Today’s highlight goes to Ty Burgess of One Biosciences!
BDSA research found that dispensary sales of CBD were up across all major legal markets. Dispensary dollar sales of CBD-infused edibles were up 73% versus last year and CBD-infused beverages were up 55%, but CBD supplements didn’t have the same spike. Why do you think edibles and beverages had a bigger sales spike during this pandemic and what has been the top COVID-19 products in your store’s inventory?
I think the spike in the beverages and edibles are simply due to the price point. When people go to retail outlets or dispensaries, they prefer to purchase a $7 beverage than buy a $100 bottle of pills. As far as sales of the other products, we actually saw a lift in our sales after the pandemic hit. We sell our product to retail outlets, practitioners, and to our online customers. We saw a decrease in our retail sales but had a pretty large spike in our online sale. I think it just depends on the actual outlet and geography itself. It’s kind of all over the board as far as where the volumes have increased or decreased. I think it just depended on the geography and the buyer, but I would say that definitely what’s driving the majority of the increase in sales would be just increased stress today.
According to the 2020 CBD Market Report, middle-class households (making $40,000 to $75,000) now account for nearly one-third of CBD consumers. This new demographic has stated that price is the second ranking product attribute that they consider. Has your business needed to develop new strategies to handle a price sensitive crowd and do you foresee any other changes with an increasing middle-class customer base?
We saw a contraction in our average order value and you can see it go up and down with what’s going on with the news and the fear in the market. But I would say our average order value shrunk 15 to 20%. People are definitely holding onto more of their cash and becoming more conscious of the value of the products they purchased. We did make some price adjustments on a couple of our products that were a bit too high for the market and saw a lift in the sales of those products as well. Overall, you can see trends with what’s going on in the news, during the election, when all that mess is going on. Definitely saw a decrease in purchases and then you’ll see the market go up and then the sales would go up. So everything follows the market. What’s in the news and what’s going on around the world definitely impact the purchases of products.
The Controlled Substance Act has rippling effects on cannabis organizations, where a cannabis-related business has limited opportunities to deduct business expenses from their taxes. The 2018 Farm Bill essentially removed CBD from this act, which makes it federally legal. Are there any additional regulations or public perception that has had negative effects on CBD businesses?
Taxation concerning marijuana is federally illegal. So when you’re calculating your margins, because you have to report for taxes through programs called the 280E to the IRS and if it’s actual marijuana, you can only deduct your cost of goods sold. So that would be your product itself. If you have a dispensary, the only thing you can deduct is the products. Your labor, your rent, and your expenses would not be able to be deducted. It’s also hard to get banking accounts. For CBD it’s federally legal in all 50 States, even the FDA continues to fail to regulate it for a number of reasons. CBD, from a taxation perspective, can be the taxed just like any other business. In regards to the banking, it’s a little bit hard to get a bank account as well for CBD businesses. There are a lot of loopholes you have to jump through to get the client merchant processing and banking in the business. It’s still sticky. So we’re waiting on Congress to add something to kind of stop that measure for those particular issues.
There’s this misconception of CBD versus marijuana and people think it’s the same thing oftentimes. Their concern is the fact that it’s not regulated by the FDA and the risk associated with that and if there’s any federal action that it could negatively impact them. So you primarily find credit unions that work in that space and are friendly to the CBD business. However, the amount of credit unions is limited. CBD is getting bigger and companies are becoming more accustomed to it. Companies like Square Merchant Processing have a beta program for CBD companies that allows merchant processing, but it has to undergo an underwriting process where you have to submit quite a bit of information. You also can’t make any claims around the structure or function of the actual CBD, so the marketing is a little bit tricky there as well. The industry has been asking the FDA for regulation for a few years now and they continue to stall and I have my theories around that as to why, because there’s heavy influence from pharma on the FDA, and it’s certainly a big threat to their business to have something that is so effective and natural that you can’t patent.
Some critics are worried that federal legalization of cannabis could send cash-strapped dispensaries into the arms of alcohol, soft drink, and tobacco giants. Canada-based Canopy Growth Corporation have also stated their intentions in selling drinks containing THC next year to compete with beer, rivaling Anheuser-Busch InBev AB, which controls 42% of the North American beer market. Do you hold a positive or negative outlook on new corporations diving into legalized cannabis?
There’s a lot of work going on in the background with some of these cannabis companies and others trying to figure out a way to get into the business and dominate the market. I honestly think it’s whatever we need to do to get the medicine to more people and I don’t care if it comes from a big company or a small company. The whole point is to get it into the hands of more people that it can benefit. However, it does hurt the smaller players in the long run once these larger companies start to commercialize their product and they have more reach and power and marketing dollars. The public is behind anything that a large company puts up. That’s why people eat junk food all the time, they aren’t aware of it. It’s all about the marketing and positioning and people don’t even realize that they’re being controlled through that kind of stuff. So there’s a science to it and I think that the overall attitude towards THC is changing and you’ve seen that over the last few years with legalization in certain States. The only concern I have is that it doesn’t get into the hands of the wrong people because cannabis isn’t for everyone, especially those with preexisting mental conditions like schizophrenia or bipolar, it’s not a good combination. So I think we’ll have some issues around that as it becomes more widespread, but overall I think there’s good and bad for the large companies that are in the market, but at least they’ll help change the perception of the medicine itself.
NeuroXPF, a CBD company based in Nevada, have stated that their products prevent COVID-19 by boosting the user’s immune system. The FDA and FTC issued a joint warning letter asserting that the claims are unsubstantiated, which violates the Federal Trade Commission Act. Do you see any concerns in supply lines, potential contamination of products, or any other logistical issues?
As far as the claims are concerned, the FDA will tell you everything you can’t say but they won’t tell you what you can say. You can say things like it helps the immune function or aids in relaxation, but you can’t make any direct claims as to how it may treat a disease. Even though there’s a preponderance of literature out there that does exhibit that CBD does help with certain things. I’m not even going to venture down the path of COVID-19, but I’ll tell you that there’s research out there that you can look at around CBD and its ability to bind to the ace 2 receptor, which is where the virus enters. So that research is being done and everyone can access it. It’s just not that prevalent in the public because it hasn’t gotten out yet. But as far as the claims are concerned, that’s very common for CBD companies to make inappropriate claims because they’re just not aware or they don’t get the proper counsel and start doing their marketing and don’t understand the intricacies of the regulatory aspect of it. So that is an issue and that is why we need regulation. If you’re not going to tell us what we can say, then tell us what we can’t. But that’s the problem with any plant medicine, right? Whether it’s CBD or psychedelics or any plant medicine is that you can’t patent them. Who’s going to put the money behind the research so that you can make those claims and submit that to the FDA? If you compare it to drugs, that 70% of drugs are synthesized from plants and they typically isolate one chemical, and then they study that chemical and then they patent it and they sell it as a drug. Well, with plant compounds and a broad spectrum CBD, for example, you might have 40 compounds that you’re studying. So, it’s not going to work the same on everyone and you can’t isolate that chemical to study it. So therein lies the problem that plant medicines, and people thinking that they don’t work when there’s tons of anecdotal evidence and tons of smaller studies that exhibits that they do. We just don’t have the money behind them to get those large scale studies.
We haven’t had any contamination issues. We partner with a company out of Colorado, which is the largest contract manufacturer or manufacturer of CBD products in the world actually, fully in bio-sciences. So they make our products for us and I did several months of research before we went into business to make sure that we were choosing a supplier that we could scale with and have quality measures in place. It’s not an uncomplicated process to make sure that you’re growing plants that aren’t contaminated and that it’s processed properly, and there’s no solvent and there’s no microbes, et cetera. So, you always want to go with a reputable player, but I will tell you that there’s a ton of companies out there that are not doing it right. So it makes it difficult for those of us that do want to do it right and I think as the market matures and we have additional regulations that will take care of itself, but right now we’re kind of in that weird space because there’s no one to regulate us.