“Now’s the time to get in.” That’s the advice for those unsure about entering the CBD market, from David Lukan, Founder and CEO of CocoCanna. ”From a business standpoint, it’s an industry that is just starting to show it's potential,” he adds, “and it’s going to continue to grow and grow.”
But it’s also a market with a lot of unknowns and a perplexing legal climate. We spoke with Lukan to discuss the legality and liability issues involved with CBD food and beverage products, and why he believes those issues shouldn’t discourage companies from getting started.
Lukan started CocoCanna roughly three years ago in response to demand for cannabis products within the food and beverage industry. Since his family has a background in coconut products, he decided to combine the two and develop cannabis-infused coconut water. It ended up being the perfect marriage, and the company is preparing for an official product launch.
“Since I've been in the industry,” Lukan says, “I've immersed myself full throttle. Attending and participating in as many seminars, talks, and workshops as well as getting certifications from industry leading educational institutions has been crucial. Hopefully, I can shed some light on the CBD market.”
The uncertain legal landscape
Of course, the greatest challenge currently facing CBD products is knowing what’s legal and what’s not. It’s a complex topic that’s changing day by day. And that’s causing some hesitation among companies considering a product launch in this area, as well as their equipment suppliers.
It’s even an issue when it comes to packaging. “One day they may say, ‘Okay, you need to have child-proof caps.’ You invest all this time and money into that path, then it completely changes overnight,” Lukan says.
But, overall, things seem to be moving in a positive direction. The 2018 Farm Bill signed in December officially removed hemp and its derivative products from the Controlled Substances Act, lifted restrictions on its use in research, and permitted interstate commerce. Lukan says, “It's impacted the industry in a great way, and lays the groundwork for the future of where cannabis is heading.”
But while it’s now safe to ship across state lines, that doesn’t mean hemp-derived CBD products are in the clear just yet. “You’re not allowed to add CBD to any product for human or animal consumption,” Lukan says. “You see foods that have CBD in them, you see beverages that have CBD in them, you see topical creams that have CBD in them. Under federal law, all that is still technically illegal.”
Yet retailers and restaurants across the country are advertising and selling such products. CVS and Walgreens recently announced their venture into CBD, and Carl’s Jr. offered a CBD burger earlier this year. “It's interesting to see how these national and multinational companies are putting their foot forward and moving ahead, leaving the regulations behind.”
As far as states go, the laws vary. And, Lukan adds, “that doesn't negate the federal umbrella.” The FDA is well aware of the CBD movement into the food industry, though, and held a public hearing on May 31 to collect information and comments on the matter. Lukan believes this is a step in the right direction, but it will likely take time before it generates official regulations.
“It could go in any which way,” he says, “but I'm looking forward to it being a positive outcome.” He thinks federal legalization of marijuana within the next three to five years is also a possibility.
Addressing equipment needs and liability concerns
Processing CBD requires the same sort of production equipment as other food and beverage applications, with an emphasis on precision control of dosages and temperatures.
“Where there is a true need in the industry as far as machinery goes, is on the cultivation side,” Lukan explains. “There is a huge demand and lack of supply.” This demand includes specialized equipment for growing and harvesting, as well as processing the plant and extracting CBD.
Many equipment manufacturers and suppliers have been reluctant to take on customers because of the gray areas surrounding the law and accountability.
Lukan makes three points to help clear up some of those concerns:
- Thanks to the Farm Bill, it’s safe to cross state lines with equipment that may have traces of hemp-derived CBD on it.
- Lukan hopes financial options for CBD processors will start to open up, too. “Now that hemp is legal, we should start to see financial institutions allowing people to take out small business loans.”
- “One thing to be aware of is that some manufacturers may be working with both hemp and marijuana.” To work around this, Lukan suggests asking customers to sign a release stating that they’ll be using the equipment for hemp, not marijuana. That doesn’t control how the customer ultimately chooses to use the equipment, but it should offer an additional layer of protection to the supplier.
Lukan shares that when he first started looking for equipment options, it was difficult to find companies willing to work with him. “I didn't even feel comfortable telling them what it was for, because they may say, ‘No we don't want to work with you,’ due to morality clauses in their other client contracts.” The suppliers were concerned that if other customers found out they were serving CBD companies, those customers would decide to take their business elsewhere.
“That is changing rapidly as we see more equipment suppliers coming on board,” Lukan says. “I think it would be beneficial to have mainstream suppliers come into the market and propose their services and products.”
Lukan says he’s had the best luck finding suppliers at cannabis trade shows and on online platforms like Leaf Link, which he describes as “the LinkedIn of the cannabis industry.” For suppliers hoping to connect with the growing number of CBD customers, it’s a good idea to have a presence in these spaces.
Product potential and market opportunities
Though there are still a lot of details to iron out, the market for cannabis products is growing rapidly and will likely continue to do so. “Right now the fastest-growing and strongest segment within the edibles category is candy,” Lukan says. Gummies are currently the consumer favorite here, followed closely by bites and chocolate.
Beverages make up a much smaller portion of the market, but it’s a segment Lukan expects to grow in the near future. Powdered drinks are also in development and experiencing some success. All of these products require processing and packaging equipment.
As CBD products continue to develop, Lukan would like to see a shift away from the morality concerns and toward broader acceptance. “Today's reality is that cannabis is becoming legalized across the world, and it’s time to embrace this evolution” he says. “Build a name for yourself within the industry. There are some great opportunities there if you choose to take them.”