The Anxiety Economy

The Anxiety Economy

Booming demand for anxiety-reducing devices, apps, programs, cannabis and pharmaceuticals is giving birth to a new economy.

Tens of millions of fidget spinners, fidget cubes and weighted blankets haven’t been sufficient to reduce the need for THC and CBD in the emerging anxiety economy.

THC (Tetrahydrocannabinol) works as an analgesic but also produces a psychoactive side effect known affectionately as a “high.” CBD (cannabidiol) possesses anti-anxiety properties but only induces calm, not euphoria.

In the last few years, millions of Americans suffering from anxiety, depression, insomnia andjoint pain have embraced CBD. According to Brightfield Group, 41% of CBD users partake of it daily and an astounding 43% of CBD users choose cannabis instead of over-the-counter or physician-prescribed pharmaceuticals.

Despite the enthusiastic adoption of CBD, serious questions remain unanswered with respect to regulatory oversight, consumer protection, dosage and efficacy. To help sort the variables, luckbox called on physicians, consumer advocates, manufacturers and retailers. At stake for investors is a CBD market estimated at $5 billion this year and expected to reach $24 billion by 2023.

18.1% of Americans are affected by anxiety each year and nearly one-third of Americans are affected at some point in their lifetimes.

CBD’S EVERYWHERE, BUT WHAT DOES THE SCIENCE SAY?

Cannabidiol (CBD) is finding a home these days in everything from skin creams and ingestibles to craft cocktails and pet products. CBD stores are popping up on street corners and in malls, and independent pharmacies and major drugstore chains are selling products laced with CBD. But what’s the underlying story? Does science back up the hype or is this another here-today-gonetomorrow health fad? luckbox enlisted pharmacologist Mike James, Ph.D., to separate fact from fiction.

High or not?

Cannabidiol (CBD) and tetrahydrocannabinol (THC) are both components of hemp and marijuana. THC gets users high, while most consider CBD merely relaxing. To say the least, CBD has recently attracted the attention of the popular press and the scientific community.

Marijuana and hemp come from different strains of the plant Cannabis sativa. Growers have bred marijuana strains for higher levels of THC, ranging from 25% to 40%. Hemp strains have been selected for higher levels of CBD and very low levels of THC, less than 0.3 % by federal law.

CBD’s uncertain potential

Users and entrepreneurs are touting CBD as a cure-all for a lengthy list of complaints and ailments. In two recent surveys, 38% to 55% of CBD users reported they use it for relaxation or to promote good health. CBD users in the studies cited at 15 medical conditions they attempt to treat with CBD.

The most common health problems cited in the surveys were pain, anxiety, depression and insomnia. As with many dietary supplements, advocates of using CBD to treat those conditions generally base their assumptions on animal studies, case reports or small clinical studies. Let’s look at what’s known about the usefulness of CBD for treating the top conditions.

Epilepsy

A prescription-only, oral form of CBD called Epidiolex has earned the approval of the U.S. Food and Drug Administration (FDA) for two rare types of epilepsy (Lennox-Gastaut syndrome and Dravet syndrome). FDA approval requires proof of effectiveness in well-designed clinical trials. Hardly anyone disputes this use of CBD.

Anxiety

It’s effectiveness is not so certain with anxiety. The positive effects of CBD in animal models of anxiety make a strong case for studying CBD in clinical trials, but the results in human trials have been mixed. Whether animal models truly represent human anxiety remains questionable. It’s also unclear from animal studies if long-term dosing maintains the positive effects of CBD on anxiety.

Clinical studies provide directly applicable data but researchers conduct many of the CBD clinical trials on anxiety disorders with only small numbers of patients. Results from small studies are more difficult to apply to the general population because of a lack of statistical power. In other words, a small study may exaggerate or underestimate the effects of CBD.

In addition, several clinical studies on the effectiveness of CBD for anxiety used THC as the anxiety-inducing stimulus. THC-induced anxiety may not provide a good representation of anxiety produced under other conditions. Most of the studies were single-dose studies and would be of limited value in assessing long-term effectiveness.

Pain

CBD and the combination of CBD and THC reduce pain in studies of animals, but evidence of the effectiveness of CBD alone on pain in humans is lacking. However, a study of a combination of THC and CBD for treatment of pain caused by nerve damage induced by cancer chemotherapy yielded positive results.

But combining CBD and THC without a comparison to each agent alone makes it difficult to interpret those results. A comparison with the individual components would have made it possible to determine whether the effects were due to THC or CBD or unique to the combination of the two.

Depression

Evidence that CBD’s useful for treating depression seems to come solely from pre-clinical (animal) data. A 2017 review of using CBD in psychiatry found no clinical evidence that it alleviated depression.

Insomnia

A single small study of 15 subjects on the effects of CBD on insomnia showed that at the highest dose tested,160 mg, subjects reported that they slept longer but did not find it easier to go to sleep.

Acne and inflammatory skin conditions

Some evidence in human skin cells suggests CBD may be useful in treating acne. But the effectiveness of CBD against acne hasn’t been determined in clinical trials. A small retrospective study showed a subjective improvement in acne and psoriasis scarring.

But the topical ointment in that study included several natural ingredients besides CBD and did not include a control group using ointment without CBD. Those factors make it difficult to attribute the observed effects to CBD.

Other uses

A small clinical trial suggested CBD may be useful in treatment of opioid-seeking behavior in heroin addicts. Other studies have suggested CBD may ease nicotine and marijuana dependence. Clinical trials in larger populations may confirm those preliminary studies.

Also, a small, single-dose study showed a decrease in resting blood pressure and decreases in the elevation of blood pressure in response to exercise and cold stress. Further studies may determine the significance of this effect.

CBD’s downside

For the prescription form of oral CBD, the most common side effects include drowsiness, decreased appetite, diarrhea and an increase in transaminase levels in the blood. Transaminases are liver enzymes normally found only in low levels. Elevated transaminase can indicate liver damage. So anyone with liver disease should consult a physician before using CBD.

Other side effects have included general weakness, trouble sleeping and infections. Because of the effects of CBD on alertness, caution should be used when driving or performing other tasks requiring concentration.

In addition, the way oral CBD is broken down in the liver can cause it to interact with a number of drugs. So check with a pharmacist before taking CBD. Another note of caution: CBD may harm a developing fetus. No data is available regarding the effects in pregnant women, so see a physician before using CBD during pregnancy or lactation.

1. 64 million Americans have tried CBD in the past two years 2. One in seven uses it daily 3. 63% claim to find it effective

CBD abuse?

The Drug Enforcement Administration (DEA) ranks drugs according to their potential for abuse and places them on Schedules I-V. Schedule I controlled substances have high potential for abuse and no recognized medical use. Schedule II have high potential for abuse but have a recognized medical use. Schedules III, IV and V have recognized medical uses with less potential abuse as the designation increases.

So where does CBD fall in the DEA rankings? The oral prescription-only form of CBD (Epidiolex) is a Schedule V controlled substance. Still, in tests, CBD did not produce drug-seeking behavior in animals or subjective effects similar to THC in humans. Tests also produced no evidence of dependence in humans who took CBD for 28 days.

Taking CBD

CBD comes as an oil, in capsules, as a sublingual tincture (an alcohol-based solution dropped under the tongue), cartridges for vaping pens, edibles and topical creams. Making definitive statements about dosing is difficult for two reasons: The amount of CBD in these products varies greatly, and clinical data for most of the proposed uses of CBD remains scarce.

In addition, data is derived from studies of only one- or two-dose levels, so complete dosing information isn’t available. When it comes to dietary supplements and medications, more doesn’t equal better. Users should choose the lowest effective dose to decrease the chances of unwanted side effects.

Deciding on CBD

Except for treating two specific, rare forms of epilepsy in children, the clinical evidence for using CBD remains sketchy. Given the potential side effects and drug interactions, it’s difficult to justify using it.

Pharmacokinetic studies have shown people can absorb a significant amount of CBD into the bloodstream after application to the skin, so even topical application of CBD products may have adverse effects.

CBD products also have uncertain legal status. The Hemp Farming Act of 2018 legalized the growing of hemp in the United States. The Hemp Farming Act was passed as part of the larger farm bill The Agricultural Improvement Act of 2018.

However, in April 2018, The Ninth District Court of Appeals ruled that CBD is a Schedule I controlled substance under federal law (meaning it has abuse potential and no recognized medical use). Schedule I substances are regulated by the DEA and the FDA.
CBD is legal in states that have legalized medicinal or recreational marijuana. However, the Health Department of the State of Hawaii issued a statement in May that says selling CBD products to anyone without a medical marijuana card is illegal. The FDA and some states are working to develop regulations governing sales and safety monitoring for CBD products.

CBD in urine tests

Urine tests for marijuana detect a metabolite (breakdown product) of THC. The most commonly used tests should not detect CBD. In addition, all CBD products must contain less than 0.1% THC, so CBD products that comply with regulations should not produce positive results on urine drug tests for marijuana.

CBD hype?

Is the clamor over CBD overblown? The short answer is “no.” CBD is popping up everywhere in almost anything. But the hype for CBD for uses other than epilepsy seems premature.

Other claims need more supporting data. Wider acceptance and use should come only after more studies with larger numbers of subjects demonstrate that CBD works.

Unless researchers pick up the pace and begin producing more test data, or CBD develops into a true cultural phenomenon, expect to see a “For Lease” sign on that little CBD shop on the corner.

Mike James, Ph.D., a pharmacologist who’s published more than 20 peer-reviewed articles, has researched neuropharmacology, endocrinology, metabolic, oncology and cardiovascular diseases.

KEY REASONS THE CBD MARKET WILL KEEP GROWING

From pharmaceuticals to ingestibles, a prominent research firm quantifies the recent ascent of the CBD consumer phenomenon

By Brightfield Group

The data scientists, analysts and researchers at Brightfield Group are focused on the legal CBD and cannabis industries. Their 75-page, July 2019 report, Hemp-Derived CBD; Market Overview & Analysis, incorporates information from interviews with hundreds of manufacturers and retailers, and detailed consumer sales and survey data from thousands of hemp-CBD users. brightfieldgroup.com

The U.S. CBD market will grow more than seven-fold this year because the 2018 Farm Bill legalized hemp-derived versions of the chemical compound. The legislation has created a whole new legal CBD market, and consumers of all stripes are already snapping up CBD-related products.

Brightfield Group’s analysis of CBD’s potential provides an overview of the industry’s prospects during the next few years. If just a few reasonable assumptions come true, the CBD market should prosper.

Previous Brightfield estimates assessed the hemp-derived CBD market as a grassroots movement with growth held at bay by a burdensome regulatory system and limited formal retail and marketing channels. Today’s estimates anticipate the Food and Drug Administration (FDA) will sanction CBD, helping a fully operating formal market develop during the coming months with growth blooming over the five-year forecast period.

Influencing market growth

The hemp-derived CBD market has been expanding rapidly in recent years but will see unprecedented growth this year, reaching $5 billion in market revenues for a seven-fold increase over 2018. The CBD market is expected to grow to more than $23 billion by 2023.

Brightfield Group bases forecasts on the premise that the FDA will issue a revised policy that establishes a framework for the legal sales of CBD products that comply with the rules. That includes CBD-infused foods and supplements. By the middle of next year, it will free up more mass retailers to begin carrying CBD products or expand their current CBD offerings. It also will attract additional major manufacturers from other industries— like consumer packaged goods, cannabis and nutraceuticals—to enter the sector.

Some mass retailers have already entered the market, led by major pharmacy chains and—most recently—grocery chains. Given their reach, scalability and mainstream familiarity, the big chain stores are expected to garner 57% of CBD market revenues this year. Over the short- to medium-term, the expansion will continue on existing pharma and grocery fronts, while spreading to supercenters, gyms, pet stores, natural grocers and other big box retailers.

As CBD has changed from a niche product to a full-blown mainstream wellness phenomenon, it’s reaching more consumers across the age, gender, regional and political spectrums. Millions of new CBD consumers are flocking to the market as products become available in more familiar formats, including anti-aging

cream and multi-vitamins versus tinctures. CBD products are also appearing in more varied and accessible outlets, such as Walgreens and Kroger versus local smoke shops. Meanwhile, marketing and strategic positioning are improving and now include athletic and event sponsorship and influencer campaigns.

As a result, approachable products like topicals, skincare and beauty products, pet treats, and vapes are posting impressive growth numbers. While tinctures remain a mainstay of the market, their share is declining as more-mainstream and consumer-friendly products surge.

CBD-infused food and beverages are gaining traction as the cannabinoid makes its way into the limelight, but some continue to be perceived as the riskier products in the face of FDA statements regarding ingestible CBD.

But growth will continue to swell, as clinical trials establish the medicinal value of CBD, driving pharmaceutical and other research dollars to the market, ultimately increasing the number and variety of applicable uses.

With the entry of marketing, manufacturing and retail behemoths onto the scene, hemp-derived CBD is changing from a grassroots movement driven by word-of-mouth marketing into a full-fledged competitor on the nutraceutical, e-cigarette, food and beverage markets, and sales are exploding.

What Did the Farm Bill Actually Change?

The Hemp Farming Act won the support of lawmakers from both sides of the aisle and was signed into law in December. It removes hemp and its extracts containing less than 0.3% THC from the Controlled Substances Act of 1970, taking the crop out of the purview of the Drug Enforcement Administration and transforming it from a felony-related controlled substance into an agricultural commodity.

Under the Act—which was part of the Farm Bill—the states were granted the right to develop their own regulatory frameworks, as overseen by the U.S. Department of Agriculture, which is expected to approve or reject plans within 60 days of submission.

Legalizing hemp invites legitimate industry players to compete with gray- and black-market actors. It provides the good guys with previously unavailable market protections, paves the way for consumers to purchase CBD products without concern about legality and will ensure the quality of CBD products once a regulatory framework is established and safety standards are formulated.

Passing the 2018 Farm Bill has helped normalize and sustain hemp and CBD-related products for the long term.

CBD in chain retailers

Not long ago, in 2017, nearly two-thirds of CBD sales took place online, with one-quarter coming from smoke shops and dispensaries combined, and only a fraction from natural food stores (8%) and health practitioners (less than 1%). Last year, the market underwent a transformation to become much more brick-and-mortar oriented, with only roughly one-fourth of sales born online and a diverse mix of other channels—primarily natural food stores and smoke shops—accounting for the remainder of revenues.

The real impetus for most of this year’s impressive growth is the volume of sales moving through the chained retail channel. The entry of mass retailers into the market commenced with major pharmacy chains, including CVS, Walgreens and Rite-Aid, which began to offer a range of topical products in a limited number of stores around the country at the beginning of Q2.

They were soon followed by supplements retailers such as GNC and the Vitamin Shoppe. In mid-year, grocery chains, such as Kroger, began to join the fold. Growth is taking place at such a rapid clip, in fact, that by the end of this year, more than 16,000 chain retailers are expected to carry CBD products.

Over the short- to medium-term, expect to see continuing expansion in big box pharmacies and grocery chains as well as the addition of supercenters, gyms, pet, natural food, convenience and other mass retailers. Because of the higher stakes involved, decision-makers in this channel are simply awaiting FDA clarity on a regulatory framework for non-pharmaceutical CBD products before expanding the variety of compliant CBD products offered on their shelves, making them available in all outlets or beginning to carry FDA-compliant CBD goods. Despite FDA-related delays, the vast reach of chain retailers is expected to garner 57% of market revenues this year, and 68% by 2023.

Big pharma

The pharmaceuticals channel is based on products distributed by prescription only, as authorized by the FDA. This year, the only CBD pharmaceutical products are sold by GW Pharmaceuticals (GWP) under the brand name Epidiolex. That’s because the company came up with the pioneering prescription for a plant-based CBD medication and won formal FDA approval. Epidiolex is an oral formulation of purified CBD designed to treat seizures associated with two rare and severe early-onset, drug-resistant epilepsy syndromes. Despite the small market for rare seizure conditions and supply barriers, Epidiolex sales have been impressive.

At least 80 cannabidiol-related clinical trials have been conducted this year or are slated for completion by the end of the year. The same number are already on deck for the next five years, including 43 scheduled for next year alone. It’s likely that only a fraction of the studies will lead to FDA approval of CBD-based medications for epilepsy and other conditions, which will subsequently enter the pharmaceuticals market. In anticipation of this, combined with the continued growth of Epidiolex sales, the CBD pharmaceuticals market is set to reach $2.8 billion in 2023.

Drinks

More than 80% of CBD drink users are age 45 or younger

Gummies

Users lean slightly older, with three-fourths over age 30. The gummy market is set to reach $309 million in 2019, and $715 million in 2023.

Incredible edible growth

Edible hemp-derived CBD products, such as gummies, candies, chocolate, baked goods and beverages, are not only growing in popularity among current CBD users but also drawing in new users, given their approachability and familiarity to the average consumer.

These CBD products have been a useful and popular delivery channel that addresses a wide range of symptoms, especially side-effects from cancer treatment, such as nausea, pain and insomnia. Edibles are often easy on the stomach and have slower release and longer-lasting effects. Because they’re easy to consume, discreet and tend to taste good, CBD-infused edibles are also great for first-time users. Thus, this category has become home to trendy products bolstered by CBD’s sudden launch to fame, inlcuding gourmet chocolates, lattes, and even CBD-infused hamburgers.

Though the edibles categories continue to make up a smaller fraction of the market, totaling 12% this year, retailers’ reports are consumer data reflects an increasing demand for edibles—

especially drinks—during the five-year term. Smaller revenue figures reflect a comparatively lower price tag per CBD food or beverages versus products like tinctures. And sales have been dampened this year by the FDA’s decision to prohibit selling CBD-infused food additives—a product category that includes edibles.

However, with the impending FDA authorization of edible products, followed by the inevitable entry of behemoth consumer packaged goods companies into the sector, combined CBD edibles sales are set to become a $2.5 billion market by 2023.

CBD-infused lattes are sold at cafes throughout the country now but weren’t widely available as recently as last year. Meanwhile, manufacturers are beginning to sell CBD-infused coffee beans. CBD-infused beer has begun to appear at craft breweries, and macrobreweries like Anheuser-Busch InBev are contemplating similar products. Manufacturers are adding CBD to sparkling water, energy shots and workout beverages (including protein shakes). CBD has landed on the shelves at supplement chain GNC, and Coca-Cola is eying CBD-infused “functional wellness beverages.”

U.S. retail sales of sports and energy drinks amounted to approximately $9.6 billion in 2013 and have expanded greatly since then. Beer sales in the country totaled $35 billion last year. In 2016, U.S. coffee and snack shop revenues reached $32.46 billion. Extraordinary opportunities for growth abound in the CBD-infused beverage sector, whether drinks are positioned for functional wellness, athletic endurance or simply as a substitute or supplement to alcohol.

Other edibles include anything outside the beverage and gummy categories, such as gum, chocolates, baked goods and savory products. Major manufacturers offering those products include Restorative Botanicals, which carries a caramels line. Diamond CBD sells honey products, cake pops and popcorn. Carl’s Jr. has even rolled out a CBD hamburger. Some edibles haven’t garnered as much attention or traction as drinks or gummy products but will continue to play a secondary role on the CBD market.

REGULATION, PLEASE! AN ADVOCACY GROUP’S UNIQUE PERSPECTIVE

As in any unregulated but promising market, some unscrupulous CBD merchants are making false claims and selling substandard products

by Ed McKinley

Seeking someone who understands CBD and can talk about it objectively, luckbox contacted Paul Armentano, deputy director of the National Organization for the Reform of Marijuana Laws (NORML) and the NORML Foundation in Washington.

Armentano has studied cannabis and cannabis policy for 25 years with the aim of making marijuana legal for responsible adults. In the process he couldn’t help but learn a lot about CBD because it comes from the same plant.

He claims to speak without prejudice about CBD because NORML doesn’t have an economic interest in expanding the market for the product. Besides, NORML considers itself a consumer advocacy group, so he’d like to alert the citizenry to what he considers hazards in the commercial CBD market—whether online, in health food stores or at gas stations.

Armentano’s written for more than 200 publications on the subjects of marijuana policy and marijuana science, and he cowrote a book about cannabis and social policy called Marijuana is Safer: So Why Are We Driving People to Drink?

Paul Armentanor, deputy director of the National Organization for the reform of Marijuana Laws

Tell us about CBD.

Armentano: CBD stands for cannabidiol, one of more than a hundred unique organic constituents called cannabinoids found in the marijuana plant. Cannabinoids are chemicals that cause drug-like effects. Scientists identified and isolated CBD back in 1940. As early as the 1950s researchers understood this compound possesses therapeutic properties, including potential as an anticonvulsant, anti-inflammatory agent, antipsychotic and anti-anxiety agent.

What does NORML think about the current furor over CBD?

Much of the narrative surrounding CBD is simply factually incorrect. Unfortunately, almost all of the individuals driving the conversation on CBD have a financial stake in the growth of the CBD industry, and that’s why they’re often confusing on many of the issues.

What could bring clarity?

We’re trying to demystify some of the less-than-accurate claims that are out there and calling for the Food and Drug Administration (FDA) to regulate this market. As with any unregulated market there are literally no rules with regard to who can enter the business. No accepted best practices govern the CBD extraction process from hemp. No regulations monitor the quality or the sourcing of the hemp itself.

CBD and the FDA

Congress changed a federal law last year to make it clear the Food and Drug Administration (FDA) will ultimately regulate the market for hemp-derived CBD products. Meanwhile, the FDA has remained adamant that most commercial CBD products are now marketed in ways that violate the Food, Drug and Cosmetics Act. That’s why the FDA has formed a working group to resolve CBD issues, says Paul Armentano, deputy director of the National Organization for the Reform of Marijuana Laws (NORML). But the FDA acknowledges it may take years to hash out regulations that enable the CBD market to operate like other legal businesses. “As of now, it remains largely a grey area, and I foresee that continuing for quite some time,” Armentano contends.

Does CBD work?

You’ll find very little doubt among those educated in this space that CBD clearly possesses specific therapeutic properties. It definitely can be therapeutic for some people when used at the proper dosage.

How important is dosage?

CBD’s impact is dose-specific. The relatively low amount of CBD in most commercial products would be considered subtherapeutic based on the much-higher doses necessary in clinical trials to yield statistically significant results. As an antipsychotic, the daily doses required are up to 750mg CBD, compared with 5mg advertised on the label of some products.

Why are they scrimping on CBD?

Maybe it’s because they’re trying to derive it from traditional hemp plants. Traditional hemp is not a particularly viable source for CBD extraction. Therefore, it’s not surprising that many products that claim to be derived from traditional hemp contain very little CBD.

Why’s hemp a bad source of CBD?

Traditional hemp is low in actual CBD. Traditionally, industrial hemp was grown for its fiber content. CBD is a cannabinoid and, like all cannabinoids, it is found most prominently in the flowering tops of the female plant. It’s not found in the stalk, it’s not particularly prevalent in the leaves and it’s not found in the seeds or the roots. So, a traditional hemp plant grown largely for fiber content is not an ideal source for cannabinoid extraction. A more traditional cannabis plant and the flowering tops of the female cannabis plant are going to be the more ideal source.

Should consumers accept CBD marketing claims?

It’s a free-for-all with regard to how these products are marketed. I receive unsolicited emails in my inbox just about every day from companies claiming that all the sharks on Shark Tank have gone all-in on a CBD coffee or a CBD-topical product. It’s really offensive to read these things day after day.

Unfortunately, you have folks who are ready to dive right into an unregulated market and make claims they could never get away with in a regulated market. It’s gimmick marketing like adding a shot of CBD to your expresso—as though there would be anything therapeutic about that.

Does the public need to protect itself from CBD?

Industrial hemp tends to be a bioaccumulator, which means that it may gather contaminants from the soil and could potentially pass them on to the end user through the extraction process. They also have additives, things in addition to CBD that aren’t supposed to be there.

What business opportunities do you foresee for CBD?

Clearly, there is a market. My expectation is that this market will continue to grow, but if the market continues to be unregulated and is largely filled by ethically challenged players, there ultimately could be a backlash from the consumer.

Assuming this market is regulated in the next few years, larger more-traditional players will get involved. But I don’t think that’s going to happen until there is much more clarity in the marketplace. Until then, we’re going to see the market limited to much smaller players willing to take more risk. In some cases, those smaller players engage in predatory practices, unfortunately.

“Recommended daily doses are up to 750mg CBD, compared with 5mg advertised on the label of some products”

What advice would you offer regulators and legislators?

The FDA recently held its first public hearing on this issue. NORML was one of a number of groups that submitted testimony and called upon the FDA to move forward with regulation. Specific regulatory language is needed for all parts of this chain—from the sourcing of the hemp itself to the extraction of CBD to the standardization and testing of the end product itself to providing greater legal clarity for consumers. There is none today. There certainly needs to be some in the future.

What can CBD consumers do to negotiate the CBD market?

We have a 50-state patchwork of marijuana regulations, but the majority of states have medical marijuana access laws. In most of those states, products have been subject to third-party lab testing and are accurately labeled. Individuals in those 33 states are far more likely to obtain CBD-specific product in a dispensary that is of greater quality than one would find in the commercial market. That is because that dispensary is regulated in a manner similar to many other consumer goods. Individuals who live outside of states that possess such regulation are in a “buyer beware” situation with regard to the quality and purity of those products.

The New Catch-22

In December, Congress amended The Controlled Substances Act of 1970 to carve out an exemption for industrial hemp, which is defined as marijuana fibers with no more than 0.3% THC— the plant’s primary psychoactive agent.

The new provision also frees products derived from hemp from federal drug laws. Hence, CBD products have become legal in the eyes of the Feds.

But a twist in the law calls for dual licensing, which means anyone who grows hemp or produces hemp products has to possess not only a state license but also a federal license from the Department of Agriculture.

Unfortunately, the USDA has yet to finalize regulations that would enable CBD entrepreneurs to apply for a license. Meanwhile, some states have passed rules or laws concerning licensing, while others haven’t. So, no one has both a state and federal license, meaning that no one can comply with the new federal law, according to Armentano.

“Any CBD marketer who says their product is legal in all 50 states is lying,” he maintains, adding that “it’s a very standard claim.”

THIS CBD MANUFACTURER WELCOMES OVERSIGHT BUT WITH A CAVEAT

Regulators should not limit the public’s access to the THC-free cannabinoid, a CBD entrepreneur says

By Ed McKinley

Federal regulation could ensure the purity, potency and effectiveness of CBD products while curbing the industry’s unfounded medical claims, overzealous marketing and false advertising. But regulators should stop short of imposing requirements that limit the public’s access to the relaxing benefits of CBD tinctures, ingestibles and topical agents.

Those are the thoughts of CBD entrepreneur and advocate Amy Duncan, founder and CEO of Mowellens, a firm she refers to as “a conscious CBD wellness company.” Duncan doesn’t take those positions lightly. She arrived at them after working in the medical device and biotech industries, studying the business side of the American healthcare industry, caring for a spouse stricken with brain cancer, and observing her spouse’s dutiful acquiescence to Western medicine.

Oversight by the U.S. Food and Drug Administration (FDA) could include third-party lab testing to ensure the purity of CBD products, Duncan says. “The harm that we see comes

when CBD is synthetically derived, when it’s riddled with solvents, pesticides, microbials and heavy metals,” she asserts. “There’s risk when you’re dealing with a dirty product.”

Duncan finds herself on an email list of about a hundred CBD industry players who receive messages from China bearing an iPhone image of a jar of CBD oil shot against a background that provides no sense of where the picture was taken. “It’ll say honey-cut CBD oil, $700 a kilo,” she recalls. “And that’s far below the price point in the U.S.”

Considering a CBD-infused product like The Keeper’s Stash a dietary supplement could limit regulation

The email message doesn’t provide a clue as to where the hemp was grown, who grew it or what additives have been introduced, Duncan complains. “It’s just scary,” she exclaims. “People have to make an ethical decision about whether they’re in this industry for the right reasons or if they’re just in it to make money.”

In contrast to the uncertainty of that offer, Duncan works closely with a hemp farm that tracks its product religiously. She even prints a QR code on her CBD product packaging that customers can scan to view a Google Earth snapshot of the row where the hemp was grown.

Besides demanding purity, the FDA could also ensure that marketers don’t make claims that aren’t substantiated by scientific research, Duncan says. “The packaging and labeling claims that we see put accessibility, the wellness industry and CBD in jeopardy,” she notes.

Regulations already ban marketers of herbal or dietary supplements—such as CBD—from claiming their products diagnose, treat, cure or prevent any illness, Duncan says. That means purveyors of CBD products should not make promises on labels or websites about reducing inflammation, anxiety and depression, she maintains. Failing to staunch such claims could result in strict regulation, she fears.

Broad marketing claims also cause problems because not everyone reacts to CBD the same way. Duncan takes CBD in the middle of the afternoon to stay productive, while someone else might take the same dose to fall asleep at night. “I hate to paint a false hope for people,” Duncan says of making CBD promises that may not come true. “We like for people to experience it themselves, knowing that they’re not in harm’s way and that they can ask questions,” she says.

At any rate, prohibitions on medical claims could end as clinical studies explore CBD’s effects, Duncan says. Anecdotal evidence supports some of the claims and studies could back them up. So far, research into the endocannabinoid system—which regulates some the body’s processes and contains receptors sensitive to THC and CBD—has remained scarce because of the stigma attached to cannabis.

In the meantime, Duncan has found ways of conveying what she views as the benefits of her products without resorting to medical terminology. “It has a very calming, relaxing impact on the body and allows you to handle the stresses of day-to-day life,” she says. “It also any can help with any areas of the body that can hold tension. I call it meditation in a bottle.”

That brings Duncan to the topic of spirituality and CBD. “When it crosses into ethical questions associated with the industry, it crosses into morals and values of the leaders who are operating and trailblazing this industry,” she says. Many CBD entrepreneurs are women working to do the right thing, she concludes.

“The reason I entered the industry is this personal journey I had been on,” Duncan says. “I wanted to return to balance, provide for my family, and have flexibility and freedom.” When she made the decision to pursue freedom, all the elements of her life aligned. “I know this is where I was meant to be.”

That passion makes Duncan worry that the FDA might go too far if it begins to oversee the CBD industry. If the agency demands the extensive clinical trials required for new pharmaceuticals, it could block the public’s access to CBD for a long time. Instead, she’d prefer the FDA assign CBD to “both lanes,” treating it as both a pharmaceutical and a dietary supplement. That way, the industry could continue to help customers, Duncan says.

Mowellens CEO Amy Duncan sent luckbox to the dictionary twice. Here are the results.

Endocannabinoid: Receptors in the body’s endocannabinoid system react to the cannabinoids in cannabis and hemp. The receptors find a home in the brain, organs, connective tissues, immune cells and glands. It’s interesting that the body’s specifically designed to respond to THC and CBD.

Pharmacogenetics: The study of inherited genetic differences in drug metabolic pathways is called pharmacogenetics. It identifies an individual’s therapeutic and adverse reactions to substances— such as CBD. Thus it explains why CBD affects individuals differently, or perhaps not at all.

Mowellens Adds to its CBD Offerings

The family of CBD products sold by Mowellens is expected to increase next month from five to 17.

The new roster is slated to include five ingestibles and 12 skincare products. That’s up from three ingestibles and two skincare products.

Established Mowellens products bear spiritual names like its best-selling Inner Peace and Lit from Within, or humorous names like The Keeper’s Stash for CBD-infused honey.

Inspiration in Adversity

Amy Duncan, who went on to become CEO of Mowellens, a CBD products company, was studying at the University of Missouri at St. Louis in 2007 when she met her future husband, Chris Duncan. He was playing left field and first base for the Cardinals, who were then the world champions. He was also willing to dance to the Cupid Shuffle. They were married in 2011.

The next year he was diagnosed with brain cancer. But the surgery and chemo seemed to work, the cancer went into remission, and he learned to walk and talk again. The couple searched for CBD products to ease his suffering but rejected nearly all of them because they weren’t lab tested and had synthetic flavorings and artificial fragrances.

Amy Duncan, CEO of Mowellens, a CBD products company

So she decided to take a giant leap in 2016. She quit her sales and marketing job at a biotech company to start Mowellens, a provider of CBDinfused ingestibles and skincare products.

Then in October of that year a routine MRI scan showed Chris Duncan’s cancer had returned. The couple resumed their struggle and it continues today.

CBD: A PHYSICIAN’S PERSPECTIVE

Legalization is so important for people who use cannabis medically on a regular basis

By Vonetta Logan

An experienced physician, Chicago-based Dr. Rahul Khare, finds his patients benefit from CBD and THC but cautions against accepting below par products. He recently shared his thoughts on the present and future of cannabis.

Dr. Rahul Khare

Your thoughts on legalization?

Dr Rahul Khare: It’s great. It is so important for people who use cannabis medically on a weekly basis. Even assuming some recreation, I’d rather have my patients use a microdose of medical cannabis. It’s less addictive and has no liver toxicity. It does impair you but not to the extent that alcohol does. If you’re using it medically more than a couple of times a week, you’re going to save 30% on the taxes. That’s a huge amount. Secondly, you can grow up to five plants at home if you’re using it for pain or anxiety (in Illinois). You will know exactly where it came from and exactly what’s in it. There’s something beautiful about growing your own medicine.

How would you prescribe for pain management?

Now, we have high CBD content cannabis. It used to be just ibuprofen and Tylenol. Now there’s something stronger if you can’t sleep at night because of pain. Cannabis is the go-to. Yes, it’s great. A small micro dose of edibles is really changing the way we’re dealing with pain management.

Does the public need to protect itself from these products?

Well, yes and some of it is garbage. Some of it is coming from China. Don’t buy your medicine from the grocery store. Buy it from a reputable source and only buy something that’s been lab tested. All CBD is not made the same. It’s not FDA approved, it’s not looked at by the government and it’s not quality-tested. To be certain of quality you probably have to pay a little bit more. But it is worth it for anything you are putting in your body.

How would you prescribe for anxiety relief?

It is going to take you down from a baseline anxiety of six or seven (out of 10) to a four or five. It’s not going to reduce it all of the way. But, it is a natural way to decrease anxiety.

How important is dosage?

You can’t really overdose on it. But you don’t want to take too much because with any medication you should take the smallest amount that works. With CBD you want to start with about 8mg twice a day, and then you can up-titrate.

What advice would you offer cannabis users?

If you use cannabis get your card. Then you can go to the dispensary and freely talk about it with educated people and you can pick your strains and know what you are getting. Now you have a lab-tested cannabis.

Let’s step away from cannabis and talk about hemp and the CBD products. If you’re going to buy CBD, go to a place where you can look at all the different types for your symptoms, and then try it for a month. If it doesn’t work for you, so be it. But if it does, then you always will have it if there are times in your life when the anxiety goes up or your chronic pain flares up, and you will know what to do.

To hear the complete interview with Dr. Khare, visit the Connect the Dots podcast, hosted by luckbox contributing editor Vonetta Logan.

Rahul Khare, M.D., founded Innovative Express Care, an urgent and primary care center in Chicago’s Lincoln Park neighborhood. It focuses on mental health therapy, medical cannabis certification, pain management, ketamine and MedSpa. It’s at innovatewell.com. Khare spent six years at Northwestern Memorial Hospital, where he was assistant director of operations in the department of emergency medicine, and was an urgent care physician at Chicago’s Wrigley Field for eight years.

LOW EXPECTATIONS FOR THIS HIGH FLYER

Analysis of a contrarian take on Aurora Cannabis, a favorite marijuana stock among younger investors

By David Trainer & Sam McBride

Aurora Cannabis (ACB) has been on a tear for the last two years, but the company still has a long way to go to justify the market hype. Unrealized derivative gains led the company to an accounting profit last year, but real economic losses continue to mount.

Meanwhile, the company’s deceptively high revenue growth rate has been driven primarily by large acquisitions that burn cash and dilute shareholders. Share count has increased by more than seven times in recent years. Longterm, Aurora needs to grow revenue by 67% compounded annually for nine years and achieve net operating profit after tax (NOPAT) margins of ~20% (equal to Pfizer) to justify its $7.50 per share valuation.

“Very Unattractive” return on invested capital

Return on invested capital (ROIC) measures a company’s return on all cash invested in the business. It’s the truest measure of profitability. Stock valuations are more highly correlated to ROIC than any other metric.

Weighted-average cost of capital (WACC) is the average of debt and equity capital costs that all publicly traded companies with debt and equity stakeholders incur as a cost of operating.

Companies must earn an ROIC greater than WACC to generate positive economic earnings and create value for shareholders.

Aurora’s ROIC of (7%) for the trailing 12 months earns a Very Unattractive rating. ROIC is calculated as NOPAT of ($202) million divided by average invested capital of $2,893 million.

“Very Unattractive” free cash flow

Free cash flow (FCF) reflects the amount of cash free for distribution to all stakeholders (including debt and equity). FCF Yield divides free cash flow by enterprise value, which measures a company’s total value.

Using free cash flow yield to pick stocks is not a new strategy. However, there’s strategy that yields better results because it uses a better measure of free cash flow. In the same way New Constructs’ EEPS is a better measure of profitability than reported EPS, the New Constructs measure of FCF is better than traditional accounting-based FCF.

Aurora’s FCF is ($3.09 billion) for the trailing 12 months, and its current enterprise value is $8,3 billion. FCF Yield is (37.2%) and earns a Very Unattractive rating.

EBV book value is “Unattractive”

Price-to-economic book value (EBV) measures the difference between the market’s expectations for future profits and the no-growth value of the stock.

EBV measures the no-growth value of the company based on the company’s NOPAT.

When prices are higher than EBV, the market predicts the company’s NOPAT will increase and expectations for profit growth are reflected in the stock. If the stock price equals EBV, the market predicts NOPAT will remain the same and there are no expectations for profit growth reflected in the stock.

When stock prices are lower than EBV, the market predicts NOPAT will decrease and expectations for permanent profit decline are reflected in the stock.

In general, New Constructs likes to buy stocks with low expectations for profit growth and sell/short stocks with high expectations for profit growth.

Aurora’s current price-to-EBV per share is (2.3) and earns an Unattractive rating. Aurora’s stock price is $7.48, and its EBV per share for the trailing 12 months is ($3.30).

Making adjustments

New Constructs made 18 adjustments to convert Aurora’s reported 2018 earnings to net operating profit after tax, for a net impact of $106 million. Seven income adjustments of $172 million were made against 11 expense adjustments of $65 million.

Only 1% of companies requires more adjustments to reported earnings as a percent of revenue than Aurora to calculate NOPAT.

New Constructs made four adjustments for a net impact of $733 million to the discounted cash flow model for Aurora in the trailing 12 months, consisting entirely of adjustments that decrease value.

The most notable accounting distortion to the valuation metrics for Aurora in the trailing 12 months was the value of outstanding employee stock options (ESO) after tax. It was necessary to adjust shareholder value by $129 million, which is 2% of the firm’s market value. ESOs represent a liability based on future share dilution as employees exercise their options and add to the number of shares outstanding.

We believe Aurora embeds a Very Unattractive level of market expectations because of the large difference between the expected financial performance implied by its market price and the company’s historical performance. We recommend investors sell ACB.

David Trainer is CEO of New Constructs, an independent equity research firm that uses machine learning and natural language processing to parse corporate filings and to model economic earnings.

Sam McBride is an investment analyst at New Constructs. @newconstructs

Ways to get sort Aurora Cannabis (ACB)

The implied volatility (IV) of Aurora Cannabis (ACB) is approximately 46%. That means the stock is expected to increase or decrease in price by 46% over the next year. Compared with other cannabis-related stocks, it has a lower-than-average volatility—46% versus 66% within the sector (see Cherry Picks,pg. 50). The IV Rank of ACB is also toward the low end of its range. That implies that the stock is considerably lower than its average volatility over the past year. Several methods will achieve short exposure. Analysts at tastytrade provide some lower-risk alternatives to “naked” shorting the stock.

Probability of Success:

Short Stock: Roughly 50%

Long Put: The less paid for an in-the-money put option, the higher the probability of profit. Generally, though, the probability associated with the position is considerably less than 50%.

Long Put Spread: Can be as high as 90%, but generally around 50% if the strike bought is higher than the current price and the strike sold is less than the stock price.

Capital required to initiate the strategy (in a margin account):

Short Stock: This is a “hard to borrow” stock. It may be difficult to sell the stock short.

Long Put: The cost of capital for in-the-money puts is 5% to 20% of the stock’s price. Far out-of-the-money options can be cheaper to purchase, but the odds of success are considerably smaller.

Long Put Spread: The price paid for the put spread. A spread placed at the current price is roughly 50% of the price range.

Risk:

Short Stock: The risk is theoretically unlimited to the upside.

Long Put: The risk of loss is limited to the amount paid.

Long Put Spread: Limited to the amount paid for the spread.

Analysis:

Short Stock: Avoid short selling “hard to borrow” stocks. The risk and the costs associated with the position make profitable positions difficult to obtain.

Long Put: Avoid this lower-probability trade because it is theoretically impossible to increase the odds of success to above 50%. In addition, the high volatility makes put options particularly expensive to purchase.

Long Put Spread: In practice, a put spread often does not have a high probability of success, but the limited profit and risk make this a suitable strategy to speculate on the direction of the stock.

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