Spring Showers

As we listened to the Charlotte’s Web conference call the last week of May, I was reminded of how early it is for the cannabis industry.  Charlotte’s, while providing a business update, was unable to communicate the names of their major distribution partners as they await guidance from the FDA.  It spoke both to current obstacles and forward opportunities in the space.

To that end, the FDA held its first CBD hearing on the last day in May, which highlighted a variety of often conflicting views and opinions.  One analyst who attended the meeting described it as “messy,” which we felt was an apt description.  Our primary takeaways were as follows:

As we listened to the Charlotte’s Web conference call during the last week of May, I was reminded of how early it is for the cannabis industry. Charlotte’s, while providing a business update, was unable to communicate the names of their major distribution partners as they await guidance from the FDA. It spoke both to current obstacles and to forward opportunities in the space.

To that end, the FDA held its first CBD hearing on the last day of May, which highlighted a variety of often conflicting views and opinions. One analyst who attended the meeting described it as “messy,” which we felt was an apt description. Our primary takeaways were as follows:

  • It shined a light on the clinical pathway, which is consistent with our view that a bifurcated pathway will emerge for consumer products and efficacy-driven solutions.

  • The crackdown on labels and claims is nothing new and in fact, we believe it bodes well for existing brands with topical solutions and robust distribution.

  • Like cannabis, we expect states to adopt their own CBD regulations, and we believe regional rollouts will follow until interstate commerce is allowed.

The other notable May event was the historic legislation that allowed Illinois to become the 11th state to fully legalize cannabis. This has significant implications as other states attempt to agree on legislation without resorting to the ballot box. This includes New Jersey, Connecticut, Maine, New Hampshire and New York (whose current legislative session ends on June 19).

May was a sloppy month for the cannabis complex, as evidenced by the 15% decline in the BI Global Cannabis Competitive Peers Index. We have been told that there was forced selling, or liquidation, in the cannabis space during the month, which squares with the price action. Reminiscent of December 2018, indiscriminate selling into a retail-dominated shareholder market is a recipe for volatility, and we believe opportunity, and we used the declines to rebuild some of the exposure that we pared heading into May.

Meanwhile, progress within the cannabis industry continued. Medical programs expanded in New York, New Jersey, Texas and Ohio; GW Pharmaceuticals reported positive Phase 3 pivotal trial results for Epidiolex® for seizures associated with TSC; the Texas House & Senate passed a hemp legalization bill and sent it to the governor for signature; and we expect the SAFE Act (banking reform) to begin making its way through the legislative process in the coming weeks.

As always, please don’t hesitate to contact us with any thoughts or questions. 

Todd Harrison

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todd harrison