Earlier this week, the FDA announced that it couldn’t conclude CBD was safe, due to a lack of scientific data. Furthermore, the federal agency outlined a revised consumer update about concerns over the usage of CBD products. It warned consumers that CBD could cause liver injury, drowsiness, and diarrhea.
The FDA also sent warning letters to 15 cannabis companies for violating the Federal Food, Drug, and Cosmetic Act and wrongfully marketing their CBD products on product webpages, online store pages, and social media. Some of the companies claimed their products could treat various illnesses. The FDA asked the companies to reply within 15 days.
Analysts expect the FDA to get tougher
Following this news, analysts foresee the FDA tightening restrictions on CBD products. As reported by BNN Bloomberg, Jefferies analyst Owen Bennett expects the FDA to toughen up on CBD products amid consumers’ growing interest in CBD products and the recent vaping-related health concerns. He expects the FDA to back up their product launches with clinical study data. Earlier, Bennett was bullish on the CBD market. He expected the US CBD market to reach $3.5 billion by 2022. But, after the FDA warnings, he’s skeptical.
Meanwhile, MKM Partners’ Bill Kirk doesn’t think the FDA’s announcement will impact the cannabis sector much, as reported by MarketWatch on November 27. He said, “While U.S. CBD revenue is small or non-existent for most the companies, these acquisitions and strategic visions were/are the stepping stones to building a U.S. infrastructure ahead of better cannabis permissibility.” He added, “We expect the companies to downplay CBD food/beverage importance to their strategies, while also legally challenging the FDA’s evolving stance.”
The cannabis sector’s performance this year
This year, the cannabis sector has underperformed broader equity markets. The ETFMG Alternative Harvest ETF (MJ) has fallen 30.8% year-to-date, and Cresco Labs (CRLBF), MedMen Enterprises (MMEN)(MMNFF), and OrganiGram Holdings (OGI) have fallen 16.7%, 86.5%, and 25.8%, respectively. Meanwhile, the S&P 500 is up 25.8%.
Lower-than-expected earnings, vaping-related health concerns, and the thriving black market have dragged down the cannabis sector. However, the sector got a boost last week after the House Judiciary Committee cleared legislation to legalize marijuana federally. If the FDA implements restrictions on CBD products, we believe it could impact investor sentiment, further dragging down the sector. For more cannabis news, please check 420 Investor Daily.