Study: 90 Percent of CBD Businesses Are Operating in FDA ‘Gray Area’

The CBD market

The CBD market has a ton of potential to grow, as well as high regulatory uncertainties. Adam Berry/Getty Images

From CBD massaging oil to THC-infused chocolate and drinks to houses made of hemp… It doesn’t take a lot of hard research to notice that cannabis is riding a huge lifestyle wave rushing into the mainstream retail landscape.

A Millennial-led cultural shift from alcohol to cannabis, along with the recent legalization of marijuana in Canada and a growing number of U.S. states, makes it feel as though the cannabis sector is a promising and perfectly safe area in which to invest. Per one estimate, the U.S. cannabis market currently stands at about $32 billion and is poised to exceed $20 billion by 2024.

SEE ALSO: Here’s Why Weed’s Not Cool Anymore

Upon closer look, however, most of the lucrative CBD investment opportunities out there are actually not as risk-proof as they seem.

According to a new study by private market researcher CB Insights, more than 90 percent of private investments in the CBD sector are held by companies operating in the “FDA gray area,” meaning that their products don’t have approvals from the Food and Drug Administration (FDA) and have a fair chance of being rejected by the federal agency in the future.

Among the over 2,000 cannabis-related businesses and investment deals tracked by CB Insights, only four percent of the money is held by companies clearly operating within FDA guidelines. On the other end of the spectrum, an equal share of funding is held by companies clearly violating FDA guidelines.

Cannabis-related companies holding the remaining 92 percent of the funding have various level of risk of being rejected by the FDA.

Most of private funding in the CBD sector is held by companies that operate in the FDA's "gray area."

Most of private funding in the CBD sector is held by companies that operate in the FDA’s “gray area.” CB Insights

Some companies attempt to get around possible regulatory hurdles by avoiding direct involvement with cannabis while still making a profit from this business. For example, Ease, an on-demand delivery platform for cannabis products in California and Oregon, claims that it doesn’t even “touch the plant” because it doesn’t directly sell cannabis or employ drivers to deliver such products.

“But it’s generally still considered a cannabis-related business, and accordingly, it’s had to face a set of distinct challenges,” the CB Insights study noted.

As more CBD and cannabis-derived product categories emerge, the FDA has yet to decide what’s legal and what’s not.

“FDA recognizes the potential opportunities that cannabis or cannabis-derived compounds may offer and acknowledges the significant interest in these possibilities,” the federal agency wrote in a public note dated April 2. “However, FDA is aware that some companies are marketing products containing cannabis and cannabis-derived compounds in ways that violate the Federal Food, Drug and Cosmetic Act (FD&C Act) and that may put the health and safety of consumers at risk.”

Last month, the FDA held a public hearing for industry participants to share their experiences and opinions about cannabis products in order to inform the agency’s future regulatory path. As part of that hearing, the FDA also opened a docket for the general public to submit comments through July 16.

Study: 90 Percent of CBD Businesses Are Operating in FDA ‘Gray Area’