The ABCs of CBD: 5 Big Questions Businesses Should Ask Before Entering the CBD Market

The popularity of products containing cannabidiol, more widely known as CBD, has exploded. Manufacturers are touting benefits of the hemp compound ranging from treating seizures, neurological conditions and gut disorders to curbing anxiety and improving complexion. Today, there are CBD liquids, capsules, oils, creams, lollipops – even CBD gummy bears.

Just last week, the FDA held a public hearing to obtain scientific data and information about products containing cannabis or cannabis-derived compounds. In it, they wasted no time in acknowledging the challenges they face in regulating CBD products. Acting FDA Commissioner Ned Sharpless even went so far as to admit that the agency really doesn’t know all that much about the full health effects of CBD, including how much CBD can be safely consumed in a day, the length of time it should be used, pregnancy risks, risks to children, and how it interacts with drugs and prescription medicines. At this point, what they (and everyone else) do know is that it’s a heavily discussed – and growing – market.

With the CBD industry projected to grow to $22 billion by 2022, many organizations are understandably eager to enter the world of CBD. However, despite the enthusiasm around CBD’s potential growth, there are significant uncertainties around how regulations and evolving scientific studies will impact the industry. These shifting trends can be particularly challenging to navigate for organizations without a lot of familiarity with the CBD space – and let’s face it, few businesses have any kind of deep experience with CBD at this point in its lifecycle.

Long before the spotlight on CBD, our team at Buchanan had worked extensively in the cannabis space. In fact, our cannabis practice was ranked Band 1, Nationwide in the Chambers USA 2019 guide, the preeminent ranking of the top lawyers and law firms across the entire U.S. Just this year, our attorneys helped advise a national retail consumer chain on bringing CBD products to its shelves in more than two dozen states. This experience gives us a much-needed perspective on an industry with a potentially profitable – yet uncertain – future.

For companies looking to enter the CBD space, here are five critical questions to consider before making the move.

1. How are current regulations different at the federal, state and local levels? 
   Following the passage of the Farm Bill late last year, the FDA has continued its process toward taking an official stance on CBD products. Yet many states have already staked out a position – some in favor, some opposed. At the same time, organizations may face challenges from local law enforcement that do not recognize the difference between hemp-derived CBD and marijuana products and substances.
2. How do laws regarding various CBD products (e.g., ingestible vs. topical applications) differ? 
   Despite misconceptions, most of the CBD products gaining popularity are not impacted by the passage of medical or recreational marijuana state laws – or lack thereof. Products that do include more THC will fall under these marijuana laws. And different products will invite different levels of risk (e.g., vape pens vs. topical applications). Thus, it is imperative to know how your product will be regulated under federal and state laws and the particular legal risks for your products.
3. Will new research into the effectiveness of CBD products affect businesses that sell it? 
   Organizations must pay close attention to any new research on CBD and its effect on consumers. Any early indicators that there are dangers associated with CBD use would change the risk profile considerably.
4. How will regulations change in the coming months and years? 
   Currently, the FDA is facing a lot of pressure from business and the public to permit CBD product sales. If this intense consumer interest dies down or the public begins to question the effectiveness or safety of CBD products, then the regulatory environment could change quickly.
5. How does investment in CBD affect an organization’s relationship with banks, investors and other entities?
   Because the federal government still classifies marijuana as a “Schedule 1” drug, banks that handle money earned through marijuana sales can be charged with money laundering. This presents a unique challenge for organizations selling marijuana products legally in states where permitted, and also a number of issues for businesses selling hemp products that can get inadvertently and unfairly mixed up in this issue as well.

Companies interested in entering the CBD industry are advised to seek experienced legal counsel. The attorneys on Buchanan’s Cannabis Industry Team are prepared to assist as you consider entering this challenging, exciting – and potentially rewarding – market.