Will Regulation Smoke Out THC In CPG?

0:00What's the FTC's beef with functional food and beverage brands? What's the newest trial CBD brands are facing and how are hemp-derived THC food products impacting the cannabis industry's growth? Find out this week on the Nosh Podcast.

0:24Hi everyone, I'm your host Carol Ortenberg. On the Nosh Podcast, we go inside the business of natural, organic, sustainable, and healthy food. Today, the team discusses new efforts by the FTC to crack down on unsubstantiated health claims. And in a nod to our release date of 4-20, we hear from a panel of experts who discuss the marketing for hemp-derived THC food and beverage products and how they're impacting the broader cannabis industry's growth. Joining me are reporters, Adrienne DeLuca. Hello, Carol. And Lucas Southerd. Hi-de-ho, everyone. Heidi ho, Lucas. Jeff is on vacation this week. Adrian Lucas, what hygiene should we get up to today?

1:08I'm ready to just burn the whole thing down, you know? While daddy's away, we can just really go wild with this thing. Lucas, you work from home mostly, so be careful what you're burning. That's true, actually. I'm in my basement and I don't want to burn anything because fire goes up, right? If you burn the studio, I think that is a whole bunch of arson, child endangerment. There's a list of crimes there. So let's not do that. I've also, I've had a couple of pipes burst over this winter. So I've already kind of maxed out my home insurance. I really don't need a fire to really add to things. Okay, moving on.

1:52Lucas, how was your weekend though? Hopefully a little tamer, no arson? no arson thankfully i i spent the beautiful weather out hiking with the family and that was that was nice because we haven't really got out and onto the trails in five months i don't know it's been a while so that was that was great and then then i spent some time in my garden and got the the raised beds uh ready for the season put some manure in there and some some of my compost that I make and really just got my hands dirty, which felt great. You know, that's a, that's my, that's my Zen time is when I get to be out in the garden and listening to thrash metal on my headphones.

2:35Thrash metal. Yeah. I thought I'd throw that in there. That's my working music is, you know, some Pantera, some Metallica, anything, you know, between the late seventies in the early 90s with a lot of a lot of tousled hair and guitar riffs that's that's where i go that's that's my happy place does this align with your children's musical tastes oh yeah i mean if i'm doing a bad job of as a parent if my if my boys do not grow up loving van halen that's that's really that's a guiding principle of my my my child rearing so i garden a little differently I am part of this town. I mean, besides the thrash metal, I'm part of this town, like shared gardening plot where 10 of us spend Saturday mornings working together on this like larger space.

3:27It does make me laugh though, because the gentleman who heads up our watering committee is really into Jimmy Buffett. So maybe I'll suggest that he converts over to your musical stylings lucas the only issue is he doesn't have headphones so the rest of us are subjected to whatever else he wants to play i would argue that you would be more entertained with some 80s hair metal you know guns and roses van halen maybe even a little motley crew or you know something like that in there over jimmy buffett i mean let's be honest adrian come on honestly i'm kind of siding with Lucas here. Welcome to the jungle versus Margaritaville.

4:11I think it's a pretty easy winner on that one. I'm with you as well. However, the group is comprised largely of the engineers and myself. And so I don't know where their musical stylings lie. Sounds like a Jimmy Buffett crowd. That's for sure. Often there is no music because everything is very scientific and there needs to be a lot of discussions. Just to see what happens. Just see if you get any reaction for me. I would guess that they would like scientifically analyze which one made the plants grow best. You might have to try some classical music. I've heard that works. Yeah, I think that's neither.

4:52I think that's a hard neither. We do hang CDs above the tomatoes though. So I don't know if they like, you know, subliminally absorb music into the roots. Yes, I've heard that works. adrian how was your weekend did it involve uh seeds and gardening my weekend was supposed to involve seeds and gardening but it was very cursed the real thing kicked off in the whole foods parking lot like anything good does on friday afternoon as i'm walking out a black crow bird like thing is sitting on the front of my car squawking at me like this ominous raven thing and I'm like oh god within two hours I get a call from a family friend that my mom had been visiting she fell off a ladder broke her arm spent the rest of our night in the ER I think you know this is this is the worst that's gonna happen I spend Saturday afternoon like chilling around my farm I was cleaning up like the old hay from Zara doing all my like springtime barn tasks and then I decided to go take Zara for a walk like I've done for the past 10 years that I've owned her.

6:05Sorry when you take a horse for a walk is this like on a leash or you oh okay it's not it's not like a riding thing. Yeah I know she's got like a long rope. Why don't you ride her don't you aren't you supposed to ride horses isn't that? I do I do this was a me kind of being lazy on a Saturday afternoon this is another way for her to get work. I feel like walking a horse on the leash is more work when you sit on the horse they do all the effort well i didn't tell you about the fact that she basically goes in circles around me while she's going on this walk and it's like um yeah there's some dynamics here that i don't need to get into okay anyways been doing this for years it's like a very common stuff we wouldn't understand right yeah we're not gonna get into the jargon people fair enough fair enough yeah so like i have established 10 years we've been doing in this.

6:55All of a sudden, she decided she was done. And she went like flying off into the air and dragged me through the field. I'm fine. Don't worry. I'm just a little bruised. Got some rope burn on my hands. But whoa, it that was like the grand finale of my weekend. And it all started with that damn crow in the Whole Foods parking lot. Adrian sounds like a rough weekend for you. I think some food and beverage companies didn't have the best weekend either. On Friday, the FTC sent notices to over 600 companies across the supplement food and beverage categories, warning them that if they were making unsubstantiated claims regarding functional benefits, they could actually be liable for civil damages.

7:40Adrienne, what happened a little bit here? Sum it up for us. I think the best way to sum up the FTC's position is don't play fast and loose with the truth regarding any sort of functional health benefit claim. That's really what they're looking to crack down on. I think they even said that, right? Oh yeah, that's a direct quote from the FTC, which is now using its penalty offense authority for enforcement of the civil damages and penalties. Basically, if a company does not have scientific evidence it could point to, including potentially a well-controlled human clinical trial for said scientific evidence or health claim they're probably going to get fined is how i understood this not right now but sometime in the future yeah what was interesting about it was that it was it wasn't just food and beverage brands obviously i mean it was a cross-section of a lot of different kind of companies throughout the US.

8:43I mean, you had, you know, obviously some of the bigger food companies like Pepsi, Kraft Heinz, Coca-Cola, Danone, but then you also had like ingredient makers like Archer Daniels Midland and, and then like pharma companies, which makes sense, I guess, like Bristol Myers Squibb and, you know, some of the other big, uh, you know, pharma, uh, corporations, but like cannabis companies were included. And even what I found really interesting was there was also retailers which i guess would mean they're like referring to like private label stuff like costco was on there duane reed right aid cvs so it really kind of it hit at a lot of american capitalist companies i i was taken by the fact that they sent this letter to goop yeah but there's probably some questionable stuff on goop i mean well i saw like mommy's bliss was on there too and like the honest company which i was kind of assumed the honest company was mostly just like honest clever wow i wasn't even thinking of that but you guys both just right away just like that you're setting us up for this i'm not even going to continue with my thought because i was just too good i mean to be fair i think the ftc did hit that this was coming in december they kind of released this document, it was an update on guidance, I think from the 90s that hadn't been updated in decades that said, you know, just be careful with what claims you're making.

10:14Maybe take a second, review them, make sure that these can be substantiated. And they did say, you know, largely we've enforced this against supplement companies, but food and beverage brands, like we're keeping an eye out on you too and the functional health claims that you're making. Yeah, I mean, it kind of goes along with what we've seen in other federal agencies, you know, in oversight. As we were talking about with the FDA a couple weeks ago, and they're kind of like revising healthy claims on labeling. It seems like there's a lot of updating that the U.S., the federal government is kind of long overdue when it comes to regulating and oversight in the food and beverage.

10:55And frankly, that's probably not a bad idea. It just seems kind of interesting that it all seems to be kind of coming to a head, maybe, recently. Besides updating regulations, though, I think it's also interesting to see some of this during this time where we're discussing misinformation or, quote, fake news in the wider geopolitical spectrum. It feels like some of these decisions are these agencies trying to make sure that the American consumer is not misled when it comes to the products they're putting in their bodies, not just what they're reading or thinking of politicians. It's interesting.

11:33I was chatting with Mark Washington from Super Gut and Greg Shearson from Cerebelli on a previous episode of this podcast for anyone who has not listened to it yet. I shout out. Yep, I got you. Shameless plug, shameless plug. I hear the host was brilliant, Adrienne. She was. Oh, I was going to say that was actually one of the low points of the interview, but oh, you know, maybe that's just me. We're trolling today. Damn. Somebody's got to do it. Jeff's not here, you know? I'll give it to you. All right. Settle down, kids. Settle down. Adrienne, what were you going to say? Anyways, I was talking with those guys about this concept exactly and how, you know, having science behind your functional claims can really help a brand sustain itself.

12:12Yes, in a legal and regulatory space, but also just in consumers' minds. Yeah. And to go along with that, I think there is a lot to be said, you know, as you were stating earlier, Carol, that like this is coming at a time when functional foods and beverages are really the hot trend and everyone's putting some sort of adaptogen or nootropic ingredient into their product because they want to claim like, hey, it's great for your health or it's great for your brain or, you know, helps you sleep or whatever. And, you know, I'm a journalist, so I'm skeptical of any claim ever. But I also think that it does make sense that the FTC is being like, hey, we're going to be on this a little tighter than we have been.

12:58So just be careful about the claims that you're putting in there and have some evidence to back it up. It makes sense. It's also interesting to me that CBD companies are in here because they, you know, already operate in kind of a gray area in terms of regulation with, you know, the FDA saying they're not going to regulate CBD and they need to figure out a new way to do that. But also, you know, with advertising issues in general, most hemp and CBD companies that I've spoken to in the past, they're like, we can't advertise online, even if they're just selling a hemp product. Adrienne, speaking about CBD, I think you're going to examine another trend in hemp and marijuana in our main interview today, correct?

13:38That is correct, Carol. Today we're going to hear from Cynthia Cabrera, Chief Strategy Officer at Hometown Hero CBD, and Bethany Gomez, Managing Director and Co-Founder of market research firm The Brightfield Group. We're going to discuss how the manufacturing and distribution of hemp-derived THC products like Delta 8 and Delta 9 have contributed to brand awareness in the broader cannabis space, and how some regulatory nuances have allowed for this industry to prosper, but may be reined in soon with the upcoming Farm Bill reauthorization. All right, well, let's get to that interview, Adrienne.

14:14Hello, everyone. Today, I'm joined by Cynthia Cabrera, Chief Strategy Officer of Hometown Hero CBD. Hey there. How are you? Thank you for having me. And Bethany Gomez, Managing Director and Co-Founder of the Brightfield Group. Hello. Pleasure to be here. Before we get into Delta 8 and Delta 9 THC products and the impact they've had on the cannabis market and broader CPG industry. Could you both run us through how these hemp-derived cannabinoids differ from real marijuana products? When we look at the cannabis industry or the whole of the THC space, we have our regulated cannabis industry, which is what is being sold through dispensaries.

14:59This requires, in the US, this is not federally legal, but there are state legal programs. And all THC products, marijuana-derived THC products need to be manufactured, tested, produced, sold, all within the same state, all by state-licensed operators that pay significant taxes alongside those products. Now, what's come up over the last two years, two to three years, is kind of the development of these hemp-derived THC products, which are products that include Delta-8, Delta-10, even Delta-9 now THC manufactured via hemp, which are able to be sold through a wide variety of channels. Now, this is really unregulated.

15:44It's kind of covered through the purview of the farm bill. They don't need to go through pay additional tax burdens within their state or abide by the same restrictions as the regulated marijuana industry that requires sales specifically through the dispensary channel. Cynthia, anything you'd like to add? Yeah, so that was great. Just a minor addition to that, which is that hemp products are federally legal, which is to say that they were carved out through the 2018 Farm Bill. So they are legal. And the definition of hemp products is that all its isomers, derivatives, salts, extracts, all of those things are legal.

16:27They're all exempted through the 2018 Farm Bill. So there may not be federal regulation to standardize the products, but multiple states, Florida, New York, Texas, Louisiana, Tennessee, New York, Pennsylvania, Virginia. Point being, there are a lot of states that have state regulation that govern how these products are sold and marketed. So they have to undergo full panel testing. The packages have to list all the ingredients. Labeling has to be accurate, has to tell you what the milligrams are. It's got to have adult warnings on it. There's also a lot of age gating in place. So while the hemp products are not regulated like marijuana products, that's because marijuana products are federally illegal, but hemp products are federally legal because they were harmed out of the farm bill.

17:23So there's a lot of potential there and a lot of opportunity in states similar to the marijuana industry. States have taken it upon themselves to create their own regulations for the products within their own states. So in order to sell in a bunch of different states, hemp companies are required to kind of like standardize to make sure that they meet every requirement because states have different requirements. Obviously, after the Farm Bill passed, we saw a lot of companies, food and beverage, adding CBD to products. How could launching alternative products with hemp-derived THC impact existing brands in either the marijuana space or food and beverage?

18:01Well, we're certainly seeing an impact on those industries today, really already. And we are starting to see these hemp-derived THC products make their way into a wide variety of different formats. In a recent study survey that we conducted at Brightfield, more than 11 % of all American adults reported using hemp-derived THC over the past six months. And that was just from Q4 of last year. So this is a huge number when you consider that only 24 % of all American adults have used cannabis during the same timeframe or marijuana during the same timeframe. So we're seeing a huge explosion of these products.

18:42The market hit more than$2 billion for all hemp derived THC last year. And that's already starting to eat away at some of the growth in both the regulated cannabis space as well as the CBD space. So there's certainly competition there, but that creates a lot of opportunities as well, because it does, you know, allow, you know, for products to be able to, you know, to be able to make their way into the mainstream, to be able to get in front of consumers, be more approachable, be more easily accessible as well. So even where I'm located in Chicago, we have a whole Waken bakery where there's entree, you know, Delta-based baked goods that are being circulated.

19:24And there's a lot of confusion in the minds of consumers of what is regulated cannabis and what is hemp-derived THC. And many consumers just don't care about what the difference is. You know, more than 71 % of consumers, cannabis consumers in New York, in a survey fielded in Q4, said that they thought they had already bought regulated recreational cannabis when there were no cannabis dispensaries available. There were just these, you know, quote unquote, dispensaries selling mostly hemp drive THC. And Cynthia, hometown Hero CBD, they play in the Delta 8 and Delta 9 space, got a full slate of products in that set.

20:02I guess, how are you guys viewing those products growth? And do you see competition from, you know, other food and beverage manufacturers? You know, the food question is super interesting because hemp products have to exist. They exist in like this weird place, right? It's going to take a lot of confidence on the part of a big food chain of supermarket like Publix or Kroger's or something like that to carry products that the FDA is like totally on the shelf about, right? Right. So FDA hasn't decided anything, but the consumers have. Consumers have decided that this is a staple in their lives. I think in the meantime, the products will be found in specialty stores or bakeries if it's a single loan business or something like that.

20:50But I think it's a little while off before there's mainstream acceptance by larger dominant grocery store chains and that type of retail establishment. As you guys have both mentioned, Delta A, Delta 9 hemp-derived THC products, I do picture them in gas stations and specialty type stores. Have those venues influenced the formats that we've seen coming out? And do we expect those to evolve and mature? You know, the form factors are pretty different from when we looked at CBD three years ago. And, you know, that those products and those channels were trying to target people that wouldn't touch cannabis with a 10 foot pole, but this was hemp, this was different, right?

21:38So the, you know, that market really evolved into more of a supplement-esque type of positioning. They tried to sell through all of the same channels that, you know, that supplements sell through, you know, whether that's the natural product stores, the pharmacies, you know, more of, you know, the mainstream big box retailers. I think, you know, what we found in CBD early on was that, or over the last few years is that many of those channels don't really turn very well. I think there's a lot of opportunity in, you know, both the online channels, but really in those, you know, those smoke and vape shops and the, you know, convenience stores, you know, in that, that type of a model where people can ask smaller stores do better with these types of products, where people can ask questions, consumers can be educated about products that have a smaller environment to be able to do so.

22:29Big box just hasn't proven to be a great channel for many of these products. Bethany's right. I mean, the big box stores, they're not the place now and you know my comments before about fda and big store like that a big chain feeling comfortable i think that's off in the future but there is so much innovation going on with different factors i mean there are restaurants that are creating you know thc sauces and sides that you can choose to have with your meal. There are wineries that team up with hemp products. And I mean, it's just great. And these are opportunities that don't exist really in the marijuana market.

23:14I feel bad for the marijuana space. They've spent so much money. They're regulated to death. I read an article the other day about how California marijuana companies are like going under, like Like they just, it's so they're struggling to make any money. And it's, you know, it's just a case of over-regulation. And, you know, there's just so much potential and so many options over here that I kind of think they should like sell hemp products, you know, like don't make it harder for us to sell. Let's make it easier for you guys to like come on over or let's, you know, loosen up a little bit, you know, the marijuana space because it is over-regulated.

23:53Glad you brought that up, especially with traditional marijuana companies, because we've seen a few beverage companies particularly enter this hemp-derived space as a way to try to build their brand in the meantime while regulations do open up. And I know, Bethany, you also mentioned e-commerce earlier. That's another channel that offers quite a bit of opportunity for these hemp-derived companies that marijuana brands are not able to enjoy. What opportunities does that e-commerce space present and are there challenges? And how should these traditional marijuana companies be viewing those alternatives?

24:32We've certainly seen some brands, marijuana companies are not really sure what to think about the whole Hemdrive THC space. Many of them are kind of up in arms about it and really looking to view it as a threat and are kind of combating against it. And others are viewing it as an opportunity. Now, early on, some brands, you know, many cannabis brands have tried to do this with CBD. But if you think about it, the impacts or, you know, the effects that your consumer is going to feel for CBD is different than THC, right? So if you're trying to build a regulated THC brand and extend that across the country, selling CBD products is not necessarily going to give your consumer the same, you know, build your brand in the same way, right?

25:12So certainly heading on the hemp-derived THC certainly does create that opportunity. Now, that works better with some form factors than others, right? Generally speaking, people don't usually turn to e-commerce to buy their food and beverage products. That's shifted a bit since the pandemic. That's, you know, more often grocery, you know, if you think about food and beverage, those are more often purchased through grocery, you know, on trade or on, you know, retail brick and mortar establishments. But certainly for brands that are selling, you know, more of supplement-esque type of products, those are easy to sell via e-commerce.

25:46And even, you know, it allows brands to be able to advertise and be able to reach their consumers and serve their consumers, have an option available. We have many clients in the drink space and in the food space that even if they didn't drive a huge amount of volume through e-commerce, just the fact that consumers could try their products online without having to seek out a store to find it has been really beneficial in helping to grow their brand awareness and grow that consumer demand around their products as well. So it's a great way to be able to, you know, build your brand, build, you know, build your reach.

26:22Although it's, you know, usually e-commerce, you know, in the food and bev space doesn't drive, you know, the lion's share of volume. Yeah, I think marijuana companies would like do themselves a great service if they started selling hip products online. I mean, it would give them an opportunity to get reach into states where they can't currently get any reach and build that brand awareness that they don't have. because everybody doesn't know every company that's in California, for example, but they would have reached into all these different states to help them shore up the current business and give them that runway until something happens at the federal level that finally legalizes marijuana.

27:05And I mean, really, it's so funny. I go to all these conferences and I talk to people all the time and they're like, what do you think marijuana companies should do? And I'm like, I think they should sell hemp. It's kind of a no-brainer. They've already got the infrastructure. They have so much knowledge about products. And at the end of the day, cannabis is one plant. And we're all a family of products from one plant. And there's plenty to go around. I know we've touched on retail distribution kind of generally throughout this conversation. But in your guys' view, this might be a bit of a hypothetical at this point in the market's growth.

27:43But do we think these products could eventually, you know, end up on shelf like next to functional foods? We definitely see a lot of movement on that in the and I see a lot of opportunity on that in particularly in the drink space where, you know, there's been kind of this movement to brand like relaxation drinks. Um, there's a whole movement that is really just starting, um, with kind of the move away from alcohol and towards like alcohol alternatives, functional alternatives. And I think there's, there's some opportunity for, you know, for the food side of things, but I think, you know, there's a pretty distinct shift in food, um, versus if you're trying to, um, produce products that create a psychoactive effect, um, you know, versus products that are, you know, designed to, you know, enhance your athletic performance or, you know, things like that, right?

28:38You know, things that may just be high protein. There's a bit more of an immediate trajectory there in the hemp-derived CBD space. I absolutely, you know, we're seeing that already. And I expect that trajectory to continue. But certainly in the, you know, the alcohol replacement space, I think there's a huge opportunity there. And we'll see some more movement in that direction. Cynthia, do you see Hometown Hero CBD ending up next to, say, an ashwagandha-infused potato chip? Listen, that is my fantasy that hometown of CBD is sold everywhere, that any edible item is sold. So that is something I would definitely like to see happen.

29:24And I mean, for us and for pretty much every other company in the space, again, the challenge is, you know, government, right? So the fact that marijuana is not legal, still not legal. The fact that there's so much uncertainty around CBD, I mean, and Bethany touched on it a little bit, is that people do want something that came from a plant. So somebody could have one of these relaxation drinks, these CBD drinks, or they could go go to their doctor and get, you know, Ambien to sleep or Valium or whatever. And a lot of people don't want to do that because it's not cool. It's not good for you. It's dependent on something that's just not natural to our bodies.