The CBD “Industry” Is Here To Stay

Hemp legalization has solidified that products containing cannabidiol (CBD) aren’t going away. Last February, Stephen Hahn, Commissioner of the Food and Drug Administration (FDA), acknowledged that it was “a fool’s game” to attempt to pull hemp-derived CBD products off the market. 

This echoes the sentiment of former interim Commissioner, Scott Gottlieb, who’d stated that the FDA will take affirmative steps toward “the formation of a high-level internal agency working group to explore potential pathways for dietary supplements and/or conventional foods containing CBD to be lawfully marketed.” CBD products have permeated our consumer consciousness and it seems folly indeed for the FDA to outright disallow them. 

All of this makes the case for an FDA-approved pathway — essential to prevent the bank accounts of lawfully-operating businesses from being closed. Not to mention retailers’ refusal to stock CBD products and investors with deep pockets awaiting rules and regulations. Thus far, the FDA has been dilatory. 

It’s important to examine the evolution of the CBD industry over the past several decades. In the 1980s, a number of West Coast folks saw CBD’s potential immediately after it had been isolated and reported by Dr. Rafael Mechoulam. Yet not until around 2008-2009 was the compound commercialized by the first CBD companies. The first movers were primarily located in San Diego, CA, and Denver, CO. These companies were contacting the Hoban Law Group (then Hoban & Feola, LLC) for legal opinions and a defined strategy for the production and distribution of CBD.  

This was pre-2014 Farm Bill and lawful industrial hemp hadn’t yet been defined separately from illegal marijuana. The 2014 bill only legalized industrial hemp for research and development purposes, but the 2018 Farm Bill removed the R&D caveat.  

CBD’s first movers were operating without federally-lawful domestic cultivation. Instead, these products were grown, harvested, and derived internationally, making the legal and regulatory strategy a great deal more intricate. Further, it involved interpretations and standards set forth by the 1994 Dietary Supplement Health and Education Act (DSHEA).  

At the beginning, CBD oil was being imported into the US from China, but these products were quickly rendered unsuitable for distribution in America because of the presence of heavy metals and pesticides. Then oils were imported from a variety of European locations. This involved international trade, customs, uniform health and safety standards, fundamental legality questions, and dedicated legal positioning for widespread distribution.  

Today, these pioneering companies are global leaders and I’m very proud that our firm, working with the early entrepreneurs, laid the foundation for this industry. Within a few years, Hoban Law Group’s CBD clientele grew from six to 20 to 100. Flash forward to the present when there are thousands of operators, thousands of brands, and countless international components — all more robust than ever. The U.S. and its regulatory agencies have never tried to shut the industry down, but the FDA recently sent out a number of warning letters to manufacturers. The message could not be clearer: do not make claims, but make products that are safe. 

Most CBD products are regulated at the state level. This is true in Colorado, with the Hemp Foods Policy/Bill, which our firm helped establish and is the model for the FDA. When the DEA attempted to classify CBD as a Schedule I substance through its Drug code rule, it failed. The Hoban Law Group litigated this case and the court ruled that hemp and its derivatives were no longer controlled. Can you say resilience? The industry is here to stay…for the most part.

The CBD industry began as an offshoot of the marijuana extraction technology sweeping the nation in the early medical marijuana states. Individuals could lawfully grow hemp, purchase a piece of machinery for a nominal investment (compared to a decorticator for hemp textile processing), and derive cannabinoids in oil form – all with little oversight. The hemp-derivative sector was attractive to many who couldn’t qualify in the lawful marijuana market due to regulations and entry barriers. 

This is what initially caused the CBD explosion. In recent years, the landscape has changed, with the migration toward mainstream food and supplements distribution. This is true not just in the U.S., but in the E.U., Brazil, Mexico, and around the world, leading to the global expansion of the cannabinoid industry. We now have billions of dollars in CBD sales, exorbitant demand, and leading consumer packaged goods companies developing their own cannabinoid product lines.

Still, the industry is facing obstacles in international trade. Even though the “Eyes of the World” are upon CBD, the FDA has yet to issue guidelines (2021 is the earliest prediction). The European Commission is in the midst of a similar exercise with its Novel Foods designation and pivoting toward a narcotic classification. These regulatory agencies are primarily concerned with safety data. That takes years to collect and, simply put, mainstream government agencies don’t yet feel they have the necessary information. If they give the green light and something negative happens, all the blame falls on them. 

This leaves many questions unanswered for a global market. What is the standard for this ingredient? How can it be sold? How will it be regulated? What’s the preferred form — Full spectrum, Broad Spectrum, or Isolate? 

The heyday for non-psychoactive cannabinoids, including CBD, is yet to come. Instead of hanging it up to see what tomorrow brings, cannabinoids are now part of an international marketplace and their “policy lane” is getting more defined.  

Regulation on a global scale is coming. Cannabinoids are on the verge of being used in toothpaste, beverages, personal care products, and almost anything else you can imagine. There may be technical challenges ahead related to CBD as an Active Pharmaceutical Ingredient (API) and with synthetic or synthesized cannabinoids, but that’s a topic for another time. 

When concrete regulations come, we’ll see a “second wave” of CBD sweep across the planet, along with the unleashing of minor cannabinoids and cannabis terpenes. So get out your formulas. Perfect your brands. Position yourself for what’s next. But always, always, voluntarily follow the FDA tenets applicable to food and supplements, even if the FDA doesn’t expressly presently require this. If you don’t, you won’t be ready for the real gold rush.