Lately, Curaleaf (CURLF) stock received some attention from cannabis investors. The company announced the acquisition of GR Companies on July 17. The acquisition would make Curaleaf one of the biggest cannabis companies. To learn more, read Curaleaf Will Soon Be the World’s Largest Cannabis Company. After the announcement, Curaleaf stock closed almost 17% higher at 9.95 Canadian dollars.
Just five days after the GR Companies announcement, the FDA served Curaleaf with a warning letter. The FDA warned Curaleaf about promoting unapproved CBD-based products. Notably, the FDA also warned Curaleaf about misbranding its products. The company seemed to be promoting CBD-based products for alleviating certain medical conditions without FDA approval. The conditions include cancer, Alzheimer’s, Parkinson’s, schizophrenia, chronic pain, and eating disorders.
For example, Curaleaf promoted vape pens for chronic pain, CBD oil for ADHD and anxiety, and CBD lotion for pain relief. Curaleaf also came under the radar for promoting CBD as a dietary supplement. However, the FDA doesn’t consider CBD products to be “dietary supplements.” CBD doesn’t meet the “dietary supplement” definition. The FDA didn’t approve of the company’s promotion techniques on other products. According to the FDA, Curaleaf’s lotion and CBD tincture products aren’t “dietary supplements.”
The FDA also didn’t approve of how Curaleaf marketed CBD products for pets. The company said that the products could:
- decrease compulsive behavior
- reduce fear and anxiety
- relieve neurological issues and seizures
- shrink tumors
- manage cancer symptoms
Curaleaf stock impacts the cannabis sector
The US CBD market is extremely attractive. Overall, the market holds a lot of promise for cannabis companies. To gain a quick presence and market share, companies like Curaleaf could use aggressive marketing tactics. Read Why Is the US CBD Market So Attractive? to learn more. However, in this heavily regulated market, one misstep can send the company to the bottom.
With the FDA warning Curaleaf, the cannabis sector seems to have landed itself in hot water again. Curaleaf should have taken precautionary steps before marketing cannabis products that don’t comply with the FDA’s guidelines. Compliance violations create doubts for potential users.
The compliance issues are mainly due to a lack of clinical research conducted on CBD and cannabis products as a whole. In our series Medical Cannabis for Heart and Blood Pressure Patients, we discussed the issue in more detail. We discussed how experts reiterated that there isn’t enough research to make a substantial claim backed by science.
Companies like Canopy Growth (WEED) (CGC) and Tilray (TLRY), that are conducting clinical trials, need to establish a product that has passed the FDA’s necessary steps. Aurora Cannabis (ACB), which entered into a partnership with UFC to conduct clinical trials, will face similar scrutiny. To learn more, read Aurora Cannabis: New Clinical Trials on Hemp-CBD.
Denting investors’ trust
After the FDA’s warning, Curaleaf stock fell almost 8.7%. Notably, the cannabis industry is already facing several trust issues. Curaleaf’s compliance issues haven’t helped the situation. A few weeks ago, Health Canada said that CannTrust’s growth activities didn’t comply with its regulations. Even though CannTrust tried to control the damage, new information emerged against the company. As a result, CannTrust fired its CEO. The company demanded that its chairman of the board step down. There was some optimism in CannTrust, which gained by 15% after the news.
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The other side of the coin
Many cannabis companies don’t have a strong template or guidance when it comes to complying with the FDA. The FDA indicated that it’s still learning about the product. The FDA is working to strengthen its hemp-CBD derived product approval process.
What did Curaleaf say?
Curaleaf stated that it’s removing statements from its website that don’t comply with the FDA. Curaleaf’s CEO, Joseph Lusardi, said, “Our industry needs, wants and appreciates the work the FDA is doing to ensure there is regulation and compliance in the CBD marketplace.”
Following the company’s announcement, Canaccord Genuity raised the target price Curaleaf stock to 16 Canadian dollars from 14 Canadian dollars. The company’s consensus target price was 18.7 Canadian dollars, which would translate into a potential upside of 81% from the closing of 10.4 Canadian dollars on July 26.
Last week, most of the cannabis stocks ended in negative territory. HEXO (HEXO) lost almost 18%. CannTrust (CTST) lost 17%, while Aphria (APHA) fell 14%. The Horizons Marijuana Life Sciences ETF (HMMJ) lost 3.4% last week.