Selling CBD-Based Products Online: Several Notable Challenges
Cannabidiol, commonly shortened to CBD, has been getting a substantial amount of attention since the passage of the Agricultural Improvement Act (the “Farm Bill”) seemingly legalized the sale of CBD-based products in late December of 2018. For those who are new to the topic, CBD is a non-psychoactive cannabinoid produced by Cannabis sativa L that may have substantial therapeutic potential. Rigorous scientific and medical studies, for instance, have found CBD to be an effective treatment for two forms of childhood epilepsy. Additionally, there is a developing literature which seems to support claims that CBD has efficacy in the management of pain, insomnia, and anxiety, among other things—though a great deal of research remains to be done to say for sure. Such potential benefits have attracted a large number of retailers (both brick-and-mortar and online) into the space; however, until the passage of the Farm Bill, CBD-based products were definitively illegal outside of the epilepsy drug Epidiolex (approved by the FDA in June 2018). In the months since the passage of the Farm Bill, something of a Green Rush has materialized as sellers maneuver to exploit what many see as the opportunity of a lifetime; however, a number of serious hurdles remain:
The legal status of CBD-based products remains murky (at best);
Properly sourcing CBD-based products demands high standards and controls;
The efficacy of CBD-based products in different applications is both widely misunderstood and misrepresented;
Advertising and selling limitations strip away the most common avenues for online sales (Google, Facebook, Amazon, etc.);
Few merchant services providers are willing to support CBD-based operations; and
Order fulfillment and shipping challenges create a particularly complex operational picture.
While there is little doubt that CBD-based products are going to have an impact on the health and wellness market in the long run, substantial complexity remains which could very well blunt the viability of the space in the short run.
The Legal Status of CBD-Based Products
Since the passage of the Farm Bill, conventional wisdom suggests that CBD-based products are legal to sell in the United States; however, the issue is substantially more complex and legality remains (at best) murky (see Order Fulfillment for Health and Wellness: Cannabidiol (CBD)-Based Products for more depth). Historically, federal law has treated Cannabis sativa L monolithically with any and all parts of the plant—from seeds to extracts, acids, salts, and polymers—classified as Schedule I controlled substances, regardless of strain. The Farm Bill is notable for establishing a line of demarcation based on the material presence of delta-9-tetrahydrocannabinol (THC), an intoxicating cannabinoid, and legalizing all parts of Cannabis sativa L strains, classified as industrial hemp, which produce minimal levels of THC (less than 0.3% of dry weight). This has led many to (somewhat logically) assume that CBD extracted from industrial hemp is legal to sell; however, because the FDA approved Epidiolex in 2018 (which includes CBD as an active ingredient), the agency has final say over the regulation of CBD in its most common forms (including food items, dietary supplements, and pet products) and their position is clear: regulatory guidelines are needed and since they do not yet exist, CBD-based products are not yet legal to sell per the FD&C Act.
Challenges Sourcing CBD-Based Products
For those sellers entering (or thinking about entering) the CBD space, sourcing decisions must be made with great care. Though the Farm Bill has laid the initial groundwork for legitimization, CBD can be extracted from the cross-section of strains of Cannabis sativa L—including those still scheduled due to THC levels. CBD extracted from illegal strains is absolutely not made legal by the Farm Bill or any other federal legislation for that matter. Accordingly, sellers must be certain that they are being supplied by licensed cultivators with CBD derived only from industrial hemp. Failure to do so puts at risk not only the business, but also its clients who can easily end up (quite unknowingly) on the wrong side of the law. Further, it is incumbent upon sellers to ensure that suppliers are producing safe products that are free of heavy metals, pesticides, and/or other contaminants such as chemicals utilized in the CBD extraction and refinement processes.
The Efficacy of CBD-Based Products
CBD may have a substantial amount of therapeutic potential; however, as of the writing of this post (April 2019), very little is definitively known about CBD and its efficacy. Given its status as an illegal substance over the past decades, scarce scientific research has been conducted regarding Cannabis sativa L and its many parts (CBD and THC are only two of more than one hundred cannabinoids). Of course, rigorous scientific and medical studies have found CBD to be an effective treatment for two forms of childhood epilepsy; however, the literature is otherwise sparse and many (if not most) claims of the therapeutic value of CBD remain fully unsubstantiated by legitimate studies.
Restrictions on Advertising and Selling CBD-Based Products
Due largely to the legal ambiguity, CBD-based products cannot currently be sold through traditional online channels. Google Ads, for instance, continues to list CBD as an unapproved pharmaceutical or supplement (which is in keeping with the FDA’s stance regarding most of its applications). Facebook also prohibits CBD advertisements on its platforms and even recently conducted a purge (since reversed) of CBD pages. Similarly, though you will find many listings for hemp-based products on Amazon (a channel representing nearly half of US e-commerce), you will not find any containing CBD as it remains strictly prohibited. Some major retailers, however, are beginning to warm up to CBD including Walmart, CVS, Walgreens, Neiman Marcus, and Sephora—all of whom have entered the space in recent months.
Merchant Services for CBD-Based Products
Merchant services can easily become a nightmare for e-commerce sellers doing everything by the book. Indeed though unexpected holds, account freezes, and terminations seem to be an unavoidable part of the e-commerce experience, CBD only complicates things that much further given its unclear legal standing. At present, the overwhelming majority of processors will not handle payments for the sellers of CBD-based products. This list includes PayPal, Stripe, Shopify Payments, and just about all of the others—with the exception of a small group of high-risk processors which presently includes PaymentCloud, EasyPayDirect, and SMB Global.
The Order Fulfillment and Shipping Challenges of CBD-Based Products
Many third-party order fulfillment providers are currently balking at the prospect of taking on CBD-based business due to the legal ambiguity surrounding it and the restrictions put in place by the carriers. The United States Postal Service (USPS), for instance, has recently outlined a number of conditions which must be met for CBD-based products to be shipped through its network—both of which create potential liability for not only CBD sellers, but also third-party order fulfillment providers. Notably, the cultivator of industrial hemp from which the CBD in question is derived must have a license granted by the Department of Agriculture for the state in which the accepting post office is located. Further, CBD-based products absolutely must not have THC levels which exceed the limit set by the Farm Bill (necessitating the inclusion of a Certificate of Analysis with each shipment to mitigate the risk of a trafficking offense). In terms of the main private carriers, FedEx still has CBD listed as a banned substance though UPS does not appear to have any restrictions in place at present.
CBD is likely going to remain a complicated space for months—perhaps, even years. Much revolves around the FDA and its willingness (or lack thereof) to quickly establish guidelines for the key product types over which it has control. On May 31, the FDA will be holding a public meeting to gather information from the public regarding CBD—information with which a high-level internal working group is expected to engage to establish next steps. For more information, please see Order Fulfillment for CBD Based Products.