quite large and growing. Analysts at Cowen & Co. figure CBD could be a $16 billion industry by 2025 if as much as 10% of the adult U.S. population ends up using it, which they believe is a conservative estimate.

Only so far and no further

Selling CBD-infused products won't be a big business for Walgreens -- it is still only appropriate for a small subset of the population, and the market will be fragmented as many retailers seek to gain relevance by selling CBD products. When even upscale retailers like Barney's and Neiman Marcus are introducing high-end cannabis-based products to their well-heeled customers, you know it's going to be a crowded space.

Yet by getting in relatively early, Walgreens does help establish its pharmacies as a destination for consumers looking for CBD products, and perhaps one day as a place for legal weed if it's legalized nationally.

But with the FDA looking over its shoulder, you can be sure Walgreens will be very circumspect in just how far it is willing to push the envelope.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health and Designer Brands Inc. The Motley Fool has a disclosure policy.