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 GWPH, +1.76% 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.