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David Olive: CBD can harm you, according to the U.S. What does this mean for Canada’s cannabis sector?

David Olive: CBD can harm you, according to the U.S. What does this mean for Canada’s cannabis sector?
Business
Roughly one year into Canada’s experiment as the first industrialized country to legalize marijuana, the project gives the appearance of being a bust.

Appearances are deceiving in this case, as we’ll see in a moment.

But the first 13 months of Canadian pot legalization have been characterized by product shortages, a woefully insufficient number of retail outlets, and chronic losses at even the biggest pot firms.

Investors in the top 10 Canadian pot companies alone have lost a stunning $21 billion in shareholder value since August.

The industry was dealt a further blow last month when the U.S. Food and Drug Administration (FDA) .

CBD is the non-intoxicating compound in the marijuana plant on which the pot industry has placed its biggest bet.

CBD is a claimed elixir for anxiety, depression, chronic pain, skin conditions and much more. Widely embraced for several years by North American consumers, CBD is commonly marketed as an additive in specialty coffee, cosmetics, candy and pet food products.

CBD is also an intended gateway for Canadian pot firms to the vast U.S. market, where the legal sanctions against CBD are lighter than for dried cannabis.

But the FDA seemed last month to impair that growth strategy. “CBD has the potential to harm you,” the FDA bluntly said in its latest consumer update on marijuana products.

One leading U.S. securities firm, Jefferies Group LLC, reacted to the FDA statement by forecasting 2022 U.S. sales of CBD at just $3.5 billion (U.S.). Earlier projections ranged as high as $22 billion (U.S.).

Of course, shares in pot companies fell still further lastweek. It’s fair to ask if this sector will ever be safe for investors.

The answer is yes.

True, the fundamentals of the industry do not support the scores of North American publicly traded companies hoping to exploit the boom in legal pot.

But the handful of strongest players will endure, long enough to become takeover bait for Big Pharma, global liquor and tobacco combines, and consumer-products giants. At which point, investors in pot takeover targets will be offered a handsome premium to the pre-takeover value of their shares.

Canada’s Canopy Growth Corp., the world’s biggest pot company, is already majority owned by U.S. liquor giant Constellation Brands Inc.

A closer look shows the pot industry to be heading for better times, though it certainly has underperformed against early, unrealistic expectations.

What the FDA actually said about CBD:

The FDA made a sweeping assertion this week that it “cannot conclude that CBD is generally recognized as safe among qualified experts for its use in human or animal food.”

An FDA accused of dropping the ball on the dangers of nicotine vaping is determined to be tough on the pot sector.

But the FDA also acknowledges the scarcity of proof that CBD is harmful. “There is very limited available information about CBD, including about its effects on the body,” the FDA said this week.

Given the enormous popularity of CBD, the FDA is committed to ensuring the purity and safe use of it rather than its removal from the market.

“The FDA continues to explore potential pathways for various types of CBD products to be lawfully marketed,” the agency said.

Those pathways are almost certain to include costly clinical trials, as with conventional FDA-approved medications.

And that is to the advantage of the biggest, well-capitalized pot firms. They alone have the resources to comply with the FDA’s stringent regulations, to be released next year and likely to be adopted by Health Canada.
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