CVS Health (CVS) said it would pull some products made by U.S. cannabis producer Curaleaf (CURLF) after the marijuana and hemp company received a warning letter from the Food and Drug Administration that said several of its hemp-based CBD products are “unapproved new drugs” that ran afoul of regulations.
The warning from the FDA and CVS’ decision arrived a little more than four months after Curaleaf said it would begin selling its hemp products in around 800 CVS Health (CVS) stores. That news catapulted Curaleaf stock around 31% higher the day after it was announced.
It also spurred hopes that products containing hemp-derived CBD, or cannabidiol, had a bright future in mainstream retail following legalization following the signature of the 2018 Farm Bill, which legalized hemp.
The FDA addressed the letter, dated Monday, to CEO Joseph Lusardi. It said Curaleaf had 15 days to notify the agency of steps it had taken to correct the violations.
In the letter, the agency flagged such products as Curaleaf’s CBD lotions, pain-relief patches, tinctures and vape pens. The FDA said those products were “misbranded drugs” that were being sold in violation of the Federal Food, Drug, and Cosmetic Act. The agency also said that its Bido CBD for Pets products were unapproved and unsafe.
In a statement on Tuesday, CVS said that the CBD products it sells at some of its stores were topical products only. The only Curaleaf products CVS is selling were its CBD lotion and transdermal patches.
“Following the FDA’s warning letter to Curaleaf, we will be removing these items from our CBD offering,” Mike DeAngelis, CVS’ senior director, corporate communications, said in an email.
In a follow-up, he added: “At this time we have no plans to resume selling these products once they are removed from our stores.” Curaleaf did not immediately respond when asked for its reaction.
The FDA notice sent Curaleaf stock 6% lower in over-the-counter trading on Tuesday. Some analysts shrugged off the impact of the FDA’s action and the impact of CVS on its overall sales. Other U.S. and Canadian marijuana stocks also fell.
The FDA’s notice comes months after it sent out an announcement, on the heels of the Farm Bill’s signing, stating that any cannabis product, hemp-derived or not, that claimed a therapeutic benefit had to get FDA approval before it could be sold interstate.
But as more states legalize cannabis, CBD, or cannabidiol, has soared in popularity, appearing in lattes, skin creams and other products, with a wide range of therapeutic claims attached. While many people use CBD for its calming, anti-inflammatory effects, hard research on its exact benefits has been in short supply. However, the FDA has approved the anti-seizure drug Epidiolex, which contains CBD. GW Pharmaceuticals (GWPH) makes Epidiolex.
In a statement earlier in the day, Curaleaf said that the letter “is currently under review by our legal counsel. We will respond to the letter within the 15 business-day time frame that FDA provides.”
The company added that it would work with the agency to address the issues outlined in the letter.
“We can reaffirm that nothing in the letter raises any issues concerning the safety of any Curaleaf product,” the company continued. “Curaleaf products are all derived from hemp and meet the requirements of the Farm bill.”
The FDA said it based the findings on a review of Curaleaf’s website and social media statements. The regulator alleged the company made a variety of health claims about CBD — including that the compound, found in hemp and marijuana plants, “has been linked” to treating Alzheimer’s and has “been demonstrated to have properties that counteract the growth or spread of cancer.”
The agency said the lotions, patches, tinctures and vape pens qualified as drugs “because they are intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease and/or intended to affect the structure or any function of the body.”
Those products qualified as “new drugs,” the agency said, because they were “not generally recognized as safe and effective for the above referenced uses.” The FDA said new drugs can’t be sold across state lines without its approval.
GMP Securities analyst Robert Fagan, earlier in the day, said the FDA’s action did not worry him.
“We are not overly concerned by this development, given the experience of CWEB which was issued an FDA warning letter in 2017, and continues to market its CBD products unabated,” GMP Securities analyst Robert Fagan said in an email, referring to Colorado-based CBD-maker Charlotte’s Web.
“While the introduction of CBD products, and shelf-placement within CVS stores made for good headlines for CURA, we believe they were not material to financial results,” he said in a research note earlier in the day.
The letter marks the latest move by regulators against North America’s upstart cannabis industry. In Canada, pot producer CannTrust (CTST) halted all cannabis sales and shipments this month “as a precaution” while regulators inspect a facility in Ontario.
Days earlier, CannTrust said regulators found it was growing cannabis in unlicensed rooms, putting thousands of kilograms of its weed “on hold” as a result. Canadian media outlets reported that a former employee had accused the company of trying to hide pot from those regulators.
Meanwhile, in the U.S., the Senate Committee on Banking, Housing and Urban Affairs on Tuesday held a hearing about banking issues for the cannabis industry.
Other Marijuana Stocks
Among other U.S. marijuana stocks, Acreage Holdings (ACRG) fell 3.3%.
Within Canadian marijuana stocks, Canopy Growth (CGC) added 1.7%. Tilray (TLRY) rose 1.9%. Aurora Cannabis (ACB) lost 0.7%.
CannTrust fell 4.4%.
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