Despite risks, marijuana firms that make or distribute CBD products use e-commerce to build multistate brands

When President Donald Trump penned hemp legalization into law late last year via the Farm Bill, hemp companies obviously cheered.

But marijuana entrepreneurs also took careful note, because that landmark decision could offer fresh business opportunities to diversify into a plant now legal under federal law.

A growing number of marijuana businesses – and hemp-only companies – are finding new revenue and a wider consumer base by using e-commerce sites to sell and ship hemp-derived CBD products nationwide.

That’s despite the U.S. Food and Drug Administration’s explicit warnings that it is illegal to include CBD in food, cosmetics or dietary supplements.

The federal agency will eventually regulate hemp-derived CBD products, but there’s no timeline for rulemaking.

The bottom line: The market opportunity for CBD product manufacturers and distributors is too great to wait, one consultant said.

Consider the following:

  • Annual U.S. sales of hemp-derived CBD products could top $1 billion in 2019 and jump to $4.8 billion by 2022, according to Hemp Industry Daily.
  • The number of consumers who purchased products with high-CBD content nearly doubled in California last year, with baby boomers – a desirable demographic – driving growth, according to Eaze, a San Francisco cannabis technology company that facilitates on-demand legal delivery.
  • Sephora, Neiman Marcus, Barneys New York and DSW are among the traditional retailers that currently sell hemp-derived CBD products, which underscores the opportunity for mainstream distribution.

Amy Andrle, the co-founder of L’Eagle, a Denver-based marijuana producer and retailer, said she felt some urgency to create L’eela, a separate business that manufacturers and distributes hemp-derived CBD skin-care products.

Andrle, who ships L’eela’s products to 40 states, said businesses that enter the space early have an opportunity to establish market share and brand recognition ahead of anticipated consolidation.

“The race is being run, and we want to be in the pace group,” Andrle said.

“Having worked in the regulated cannabis market, you become somewhat comfortable with the idea of the risks associated with doing business, and you’re careful to protect yourself because you understand what it is you have on the line.”

What are the risks?

Denver lawyer Henry Baskerville tells cannabis clients that the legal perils for selling hemp-derived CBD products through e-commerce are extremely low, “but they aren’t zero.”

“You’re not selling cotton,” he noted.

Baskerville said would-be entrepreneurs should instead be concerned about business risks.

In terms of manufacturing hemp-derived CBD products, there is “such little regulation” that business owners are at greater risk of having their intellectual property stolen or of not having safeguards in place in case of a dissolution of a partnership, according to Baskerville.

In states where medical or recreational cannabis is illegal, there’s also a greater risk for hemp-derived CBD products shipped through the U.S. Postal Service to be confiscated, Baskerville said.

“Theoretically you could be prosecuted, but I haven’t seen it happen yet,” Baskerville said. “The chances the products are confiscated at the post office are much higher.”

For that reason, Baskerville recommends transferring the risk of loss to the customer in shipping agreements, meaning the manufacturer or distributor is not responsible for lost or stolen items.

Protecting business, educating consumers

The “massive” uptick in consumer interest in hemp-derived CBD products prompted San Francisco cannabis technology firm Eaze to launch Eaze Wellness, a marketplace for consumers to order these products, said Elizabeth Ashford, a spokeswoman for the company.

Eaze and others take a variety of steps to mitigate risks. For example:

  • L’eela and Eaze Wellness pay sales taxes to every state where they ship products.
  • Eaze Wellness requires its brand partners to have certificates of analysis that show products have been tested for potency and contaminants, and it does not feature products that make medical claims.
  • L’eela and Seattle-based Mr. Moxey’s Mints, a manufacturer of cannabis-infused and hemp-derived CBD mints, avoid making medical claims on their products’ labels, packaging and websites. “We have an obligation to be responsible actors,” Crane said. “I see products that overreach in some claims, and that paints the entire category in not a great light.”
  • Eaze Wellness, L’eela and Mr. Moxey’s Mints do not ship to states where hemp-derived CBD products are prohibited or where there has been enforcement action against product manufacturers. Tim Moxey, the founder of Mr. Moxey’s Mints, calls state regulations a “constantly moving target” but says it’s important to monitor rulemaking to stay “on the right side of the law.”
  • To combat rampant misinformation about hemp-derived CBD, Eaze Wellness also provides consumers with more information about its products, said Sheena Shiravi, a company spokeswoman. Eaze Wellness’ website answers frequently asked questions – including, “Is this legal?” – and will soon offer a guide to help consumers understand doses, she said.

“We’re cautiously optimistic” about federal and state rules for products that contain hemp-derived CBD, Andrle added.

“We hope this is going to be OK, but we know and accept that there’s a risk that it won’t be.”

Joey Peña may be reached at [email protected]

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