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Billed as a health product, CBD faces stiff test from skeptical regulators

It’s marketed as a near-miraculous, over-the-counter pain reliever and health supplement—just how high can sales climb?

That’s the key question facing companies in the booming market for CBD (or cannabidiol), with cannabis and its derivatives making big strides toward nationwide legalization.

As regulators ramp up their scrutiny of the nascent industry, and officials in both major parties voice support for the marijuana-derived substance, a host of startups have increasingly emphasized the purported medical benefits of CBD.

The industry has hit its stride this year. While CBD comes from the same plant as its psychoactive brother, tetrahydrocannabinol (THC), CBD is billed as a non-psychoactive product that can reduce pain, anxiety, depression and act as a sleep aid.

The 2018 Farm Bill passed in December legalized hemp and cannabidiol, and led to a veritable gold rush: CBD-based storefronts sprang up around the country, while retailers like CVS and Walgreens—and a host of private investors — plowed money into the product.

CBD comes in many forms—a spray, oil or balm—and can be infused into food or drinks. While its proponents insist the substance is non-intoxicating, the Farm Bill contains a provision that keeps CBD-infused foods illegal, for now.

With all of its different applications, the product is benefiting from an investment boom and heightened growth expectations. The Brightfield Group projects that the industry will skyrocket from a $591 million business in 2018, to $22 billion by 2022, for an average annual growth rate of 147 percent.

From ‘naysayer’ to believer

But what’s driving the CBD boom? Mostly, it’s anecdotes that are not backed by rigorous government or peer-reviewed scientific inquiry. The FDA has cracked down on some companies marketing the substance in new products, and said the public should be wary of such claims.

Thanks to Congress, hemp is now legal in all 50 states — but on the federal level, all cannabis-based products remain illegal. That creates a murky legal area for CBD, which states like California are trying to legalize outright while bypassing federal regulators.

For its part, the U.S. Food and Drug Administration (FDA) has only approved one cannabis-based drug, GW Pharmaceuticals’ (GWPH) Epidiolex, which treats severe seizures in children.

CBD’s grey zone has made it difficult to conduct peer-reviewed research on its costs and benefits, making some of the claims about the substance untested. Nevertheless, analysts estimate that 65 million Americans have now tried some form of CBD, with 63 percent finding the product effective.

“I would say that being introduced to cannabis in 2011, I had virtually no interest in cannabis. In fact I was a naysayer,” said Kevin Murphy, the CEO of Acreage Holdings, a Canadian cannabis cultivation company.

“It has worked wonders in my family with my mother-in-law who has Alzheimers. And really just to see this miraculous plant work, I’m all in with both feet.”

Last week, the FDA held the first of many hearings on CBD products, but failed to resolve its lingering issues. In the aftermath of the hearing, many cannabis-related stocks fell sharply, including Canopy Growth Corp (CGC), KushCo Holdings (KSHB), Aurora Cannabis (ACB), Tilray (TLRY) and Cronos Group (CRON).

Amy Abernethy, the FDA’s Acting Commissioner, said on Twitter last week that the agency had a responsibility to vet CBD thoroughly.

Her comments suggested the market won’t see clarity on the CBD debate any time soon, given the government’s skepticism and the rigorous testing normally applied to health products.

Calder McHugh is an Associate Editor at Yahoo Finance. Follow him on Twitter: @Calder_McHugh.

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