THIS WILL BE HUGE FOR PAOG-
CBD-Laced Foods Could Be Technically Illegal, But the FDA Might Soon Change That
Agency has the authority to carve out an exception to existing laws.
By DEBRA BORCHARDT Aug 13, 2019 | 11:00 AM EDT
Is CBD -- a compound in marijuana that allegedly makes you feel good but isn't the chemical that actually makes you high -- a drug or a food supplement? The legal-marijuana industry has been waiting for the U.S. Food and Drug Administration to rule on that question, but one analyst thinks it can be both.
Legal-pot companies and food manufacturers have begun adding cannabidiol (or "CBD" for short) to all sorts of beverages and other items as a "feel-good" substance. But whether they can continue to do so will depend on whether the FDA rules that the substance is a dietary supplement or a drug.
Bank of America cannabis analyst Christopher Carey thinks the FDA will decide CBD is both, based on two laws.
The first is the 2018 farm bill, under which Congress legalized hemp (non-psychoactive marijuana used for rope), but left it to the FDA to work out the logistics. The second law is the Dietary Supplement Health and Education Act of 1994 (DSHEA), which defined dietary supplements as a new class of food.
The 1994 law deals in part with how to handle substances that have been as both prescription drugs and as food supplements. For companies to market a substance as a food supplement, it must have been sold as such before a pharmaceutical company launched drug trials designed to use the material as a prescription drug.
Given that GW Pharmaceuticals (GWPH) has created a drug called Epidiolex out of CBD to treat two forms of epilepsy, does that mean companies can't use CBD as a food supplement?
"Many in the CBD industry argue CBD was marketed prior to trials (e.g. Epidiolex)," Bank of America's Carey wrote in a recent note. "In our view, while a potentially valid argument, CBD has been illegal for decades, making this approach complicated."
Certainly hemp products have been sold in various food markets for years, but CBD as a wellness dietary supplement is new. Plus, cannabis was sold by major drug companies at the turn of the 19th century before prescriptions were needed.
That further muddies the argument. If CBD didn't need a prescription then, does that mean it was a food supplement or not?
This all came into sharp focus recently when the FDA sent a warning letter to popular cannabis company Curaleaf Holdings (CURLF) complaining that the company was making unproven medicinal claims about its CBD-infused products. That caused CURLF's stock to briefly fall and prompted Curaleaf's new retail partner CVS Health (CVS) to yank the products in question off of its shelves.
Curaleaf quickly responded by removing marketing language that the FDA had objected to. "Our industry needs, wants and appreciates the work the FDA is doing to ensure there is regulation and compliance in the CBD marketplace," CEO Joseph Lusardi wrote the agency. Still, the FDA's objections spawned numerous shareholder lawsuits against Curaleaf.
Michael Harinen, chief brand officer at CBD-products company Bluebird Botanicals, said the FDA could help the industry by making it a "first step ... to formally say that they will practice enforcement discretion in the CBD industry. This means they may hold off on enforcing any existing restrictions or impeding operations for CBD companies so long as the companies are not violating DSHEA by making health claims."
He said the agency could then say that it "will likely be more serious about going after the companies that are making health claims -- and possibly even those using structure/function claims."
Making an Exception
Carey believes that the FDA will try to find a way for CBD to coexist as both a supplement and as a prescription drug like Epidiolex.
He points out that the FDA has some wiggle room to make an exception, noting that the agency recently wrote that "the statutory provisions that currently prohibit marketing CBD in these forms also allow the FDA to issue a regulation creating an exception."
The analyst wrote that while he thinks products with "highly refined CBD ... will be viewed too similar [to] Epidiolex, other forms of CBD could be allowed."
In other words, if a CBD product looks too much like GW Pharmaceuticals' prescription drug, then it won't be allowed. But if a CBD product is on a much lower level of refinement, then it'll be OK.
Prior Cases
The analyst suggested that investors look at how the FDA treated a product called Cholestin, which was made from red rice yeast by a company called Pharmanex and designed to promote healthy cholesterol.
Cholestin contained a natural substance called "mevinolin," which is chemically identical to lovastatin - the active ingredient in a prescription drug called Mevacor. The FDA blocked Pharmanex's plan in 1997 to sell Cholestin, arguing that the company refined its red rice yeast and marketed its product to pharmacists -- pushing it beyond a dietary supplement.
Carey also cited the 2009 case of pyridoxamine supplements, which are a form of Vitamin B6. Pharmaceuticals company Biostratum makes a prescription drug called Pyridorin that uses pyridoxamine dihydrochloride as its active ingredient. As a result, the FDA ruled that pyridoxamine can't be sold as a dietary supplement.
Both of the cases above ended badly for the dietary-supplement products, but Carey thinks CBD will be different.
However, Bluebird Botanicals' Harinen says it's hard to predict when the FDA will make a decision on the substance's status. "This process can take anywhere from two to three years," he said. Still, Bluebird and many other companies in the hemp space have joined together in encouraging the FDA to expedite the process.
Former FDA Commissioner Scott Gottlieb even recently wrote in a Washington Post opinion piece that the FDA should speed up the process.
The FDA "can approve the sale of some CBD products immediately, while effecting a framework for their safe and proper regulation and a pathway for an enforceable market for these goods," Gottlieb wrote. "The [agency] could put the onus on manufacturers to bring forward petitions to demonstrate that CBD can be safely added to products such as food."
