Cannabis stocks extended their early losses Wednesday, as investors weighed the surprise news that the head of the U.S. Food and Drug Administration has resigned, leaving the fate of the cannabis ingredient CBD in regulatory limbo.
Commissioner Scott Gottlieb, known for his efforts to stem teen vaping, will step down next month after two years in the role. Just last week, Gottlieb said public meetings will be held sometime in April to hear from relevant parties on how best to regulate CBD derived from hemp, which was legalized in December in the 2018 Farm Bill. The FDA is responsible for regulating CBD, a non-psychoactive ingredient in cannabis that was not included in hemp legalization because of a lack of research into its longer-term effects on human health.
CBD is widely held to have wellness properties and many cannabis companies are planning to launch food, drinks and cosmetics that contain it, but the FDA has said they cannot do so without its prior approval. Gottlieb told a hearing before a House Appropriations subcommittee last week that the FDA will form a working group of experts to inform him on regulatory options for the substance.
The FDA has already approved a CBD-based medication aimed at treating a very severe type of childhood epilepsy, but that was based on traditional clinical trials, a lengthy and expensive process that companies would prefer to avoid.
Jonathan Havens, co-chair of the Cannabis Law Practice and vice-chair of the Food and Beverage practice at Saul Ewing Arnstein & Lehr and a former regulatory counsel at the FDA, said the regulator’s position on CBD has been consistent for years.
“The FDA issued a similar statement after the 2014 Farm Bill,” he said. “Then this time, folks said, ‘why is the FDA getting involved?’ and, ‘it’s a nanny state!’ but the FDA has said the same thing for a while, and not because of CBD’s past history of being a controlled substance, but because it was studied in a clinical trial and given approval, and you can’t just add a drug ingredient to food products.”
He noted that Gottlieb has said the FDA was open to alternative pathways to CBD approval, including allowing only low concentrations in food and drinks, and keeping high concentrations for drugs to encourage further research.
Still, “anyone who follows FDA rule-making knows this is not a six-month process,” he told MarketWatch. “Gottlieb has said to do it quickly, the FDA may come back to Congress and say, ‘we might need to delegate different authority or make a new bill’.”
In Canada, British Columbia’s first collection of cannabis tax revenue is expected to come to just C$68 million in the next three years, according to data from the provincial Minister of Finance cited in the Vancouver Sun. That’s well below the estimate of $200 million over three years included in the 2018/19 budget. Cannabis sales have gotten off to a slower-than-expected start in Canada following full legalization last October, thanks to early shortages of the substance after the provinces underestimated initial demand and other factors.
In company news, troubled Namaste Technologies Inc. N, -3.95% said late Tuesday that PricewaterhouseCoopers LLP has resigned as its auditor and that it is unlikely it will meet its March 31 deadline for filing audited financial statements.
“The company will continue to assess this, and will update the market in due course,” Namaste said in a statement.
Elsewhere in the sector, Aurora Cannabis Inc.’s U.S.-listed shares ACB, -3.93% ACB, -3.68% were down 2.7%, shedding some of their prior-day gains made after Cowen named it a Top Pick in the cannabis sector.
Tilray Inc. TLRY, +0.98% was down 0.9%, Hexo Corp. HEXO, -0.19% was down 0.8% and Aleafia health Inc. ALEF, +1.71% ALEF, +1.71% was down 5.4%. OrganiGram Holdings Inc. OGRMF, -6.99% was down 3%, CannTrust Holdings Inc. CTST, +1.56% TRST, -6.90% was down 1.5%.
GW Pharmaceuticals PLC GWPH, -0.25% fell 4.7%and Cronos Group Inc.CRON, -0.76% CRON, -2.44% was down 5.1%. Canopy Growth Corp. shares CGC, -0.07% WEED, -2.10% slid 2.5%
The Horizons Marijuana Life Sciences ETF HMMJ, -3.53% was down 1.6% and the ETFMG Alternative Harvest ETF MJ, +0.03% was down 1.8%.
The S&P 500 SPX, -0.81% and the Dow Jones Industrial Average DJIA, -0.78%were down about 0.4%.