Navigating the Hemp/Phytocannabinoids Space

Experts reflect on the top challenges, changes needed, and what to watch for in the future. PLUS: Strategies for retail success.

1) The hemp phytocannabinoids category has faced many challenges over the years. What are top challenges impacting the category in 2022, and what actions are needed?

Rodney Butt, M.Sc., MBA. VP Strategic Solutions, Nutrasource: “The current regulatory environment represents the largest hurdle for companies marketing cannabinoid-containing products. The FDA has made it clear that federal regulations preclude CBD from entering the supplement space, however cannabinoid products are widely available, and many States have developed lists of medical conditions approved for cannabis use. Clinical trials for cannabis and cannabinoid-based products still face the difficult requirements set forth by the FDA for an investigational product, a barrier that has significantly impacted clinical assessment of cannabis. For any company, navigating the state-by-state regulations is key, whereas challenging the federal government position to modify its position has proven impossible.”

Erika Sauerwein, Director of Marketing, Elixinol: “Currently, the top industry challenge is the lack of regulatory clarity from FDA. The good news is there are two bills in Congress that have bipartisan support to allow for CBD to be regulated as a dietary supplement, which is what we, the industry, believes is the right path. Our friends at the U.S. Hemp Roundtable and other colleagues I speak with believe the passage of one of these two bills is imminent. Once passed, major retailers who have kept on the sidelines will begin to bring CBD products into their stores. This legislation will also lift current restrictions within social media and search channels to allow for a wider online promotion, similar to traditional CPG products. This new legislation will create an incredible opportunity to educate consumers on the benefits of CBD and other cannabinoids to help consumers understand the amazing benefits these products can provide.”

Arthur Jaffee, Founder and CEO, ECS Brands: “The regulatory status of cannabinoids has a huge impact on how the industry grows and develops. Due to many regulatory indecisions, there are a lot of downstream issues. Many retailers and bigger market distributors are wary of coming online as a result of legal status, or lack thereof, which causes a lot of stress for brands, thus encouraging brands to be constantly pivoting for maintaining relevance within the legal boundaries. Brands are now going down the path of different psychoactive derivatives and variations of THC that are legal—most of which are considered to be synthetic. The industry is discovering countless ways of circumventing the definitions that attempted to prevent the widespread distribution of psychoactive products by means of chemistry. The lack of regulation with hemp-derived cannabinoid products is creating an imbalance in the industry and a detraction from progressive focus.

“A commonplace comparison would be to imagine the movie The Breakfast Club, where the brands and manufacturers are the diverse cast of students who report to Shermer High School at 7:00 a.m. on a Saturday for all-day detention, and where the FDA is Vice Principal Richard Vernon, who gives the students a series of rules, guidelines, and assignments to complete. He leaves, returning only occasionally to check on and reprimand them. Now, imagine there being hundreds more students and Vice Principal Vernon never returning. This is the general concept of what we are experiencing in the industry.

“The lack of regulatory oversight is causing many brands to improvise and continue pushing the boundaries of the ‘legal’ CBD marketplace. I am not against psychoactive products; they offer many great benefits to people—it is precisely the reason why the (THC) ‘legalization’ movement continues to grow. The successful growth of the licensed THC industry can be attributed to the structure of clearly defined rules and regulations that come with it.

“The obvious action would be to legalize and regulate all forms of cannabis. The longer the FDA takes to implement federal acceptance criteria, the more complicated it gets.
Create the rules, then let the teams play. If you make up the rules while the game is going, it’s always going to appear biased and unfavorable to one side and not the other.  One action I would like to see to combat some of these issues is requiring the FDA to mandate the cGMP certification. Ideally, every manufacturer should have an annual audit and be required to complete and maintain this certification year after year. The result would be better and safer products, better companies, and better jobs, but most importantly—a return to focus on progressing endocannabinoid science to help and heal people, for the betterment of health and wellness. The industry needs Vice Principal Vernon checking in from time to time.”

Jim Higdon, Co-founder, Cornbread Hemp: “A lack of FDA regulations has created space for bad actors to make bad products. In a more perfect world, full spectrum hemp extract will be regulated as a supplement so that brands will have some guidelines on how to best market their products to consumers.”

David Durkee, Vice President of New Ventures, Quicksilver
Scientific:
“I believe the top challenge in this category is connecting with consumers in a meaningful way. When the word natural doesn’t have a clear definition or defined parameters, and there is so much noise in the natural category, it can be difficult for consumers to determine what is truly a high-
quality natural product and what is green-washing. So I think it’s critically important for brands to articulate their benefits and beliefs clearly ”

2) What innovations are driving growth in this category?

Julie Dennis Fox, Founder, Canna Joint Relief: “From the start, the CBD space has been very innovative despite the lack of FDA regulatory oversight. As CBD research continues to emerge, so will novel applications and innovations. And of course, the cannabis plant is loaded with chemical constituents; CBD is only one of them. As we learn more about the plethora of compounds in the cannabis plant, we will begin to see new applications emerge.”

Mark H. Ratner., MD., Chief Science Officer, Theralogix, LLC: “Although growth has slowed in comparison to the blistering pace of 2019 and 2020, innovative companies continue to bring new approaches to the market. One area has been the development of hemp strains with enriched content of certain ‘secondary’ cannabinoids such as CBN and CBG, and terpenes such as beta-caryophyllene. These non-psychoactive compounds appear to have distinct benefits on their own, and also appear to enhance the effects of CBD. Another development has been new formulations designed to improve the absorption and bioavailability of the cannabinoids and terpenes found in hemp oil. Given that these compounds are fat-soluble, GI absorption can be challenging. Solubilization/emulsification additives such as VESIsorb and Lipisperse have produced significant improvements in bioavailability. Finally, companies are focusing on quality, and looking to independent third parties to certify the content and purity of their products.”

Higdon: “The product developments driving the category today are in CBD gummies and CBD beverages, and in USDA Organic formulations.”

Sauerwein: “Over the past 18 months, we’ve seen a shift from traditional CBD-only tinctures being the market leader, to products that have a blend of multiple cannabinoids including traditional supplements or functional ingredients that have clinical data to support health benefits and claims, such as boswellia for mobility support or ashwagandha for stress. Gummies are now the preferred form within the category, especially among those who are new to CBD. Adding functional ingredients to them is also proving to be key for this category. In January, we launched Elixinol Sleep Gummies, which have both CBD and CBN and the product has quickly become one of our bestsellers. We’ve also seen the trend of minor cannabinoids growing with strong interest from consumers to explore these products. According to researchmarkets.com, the U.S. minor cannabinoid market is set to reach $28.2B by 2028.”

Jaffee: “Due to the pandemic, there has been a huge shift and increasing interest in the health and wellness category. One of the major innovations driving growth is phytocannabinoids as a health and wellness product. In most new and successful products on the market, there has been a greater focus on functional formulations that incorporate other botanical ingredients to create a more all-encompassing, value-adding wellness product. New applications are also emerging that allow us to extract different parts of the hemp plant, using different extraction parameters or into different concentrations. This has led to an increased interest in minor cannabinoids and discovering their differing applications and uses. Consumers and brands, whether they realize it or not, whether intended or not, are putting more emphasis on the endocannabinoid (ECS) system and how these different minor cannabinoids impact different parts of the ECS—that the diversity of these plant molecules really matters.”

3) Trendspotting and forecasting: What do you see on the horizon for this space?

Fox: “As we saw last year, consolidation and mergers and acquisitions will continue. When CBD first launched into the marketplace, it took off like wildfire and triple-digit growth was common. This is when a lot of companies jumped into the fray. Then COVID hit and sales plummeted (for many/most). I’m not 100% blaming COVID on the freefall in CBD sales at the time, but it sure did hasten the natural sales cycle. Now, we have an abundance of distressed companies wanting to jump ship. So yes, mergers and acquisitions will continue. Similar to most sales trends, CBD sales were bound to level off. I don’t believe anyone foresaw the swift rise, and swifter fall, in CBD sales as we saw in early 2020, when the pandemic erupted in the U.S.

“Regardless of the pandemic, CBD sales would have eventually leveled off and entered a phase we’ve seen before with many ‘superstar’ nutraceuticals and botanicals. CBD will move out of the novel ingredient phase and simply become part of the retail landscape. This is the natural ebb and flow of sales. You never know when a ‘Dr. Oz’ will appear and suddenly skyrocket an ingredient back into the spotlight, this could happen. But generally, sales go up and down and then hopefully find a fruitful balance.

“CBD is a relatively new ingredient, which means we still have many years to come of emerging research learning more and more about this cannabinoid. We’re only seeing the tip of the iceberg right now. Despite the lack of FDA regulations, I can see more growth in the usage of CBD in the food sector, cosmetics and personal care, as well as increased usage in pharmaceuticals. And not surprisingly, more people will begin discovering CBD for pain relief, inflammation, stress, and anxiety. Because these health challenges are not going away, people will continue seeking relief and CBD sales will continue to slowly regain momentum. Although the pandemic triggered a freefall in sales, I believe with continued research, clarification of regulations, and consumer awareness and experience with quality products, sales will gain momentum.”

Sauerwein: “As more data becomes available on the benefits and safety of CBD and other cannabinoids along with pending legislation, brands will have the opportunity to educate consumers en masse on the benefits of hemp and CBD. We’ll also see major retailers introducing CBD brands to store shelves, which will result in massive growth in consumer adoption and use.”

Dr. Ratner: “Really significant growth in the hemp/CBD market won’t happen until university-based research is published that demonstrates proven benefits. Although a significant number of U.S. adults have tried a CBD product over the past few years, a far greater number have not. Those adults that have tried it have done so largely on their own—without the recommendation or oversight of a healthcare provider. When meaningful research results are published, we should expect that to change.”

Butt: “Federal and state regulation clarifications will help manufacturers and marketing groups to better assess the appropriate markets for their products. Increased FDA and FTC enforcement is critical to remove bad players from the space. This will help clean up the confusion caused by the glut of mislabelled products flooding the market.

“Product safety has always been a key priority for the FDA and other government regulatory agencies. Because there has been so much activity in the cannabis space, and in addition, an approved prescription product, the regulators will be looking for companies to provide much more comprehensive safety reporting. If the side effect profile can be inferred by the approved prescription product, then companies must be able to justify their proposed safety claims.

“There are many potential applications of cannabinoids, either isolated cannabinoids like CBD or in combination with terpenes or other minor cannabinoids or other medications. Creating a path to provide evidence to support interventions will greatly facilitate a broader use. Perhaps RWE/RWD initiatives will create this roadmap?”

Jaffee: “The biggest opportunity for growth right now is with the diverse food applications the hemp plant has to offer. There hasn’t been much innovation in this category, but so much research has pointed to the positive impacts and immense potential that hemp has as a genuine nutrient powerhouse for human health and as a leading environmentally friendly crop. For example, hemp protein is a complete protein, meaning it has all nine essential amino acids that our body cannot produce on its own. Hemp Protein and Hemp Seeds are also rich in essential vitamins, minerals, and essential fatty acids with a ratio of omega-6 and omega-3 fatty acids that is the optimal level for brain health and nutritional benefit. All these features and more make for a great substitute for meat and dairy products.

“In the future, I also hope to see more emphasis on the sustainability of hemp. Hemp holds the potential to make a genuine impact with environmental conservation and restoration initiatives across multiple industries, such as the meat and dairy industries, plastics, textiles, paper, packaging and even biofuel. Hemp Fiber offers a renewable alternative to petroleum. The nutritional and medicinal oils, cellulosic fibers, high-value proteins, ease of growing organically, low-input annual crop, carbon sequestration, and soil remediation all play a big factor in creating more sustainable products and a better tomorrow.”

4) What is your top advice to help natural products retailers succeed in this market?

Higdon: ”Build relationships with brands, and only stock products that are USDA organic and third-party lab tested.”

Fox: “Education and sampling are key. I find that once somebody tries any of the Canna Joint Relief family of products, they become a fan and keep coming back. If you can, invite formulators and founders to come speak with your customers, or do in-store demos, or provide education online to help keep your customers informed. Also, having staff trying and trained on the products you carry is always good for business. Ask your vendors if they have a sampling or training program. For entrepreneurs, be nimble. Be ready to pivot if needed. There are a lot of bells and whistles involved in this ever-changing category, which requires a certain fortitude and fluidity.”

Sauerwein: “We believe it’s important for retailers to hold CBD brands accountable, from impeccable manufacturing records and quality systems—with owned facilities or CMOs having cGMP and FDA certification—to ensuring that brands use accredited third-party labs to test for potency and purity of every product and lot that enters stores. An easy way to spot these brands is through the Hemp Authority Certification seal. Elixinol has been a proud member of the Hemp Authority since its inception. Brands should be clearly labeling and promoting their products with accurate claims and benefits, and no brand should be claiming to cure or treat disease. Another important aspect is promoting the category as a destination within the store that is easily accessible. Merchandising all products in a single place will help to encourage trial and adoption, the retailers doing this are the ones winning in the category.”

Jaffee: “Education is the biggest factor that leads to success. It can take time and money to understand what makes a good product, but ultimately it’s quality, effective, and functional products that will have consumers coming back for more. Invest in employees and a category manager who understand the products, ingredients, industry, and general landscape. Hire educated people who can understand and sell the product. Even better, partner with a reputable brand/manufacturer with good products that is actively investing in the science and negotiate regular cross-employee education training; make it a requirement. Also, keep a close eye on regulations and recent developments. I recommend getting involved and working with the right industry coalitions that are working on lobbying efforts, and education strategies, to keep a pulse check on everything going on and help where you can.”

Durkee: “Be transparent! I’m also consistently surprised by how many natural food stores and the brands sold in them don’t feel particularly premium. My top advice to retailers and brand owners is to take their cue from high-end retail (and even mass-market retail like Target) in terms of how the products show up on shelf and how they’re merchandised in the store. Providing a more premium, clean look and feel is an excellent way for brands to stand out on the shelf.”

Dr. Ratner: “Focus on quality and follow the research!” WF