The extract of cannabis — cannabidiol (CBD) — has taken the US market by storm with a sea of products available to consumers. Investors have taken notice, and the appetite for the growth of products from the cannabinoids component is apparent.

The rush for CBD products in the US is connected to the critical change for hemp and its derivatives in the country, thanks to the passing of the 2018 farm bill.

As a result of the farm bill, manufacturers, retailers and consumers have been emboldened to embrace the market opportunities of hemp-derived CBD.

 

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Late in 2018, US President Donald Trump signed the farm bill into law, therefore removing hemp and its derivatives from its previous association to marijuana, including with marijuana’s ban at a federal level. This exemption included industrial hemp.

Hemp plants were removed from the illegality regulations, but why exactly is CBD so popular now with consumers? And why should investors pay attention to the evolution of this market?

In this guide, the Investing News Network (INN) explores the rush behind the investment boom for opportunities in the CBD market thanks to the changes for hemp.

CBD investment guide: Hemp rush sees market interest for cannabis players

A joint report from BDS Analytics and Arcview Market Research indicated CBD sales are expected to surpass a total of US$20 billion in the US by 2024.

“Our growth forecast for the CBD market, across all distribution channels, predicts a compound annual growth rate of 49 percent by 2024,” Roy Bingham, co-founder and CEO of BDS Analytics, said in a statement.

In its report, the researchers highlighted that the success of CBD products will rely on education for patients, the type of dosing and a consistent label.

“CBD sales have exploded in the past several months, but there’s still a long way to go when it comes to consumer, retailer, and manufacturer knowledge,” Jessica Lukas, vice president of consumers insights with BDS Analytics, said in a statement.

The increased interest for CBD sales has led to rapid market expansion for multi-state operators (MSOs) in the US.

CBD investment guide: CBD vs THC

While CBD is often described as the non-psychoactive compound of the cannabis plant, experts agree the more accurate way to identify CBD is that it “lacks the intoxicating effects of THC,” according to a report co-authored by Charles Alovisetti, Courtney Barnes and Corey Cox with Vicente Sederberg LLP.

Hemp-derived CBD has gained the attention of the market by way of sales for various novelty products, such as hemp oil and other dietary supplement items.

THC, on the other hand, offers the actual high for cannabis products generally reserved for recreational use.

 

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CBD investment guide: Farm bill opens gate to spread of CBD novelty products

This year the market has been energized thanks to the entry of national retailers looking to satisfy the craving for CBD products from consumers.

CVS Pharmacy’s (NYSE:CVS) network of stores served as one of the first significant entries. The Walgreens Boots Alliance (NASDAQ:WBA) followed suit.

“We are carrying hemp-derived CBD products in select states to help meet consumer demand for alternative care options,” Mike DeAngelis, CVS Health spokesperson, told NBC News.

During a quarterly call with investors, Joseph Lusardi, CEO of Curaleaf Holdings (CSE:CURA,OTCQX:CURLF), said retailers were getting ready to meet the demand for CBD products thanks to the change in hemp regulation.

After these announcements, there were rumblings of Walmart (NYSE:WMT) and Target (NYSE:TGT) considering sales for CBD products as well.

“Like many companies, we know there is consumer interest in CBD products, and the conversation is evolving quickly,” a Target spokesperson told the New York Post in May.

Barnes, an associate attorney at Vicente Sederberg, previously told INN the sales for CBD products in these retail spaces created a sense of ease for consumers wanting to try these items.

“The easier it is for you to be grocery shopping or in a retail outlet and have (hemp products) accessible at places you’re already going to is, I think, critical to expanding to consumption as well as education,” Barnes told INN during the MJBizConINT’L event in Toronto.

CBD investment guide: The FDA’s role

The US Food and Drug Administration (FDA) has monitored the rise of the CBD market in the US as a variety of CBD novelty products — for uses such as health and wellness and recreational — have entered the market.

The federal regulator hasn’t shied away from issuing notices for any improper promises from CBD item manufacturers. In May, the agency issued a request for public comments for improved regulations of these items.

“Given the new interest in marketing cannabis products across a range of areas that the FDA regulates, we will need to carefully evaluate how all these pieces fit together in terms of how consumers might access cannabis products,” acting FDA Commissioner Ned Sharpless said during a hearing based on the public comments.

The FDA’s relationship with this emerging market is a complicated one. The research from the team at Vicente Sederberg indicates that, while the FDA is investigating potential changes to its regulations on CBD products, “the agency currently has jurisdiction over food, supplements, cosmetics and drugs containing CBD.”

The trio of lawyers stated there is no dismissing these warning letters. In their report, they wrote:

We have seen the FTC jointly send warning letters with the FDA to a number of CBD companies and ongoing litigation surrounding the marketing of CBD products demonstrates there is meaningful risk that false or misleading label claims can create a cause of action for fraudulent inducement.

In July, Curaleaf received a stern warning letter due to some misbranded products and unsubstantiated claims from the MSO about its CBD products.

The product notice was also accompanied by false claims made on elements of the company’s website, including the potential use of CBD hemp oil for treating attention deficit hyperactivity disorder.

The company followed up by addressing the warnings from the federal regulator, but this case highlighted the careful branding needed for CBD products when it comes to medical benefit claims.

In August, the leading executive for one of the biggest publicly traded hemp producers said she was encouraged by a potential timeline of when the FDA may offer more clarity regarding regulations of hemp CBD.

“While the farm bill unlocked the door for category availability, the FDA now has the opportunity to expand availability of hemp CBD products across more distribution points to benefit more consumers,” Deanie Elsner, CEO of Charlotte’s Web Holdings (TSX:CWEB,OTCQX:CWBHF), said.

 

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CBD investment guide: Potential for treatment and improvement for patients

The expansion of medical marijuana and the variety of issues it helps treat, such as pain management and anxiety, has allowed for more experimentation with cannabis consumption and treatments.

While the industry is still in its early stages, there is enthusiasm for the acceptance of medical marijuana use for the treatment of disorders such as post-traumatic stress disorder, multiple sclerosis and Alzheimer’s disease.

The potential for medicine based on cannabis received a boost thanks to the approval of epidiolex, a CBD drug, by the FDA.

Developed by GW Pharmaceuticals (NASDAQ:GWPH), epidiolex seeks to treat seizures related to Lennox-Gastaut syndrome and Dravet syndrome in patients two years of age and older. The drug was approved after undergoing controlled clinical trials.

Earlier this year, the firm announced over 4,000 patients had completed enrolment forms for access to the drug after the first two months of sales for the cannabidiol oil product. State programs allow medical marijuana to become available to consumers with varying degrees of rules and standards on how to buy it.

Dr. Mark Lindholm, a chiropractic practitioner at Natural Health Family Chiropractic in Indiana, told INN he notices patients gain “side benefits” from starting to consume CBD, such as pain management, improved sleep and increased relaxation.

When asked about the reaction of patients who may get CBD recommended to them, Lindholm said he’s been surprised to see a vast majority of people reacting positively, instead of expressing skepticism.

Lindholm is also the author of “A Doctor’s Perspective on CBD Oil: Science, Success Stories, and Changed Lives,” in which he shares the benefits his practice has seen from the options granted to patients thanks to CBD products.

The book, however, still contains a health warning, stating the FDA has not evaluated the content of the publication.

CBD investment guide: Investor takeaway

CBD products have proven to be an appealing market for publicly traded companies looking to incorporate growth areas into their business plans.

While marijuana stocks have taken a few hits during the summer of 2019 — and the health troubles from vape-pen-related deaths have affected the interest in this market — CBD sales offer a glimpse at the increased interest for these products.

The health and wellness element of the market adds a novelty factor consumers are pursuing, while retailers aim to serve this need.


INNdepth

Want more details? Check out these articles for more INNdepth coverage.

Want an overview of investing in cannabis stocks? Check Investing in the Cannabis Industry


Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

 

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The evolution of the cannabis industry in recent years continues to outperform market projections. While many attribute this unprecedented growth and positive trending to a focus on business-to-consumer models, some cannabis companies are finding significant successes leveraging white labeling partnerships to tap into a rapidly emerging marketplace that thrives on innovative business models and unique products for a growing consumer base

As the popularity of white labeling services amongst cannabis companies grows, especially in the production of fast-growing categories of value-added products like extracts, oils, edibles, and vapes, companies that are becoming an expert in co-manufacturing and have the ability to provide these services are establishing themselves as the leaders in the industry. Used as a means to expand SKU lines as well as revenue, white labeling in the cannabis industry offers companies unparalleled upside and potential for impressive profitability.

How do white labeling services work?

White labeling is a business practice that involves one company manufacturing a product, which is later sold and advertised under another company’s brand. These solutions are typically done in exchange for a flat fee or percentage of product sales depending on the terms of the agreement.

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Ayurcann (CSE:AYUR) is a leading B2B post-harvest solution and provider focused on providing scalable custom processes and pharma-grade products to the medical cannabis industry in CanadaSend me an Investor Kit

This business-to-business solution offers a partnering company to attach their unique brand onto a “white label” product for marketing and sale to the final consumer and allows the manufacturing “white labeler” to potentially partner with different companies. Without the need to invest in infrastructure or technology. Cannabis companies can focus on building their brand and selling a wider range of products to a wide net of prospective customers.

Additionally, many also associate these white labeling solutions with toll processing, a practice in which one company provides the raw or partially processed product for another company to manufacture into a value-added product.

Access to extraction and packaging services through white label providers

White labeling services provide an ideal solution for companies who may not have the start-up capital to build a manufacturing facility, secure product licensing or have a difficult time getting a cannabis business off the ground. In these circumstances, partnering with a licensed processor that has established production and focused effort on creating a diversified range of high-quality cannabis products presents outstanding economic opportunities.

One leading example is  Ayurcann Holdings (CSE:AYUR), a B2B post-harvest solution provider focused on providing scalable custom processes and pharma-grade products to the recreational and medical cannabis industry in Canada. The company delivers a profitable business model of services and products. It operates three production divisions specializing in expert cannabis-based extraction and refinement, high-quality bulk oil sales and white label manufacturing.

White labeling options for cannabis companies

In an industry that is shifting its focus away from cultivation, more fully integrated companies delivering multiple verticals in cannabis processing and production offer an unparalleled investment opportunity that stands out from the rest. Major players in the cannabis white-labeling space offer unique exposure and retail footing that allow many companies to compete with established brands and quickly make an impact on consumers.

Ayuracann’s production offers full end-to-end outsourcing services, including proprietary product research & development, cannabis extraction & refinement and final production formulation and fulfillment. As a leading white labeling service provider, the company is focused on becoming the partner of choice for leading Canadian cannabis brands by delivering best-in-class, proprietary services, including ethanol extraction, formulation, product development and custom manufacturing.

Benefits of white labeling for cannabis companies

Data collected by Grand View Research projects the global legal cannabis market to be worth US$66.3 billion by 2025. While much of the cannabis product sold today is still the raw product, value-added consumer packaged goods are rapidly gaining significant traction throughout the cannabis industry.

White labeling services allow cannabis companies to capitalize on the latest and greatest cannabis consumer trends by expanding their portfolios to include high-demand products such as oil cartridges, extracts, topicals, CBD bath products and lotions, edibles and more. Without having to invest in the infrastructure, processing labs and manufacturing facilities required to make these products, companies can focus on releasing more products to an eager customer base. With an ever-evolving cannabis market, white label partnerships can give cannabis companies an edge over the competition.

While vertical integration can be a highly efficient strategy for large cannabis companies with the up-front capital to build the necessary infrastructure, companies without the resources to establish it take a huge risk by investing in operational and up-front costs. This includes time, building and equipment costs, license processing and finding specialized staff to grow and sustain the business.

Alternatively, outsourcing manufacturing allows a cannabis company to expand its product offerings, utilize quality formulations and establish its brand while reducing the financial risk associated with vertically integrating. Finding a compatible white labeling partnership means more time to build a brand and reach retailers and final consumers substantially faster. For cannabis companies who want to hit the ground running, white labeling offers the tools, expertise, and systems in place to make it happen.

Takeaway

Cannabis companies are using white labeling services to expand and diversify their product lines and tap into a market that is increasingly favoring value-added consumer packaged goods. For cannabis companies without fully vertically integrated operations, white-label partnerships with major players like Ayurcann Holdings offer exceptional economic efficiency and investing upside with minimized risks and infrastructural costs.

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