BALTIMORE — As with virtually every other category, retailers and manufacturers of cannabidiol (CBD) products are eager to understand how the global pandemic will affect this nascent but booming space. CSP Daily News turned to Jonathan Havens, a former regulatory counsel at the U.S. Food and Drug Administration (FDA) and a current partner at Saul Ewing Arnstein & Lehr LLP, resident in the firm’s Baltimore and Washington, D.C., offices, for insights.
“CBD is traditionally sold at convenience retail. Generally, these outlets are allowed to stay open under most every state and local stay-at-home order we’ve seen” during the pandemic, Havens said.
Havens had four insights on how COVID-19 may affect the CBD product market from financial and regulatory perspectives ...
1. Clarity from FDA not coming soon
“As far as regulations are concerned, everyone was kind of waiting with bated breath to see what the FDA would do,” Havens said. Other than a March report to Congress in which the agency said more research was needed and it would focus on enforcement against bad actors for the time being, little progress has been made in terms of clarifying when or how the FDA will change its regulatory approach.
“I don’t think this is a priority issue for them,” Havens said. “But I have not seen any indication that the FDA is thinking about going the other way, meaning more enforcement in the CBD space. It seems like the status quo will continue (i.e., enforcement only if marketers are making very aggressive claims).”
2. A crackdown on COVID-19 claims
In line with the FDA’s focus on bad actors in the CBD space, products making any kind of COVID-19 claims will drive a reaction from regulators. “If you claim that your CBD product cures [COVID-19], you can expect to receive a warning letter. In fact, FDA has already taken such action,” Havens said, pointing to warning letters the FDA issued in early April. “It’s absolutely consistent with the warning letters the FDA has issued to date.
“Here’s the takeaway: You will not get a warning letter unless you make a pretty aggressive claim,” he said. “Just selling CBD supplements is not going to get you a warning letter. Selling CBD supplements and claiming they cure PTSD, AIDS, COVID or Alzheimer’s—that will do it.”
3. State regulations on pause
As state lawmakers scramble to address the urgent healthcare and economic needs of the pandemic crisis, regulations around hemp, CBD and adult-use marijuana are likely to be delayed or put on hold this year. While states such as New York initially had plans to fully legalize adult-use cannabis in 2020, Havens said Gov. Andrew Cuomo “said it’s likely not happening” due to the coronavirus.
“Generally, [COVID-19] is going to have a chilling effect on the cannabis rollout,” Havens said.
4. Marijuana M&A activity a mixed bag
While raising capital in the marijuana space could be chilled by COVID-19, Havens anticipates that tough economic times could actually spur M&A activity. “As multistate operators focus on core assets and operational efficiency, they could either decide to dispose of underperforming outlets or, conversely, use the opportunity to pursue expansion opportunities at attractive price points.” Of course, it is natural to assume some M&A slowdown, but Havens indicates that he and his colleagues have been “fairly busy helping clients purchase and dispose of cannabis assets during the pandemic.”