2018
Hemp will likely regain its place as a legal crop after eighty years in exile due to the impending passage of the 2018 Farm Bill. This versatile plant creates incredible opportunity driven by its potential for significant industrial disruption with over 50,000 uses. One of these uses is the extraction of cannabidiol (CBD) to treat a wide range of conditions including arthritis, diabetes, alcoholism, MS, chronic pain, schizophrenia, PTSD, depression, epilepsy and other neurological disorders.The DEA’s May, 2018 briefing clearly states that the DOJ does not seek to control cannabinoids, and that only cannabinoids derived from marijuana (e.g., flowers and resins of a cannabis plant above 0.3% THC) are controlled under the Controlled Substances Act. In other words, CBD is a controlled substance only if derived from marijuana as Farm Bill hemp is not a controlled substance. The DEA’s issued directive to federal agencies states that cannabinoids are not controlled substances unless they fall under the definition of marijuana, and that the ‘mere presence of cannabinoids in any product or derivative does not render it a controlled substance.’
CBD, or cannabidiol, is one of hundreds of cannabinoids found in the cannabis plant. Unlike THC, CBD can be used without the accompanying psychoactive high and can even counteract the negative effects of too much THC, similar to an antidote. While THC primarily influences CB1 receptors, CBD’s effects are seen on CB2 receptors resulting in anti-inflammatory, anti-anxiety and pain-relief effects. CBD sales are expected to be equally divided between hemp-derived CBD, marijuana-derived CBD and the pharmaceutical channel as the market evolves.The most common methods of ingesting CBD include oils, tinctures, candy, chocolates and pills. CBD users most commonly experience improvements in mental and behavioral health, quality of sleep, pain and seizure incidence. As this market matures, CBD will play increasingly important roles within the athletic, lifestyle, supplemental and medical channels. Branded CBD products are expected to grow over 300% in the next five years to represent over 80% of CBD products sold in the dispensary channel by 2022.With the Center for Disease Control (CDC) reporting the total annual cost of opioid misuse at nearly $80 Billion, CBD-based medicines hold a key to solving multiple health crises while simultaneously stemming the tide of the opioid epidemic. Emerging cannabis-based pharmaceuticals such as Epidiolex play an important role by pressuring the FDA and the DEA to reschedule cannabis, reaffirming as well as legalizing its rich potential for medical use. CBD sales are projected to exceed $500 Million in 2018 and reach nearly $2 Billion by 2022, with a third of 2022 sales expected to be represented by Epidiolex itself.CBD has the potential to make strong inroads into multiple markets including chronic pain, PTSD, anxiety, epilepsy, sleep disorders and nerve pain. These markets alone represent nearly $45 Billion in annual spend. The true market potential may be far greater as we understand ways to use cannabinoids as platform components rather than isolated destinations. When manufacturers can understand how combinations of cannabinoids, terpenes, flavonoids and other bioactive compounds can work with vitamins, minerals, herbs and roots at much higher efficacy levels, they will begin to define the next stage of growth for this market.Over 350 million potential consumers live in Mexico, Germany, Turkey and Italy alone, while another 150 million live in Canada, Colombia, Poland and Argentina. International markets represent an entirely different level of opportunity, and therefore also require an entirely different level of diligence. A founding team with grit, proven traction, best practice compliance and a positive social impact are basic investment filters, while deeper diligence practices can certainly have a positive portfolio impact in emerging markets fraught with inefficiencies.The marijuana-derived CBD channel is exhibiting high growth within the branded space with 2017 YOY growth amongst the top companies averaging over 50%. The hemp-derived CBD channel is expected to grow at a ~25% CAGR over the next several years, nearing $650 Million by 2022. The pharmaceutical channel, and epidiolex in particular, has an addressable market of 10,000,000 epileptic patients just in the US and Europe, and channel sales are expected to exceed $600 million by 2022.The DEA’s recent directives to federal agencies clarify that the mere presence of cannabinoids does not render any material a controlled substance. These directives provide greatly needed clarity and guidance to federal agencies to minimize interference with the expanding flow of hemp commerce. We expect the 2018 Farm Bill to be an inflection point for the CBD market, and expect to see many opportunities for entrepreneurs and investors in the years ahead.
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