Hemp oil player plans distribution in CA dispensaries as first step in wider footprint in state

British Columbia-based Phivida markets a line of functional hemp oil-infused juices, tinctures and vitamin shots. CEO John-David Belfontaine said the company has entered into a distribution agreement that will place its products in more than 500 dispensaries throughout California.

Taking the best path to market

The vigorous product development ferment in the CBD space has been instructive, Belfontaine said. It allowed Phivida to sidestep some pitfalls first uncovered by others. One of the biggest of these potential impediments is that the US Food and Drug Administration has ruled that CBD, or cannabidiol, a non narcotic fraction of Cannabis sativa​, is not a legal dietary ingredient for use in dietary supplements. This is in part because of an exclusionary clause in federal regulation that precludes the use in a supplement of an ingredient that has first been researched as a drug. English company GW Pharmaceuticals has filed Investigational New Drug applications on CBD for drugs to treat childhood epilepsy.

“​We were not the first to market, and that was good in a way. All of our competitors have supplement facts panels on their products. We positioned our company as a functional food company and all of our products are sold with nutritional facts labels on them,​”​ Belfontaine told NutraIngredients-USA.

Another obvious regulatory impediment is the fact that cannabis is a schedule 1 controlled substance at the federal level. Last week US Attorney General Jeff Sessions rescinded an Obama Administration policy to take a hands off stance on marijuana enforcement​​ in those states or territories where recreational use had been approved by voters (with California, the number now stands at five). Sessions’ action frees US prosecutors at the state level to bring marijuana enforcement cases if they choose to do so, but it appears this will have little immediate effect. Bob Troyer, the US attorney for the district of Colorado, another recreational marijuana state, has said enforcement policies there will not change. And in any case, industrial hemp (or cannabis cultivars with little or no THC, the narcotic fraction of the plant) is a legal source of food ingredients.

Securing the raw material supply

One issue that could still loom over the category is the supply of raw materials. Phivida, like some other players in the hemp/CBD space, has relied on imported hemp from Europe because the supply was more reliable there. Early in the development of industrial hemp production in the US some growers reported difficulty in getting reliable supplies of seed, because the Drug Enforcement Agency had interdicted some shipments, based in part on the difficulty of differentiating between high THC cannabis seeds and low THC hemp seeds.

“​There is a lot of confusion and you can​’​t blame the regulators. But if you go through a state-sanctioned breeder whose genetics are regulated by the state you are more solid ground,​”​ Belfontaine said.

Phivida works with an industrial hemp grower in Colorado, where industrial hemp operations can get state permits, and has supply arrangements in Europe. If the supplies his company has been able to contract for are any measure, a supply shortage will not be an issue for the category any time soon.

“​We have a supplier in Colorado with 2,200 acres and another in Europe with 10,000 acres of hemp. That​’​s a massive supply. One of the advantages of working with hemp is that it​’​s agribusiness. We don​’​t have to grow our crops indoors like the medicinal marijuana people do, with all of the costs associated with that. And the banks have been more willing to work with hemp growers. Some of these people have even received USDA grants,​”​ Belfontaine said.

Dispensaries form good second step

The plan in California is to eventually expand beyond dispensaries to move into health food stores and other outlets in the natural channel. But Belfontaine said dispensaries are a good intermediate step, because even though Phivida is not making any claims on its products, the customers who frequent these stores already know what health benefits the products can have.

“​Our first channel of distribution was naturopathic clinics and other similar health care providers. Our original business plan omitted the dispensary market.  But in a true medicinal dispensary you have a very informed patient base that is looking for these products,​”​ Belfontaine said.

“​Plant-based nutraceuticals is a huge trending area of growth. Functional foods are taking over, with compound annual growth rates approaching double digits versus flat to negative growth rates for conventional foods. This will eventually be a mainstream play where functional foods containing cannabinoids will be found in natural ​specialty​ grocers, fitness centers and other outlets,​”​ he said.