Big Retailers Remain on Sidelines With CBD Hemp Extracts

Editor’s note: This is the third in a series of articles examining regulatory hurdles facing CBD producers and marketers in the dietary supplement industry, and ongoing efforts to comply with federal regulations. Go here to read the second article.

In late 2015, Carolina Hemp Co. began promoting “hemp extracts" and subsequently formed relationships with local pharmacies and doctor’s offices. Then in early spring 2017, the North Carolina Board of Pharmacy circulated a guidance document that disrupted the distributor’s business.

Pharmacies, the state pharmacy board cautioned, cannot legally possess or dispense hemp extract. Only “caregivers" may possess hemp extract or cannabidiol (CBD) oil to treat intractable epilepsy under state law, the guidance declared, and pharmacies and pharmacists don’t meet the definition of a caregiver.

The pharmacies aren’t willing to “risk their license over it, so bam, we just lost a bunch of customers," divulged Brian Bullman, co-founder of Carolina Hemp Co., in a recent phone interview. “By April 1, the pharmacies had pulled the product and started asking us if they could get a refund."

The North Carolina Board of Pharmacy advised pharmacists that hemp extract—also known as CBD oil—would meet the definition of marijuana in the federal Controlled Substances Act (CSA).

“Marijuana remains a Schedule I controlled substance under the federal CSA," the guidance stated, “and only DEA [Drug Enforcement Administration]-approved researchers are allowed to possess Schedule I controlled substances."

Asheville, North Carolina-based Carolina Hemp Co. is among a growing number of businesses that stand to profit from the surging demand for CBD and other non-psychoactive substances derived from hemp.

With the U.S. population increasingly accepting of cannabis, and becoming better educated on the distinctions between hemp and marijuana, “hemp extracts" and similarly named products often labeled as supplements are being offered through a growing number of distribution channels from independent health food stores to chiropractors’ offices.

The CBD-containing products, however, are unlikely to be sold at large grocery stores and other major retailers, symbolizing a muddy regulatory and legal climate rife with uncertainty.

“For every five steps forward, we take three steps back," acknowledged Mark Kuspa, vice president of sales with Colorado-based CW Hemp, commenting on efforts to partner with large retailers. “There is still that stigma or that misunderstanding of federal versus state in regulatory compliance, and more than anything…what does it mean, particularly if they have a pharmacy on board?"

CBD—and a group of siblings that founded CW Hemp, the Stanley brothers—captured the nation’s attention in 2013 media coverage featuring a Colorado girl who was diagnosed with Dravet syndrome, a rare form of epilepsy. In recent years, lawmakers in Washington and at state capitols around the nation have promoted wider access to cannabis—including CBD.

But the federal government has a far different view on cannabis and even CBD. In warning letters, a Q&A and correspondence with industry and media, FDA has opined CBD cannot be sold in dietary supplements or added to food. The agency has reasoned CBD has been authorized for investigation as a new drug and is the subject of substantial clinical trials that have been conducted by GW Pharmaceuticals.

The North Carolina Board of Pharmacy mentioned GW’s CBD product, Epidiolex. The board’s recent letter advised pharmacies that they would be authorized to dispense a CBD drug with a valid prescription if GW Pharmaceuticals or any other pharmaceutical company receives FDA approval for such a drug.

“They literally gave GW Pharmaceuticals a commercial in this statement," Bullman said.

Kuspa indicated the big retailers are stepping back from sales of CBD-containing hemp extracts until the regulatory environment is more clear.

What is the retailers’ largest concern, DEA or FDA? “It’s more DEA," Kuspa said, referring to the agency’s position that CBD is a Schedule I controlled substance. “It is 100 percent the DEA that has put the fear in these accounts, that they don’t know which way they want to go."

Some lawyers have argued the federal agencies are mistaken and even sued DEA in the U.S. Court of Appeals for the Ninth Circuit on behalf of the Hemp Industries Association (HIA) and other plaintiffs. In spite of the regulatory uncertainty and pending litigation, a growing number of independent stores are carrying products containing CBD made by the likes of CW Hemp and San Diego-based CV Sciences.

CV Sciences’ products are sold in about 1,000 independent health and wellness stores, up from about 400 stores a year ago, said Stuart Tomc, the company’s vice president of human nutrition.

In October 2016, Hemp Business Journal projected the U.S. CBD market will grow to US$2.1 billion in consumer sales by 2020, with $450 million in sales coming from hemp-based sources. In 2015, consumer sales of CBD products totaled $90 million, according to the publication.

Bullman of Carolina Hemp Co. indicated the willingness of grocery and health food stores to carry hemp extracts creates a domino effect. “They see other people selling it, and making money, and not getting arrested, and then they follow suit," he said.

“The retail market is growing very, very rapidly," Mike Harinen, chief brand officer of Bluebird Botanicals, said in an interview during the NoCo Hemp Expo, which was held March 31-April 1 in Loveland, Colorado.

“One of the most exciting things right now is that we are just starting to be considered for certain larger retail big box stores," he revealed.

Harinen added a caveat. “It’s going slowly because of course with hemp and the stigma around [it]—and especially when it comes to extracted hemp—it’s very … difficult to talk to the large buyers of these huge grocery stores and then convince them that it is a fully legal" product.

He said Broomfield, Colorado-based Bluebird Botanicals is in talks with King Soopers. “We’re shooting big," Harinen said.

Kroger, which owns King Soopers, did not respond to requests for comment on whether it carries products containing CBD.

Asked about any reservations retailers may have in selling his company’s products, Harinen responded, “Mostly the legality. They’re not sure … if cannabinoids are a legal thing to sell—but they’re just as legal as hemp oil or anything else that comes from the hemp plant that’s food-based."

“We should be able to sell on Amazon," Kuspa of CW Hemp proclaimed. “We should be able to sell on Walgreens and CVS and Target and Walmart. And we’re being contacted by all of these respective groups."

None of the above retailers responded to requests for comment.

Daniel Fabricant, Ph.D., executive director and CEO of the Washington-based Natural Products Association (NPA), which serves a large membership of retailers, said the organization does not have a specific policy on CBD.

“Our policy is look, we’re not going to … have members who are selling unlawful products," Fabricant said in a phone interview. “People have a lot of questions around CBD … and we always quote chapter and verse on what’s in FDA warning letters."

However, he noted NPA would seek to help companies submit premarket safety-related notifications to FDA, such as a new dietary ingredient notification (NDIN) under the Dietary Supplement Health and Education Act of 1994 (DSHEA).

“I’m not saying CBD is unsafe … but what I am saying is the data has to be presented," said Fabricant, the former head supplement official at FDA, “and it has to be presented in a way that gets through the regulatory gate."

Re-enter CV Sciences.

The company said it has retained a scientific and regulatory consulting firm to conduct toxicological studies to investigate the safety of oral consumption of its hemp-derived CBD oil and to support a self-conclusion that its product is GRAS (generally recognized as safe).

Based on the toxicological studies conducted on CV Sciences’ CBD oil, the company expressed confidence that it will satisfy the GRAS standard following review by an expert panel and publication of the data in a peer-reviewed toxicology journal.

While such safety data could bolster confidence in the CBD market, conservative national retailers may remain on the sidelines because, in part, their exposure to government enforcement actions and private litigation is greater than independent health food and wellness stores. Many of the former generate billions in sales and do business across state lines.

“If they [large retailers] take a critical look at this ingredient, they will pass," said attorney Todd Harrison, a partner with Venable LLP who chairs the firm’s FDA Group. “If they look at the dollar signs in the door, they’ll take it."

Asked whether larger retailers would be comfortable selling CBD, Fabricant alluded to the risks associated with selling goods in interstate commerce, which would subject companies to the authority of federal agencies such as FDA.

“Some may say the juice is worth the squeeze," the former FDA official observed. “Some may not."

DEA officials have said CBD is a marijuana extract, and the agency has adopted a “new Administration Controlled Substances Code Number for ‘Marihuana Extract,’" the subject of HIA’s lawsuit.

Rick Collins, a New York-based lawyer who has defended clients in drug cases involving performance-enhancing substances and other products, discussed the potential criminal consequences facing retailers accused of selling marijuana.

“The crime would be distribution of a controlled substance," a felony, Collins explained in a phone interview, “and the punishment would be based on the volume of the product that was sold."

“The more that was sold, the higher the potential sentence could be," added Collins, a founding partner with Collins Gann McCloskey & Barry.

DEA said the new code would help it track quantities of marijuana extract separately from quantities of marijuana, aiding in compliance with relevant treaty provisions, but HIA said the move has caused a chilling effect in the global industrial hemp industry.

Retailers pre-emptively removed products from the shelves and halted reorders based on their interpretation that industrial hemp was subject to DEA’s marijuana extract rule, said Colleen Keahey, executive director of HIA, in a phone interview.

She indicated large retailers are taking a conservative stance and not carrying hemp-derived CBD products today.

What needs to happen for the big retailers to enter the market? Keahey said DEA’s marijuana extract rule should be amended or rescinded. She also supported the development of additional quality standards, such as more rigorous testing and ways to maintain GMPs (good manufacturing practices).

“We’re working on that as an industry to help provide those companies that are our members with the best practices," Keahey said.

Meanwhile, there is uncertainty over how the Trump administration will treat cannabis—including CBD.

“There are strong pulls in both directions," Collins said. “Certainly, you’ve got a national attitude of increasing tolerance toward cannabis in all respects—both medical and recreational. On the other hand, you have an attorney general (Jeff Sessions) who’s opined that, ‘Good people don’t smoke marijuana’ and clearly is not a fan of cannabis. Whether that’s going to translate to enforcement action in the current political climate is open to debate."

Violations of the Federal Food, Drug & Cosmetic (FDCA), not just the CSA, could result in a criminal conviction. And corporate officials could be held liable for a misdemeanor violation of the FDCA, even if they didn’t intentionally violate the law or were aware of the violation, attorneys familiar with the law have explained.

Asked about criminal penalties a retailer would face for selling products that contain CBD and other non-psychoactive cannabinoids from the hemp plant, a Justice Department spokeswoman declined “to comment on hypotheticals."

“However, if the Justice Department learns about FDCA violations, we consult with our partners at FDA and consider a range of factors in determining whether to pursue an enforcement action," she said in an email.

A few sources mentioned one factor that could help mitigate a retailer's exposure to a government action or civil lawsuit: ensuring the content of psychoactive constituent tetrahydrocannabinol (THC) in a CBD product is negligible, distinguishing it from marijuana. Under the 2014 Farm Bill, “industrial hemp" cannot contain a delta-9 THC concentration of more than 0.3 percent on a dry weight basis.

“Obviously, the responsible CBD industry that’s providing products in terms of dietary supplements should not be providing products that contain illegal levels of THC," said Jane Wilson, director of program development with the American Herbal Products Association (AHPA).

James Prochnow, an attorney in Denver who concentrates his practice on food and drug regulatory matters, doesn’t think it’s likely federal agencies would target retailers selling CBD.

“The chances of a large retailer being the object of some enforcement action, such as a seizure by the FDA or the DEA, are in my judgment not substantial at the present time," said Prochnow, a shareholder with Greenberg Traurig, in a phone interview.

In the absence of extraordinary circumstances, such as a CBD product containing a high amount of THC, Prochnow reasoned it is unlikely FDA or DEA would seek to criminally indict a company. He cited the government’s enforcement discretion, and uncertainty over how the Trump administration will address the CBD and hemp industries.

“I don’t think the Trump administration has decided what it really wants to do about hemp and CBD oil," he said.

Prochnow, nonetheless, cited other risks facing retailers. For instance, the attorney described as “staggering" the number of class action lawsuits filed against the dietary supplement industry in recent years, and he acknowledged another consideration—enforcement actions taken by state attorneys general against companies, such as retailers of dietary supplements.

Prochnow also raised the question of whether a CBD ingredient would run afoul of the CSA. “It presents some criminal considerations that normally aren’t present when you’re dealing with something that isn’t related to the Cannabis sativa plant," he explained.

Lawyers also have cited the increased risks of enforcement action by FDA as well class action litigation against marketers of CBD-containing supplements if GW Pharmaceuticals obtains drug approval for Epidiolex.

There’s no evidence CBD was sold as a food or dietary ingredient before Epidiolex was authorized for investigation as a new drug, said Harrison, who has examined the regulatory issues for his clients. “Therefore, it’s an absolute bar" to sales of CBD in a supplement, the attorney said, referencing an exclusionary clause in DSHEA.

Other lawyers have maintained there is evidence CBD was marketed as a supplement or as a conventional food before GW’s new drug investigations were authorized, but they have declined to disclose the specific evidence to INSIDER.

Regardless of the debate, the law grants the Secretary of Health and Human Services (HHS) authority to create an exception to the drug-related exclusion in DSHEA—creating another pathway for CBD to be legally marketed as a supplement. HHS Secretary Tom Price would need to issue a regulation, following notice and comment, finding CBD is lawful as a supplement. But as AHPA pointed out last year in comments filed with FDA in an unrelated matter, HHS hasn't used such authority in DSHEA's 22-year history.

Amid the regulatory uncertainty, Tomc of CV Sciences remains bullish. He sees an opportunity for distribution of CBD-containing products through large retailers such as Walmart, Walgreens and Safeway.

The big retailers may be reticent to enter the market until they verify companies like CV Sciences have generated sales with independent health food stores, and that the products are safe.

“The mid-sized chains," Tomc noted, “aren’t going to start taking products in until they’ve proven themselves among all the independent stores."

Referencing sales data from SPINS and the GRAS efforts underway, Tomc maintained his employer could demonstrate it has proven itself among independent stores and show its products are safe.

Judging by trends at independent health and wellness stores, CV Sciences’ Plus CBD Oil and similar hemp-derived products could fare well at large retail chains. Alfalfa’s Market, a natural foods store founded in Boulder, carries about 100 different products containing CBD, ranging from capsules to hemp honey to extracts for pets, said Sarah Shebanek, a wellness buyer for the business.

Demand has been so strong that the retailer has introduced its own private-label brand of hemp extracts, relying on a manufacturer from Fort Lupton, Colorado, Pure Kind Botanicals. “That’s how well it’s doing that we wanted to make sure we offered our own brand as well," Shebanek said.

The products are sold at the natural food retailer’s stores in Boulder and Louisville, Colorado—one of the first states in the country to legalize recreational marijuana. Colorado is also one of several states to operate an industrial hemp pilot program through its agriculture department, as authorized by Section 7606 of the 2014 Farm Bill.

Shebanek attributed growing demand for CBD products to two factors. “One, more and more people are learning about it," she said. “And it’s still something that very few people know anything about. And then I think more people are learning about it because so many people have found it works so well for them for a variety of conditions."

As a long-term strategy, CW Hemp is eying the big retailers while maintaining its relationships with the likes of Alfalfa’s Market.

“We will take care of the regional players—the singles [and] single doors that are out there today," Kuspa said, “but long term, we’re planning on working with these larger chains."

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Some Medical Professionals Embrace CBD

by Josh Long

Cannabidiol (CBD) is attracting the interest of a growing number of professionals in the medical community. Melissa Arnold, a chiropractor in Georgia, described herself as the “poster child" for CBD oil.

Arnold said she suffered a sleep disorder for about 20 years, enduring periods of insomnia, and waking up and not feeling rested. She disclosed she began to suffer anxiety, and occasionally panic, due to her sleep disorder.

CBD and other therapies have helped her sleep, she explained. 

“I sleep through the night now," Arnold said in a phone interview. “I don’t even wake up. If I wake up, pretty much I just go right back to sleep."

Arnold said she has been using CBD for nearly two years and selling it in her office for about 1.5 years. The chiropractor has found CBD especially beneficial for individuals who suffer from Lyme disease.

Arnold sells products made by Elixinol, a Colorado-based manufacturer of hemp extracts, and she has referred patients who suffer from medical conditions like cancer to Philip Blair, M.D., who identified himself in an email as Elixinol’s medical director.

“I have tried at least 8 different CBD brands and Elixinol is the only one that has made a huge difference for me actually," Arnold said in a follow-up email.

She acknowledged the controversy surrounding CBD—specifically DEA’s view of it as a Schedule I drug.

Is she worried?

“They’re not really putting the brakes on it," said the chiropractor, referring to Elixinol.

“We haven’t been asked to take it [CBD] off the shelf," she added. “I don’t think anyone’s going to jail over it."

CBD typically contains little tetrahydrocannabinol (THC), the psychoactive component of marijuana, and critics of the Drug Enforcement Administration (DEA) are quick to point out that fact.

“There’s nobody getting any euphoria from it, so it’s ridiculous that it’s been classified that way," Arnold said.

Most doctors, nonetheless, may be hesitant to embrace CBD, which has yet to be approved in the United States by FDA as a pharmaceutical drug.

“I really don’t find much headway in … talking with physicians," Blair acknowledged in a phone interview, explaining his peers are “confused about the law, the legal aspects about their recommendations of anything related to a non-FDA-approved substance."

He finds such reactions “absurd," noting many doctors sell nutraceuticals in their offices.

“There’s no problem with that, and there would be no problem with doing a legal cannabidiol within their office," Blair maintained. “But very few physicians are willing to go there."