By Ciara Linnane, MarketWatch
Cannabis stocks were slammed anew on Tuesday, after the U.S. Food and Drug Administration issued new guidance on CBD that included a stark warning that it can cause liver injury and other damage to the human body.
The warning is the latest blow to the embattled sector where many companies have developed strategies and plans for the cannabis ingredient, which was viewed by Canadian licensed players as a potential pathway into the much bigger U.S. market.
“Not so fast,” wrote MKM analyst Bill Kirk. “The FDA’s statement includes some balloon-bursting language.”
The move comes after a period of heavy selling across the cannabis sector amid disappointment at the slow rollout of legalization in Canada and the U.S. Both markets are competing with a still powerful black market and companies are struggling to grow revenue and reach profitability. Many are now cutting back, canceling previously agreed deals and conserving cash, while analysts have scaled back estimates and revised models.
The FDA said late Monday it is cracking down on 15 privately held companies for illegally selling products containing CBD. Since the passage of last year’s farm bill, CBD, a cannabis compound that is viewed as non-intoxicating, has existed in a sort of regulatory limbo. Because the FDA has approved a drug that contains the ingredient – GW Pharmaceutical’s /zigman2/quotes/209686240/composite GWPH -1.79% Epidiolex, a treatment for severe forms of childhood epilepsy – it told companies that they could not add it to food or drink or make health claims for its use in topicals.
The regulator said it would work to create a framework to allow companies that were hoping to launch CBD-based products bring those to market, but cautioned that given its status as a drug, it might require clinical trials.
On Monday, it used its strongest language yet on the substance.
“CBD has the potential to harm you, and harm can happen even before you become aware of it,” it said in updated guidance. The lack of scientific evidence about CBD means the regulator cannot conclude that it is “generally recognized as safe among qualified experts for use in human and animal food.”
It warned that a lack of research means it is not known how it affects people who use it daily for extended periods, how it interacts with other drugs and substances in the body or how it affects the brains of children and old people. The FDA said cumulative exposure is another concern, meaning it is unclear how it affects people who eat it, use CBD-infused skin creams and take other CBD-based products in a single day.
“The FDA continues to believe the drug approval process represents the best way to ensure that safe and effective new medicines, including any drugs derived from cannabis, are available to patients in need of appropriate medical therapy,” said the guidance. “The agency is committed to supporting the development of new drugs, including cannabis and cannabis-derived drugs, through the investigational new drug and drug approval process.
Rob DiPisa, co-chair of the Cannabis Law Group at law firm Cole Schotz, said the news is a big setback for cannabis companies on both sides of the border.
“A lot of those who saw the U.S. CBD market as a huge opportunity to be marketed and consumed by the masses must now fears that this is an indication it won’t be as widespread as once thought,” he said.
T o read the full FDA text: click here