Continuing FDA Regulation Doesn't Dampen Cannabis Investment Enthusiasm
Executive Summary
Anheuser-Busch's parent firm partners with Canadian firm Tilray, which makes and distributes cannabis supplements as well as dried cannabis, to research non-alcohol beverages containing tetrahydrocannabinol and cannabidiol.Similar moves by other firms entering the cannabis product market and mounting investments by US firms already in the space follow Congress' passage of the latest farm bill with a provision that substantially changes federal regulations for production and marketing of hemp.
Cannabis remains banned in dietary supplements under FDA regulations, but that's not slowing investment in cannabis-based product manufacturing by supplement, food and beverage marketers firms including AB InBev, the parent firm of beer giant Anheuser-Busch Cos. Inc.
AB InBev, the world’s largest brewer, is partnering with Canadian firm Tilray Inc., which makes cannabis supplements as well as dried products available as cured and trimmed whole flower or precise blends of ground cannabis, to research non-alcohol beverages containing tetrahydrocannabinol (THC) and cannabidiol (CBD).
Meanwhile, two smaller firms marketing supplements, Level Brands Inc. and Radiant Creations Group, also recently announced cannabis industry investments. The firms note burgeoning US sales for CBD-containing supplements and food products and the Jan. 1, 2019, elimination of the US prohibition against hemp cultivation and sales as motivations for adding cannabis production to their own operations.
These three announcements, as well as similar moves by other firms entering the cannabis product market and mounting investments by US firms already in the cannabis space, follow Congress' passage of the Agriculture Improvement Act of 2018, the latest five-year authorization of US Department of Agriculture programs – the farm bill – that includes a provision that substantially changes federal regulations for production and marketing of hemp.
Hemp is defined in the bill as cannabis with less than 0.3 percent, on a dry weight basis, of THC, the psychoactive compound in the plant. The bill removes hemp from the Controlled Substances Act, making it no longer an illegal substance under federal law.
The bill, however, doesn't allow the use of hemp, CBD or other constituent ingredients of cannabis in supplements or food products marketed in the US. FDA posted a lengthy statement by Commissioner Scott Gottlieb the same day President Trump signed the farm bill to explain that the agency maintains regulatory authority over cannabis-containing products, including that ingredients from the plant are not allowed in supplements or food, but that FDA could consider changes that would allow their use in those products (see sidebar).
$50M From Both InBev And Tilray
In a Dec. 19 announcement, AB InBev said its partnership with Tilray is limited to Canada, where sales of marijuana and products with other cannabis ingredients became legal in 2018. However, Tilray's products are available online to consumers in the US, where some states have legalized cultivation, sales and use of marijuana while the federal prohibition on marijuana remains in effect. The firms have not made decisions regarding commercialization of products. Each intends to invest up to $50m.
AB InBev's Labatt Breweries of Canada business will work with Tilray's Canadian cannabis subsidiary High Park Co.
"As consumers in Canada explore THC- and CBD-infused products, our innovative drive is matched only by our commitment to the highest standards of product quality and responsible marketing. We intend to develop a deeper understanding of non-alcohol beverages containing THC and CBD that will guide future decisions about potential commercial opportunities,” said Labatt President Kyle Norrington.
Charlotte, N.C.-based Level Brands on Dec. 20 closed its all-stock acquisition of Cure Based Development LLC, owner of the cbdMD line of products sold primarily through its e-commerce website and through some 700 retail locations. Cure Based manufactures its products at its Charlotte facility using 100%, natural CBD extracted from organic, non-GMO, vegan, and gluten-free industrial hemp grown in the US, according to Level Brands.
Level Brands CEO Martin Sumichrast heralded the hemp provision in the farm as boon for CBD product sales, even though FDA has clarified that all cannabis ingredients remain ineligible for use in supplements and food.
"Now that the farm bill has been approved, and CBD will no longer be listed as a Schedule 1 controlled substance, we believe the CBD market should drastically expand. CBD products will now have access to retailers nationwide, as well as through online channels. In addition, the passage of this legislation should help CBD gain mainstream consumer acceptance. We believe cbdMD will significantly gain market share in this growing industry,” Sumichrast said in the firm's release.
Level Brands, which also owns the Kathy Ireland Health & Wellness supplement and the Beauty & Pin-Ups hair care brands, said it will issue 15.25m shares of its common stock and may issue up to 15.25m more shares during the first 60 months if revenue milestones totaling $300m are achieved. The milestones are targeted at $20m in the first 12 months, $40m in the second year, $80m in the following 18 months and $160m in the final 18 months of the period.
“I was first introduced to CBD as a consumer and it really worked for me. Since launching the company, our goal has been to bring a unique product to our loyal customers with the goal of enhancing their overall quality of life and providing education and awareness to the potential benefits of CBD," said Cure Based Development founder and CEO Scott Coffman.
Coffman, who also founded electric cigarette firm Blu-Ecig and sold it to Lorillard Tobacco for $135m, will be a significant Level Brands shareholder and will join it board while continuing as CEO of Cure Based Development.
Direct Sellers Move On Hemp, Too
Radiant Creations on Dec. 21 announced an agreement to pay shares of its stock for 100% of the outstanding shares of NewYou LLC, a direct seller of CBD products. NewYou, of Carlsbad, Calif., is led by CEO Ray Grimm Jr., who has helmed Radiant Creations since July when he and two associates acquired a controlling interest and has more than 25 years' experience with direct sellers of nutritional and weight loss products.
Palm Beach Gardens, Fla.-based Radiant Creations, which makes and markets nutritional and personal care products, said the acquisition provides an opportunity to expand into the growing hemp-CBD space. It referenced Brightfield Group research showing the US hemp-derived CBD market has nearly doubled between 2017 and 2018 and could reach $22bn by 2022.
"The CBD market in the US is growing exponentially. Timing and growth couldn't be better for us and we are moving rapidly to take advantage of the momentum," said Grimm.
When Grimm, Jared Berry, the first owner of a CBD brand filed with the US Patent & Trademark Office, and Nish Mehta, a venture capital professional, purchased a controlling interest in Radiant Creations, they said they would consider bringing other businesses into the company.
Another direct sales firm, Touchstone Life Essentials Inc., on Dec. 27 expanded its CBD oil line with the launch of Touchstone Essentials Calm Advanced+ Hemp Oil, a 1,500 mg, CBD-rich oil. The Raleigh, N.C.-based firm said the product is a full-spectrum oil, an extract of hemp that contains cannabinoids, terpenes, flavonoids and several other beneficial phytochemicals.
Touchstone Essentials CEO Eddie Stone also projected hemp and CBD product sales growth driven by passage of the farm bill. "The introduction of Calm Advanced+ Hemp Oil allows us to expand to meet the growing demand for CBD oil in the United States, Canada and beyond," Stone said.
The firm launched its CBD line in August, Calm Premium Hemp Oil 750 mg and Soothe Topical Hemp Balm 600 mg.