Retailers with national footprints will help drive U.S. sales of cannabidiol-containing products several times higher in the coming years, analysts say, even as federal regulations on the cannabis-derived compound are just starting to form.
Pharmacy chains CVS Health Corp. and Walgreens Boots Alliance Inc. both said in March that they would start selling products that contain cannabidiol months after Congress approved the Agriculture Improvement Act of 2018, which allows the cultivation of hemp with certain restrictions. Cannabis used to make CBD products contains low levels of the psychoactive compound tetrahydrocannabinol, or THC, and thus does not give users a high.
Producers of CBD-infused products are looking to retailers with stores in those states for growth in 2019, said Robert Fagan, an analyst at GMP Securities. While the U.S. Food and Drug Administration has signaled that it will consider regulating CBD products marketed as dietary supplements that make far-flung claims, major retailers are focusing on creams, patches and other CBD products that do not have to be ingested — and are less likely to face intense regulatory scrutiny in the near-term, Fagan said.
"They're using this to their advantage to get into the market" while acknowledging that regulations are likely to emerge, Fagan said in an interview with S&P Global Market Intelligence.
CVS said in March that it planned to sell topical products, such as sprays and lotions, at about 800 stores in eight states, while Walgreens said it would sell similar items at aboubt 1,500 stores in nine states. CVS subsequently said in an email to Market Intelligence on April 9 that it is now planning to sell the products in seven states after deciding to drop Alabama. Meanwhile, Walgreens referred Market Intelligence to an earlier statement on its plans to sell the products.
Curaleaf Holdings Inc., which is selling its products through CVS, is planning to introduce new products and expand distribution to other retailers in 2019, the company's executives said during a call to discuss their fiscal first-quarter results on March 20. The company says the CBD in its products, which include lotions and extracts, fights conditions including insomnia, nausea and anxiety.
"All large retailers across the country are figuring out their hemp strategy," Curaleaf president, CEO and Director Joseph Lusardi said during the call.
A fast-growing market
Exactly how quickly the U.S. market for CBD products will grow is a matter of debate among analysts. Fagan said sales of CBD products are between $500 million and $600 million and could grow to between $4 billion and $5 billion within five years. Fagan based his estimate on per-capita CBD consumption in other countries, such as Switzerland, where products containing the cannabinoid have been legal for years.
Researchers at the Brightfield Group, meanwhile, see CBD sales jumping to $22 billion by 2022, based on survey responses from users of CBD products and company financial documents.
The U.S.'s large market is likely to capture attention from producers of hemp and hemp-based CBD products around the world, Fagan said. While acreage dedicated to hemp production is likely to increase in the U.S. in the coming years, other countries, especially Colombia, where the hemp growing season is longer and labor costs are lower, could reduce costs for CBD product makers — and, potentially, customers.
Topical products, such as creams applied to the skin, are among the highest-selling CBD-infused products in the U.S., said Bethany Gomez, managing director at Brightfield. Tinctures, or extracts that can be added to food or eaten other ways, are also among the largest CBD product categories, but forthcoming FDA regulations on edible items could pose legal challenges for retailers down the road.Selling CBD products is taking large-scale retailers into an area that has so far been dominated by smaller players. In 2018, natural food stores were responsible for the largest single share of sales in the U.S., followed by online sellers and smoke shops, according to data from Brightfield Group, which tracks cannabis-related businesses.
"There's much a much lower risk level for retailers" when they sell noningestable products, Gomez said in an interview with Market Intelligence.
Regulation, research struggle to catch up
The passage of the Agriculture Improvement Act of 2018 in December paved the way for CBD derived from hemp to enter the U.S. market in places where cannabis was not legal at the state level.
But the FDA quickly stepped in, effectively blocking companies from selling CBD products as food, including as gummies, oils or softgels, or making unfounded claims about health benefits of the compound until the agency can adequately study the effects of CBD and craft regulations for its sale. Some companies say their products can treat ailments as disparate as acne, schizophrenia and cancer despite a dearth of scientific evidence.
The FDA in late March issued three warnings to companies selling CBD products as dietary supplements, or food, advising the producers to pull their products or face legal action. Former FDA Commissioner Scott Gottlieb told the House Appropriations' Agriculture, Rural Development, FDA and Related Agencies Subcommittee on April 3 that CBD products are "presumptively illegal" on the federal level.
The FDA is focusing its crackdown on edible CBD products or others marketed in a way that could cause consumers to use those supplements or oils in place of science-backed medical treatments, Gottlieb said. The FDA has approved the use of CBD in just one drug, Epidiolex, a treatment for seizures associated with rare types of epilepsy.
While animal studies show some potential to treat pain, insomnia and anxiety, researchers have not held any substantial clinical trials to support any of those benefits in humans, said Jeffrey Chen, director of the UCLA Cannabis Research Initiative.
"There's been a popular interest in CBD and there's been a commercial-industrial rise in CBD that has taken place much faster than the scientific community can match with their research," Chen said in an interview.
Researchers cannot study cannabis products sold legally under state-level laws but that are still illegal at the federal level. Meanwhile, a single facility supplies the only cannabis approved for clinical trials in the U.S.
"No one really understands edibles or beverages or skin creams that have cannabis in them because we're not allowed to research these products that are produced at the state level and furthermore, the federal supplier of cannabis doesn't manufacture these products," Chen said.
Researchers are wary of starting new research on CBD absent any clear guidelines from the Drug Enforcement Administration or the FDA, Chen said.
"Right now, it's kind of a quagmire between what's happening between the industry and what the FDA is saying and what the FDA is enforcing," Chen said.
This article is part of S&P Global Market Intelligence's ongoing coverage of the fast-evolving cannabis industry. Check out other articles highlighting beverage companies eyeing cannabis-based drinks and the evolving regulatory landscape in Canada for edible cannabis.