'Gold Rush': Cannabidiol Industry Booms Amid Uncertain Regulation

May 30, 2019
Originally published on May 30, 2019 8:07 am

Shea Castleberry works in a time capsule of sorts. He walks through the aisles of the Family Video store he manages in Murray, Ky., a small city surrounded by rolling farmland about two hours north of Nashville.

Next to the movies and popcorn, there's a new addition to his store that surprises some of his regulars.

"A lot of people are like 'a video store selling CBD?' But it really does tie into our values. Which is, we're here for the community," Castleberry said.

Cannabidiol, also known as CBD, is a compound that is increasingly becoming popular because of the alleged health benefits users report, ranging from better sleep, reduced anxiety and pain relief. Yet clinical studies are lacking for most claims.

It's derived from a type of cannabis called hemp, and the latest Farm Bill signed by President Trump in December legalized the cultivation of the crop at the federal level.

Retailers across the country, including Walgreens and CVS, have invested in the CBD industry since that point. Castleberry said his Family Video store began carrying CBD oil, lotion, gummies, lip balm and water, in April. But he stressed Family Video isn't just selling CBD just to get extra profit.

While the video rental giant Blockbuster went bankrupt almost a decade ago because of competition from online streaming companies like Netflix, hundreds of Family Video stores remain across the country, still renting out DVD copies of movies and TV shows that line the walls of each store.

"I love digital stuff, but there's still this kind of quality — it's like vinyl," Castleberry said, cracking an empty DVD case. "I'll be honest with people. I'll tell them that hasn't gotten really good reviews. Or 'I didn't like it, it wasn't for me.'"

Castleberry claims the company's CEO became inspired to sell CBD in Family Video stores after the substance helped with the CEO's elbow pain, and that the company now wants to now help others with the substance while making a profit.

"Forty-one years in the same business, in a quote-on-quote 'dying business,' says something about the people that own this company. They're not afraid to try things. If they don't work out, they don't work out. And we move onto the next thing."

Castleberry said CBD sales added about an extra $1,000 in revenue the past month. Yet these sales just represent a small fraction of the overall sales being made.

New Frontier Data, a Denver-based analytics firm that studies the cannabis industry, estimates CBD product sales were worth $390 million in 2018. That could triple to more than $1.2 billion dollars by 2022.

Newly formed companies that extract and process CBD and farmers who grow the hemp are also betting millions of dollars on this industry, but uncertainty in federal regulation, particularly whether CBD should be in food, is creating doubts of how far this industry can go.

The CBD boom

About an hour farther north of Murray is the even smaller town of Kevil, Ky., where millions of dollars are being invested inside an unremarkable warehouse.

"Actually on Thanksgiving Day, this was an empty shell. Construction didn't begin until after Thanksgiving, so we've come along way pretty quick," Aerosource-H co-founder Nathaniel Pape, said. "It's pretty exciting to be in the hot market right now, you know?"

The warehouse that makes up Aerosource-H is now full of bags filled with pungent hemp. The cannabis is then moved into a bleach white laboratory, where $3 million worth of whirring machines and freezers turn the crop into purified CBD. Pape thinks it looks somewhat like flour.

"I think you'll eventually see CBD everywhere. From your lotions, to your beverages, to your food, to whatever. And that's a good thing," Pape said.

Like Family Video, Pape says Aerosource-H primarily wants to help people with CBD while also making creating revenue. And they make a lot of it: a kilogram of purified CBD sells for around $6,000.

"We're one of the small people, actually. There are a lot of larger entities coming online. You know, our focus is on being the best we can be, containing the highest quality, the highest consistency, basically finding our niche in a gold rush," Pape said. "But it's also a little scary. Because you know in gold rushes, a lot of the people lose."

Some of that fear comes from the uncertainty of how the Food and Drug Administration will regulate certain aspects of CBD, potentially restricting the market for the compound.

Prescription or food product?

The FDA currently bans CBD in food products; under the Federal Food, Drug and Cosmetic Act, it's illegal to add FDA-regulated drugs into food.

The agency is taking comments Friday in a public hearing on how CBD should be regulated. It's the agency's first step toward deciding whether CBD should be regulated as a dietary supplement that can be added in food products, or a prescription-required drug — or both.

Kentucky Agriculture Commissioner Ryan Quarles said he wants CBD to be considered a dietary supplement because of the boost it could give to hemp farmers.

"We acknowledge the FDA has a wide range of possibilities with what they can do with these products. But we ask them not to regulate this growing industry to death," Quarles said.

And a lot of money is at stake. New Frontier Data Chief Knowledge Officer John Kagia believes the over $1 billion in sales predicted by his firm is largely dependent on if the FDA is lenient on regulation.

"While in the U.S., federal policy may be slow to move around marijuana, the clear kind of interest in advancing a national CBD policy means that there's an opportunity here for the U.S. to be a participant in this emerging global market," Kagia said. "The CBD market has clearly grown dramatically over the past 12 months. But we think this is still just the tip of a very large iceberg."

After the public hearing, the FDA plans to use the public comments to inform a federal working group looking "to explore potential pathways for dietary supplements and/or conventional foods containing CBD to be lawfully marketed."

Copyright 2019 WKMS. To see more, visit WKMS.

RACHEL MARTIN, HOST:

CBD has become a booming business. You can get CBD added to your coffee, buy lotions or lip balm that contains it. The CBD that you're currently seeing in the store is derived from the hemp plant and doesn't have the same effects as marijuana. This week, the FDA, though, is looking into whether the industry should be regulated. Liam Niemeyer of member station WKMS reports.

(SOUNDBITE OF FILM, "SECOND ACT")

LEAH REMINI: (As Joan) They gave you an apartment? Credit cards?

LIAM NIEMEYER, BYLINE: Shea Castleberry works in a time capsule of sorts.

SHEA CASTLEBERRY: Really cool section. Prequels and sequels.

(SOUNDBITE OF PRICE SCANNER BEEPING)

NIEMEYER: DVD copies of movies, old and new, line the walls of the Family Video store he manages in the college town of Murray, Ky. While other video rental stores went bankrupt, hundreds of family video stores are still around. But movie rentals and popcorn aren't the only thing for sale.

CASTLEBERRY: And a lot of people are like, a video store selling CBD? But it really does tie in to our values, which is, you know, we're here for the community.

NIEMEYER: Castleberry says the CEO of the company found pain relief from CBD and ever since then Family Video stores have carried CBD-infused oil, gummies and lip balm, and water. He says the products not only diversify his store but could give his customers access to something he believes has health benefits. CBD retailers like Family Video are just a small fraction of this CBD investment. New Frontier Data is a Denver-based analytics firm that studies the cannabis industry. It estimates sales of CBD products could triple to more than $1.2 billion by 2022. New companies that extract and process the CBD are also betting big on this industry.

Wow. The smell is even stronger in here.

NATHANIEL PAPE: Yeah. It's present, at least. But it smells good to me, actually (laughter).

NIEMEYER: Nathaniel Pape is chief operating officer of AeroSourceH. He takes me on a tour of his warehouse that kind of smells like pot. The bleach-white laboratory in Kevil, Ky., has $3 million worth of whirring machines and freezers that are turning pungent hemp into purified CBD.

PAPE: It looks just, like, basically a fine, white powder, almost like a flour.

NIEMEYER: A kilogram of this stuff sells for around $6,000. But Pape says the profit is secondary to the help a CBD could provide to users.

PAPE: It is a gold rush, and that's fantastic and it's super exciting, but it's also a little scary because as, you know, in gold rushes, a lot of the people lose.

NIEMEYER: Some of that fear comes from the uncertainty over how the Food and Drug Administration will regulate CBD. The agency currently banned CBD in food products. But that hasn't stopped some businesses from adding it to everything, from lattes to burgers. The FDA will decide whether CBD should be regulated as a dietary supplement that can be added to food products or only accessible by prescription. Kentucky Agriculture Commissioner Ryan Quarles says he wants CBD in food products because of the boost it could give to hemp farmers.

RYAN QUARLES: We acknowledge the FDA has a wide range of what they can do with these potential products, but we ask them to not regulate this growing industry to death.

NIEMEYER: Quarles says he's not sure if hemp can completely replace the state's fading tobacco industry, but he welcomes the almost $18 million Kentucky hemp farmers made last year. For NPR News, I'm Liam Niemeyer in Murray, Ky. Transcript provided by NPR, Copyright NPR.