CBD Up Close

Back in June 2018, the FDA approved the first drug comprised of CBD, which is a component of cannabis.

” The U.S. Food and Drug Administration today approved Epidiolex (cannabidiol) [CBD] oral solution for the treatment of seizures associated with two rare and severe forms of epilepsy, Lennox-Gastaut syndrome and Dravet syndrome, in patients two years of age and older. This is the first FDA-approved drug that contains a purified drug substance derived from marijuana. It is also the first FDA approval of a drug for the treatment of patients with Dravet syndrome. “

In 2019, that drug, Epidiolex, had sales of $300 million and the projection for 2020 is $500 million. This is tremendous growth seeing as the sales in Q4 2018 were less than $10 million.

This is definitely a bright spot in the cannabis industry and shows that CBD can have an impact on the drug market, albeit in a limited way right now.

Recent articles at Axios and the Wall Street Journal lay out the current state of play in the CBD industry. Basically, the CBD industry is at a standstill because the Food and Drug Administration (FDA) still hasn’t come out with rules and, worse than that, the little that they have said is to warn consumers about the potential drawbacks of CBD-infused foods and drinks.

This is beneficial to CBD startups in that the FDA’s warnings will prevent larger companies, such as Coca Cola and Pepsi, from entering the market at the moment but it’s not all positive for startups. The problem for startups will not be in having large food companies entering the marketplace, which is good, but rather the fact that it may become more difficult for startups to find large distribution partners.

Over the holidays, I did see CBD-infused products at Kohl’s while I was returning something from Amazon, so there are at least some retailers that are willing to take a chance on CBD products. Their thinking probably goes something along the lines of “CBD will be a big market and we want to get out in front of that” but if the FDA comes out with something more than notes of caution then you can expect those retailers to at the very least curtail their CBD-infused stock.

2019 was the year that saw CBD businesses establish themselves as legitimate players in multiple markets. There are CBD companies that make oils and tinctures, CBD beverage companies, CBD food companies, and others. And the reason for this is simple: CBD may yet prove to be a legitimate alternative for addictive prescription drugs treating a number of ailments and CBD has already proven to be helpful in preventing seizures in children.

However, funding CBD companies remains an issue. The industry has not yet reached a level where most investors feel comfortable investing in it yet and that goes for professional investors as well. Even though the CBD market is predicted to eclipse $24 billion in total sales in the next couple of years, the risks are still tangible and the lack of regulatory direction from the federal government, most notably the FDA, and state governments isn’t helping to reduce the industry’s risk profile.

So what are CBD businesses supposed to do in this climate? After all, they still need to raise money to fund their growth.

Crowdfunding may be what the industry needs over the next couple of years in order to meet its growth goals. One such company pursuing crowdfunding is TruBrain and they recently did an interview with Yahoo! Finance discussing their decision to turn to crowdfunding.

“So far we are loving it. This campaign focuses on turning customers into “Investomers,” which has worked very well for other companies building direct brands. We already have VCs backing us. Some have been very collaborative with TruBrain and continue to take active roles on our Board of Directors. We enjoy this institutional support. But just as we believe that the best brain food shouldn’t be reserved for only a select few, we don’t believe that only the wealthy should have the opportunity to invest in growing companies.”

One of the key takeaways from this interview is that crowdfunding is a great way to get your most passionate customers (literally) invested in your business. With equity crowdfunding, which is what TruBrain is doing, every person who puts in money gets an equity stake of the business. In other words, they own part of the business. Traditional crowdfunding campaigns gave people who put in money some kind of award, which usually is a discount on the product the campaign was built for or something else special.

While it is too early to tell how well similar crowdfunding campaigns will fair we can tell you that TruBrain has raised over $1 million for their campaign. This is good evidence that if a company has the right people on their team, a great product, and a good track record of performance and growth then crowdfunding campaigns can work out wonderfully.

So, will 2020 be the year of CBD crowdfunding? It’s certainly possible and it does look like a good way to raise funds in an industry that is still facing regulatory uncertainty.