Source: company website
It’s somewhat perplexing to see Curaleaf (OTCPK:CURLF) needing to be warned by the FDA concerning making unproven claims about CBD’s health benefits. It has been clear for some time that the agency is going to treat CBD in a similar manner it does the vitamin and supplement market, so making any claims that aren’t accepted as legitimate will be challenged by the FDA.
This is really a dumb thing Curaleaf did. Not only is this something its lawyers should have easily caught and identified as problematic, but even management should have known it was going to draw unwanted attention.
The positive for me concerning investors is it does provide a learning opportunity concerning how CBD needs to be taken into account as measured against medical cannabis. Most investors lump them together, but as the cannabis market has started to mature, it’s evident they’re going to be considered different by government agencies like the FDA.
In this article, we’ll look at why they need to be separated in the minds of investors, and why it matters.
What happened
Curaleaf made claims on its website that CBD had properties that were able to successfully treat cancer and other diseases or symptoms.
The FDA said the company is “illegally selling unapproved products containing cannabidiol (CBD) online with unsubstantiated claims that the products treat cancer, Alzheimer’s disease, opioid withdrawal, pain and pet anxiety, among other conditions or diseases.”
Since this is something easily remedied, it shouldn’t be a long-term issue for the company, although it did provide it with a black eye at a time when it was being propelled into the market spotlight.
This will be good for the cannabis industry to remind the companies competing in it that they can’t be lazy or lethargic in adhering to the guidelines and parameters they’re required to operate within.
CBD as vitamins and supplements
I want to reiterate again what I’ve said in the past, and that is that the CBD and medical cannabis markets are entering a period of time when they’re going to be differentiated on a legal basis, and ultimately, will be marketed and sold differently.
Most in the market consider CBD and medical cannabis similar ways of saying the same thing; but they aren’t the same.
What’s starting to happen is medical cannabis is slowly gravitating toward being more of a pharmaceutical segment. The only reason that isn’t readily apparent yet is because there is only one treatment in the market that has been approved, which is GW Pharmaceuticals PLC’s (NASDAQ:GWPH) Epidiolex, which is used to treat severe childhood epilepsy.
Aurora Cannabis (OTC:ACB) understands this, which is why it has partnered with UFC to perform clinical research on ways to treat conditions associated with that sport. While that is being reported as CBD, the reality is, once research backs up legitimate results from treatments, they’re going to be considered to be more like Epidiolex than it will be the equivalent of a supplement.
For example, it’s one thing to use CBD products to make one sleep better, similar to Melatonin, than it is to treat things like “pain, inflammation, wound-healing, and recovery on MMA athletes.”
Even among those listed above, there is likely to be different legal designations. For example, something that is proven to effectively treat inflammation will probably fall within the pharmaceutical industry, while treatment of pain could be considered a supplement, similar to those sold over the counter. I think it’ll depend on how the pain is defined medically as to whether or not it’ll be sold as a drug or supplement.
It’ll take time for all of this to sort itself out, but we’re going to see differentiators in the CBD market in the near future, once research results in approval for treatments by the FDA or similar government agencies.
Why it matters
The main reason this is important is because there’s a huge difference in the existing vitamin and supplement market and approved treatments for diseases that have been backed by research.
While the supplement market is huge, the pharmaceutical industry is much larger. I see that playing out in the cannabis sector as well, with medical cannabis eventually being considered a new player in the pharmaceutical sector, and CBD being identified as being part of the supplement and vitamin markets.
These differences will be reflected in the price points offered by various products. Approved treatments like Epidiolex are going to generate a lot of money for companies and will command much higher prices.
Conclusion
The failure of Curaleaf to restrain itself from designating CBD as a treatment for diseases and conditions that isn’t backed by research is a good backdrop to learning how the cannabis market is going to evolve in the years ahead.
This shouldn’t be considered a negative for CBD, as it’s going to be a strong growth segment of the cannabis sector for many years. What does need to be understood is there will be a variety of price points even within the segment, depending on what particular product is considered to be effective by the end users.
The vitamin and supplement market are the same today. There are lots of things people believe concerning various products that attract them to them. The industry simply can’t make those claims themselves. That’s the future of CBD.
On the other hand, companies providing research that proves a product can treat and improve various conditions will gain approval to market them as such and will be able to offer those products for higher prices.
For these reasons, investors should evaluate CBD and medical cannabis differently. Medical cannabis will be considered a part of the pharmaceutical sector, while CBD products, without research to back them up, will be sold in a similar way vitamins and supplements are.
The importance in knowing that in the future will be in how companies will be valuated and in the potential for wider margins and earnings that come from proven, effective treatments.
As for Curaleaf, I don’t see this have any long-term negative impact on the company.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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