Tenacious Report: The Future of Cannabis – Regulation for all
By our Chief Scientific Advisor
Summary
This essay examines the nascent cannabis industry and its bifurcated and confusing regulatory environment. Referencing the spirits industry and the successful introduction of regulations post-prohibition, consideration is given to how the cannabis industry can learn from this process to bring benefits to all stakeholders - investors, regulators, industry companies and individuals, governments and consumers – through the creation of a clear regulatory framework. An industry-led effort will be required to establish such a framework based on doses/units of cannabis to provide clarity for all stakeholders.
The key highlights are:
The cannabis sector is in a second phase of rapid growth after predictably stagnating after the first wave.
The bifurcated regulatory landscape for cannabis products remains a key issue for cannabis companies and investors with pharmaceutical regulation in the US and UK (FDA and MHRA) but also food and drinks industry regulation involved (e.g. FSA in the UK) with a lack of clear, overall guidance.
Through the introduction of a measure of a unit of alcohol, regulation in the spirits industry brought clarity for producers, governments, investors and consumers.
A regulatory framework for cannabis similar to the spirits industry is a logical step forward but will not be straightforward to introduce because there are multiple products – CBD, THC, – with different biological effects and routes of administration.
Stakeholders in the cannabis sector can all benefit from a transparent, regulatory framework.
Introduction
The cannabis industry is nascent and one that is about to undergo a period of significant growth. However, this is a second wave after predictably stagnating due to the first wave of investors and operators growing wary of the lack of transparency (and therefore forecastability of returns) in the sector. One contributory factor was the bifurcation of the regulatory landscape for cannabis products. This essay will examine the reasons for this along with referencing parallels with the spirits and pharmaceutical industries with the goal of highlighting a roadmap for the cannabis industry to improve regulation for the benefit of consumers, governments, investors and cannabis companies.
An industry-led effort will be required to establish such a regulatory framework with safety and efficacy correlated with defined doses/units of cannabis to provide clarity for all stakeholders. That is the need, indeed, the opportunity; develop regulation, for all.
Stakeholders – who are they and what factors should be considered?
There are multiple stakeholders within the cannabis sector with an interest in creating a sustainable industry. Who are the stakeholders and how will a regulatory framework help each stakeholder?
Governments – will ensure the safety of products, protecting consumers especially vulnerable people including children whilst enabling tax to be levied on cannabis products on a transparent ‘unit’ basis. In addition, the influence of ‘proceeds of crime’ can be reduced plus harvesting tax revenues from such a large, mostly illegal market, will be a positive message to the electorate.
Consumers – will make available cannabis products of higher quality with clear labelling of cannabis content from reputable suppliers providing choices for consumers through healthy competition.
Cannabis companies – will offer a transparent framework for product development and commercialisation creating a solid foundation for product investment and delivering shareholder returns from coveted products.
Investors – creation of a sector with credible investment opportunities with measurable potential returns.
Current Regulatory Landscape
Regulation is evolving in the cannabis sector albeit from two different perspectives.
The approval of cannabis-containing products by the Food & Drug Administration (FDA) in 2018 brought prescription-only (Rx) medicines to this market for the first time. Such approvals resulted from significant investment in lengthy preclinical and clinical development to provide the evidence for safety and efficacy convincing enough for regulators to approve such products. The products were Epidiolex in paediatric epilepsy, a product which only contains cannabidiol (CBD) and Sativex for pain associated with multiple sclerosis, a product which contains both CBD and tetrahydrocannabinol (THC). Annual sales of these products are growing towards hundreds of millions but the journey to approval took decades and many hundreds of millions of investment. Interestingly, the licensing of such products resulted in commercial interest with GW Pharma, the originator of these products, being acquired by Jazz for $7.2bn in early 2021.
The change in US federal legislation for ‘low’ THC containing hemp and hemp-derived products (<0.3% THC) by the FDA represented progress in regulation for consumer/wellness products. This change removed such cannabis products from being listed as controlled substances. However, the FDA reserves the right to regulate such products which further confuses the regulatory landscape. In contrast, in the UK regulatory approval for food and and wellness cannabis-containing products is via the novel foods route and requires an application containing technical and other details for approval by the Food Standards Agency (FSA). Interestingly¸ the FSA does provide guidance that healthy adults should not consume more than 70mg of CBD a day. It would appear that guidance is developing, slowly.
Despite these confusing regulations, discretionary spending on products legally containing cannabis (but with THC levels less than 0.2-0.3%) sold in retail and online settings is growing rapidly. Here, the proximity of these products to consumers makes marketing and branding critical; opportunities being grasped by the Food and Beverages (F&B) sector with a myriad of health and wellbeing products emerging. However, there are still many potentially dangerous products available of low quality, through unsafe supply channels.
Given the FDA regulates both product types in the US and the Medicines & Healthcare products Regulatory Agency and FSA regulate in the UK, there are different frameworks in different geographies - overall a fitting of this nascent industry into existing, perhaps not fit-for-purpose, regulatory frameworks resulting in a bifurcated approach with huge uncertainty for most of the cannabis sector.
Spirits Industry Regulation – a Case Study for Cannabis Regulation?
Given the cannabis industry is in a critical phase of development, can it benefit from the lessons from other industries such as spirits. During and post-prohibition, regulation was a key catalyst for commercial success in the spirits industry, a process that included standardising a measure of alcohol. The introduction of ABV by the spirits industry– a measure of the alcohol content of a liquid – provided certainty and transparency. Nowadays, following the definition of a unit of alcohol by the medical community, consumers can determine the alcohol content of drinks and make decisions on levels of consumption. Furthermore, there are legal limits for alcohol levels in blood that determine an individual’s fitness to drive. In addition to the certainty of standardisation for distillers and consumers, tax revenues are now levied appropriately tiered to the number of units thus benefiting government finances (the UK government generated over £11bn in tax revenues from alcohol in 2019-20). Finally, the establishment of the Portman Group over 30 years ago, an industry-led organisation, brought into place codes of practice and other instruments to provide a further framework for the spirits industry to operate under a banner of ‘the responsible use of alcohol’. Such industry ‘crossover’ is happening with groups such as the Wine and Spirits Wholesalers of America proposing that cannabis regulation should follow the same principles as alcohol.
Cannabis as a product family can benefit from the introduction of a standardised measure of the ‘active’ component i.e. a cannabis unit. However, unlike ethanol, which has no licensed medical use, cannabis and some of the better understood components of cannabis – CBD, THC – do have medical benefits including in both the pharmaceutical and wellness settings. To complicate matters, such cannabinoids have different activities, multiple formulations and routes of administration, which will make regulation complicated. Importantly, ethanol has a clearly understood concentration-effect relationship whereas cannabis, in particular CBD, does not, yet.
Despite these challenges, groups are proposing specific doses of THC (Freeman et al, Addiction, 2020) as a way to better regulate use. A dose of 5mg of THC is proposed based on clinical studies in drug naïve subjects which showed that such a dose resulted in ‘subjective intoxication effects’ with minimal risk of adverse acute effects. The demonstration of a dose and effect relationship, even if based on a ‘minimum’ clinical observation, is the starting point for the industry to move towards defining cannabis units. Here, a unit can be used to define the THC content of products, enabling transparent comparison across products for quality for manufactures and for consumers in addition to a taxable reference point for governments.
Cannabis Regulation – Further Considerations
What is clear from the initial foray into a THC unit definition is that the route of administration also has to be considered. Inhaled, injected, topical – all routes can deliver cannabis in appropriate formulations to the systemic circulation. However, the rate of uptake differs because the same dose of THC delivered via inhalation compared to topically could cause unwanted side effects. This is due to absorption into the blood via the lungs is usually very fast compared to absorption across the skin. Such complexity and heterogeneity in cannabis formulation and delivery means a more considered approach to standardisation will be required.
Given this complexity, one proposal is to develop a matrix regulatory framework. Such a framework would provide guidelines on cannabis doses (CBD and THC) for different routes of administration using specific formulations. In this way, safety considerations can be specific to each product and route of administration. A THC dose of 5mg by mouth is a potential starting point for this framework but also demonstrates that such a framework should be developed carefully and be built with clinical and other data.
A complication of cannabis products is the so called ‘entourage effect’ – a largely theoretical concept that mixtures of compounds (CBD/THC/terpenes/terpenoids) from cannabis contribute to the positive effects. Synergistic effects of different compounds are a well-known outcome in the pharmaceutical industry but evidence for a specific benefit in cannabis is lacking. There is anecdotal evidence that combination products containing CBD and THC have more beneficial effects than the individual components, but more work is required to better understand this aspect of cannabis and the impact on regulation; again, understanding at what doses potential synergies are observed needs to be determined in appropriate studies and this information fed into the framework.
A second proposal is to decouple the current regulation by the novel foods and pharmaceutical industries and create a new body to oversee cannabis regulation. The spirits industry provides a roadmap, including the role of the Portman Group, and with cannabis industry leadership but independent governance, a detailed regulatory framework could be developed that hybridises the pharmaceutical industry considerations for safety and efficacy with the F&B industry’s ability to generate commercially attractive products that generate sales and tax revenues. Considering the illegal cannabis market, estimated to be worth over $25bn in 2016 (Visual Capitalist), imagine converting this to a regulated, legal market. Here, with market forecasts of $50bn by 2026 in the US (Visual Capitalist), a new tax can be levied providing much need revenues for COVID-debt laden government finances.
Conclusion
There are clear incentives for all stakeholders in the cannabis industry - consumers, governments, investors and cannabis companies – for an improved regulatory framework. Consumers will be able to make informed product choices based on product quality and transparency from trusted suppliers. Governments will be able to better regulate to ensure products are safe for the general public and to levy tax revenues (important in the current challenging economic climate). Investors will better understand the market and investment opportunities and cannabis companies can operate in a transparent regulatory environment with clear roadmaps for product development. Companies selling poor quality, potentially unsafe products, will disappear.
This essay highlights an opportunity for the cannabis industry to learn from the spirits industry in adopting such a transparent regulatory framework. Regulation should include a definition of the safe and where necessary effective dose or unit of cannabis. However, as noted above, unlike alcohol, the cannabis product family will require different approaches for CBD and THC; further research is required to define a matrix of standardised units for CBD and THC containing products and their specific routes of administration and formulation. The next essay in this series will focus on the details of such a framework and how it would work.
This research can be coupled to industry self-regulation, perhaps by an industry-led organisation similar to the Portman Group in the spirits sector, which can provide leadership and policy frameworks, holding the cannabis industry to account and generating trustworthy information for consumers and governments.
The cannabis sector is at an exciting stage of growth and with appropriate industry-led regulation, this nascent industry can grow rapidly, but safely and profitably for the benefit of all stakeholders.
