What are the benefits to stakeholders of establishing a transparent regulatory system for CBD products? – and what are the challenges? CBD brands investor Tenacious Labs has put out a pair of essays answering these questions. One of them sets out A roadmap to cannabis regulation. It follows the other, The future of cannabis – regulation for all, published in March 2021.
UK-based Tenacious has acquired two US CBD businesses. It bought Colorado-based Press Pause in April 2021 and SZM LLC in May 2021. The essays draw on data and experience from both sides of the Atlantic.
The author, an unnamed Tenacious Labs scientific advisor, says that inconsistencies in regulation between different states and countries inhibit growth in the CBD market. The essaye lists ‘stakeholders’ as governments, consumers, CBD companies and investors.
The author illustrates the potential financial benefits to the first of these stakeholders, government, via tax revenues, with figures from California. The essay says: “As an example of how quickly tax revenues can be generated, since the US state of California introduced regulation for cannabis products in 2018 (the ‘Control, Regulate, and Tax Adult Use of Marijuana Act’), over $1.8bn in taxes have been raised. The growth has been rapid as evidenced by the latest figures from the California Department of Tax and Fee Administration (CDTFA) which revealed the state pulled in a total of $306.7m for Q3 cannabis tax revenue in 2020, coming from an excise tax of $159.8m, a cultivation tax of $41m and sales tax of $105.9m. This compares to just $170.7m for Q3 2019.”
One of the challenges the author highlights as impeding development of a regulatory system is the relative paucity of medical research into the effects of cannabis. The author points to the state of California which is taking steps to address that problem
The essay says: “One of the benefits of the revenues generated from cannabis taxation in California is the investment in a variety of state and local programmes to ensure that research is conducted on the longer-term effects of such products along with the impact on driving and other societal areas such as youth programmes. The changes in regulation mandated that certain amounts of investment have to be made eg $10m per year for 11 years for public California university research.”
The essays make comparisons with the regulation of alcohol, which has licensing laws governing the sale of products, the measurement of alcohol by volume (ABV) determining taxation, and the use of ‘units’ for medical, consumer and legal purposes. However, while the model offers parallels, there are additional complexities in regulating cannabis products. The author writes:
“It appears that cannabis regulation is beginning to mimic alcohol regulation. Where ABV is used for pricing and taxation, in cannabis regulation a default of <0.2/0.3% THC – essentially a ‘cut-off’ – is used to define ‘discretionary spend’ products. However, given that alcohol is a single compound with known, concentration-dependent effects, the alcohol regulatory framework only provides a starting point, albeit a practical one. The idea that you could increase the THC content similarly to ABV – like the beer to wine to spirits transition – will be difficult for cannabis because of the lack of high-quality data showing the risks of longer-term intake of THC. Critically, the absence of a definition of a ‘dose/unit’ is important. One unit of alcohol (10ml in the UK) can be readily translated to ABV. If 0.2% THC is acceptable in a discretionary spend product, can excessive use cause harm? Can higher amounts of THC be safe? What dose or ‘unit’ of THC is being consumed, or used, and is safe?”
One aspect of the management of regulation within the alcohol industry which the author highlights is the Portman Group, established in the UK “over 30 years ago, an industry-led organisation, [which] brought into place codes of practice and other instruments to provide a further framework for the spirits industry to operate under a banner of ‘the responsible use of alcohol’. Such industry ‘crossover’ is happening with groups such as the Wine and Spirits Wholesalers of America proposing that cannabis regulation should follow the same principles as alcohol.”
The author makes the case for starting by establishing a ‘unit’ for CBD rather than THC:
“Such difficulty in defining a unit for THC, one of the more pharmacologically active and addictive cannabis components and therefore at higher risk of overdose/side effects, suggests starting with CBD, the less active component. Here, with consideration for the route of administration – inhaled, ingested, topical – definitions of safe and effective doses of CBD can be laid out perhaps resulting in a Cannabidiol by Concentration (CbC) system. Like the ABV approach for alcohol, CbC would be a transparent framework for all stakeholders from which a Cannabidiol Unit (CU) could be derived helping define safe limits for consumption. Consideration would need to be given to the tentative (mainly due to a lack of convincing clinical data) recommendation from the FSA [Food Standards Agency UK] that CBD consumption should be limited to 70 mg/day. Could this be the definition of a unit? This could be the basis for a regulatory framework that is comprehensive and can help unlock the full market potential of cannabis.”
Transparent, consistent regulation would be of benefit to all parties from manufacturers to consumers, the author argues: “There are clear incentives for all stakeholders in the cannabis industry – consumers, governments, investors and cannabis companies – for an improved regulatory framework. Consumers will be able to make informed product choices based on product quality and transparency from trusted suppliers. Governments will be able to better regulate to ensure products are safe for the general public and to levy tax revenues (important in the current challenging economic climate). Investors will better understand the market and investment opportunities and cannabis companies can operate in a transparent regulatory environment with clear roadmaps for product development. Companies selling poor quality, potentially unsafe products, will disappear.”