It’s been a busy year in the CPG business, especially when it comes to the food, beverage, and dietary supplements sectors. There have been so many breaking stories, shifting trends, and updated regulations that it can be tough to keep track of it all.
That’s where TraceGains partner United Natural Products Association can help companies cut through the clutter and figure out where to focus their resources. UNPA is an international trade group that represents more than 100 natural product companies, all of which share a commitment to providing consumers with better natural health products.
UNPA President Loren Israelsen shared what his association is working on in a recent podcast interview with TraceGains CEO Gary Nowacki. Israelsen explained UNPA is focused on a handful of strategic issues right now:
CBD and hemp extract products sit at the top of that list. Public interest in CBD has exploded, catching trade associations like UNPA and others by surprise. As exciting as it is, it’s also fraught with complexity. UNPA staff now spends roughly 30 percent to 40 percent of each day on CBD-related issues alone.
Another issue UNPA is working vigorously on is what they call DSHEA 2.0. Due to public statements coming out of the U.S. Food and Drug Administration in the last quarter of 2018, the agency is interested in amendments to the existing Dietary Supplement Health and Education Act which created the legal framework for today’s dietary supplement industry. It had a profound effect on the nearly $50 billion industry it is today. So, the fact that the FDA has signaled their intention to go to Congress to amend certain key parts of it show it’s a major development.
A third is continued compliance with the Food Safety Modernization Act. This is another act of Congress, designed to respond to tremendous changes in how food and food products are manufactured, grown, and sold worldwide as compared to 15 to 20 years ago. Today’s food supply is truly global in scope with a host of attendant food safety risks and hazards that need to be controlled. Again, UNPA is staying on top of these requirements, staffing a senior FDA investigator with extensive FSMA experience.
The fourth issue that UNPA is actively engaged in is China. China is the No. 1 supplier to the dietary supplement industry—about 80 percent of all raw materials are produced there. That’s an exceptionally high number as a total percent. Therefore, vigilance to ensure the raw material supplies coming from China are of high quality is a part of UNPA’s FSMA program and equally important to brand holders. China is quickly becoming the number one natural health product consumer market. UNPA will soon open an office in Beijing and in the fall, the group will be opening a showroom at a newly developed international trade center that’s been organized by the Chinese central government. UNPA holds high hopes for developing China as a consumer market for leading U.S. supplement and other natural health care companies.
Last fall, the president signed into law the latest farm bill, legislation Congress must pass every five years that establishes budget policy for the country’s agricultural products. In that bill, lawmakers included a hemp provision that legalized the industrial growing of hemp. But there’s often confusion about the difference between marijuana and hemp, which is based on the percent of THC in the plant when it’s harvested.
Under this new provision in the farm bill that defines hemp containing less than .3 percent THC by dry weight as “industrial hemp” and not a controlled substance. This has opened the door for broad use of hemp materials which includes fibers, oils, powders and other products.
But the farm bill left many questions unanswered. The law failed to resolve the legal status of CBD, or cannabidiol. So many of the CBD products on retail shelves are technically not lawful. The U.S. Food and Drug Administration has not authorized CBD as a lawful dietary or food ingredient.
“Significant efforts are under way to resolve this question,” Israelsen said. “UNPA officials have met with the FDA a number of times. Many others have to look for a path forward so consumers continue to have access to a product that’s clearly in demand.”
The other issue of significance stems from the agency’s approval last year of a new prescription drug that contains CBD, which treats rare forms of severe epilepsy in children. If you have a drug like CBD that’s new, the drug holder holds an exclusive right to that drug.
“Therefore, the CBD products on the market today are essentially infringing on the rights of this new drug holder,” Israelsen said. “We’ve been in discussions with the drug holder, GW Pharma, which goes under its U.S. brand name of Greenwich Pharmaceuticals, to see if we can establish some sort of a three lanes approach that would have a lane for the pharmaceutical drug for dietary supplements, possibly a lane for foods, and one for cosmetics. That’s an active discussion right now. But I must say this is an unresolved issue and a great deal of investment money and market activity building in the CBD category is all predicated on the resolution of this issue.”
Meanwhile, hundreds of companies are jumping into this market. Some of them well-established, well-known brands. Others are brand new. What UNPA is seeing, for starters, is that because this is such a young market, there’s a lot to learn. It’s fair to say market growth has outstripped the regulatory process and the technical issues of analytical testing, reference materials, good manufacturing practices, agricultural practices—all of these things need to be better developed.
It’s remarkable and probably without precedent to have a category growing this fast on the consumer side with so little infrastructure in place on the commercial side. This, again, is why there’s a sense of urgency to get a lot of these systems on board and a lot work is going into that right now.
On the consumer side, there are big box stores clamoring to start offering CBD products. Some have announced they intend to do so. Most of them are starting with cosmetic products with CBD. That’s an easier pathway than selling supplements, beverages, or food. For regulatory reasons, at a consumer level, it’s exceptionally difficult for consumers to have a reliable reference source for what makes a good product. There are relatively few, certified resources consumers can look at to determine product quality, integrity, and safety. So right now, consumers must make choices in the absence of references. Clearly consumers want — and need — direction.
Is CBD Here to Stay?
Even with the market and regulatory ambiguity, CBD sales are going through the roof. But is this a fad or a long-term trend? UNPA officials including Israelsen, believe this is a durable, long-term trend.
First, we have congressional action through the farm bill late last year that indicates Congressional interest in creating a lawful pathway for hemp extract products. Second, we have the legitimacy of an approved new drug including CBD, which suggests CBD clinical research demonstrates its therapeutic benefits. While, a lot of that is yet to be explored, other indicators are that the agricultural sector is heavily investing in transitioning to hemp production. The USDA is providing guidance to farmers on how to plant and what seeds to use.
We’ve also seen the FDA take significant interest in trying to develop a regulatory pathway. They’ve made it clear they’re looking for safety information on which to make a judgment that CBD can be sold as a consumer product. The question then will be at what dosage levels and other considerations.
“I think we can also point to the very practical matter that CBD and hemp extract are a tremendous tax revenue base for every state,” Israelsen added. “And that suggests there’s an incentive on the part of local governments—as well as state and municipal entities—to try and responsibly develop both the agricultural base as well as a consumer base that would generate tax revenues.”
There are a lot of indicators that suggest this is a durable trend. There are also massive investments coming from very mature investors who are putting a lot of money into CBD and hemp extract.
So, where does UNPA stand on CBD?
“Our members are of two minds on that,” Israelsen explained. “We have a number of our brand holders and major members who have embraced the CBD sector and others are holding back and waiting until there is greater regulatory clarity. Our membership is a reflection of the national dynamic, which is made up of those companies jumping in despite the uncertainties, and those holding and waiting until there is a clearer pathway, particularly on the regulatory side. We see that in the big retailers. It’s my understanding Wal-Mart is hoping Walgreens is moving. Other retailers are holding back.”
This is a fascinating and historic situation. A lot of companies are jumping into the CBD pool and others are still standing by, which is building a certain tension. Those holding back and waiting feel they’re respecting the regulatory process, but they also fear they’re in danger of losing an opportunity. Israelsen said that pressure between the friction points is growing.
“We have a very clear mandate from our members to work with the FDA and others to find that path,” Israelsen said. “So this means having global discussions almost on a daily basis with different stakeholders, whether it’s drug holders, regulators, or even other trade association. Short of having a tent on the National Mall, we’re about as active as we can be working toward resolution.”
Is There Progress?
Israelsen added that UNPA has seen movement and, in fact, two important indicators emerged in May 2019.
The first was a significant meeting of all the major heads of the FDA with the major trade association heads to discuss the status of CBD. Both sides had a chance to express their views, including what their expectations were.
The second and probably most important indicator about the FDA was a public meeting on May 31 to listen to public comments in response to specific questions the FDA raised that relate to safety, good manufacturing practices, and consumer education, among others.
“It was a remarkable day,” Israelsen said. “It was a 10-hour public hearing. More than 100 witnesses presented testimony. We expect the FDA to provide further insight into the evolution of the regulatory process early [in 2020]. It could go either way.”
Israelsen added that regulators can look at other countries for indicators and experience, but this remains a unique problem.
“We’re in uncharted territory,” he admitted. “Canada is a good working model. Parts of western Europe are all struggling with this as well, but they’ve allowed the production of hemp. France, for example, is one of the more advanced economies that’s allowed hemp. Russia has done so for a long time. China is the world’s biggest hemp producer. They have a lot of experience in growing hemp, although CBD remains illegal. It’s a mixed bag as to where we would look and how much we can learn from other countries.”
One of the great unknowns is whether Congress would move faster than the FDA. The impression is that Congress feels they don’t need to take any individual legislative action on CBD. Both have risks. The FDA has publicly said they’d like Congress to provide further direction. The difficulty, Israelsen pointed out, is finding the right legislative vehicle to do that. But with the way Congress is organized these days, it would be exceptionally difficult to get a small freestanding bill of that type passed.
Advice to Newcomers
Israelsen suggested that companies—or investors—interested in breaking into the CBD business look ahead two years and imagine what this sector will look like as a maturing, regulated industry. It’s important to focus on the fundamentals, such as the quality of the seed stocks, the raw materials, the exceptional discipline, and skill in the analytical arena, because there’s a hard line restricting the amount of allowable THC and if companies exceed that number then they’ll have a hot product that becomes illegal instantly.
“My advice is that if you’re interested, be a leader, and be prepared to invest in the infrastructure as opposed to brand development,” Israelsen offered. “The winners of the future will have covered the fundamentals. There will be a CBD 2.0 and that group of companies will have a second opportunity to be market leaders when they better understand what true quality means in this category. That’s why I believe the big retailers that position themselves as role models will be the winners of the future.”
TraceGains has been working with companies in this space from day one. The stakes are too high to try to go it alone. Find out how TraceGains can help you stay on the right side the law while blazing a trail in this exciting new market.