The U.S. House opened debate this week over next year’s federal spending without addressing regulations on cannabidiol products, leaving employers in the CBD industry in the dark over the federal government’s regulatory plans.
The Trump administration’s budget request for next fiscal year includes an extra $5 million for the U.S. Food and Drug Administration (FDA) to write new regulations and enforce existing laws prohibiting certain uses of cannabidiol (CBD), the non-psychoactive compound found in cannabis. House Appropriations Agriculture Subcommittee Chair Sanford Bishop (D-Ga.) opted not to include that provision in a bill he introduced this week that would fund the FDA through the next fiscal year.
The CBD industry in Colorado and other states has exploded even without clear federal regulation. It saw $1.9 billion in sales nationwide in 2018, according to BDSA, a Denver-based cannabis market research firm. BDSA didn’t provide state-specific data, but German market research firm Statista ranked Colorado fifth in 2019 CBD sales in the U.S. with $151 million.
Much of the national growth occurred before Congress passed a law in December 2018 legalizing hemp, the plant used to produce most CBD. BDSA projected the industry could grow to $20 billion in revenues in 2024.
The CBD industry could grow to $20 billion in revenues in 2024 Click To TweetThat projection assumes the FDA changes its policy on food additives and dietary supplements in 2021 or 2022, BDSA executive chairman Roy Bingham said.
Laws governing the use of CBD vary by state. In Colorado, it’s regulated as a food and is legal to sell as edible gummies, oils and lotions, pet foods and in other products.
Under FDA guidance, however, using the compound in food or as a dietary supplement remains illegal in all states. So far, the FDA has focused its enforcement activities on companies making medical claims about CBD, such as its power to cure opioid addiction or COVID-19, but maintains it is within its power to enforce all violations.
Bingham assumes the FDA will change that position in 2021 or 2022 to allow food additives and dietary supplements.
FDA Commissioner Stephen M. Hahn said in March the agency was working on a risk-based enforcement policy — a potential step toward a new regulatory structure — but still had questions about the health effects of CBD.
Experts say the ambiguity is hampering Colorado’s CBD market.
“The explosion of the industry would actually have been far larger if there had been clear federal guidance,” said Dave Rodman, founder of the Rodman Law Group, a Denver firm that specializes in regulatory compliance and business planning for cannabis companies.
Even if Congress increases funding for CBD regulation, the amount under discussion is unlikely to significantly affect Colorado, said Jazmin Oliver, director of the CBD Industry Association’s West region and founder of Cannabis Science Consultants in Denver.
“I don’t think $5 million for the FDA is enough money to make the changes or do the research that’s really needed,” she said.
Members of Colorado’s congressional delegation have largely supported regulations that would help the cannabis industry.
Democratic Reps. Ed Perlmutter and Diana DeGette signed a bipartisan letter to the FDA in February 2019, and Perlmutter joined another in September calling for speedier approval of regulations on CBD.
“Given the widespread availability of unregulated CBD products, growing consumer demand, and the expected surge in hemp farming in the near future, we believe that FDA must quickly act to provide legal clarity and to establish a regulatory framework,” Perlmutter and 25 other House members said in the September letter.
Unlike marijuana, which is only available in dispensaries, CBD products are available through many channels. As such, collecting state-by-state data on CBD sales is nearly impossible, Bingham said.
Still, there’s reason to think Colorado, a longtime leader in liberalizing cannabis policy, and other Western states would benefit from an expanded national market, Bingham said.
“Certainly, there is expertise that has developed here in Colorado, but also in California, Oregon, Washington or anywhere else with mature cannabis markets,” he said. “There is an opportunity for these companies to become national players, building on their expertise in their local markets.”
There are signs the uncertainty over how the FDA will act is affecting Colorado’s market.
Grand Junction-based EcoGen Laboratories, a company that sells hemp seeds and other products used in CBD production, laid off 101 workers last month partly due to reduced demand after the FDA cracked down on companies it accused of making false medical claims, company officials said. The agency sent 15 warning letters in November to targeted CBD companies.
The letters had “a chilling effect” on smaller retailers that might otherwise have patronized businesses like EcoGen, said Joe Delaney, EcoGen’s Vice President of Quality Assurance and Quality Control.
“These mom-and-pop places that are making CBD products, they don’t have pharmaceutical regulatory (experts) on staff,” Delaney said. “They don’t know what a warning letter is. And they have no earthly idea how to respond to a warning letter.”
The effect on EcoGen’s bottom line wasn’t apparent until recently, he said. In a letter to the Colorado Department of Labor and Employment, EcoGen said the layoffs were the result of the pandemic and FDA clarifying its enforcement plans. In an interview, EcoGen’s chief marketing officer, Andrei McQuillan, said those factors, along with the underlying economic uncertainties of operating in a new industry, were at the root of the company’s downturn.
While there is widespread desire within the industry to address regulatory inconsistencies, it’s unclear whether FDA action by itself would provide needed clarity.
“It’s going to depend on what that framework is,” said Mara Sheldon, a senior policy advisor with Squire Patton Boggs in Denver who works on state and federal cannabis regulatory issues. “It could be helpful or harmful for the industry. It’s going to depend on what that guidance is and what it says.”
Editor’s note: This story has been updated to accurately reflect BDSA executive chairman Roy Bingham’s position at the firm.