Synthetic Profits

November 1, 2023 · MG Magazine

There is no shortage of unintended legislative consequences in the brief history of legal cannabis, but the 2018 Agricultural Improvement Act—popularly known as the Farm Bill—may take the cake. Most notoriously, the bill federally legalized hemp, which the legislation defines as Cannabis sativa L. and “any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers” as long as they contain no more than 0.3 percent tetrahydrocannabinol (THC) by dry weight. All other plants, products, derivatives, et cetera, that fall within the genus Cannabis remain federally prohibited Schedule I substances under the Controlled Substances Act.

Kentucky Republican Mitch McConnell, who was senate majority leader at the time, was one of the biggest champions of the commercial hemp industry and rallied support for the Farm Bill in Congress. “For far too long, the federal government has prevented most farmers from growing hemp,” McConnell said. “I have heard from many Kentucky farmers who agree it’s time to remove the federal hurdles in place and give our state the opportunity to seize its full potential and once again become the national leader for hemp production.”

Little did McConnell (or anyone else in Congress) realize their well-intentioned agricultural reform would lead to the de facto legalization of psychoactive THC in nearly every corner of the United States.

Just a year after the Farm Bill passed, infused gummies, hemp joints, and other cannabis-lite goodies began showing up on the shelves of gas stations, convenience stores, and smoke shops all across the Bible Belt. And until federal agencies step up and start regulating the thousands of gray-market producers of hemp-based intoxicants, it will continue to be the wild west in a market creeping up on the legal industry in product numbers and revenue.

Along the way, there have been plenty of questions: Is this stuff safe to consume? How are delta-8 and delta-10 different from delta-9? What does “naturally derived” mean? And why is this teenage gas station attendant recommending I try the new THCA Super Monkey Berries blunts?

“It is a freight train coming, and whether we talk about cannabis laws, hemp, Farm Bill changes, whatever, the train has left the station, the horse has left the barn, and it’s not going back in,” said Keith Bushfield, chief executive officer at Rexis Biotech, an industrial-scale manufacturer of food and beverage products infused with hemp-based cannabinoids.

Tension in the ranks

In the wake of the Farm Bill’s passage, farmers in agricultural states in the South and Midwest ramped up hemp production and set up industrial-scale extraction facilities. Soon, a flood of CBD distillate and new CBD products hit the market. The first wave was marketed with dubious health claims, but most products weren’t intoxicating so the Drug Enforcement Administration and the Food and Drug Administration took a laissez-faire approach to regulation.

When delta-8 THC products began showing up on store shelves and websites in 2019, however, a buzz erupted about the newest minor cannabinoid’s ability to produce a (presumably legal) high. Though delta-8 is less potent than delta-9, products containing the substance represented the first opportunity for people in states without legal cannabis to buy psychoactive cannabinoids. Delta-8 also provided an opportune outlet for the glut of CBD distillate that was available after hemp production skyrocketed, and delta-8 products offered higher margins than run-of-the-mill CBD.

Justin Journay, founder and CEO of 3Chi, is one of the pioneers of the delta-8 market. His company employs about 400 people in the Indianapolis area, and it made headlines in 2022 when it became the first hemp sponsor of NASCAR by signing a deal with Richard Childress Racing, Tyler Reddick, and the No. 8 NASCAR Cup Series team. 3Chi’s deal was the first hemp-based consumer brand sponsorship in any major professional sport. In an interview published on the nonprofit website KFF Health News last year, Journay touched on the tension between licensed cannabis brands and the growing gray market for delta-8 and other hemp-derived psychoactive cannabinoids.

“There are risks with THC. There absolutely are. There are risks with cheeseburgers,” Journay said. “The vast majority of negative information out there and the push to make delta-8 illegal is coming from the marijuana industry. It’s cutting into their profit margins, which is funny that the marijuana guys would all of a sudden be for prohibition.”

Cannabis companies can only dream of inking a high-profile sports sponsorship given the plant’s status as a federally prohibited Schedule I drug. So how are hemp companies able to pull off such a coup?

“My take on delta-8 is it’s a way to get high on the hemp side without having to go to dispensaries,” said Chris Denicola, CEO of Wolf Sciences in Colorado, which manufactures white-label products infused with minor cannabinoids such as CBG, CBN, CBC, and CBD. “To me, the Analogue Act should cover delta-8, but for some reason it doesn’t because [delta-8 is] made from hemp and not cannabis, which I think is a weird loophole. I think it screws over dispensaries and growers in legalized states, and it keeps the hemp and cannabis market focused on milligrams and not outcomes.”

Denicola referenced the 1986 Federal Analogue Act (FAA), which allows the federal government to treat any substance that is structurally or pharmacologically “substantially similar” to a Schedule I or Schedule II controlled substance as though it were listed on Schedule I. While federal agencies haven’t taken a definitive stance on hemp-based cannabinoids yet, a growing number of states are banning or attempting to regulate delta-8 and other intoxicating hemp products by incorporating aspects of the FAA into state law.

The minor cannabinoids currently being incorporated into edibles, vape pens, and beverages can be broken down into four general categories:

  • Cannabinoids that are sourced naturally from the plant (CBG, CBN, and THCV).
  • Cannabinoids synthesized from hemp-derived CBD (delta-8,delta-9, and delta-10).
  • Cannabinoid acids, which are naturally occurring precursors that are chemically activated by decarboxylation (exposure to heat or light). This group includes THCA, CBDA, CBCA, and CBGA.
  • Synthetic cannabinoids that aren’t derived from hemp or cannabis. This segment of the industry is only beginning to take shape.

While some product brands claim their hemp-derived psychoactive substances are “naturally derived,” the methods used to isolate the cannabinoids can introduce potentially harmful chemicals into the mix via residue from the conversion process. The vast majority of delta-8 THC isn’t extracted from hemp or cannabis but rather converted from plant-derived CBD using a chemical process called isomerization. During isomerization, CBD is combined with an acid or solvent and then heated to produce THC.

Browsing the products in the hemp-derived cannabinoids market is akin to looking at a menu in a greasy-spoon restaurant: so many choices, some of them intriguing, but is any of this stuff healthy? On Bearly Legal Hemp’s website, for instance, shoppers can filter products by cannabinoid: THCA, delta-8, delta-9, delta-10, hexahydrocannabinol (HHC), or THC acetate ester (THC-O), among others. While THCA is abundant, in its natural form it is the only non-psychoactive compound on the list. Nevertheless, the sales pitch for Bearly Legal’s “high-THCA” buds explains THCA “decarboxylates into THC when lit, providing a smoking experience just as enjoyable as the real thing.”

After delta-8 became a hit, it wasn’t long before delta-10 THC, THC-O, and HHC products started showing up in stores. Derived from hemp, THC-O is entirely synthetic (i.e., not found naturally in the plant) and created by converting CBD into delta-8 or delta-9, then combining it with another chemical to create THC-O. While delta-8 made the biggest splash and paved the way for an entirely new market, hemp-derived delta-9 quickly is becoming the most in-demand cannabinoid in the growing gray market.

“Delta-8 has fallen off the cliff because so many people are regulating it. Now it’s all hemp-9, hemp-9, hemp-9,” said Rexis Biotech’s Bushfield. “We see cyclical changes all the time based on what consumers want. It was delta-8 for a while, then all the minors started to become popular, and then somebody did a report with four people who said CBN helps people sleep, so now CBN goes through the roof. But in terms of demand right now, without question it’s hemp-9. A lot of people will just call it delta-9, but I make everybody call it hemp-9, because if you are trying to figure out if your delta-9 came from hemp or from [cannabis], it can be a hard thing to figure out.”

Texas is a prime example of how and where hemp-derived delta-9 is becoming a mainstream phenomenon, with gummies and beverages flying off the shelves at prices that might surprise licensed operators in neighboring states.

“There is a really interesting lab experiment happening in Texas right now,” said Denicola. “The delta-9 drinks market in Texas is gigantic, and they’re also getting about $45 for ten or fifteen gummies. It’s unbelievable the amount of money they’re making on these things.

“Texas has no legal medical or recreational marijuana, but hemp is legal,” he continued. “So they have a huge delta-9 market, because it all comes from hemp. The amount of delta-8 or THC-O they sell is miniscule. Why? Because they have the delta-9 there. So when delta-9 is easily procured, those synthetics [delta-8, THC-O, etc.] are nowhere to be seen.”

Gray-market creep

Data firm Brightfield Group expects the legal cannabis industry in the U.S. will rake in nearly $32 billion in annual sales in 2023. By 2028, the firm expects that number to jump to $50.7 billion. By comparison, the market for hemp-derived cannabinoid products is relatively small.

Or is it?

Delta-8 products generated $2 billion in sales over the past two years and now account for 50 percent of the hemp-derived market, according to Brightfield Group. “States that most heavily restrict cannabis are seeing the most active delta-8 markets, particularly in the South,” according to the firm’s recent whitepaper, How Big of a Threat is Delta-8?

Publicly traded LFTD Partners Inc. in Jacksonville, Florida, is a major manufacturer of hemp-THC products and owns several brands across the U.S. Based on Q1 2023 sales, the company reported THC-O was the principal ingredient in products making up 47 percent of its revenue; sales of delta-8, delta-9, and delta-10 THC products combined accounted for 35 percent of revenue. In 2022, the company’s consolidated sales of more than $31.6 million expanded by roughly a factor of six compared to the prior year. LFTD also reported 17,000 people composed its online customer base in 2022. In addition, the company made direct sales to more than 1,000 retailers in the U.S., and “hundreds of distributors” reached “thousands” of additional stores.

Grand View Research estimated the value of the global CBD market at $6.4 billion in 2022 and believes revenues will increase at a compound annual growth rate of 16.2 percent between 2023 and 2030. Although there is only limited research data on the gray market—and much of the data is self-reported by a large number of private companies—some operators believe hemp-derived cannabinoids represent a much, much larger market than has been reported.

“The argument is that it’s north of $30 billion just here in the U.S., so it’s big. And I’m only talking about the psychoactive and minor cannabinoids and the recreational products that are being used,” said Bushfield. “The hemp space is becoming massive, and that number changes all the time. It’s hard to get a real number on it, but a guy I do a lot of business with is the largest wholesaler of minor cannabinoids in the country, and that’s his number. We have a very large lobby group on the state level all the way down to the federal level that talks for us just like they would the tobacco industry and the alcohol industry.”

How safe are synthesized cannabinoids?

While the FDA and other federal agencies repeatedly have warned companies about making health claims associated with any cannabis- or hemp-derived product, many marketers skirt the bleeding edge of federal rules. Some ignore the feds entirely. THC often is touted as a pain reliever and CBD as a relaxant, but other cannabinoids are alleged to have their own beneficial effects, such as CBN for sleep.

In states with legal cannabis, regulations require companies that create products incorporating cannabinoids sourced from cannabis plants test their products to ensure consumer safety. The U.S. Department of Agriculture requires all hemp to be tested for compliance with THC content levels, but so far, only a dozen states regulate hemp-derived cannabinoids at all. Fourteen states ban delta-8 and similar intoxicants. Everywhere else the products are unregulated, though lab-testing requirements are either pending or under development in a handful of states.

Scientific research into minor cannabinoids has been limited, as well, making any kind of valid claim about effects, side effects, or benefits nearly impossible. Adding to the confusion: The very few research trials that exist often report conflicting results.

“If you combine all the clinical studies that have been done with THCV, you see some contrasting effects,” said Linda Klumpers, a clinical pharmacology scientist who has studied cannabinoids for almost twenty years. “If you have one study that finds effect A, but study B looks at the same effect and doesn’t find it, it doesn’t mean the effect is necessarily there. It also doesn’t mean it’s not there.”

Klumpers is a research assistant professor of pharmacology at the University of Vermont and the co-founder of Verdient Science, a pharmacology consulting company that specializes in cannabis-based medicines. “We haven’t done enough studies yet to really comprehend what these compounds do or what the THCV does in this case,” she said. “THCA is also very hard to study because it’s such an unstable molecule. So if you make a formulation and you see certain effects, you don’t always know if you are looking at the THCA effects, or maybe it was converted to THC. Every minor cannabinoid can have its own issues, and we know more about some of them than others.”

Because the human body has built-in receptors for cannabinoids, scientists are less concerned about the safety of substances extracted directly from plants. However, there is a growing body of research suggesting cannabinoids synthesized from hemp often contain potentially dangerous byproducts because solvents are used to convert naturally occurring compounds into delta-8 or delta-9, and in most states the resulting products aren’t required to pass third-party laboratory tests for purity.

A study published in the journal Chemical Research in Toxicology in 2021 revealed scientists found lead, mercury, and silicon in delta-8 electronic cigarettes. Another study published in 2022, “Novel Δ8-tetrahydrocannabinol Vaporizers Contain Unlabeled Adulterants, Unintended Byproducts of Chemical Synthesis, and Heavy Metals,” documented the potential safety hazards with delta-8 products available to consumers.

“In that study, they found out all the products they analyzed had unreported side products that should have been on the label but weren’t there,” Klumpers said. “And I think that is quite telling of what’s going on in the industry.”

Thus far, the DEA and FDA have taken a mostly hands-off approach to regulating any products that fall under the Farm Bill (i.e., sourced from hemp that is under the 0.3-percent THC cap), but it’s anyone’s guess how long that will continue. In January, the FDA announced it lacks the regulatory framework to establish new rules for CBD products and is waiting for Congress to provide further guidance on the issue. In February, the DEA finally weighed in and clarified its stance on delta-8 and delta-9 products that are synthetically derived. Responding to an inquiry by a North Carolina attorney regarding THC-O, the DEA concluded delta-8 and delta-9 THC-O do not occur naturally in cannabis, can only be synthetically derived, and “therefore do not fall under the legal definition of hemp.”

“All of our clients stopped requesting THC-O based on the DEA memo,” said Wolf Sciences’ Denicola. “Delta-8 is also declining because people [perceive] synthesized cannabinoids as bad, for better or worse.”

The next phase

On the other end of the spectrum is the next wave of lab-born cannabinoids already in the production pipeline. These purely synthetic cannabinoids, created from yeasts, plants outside the genus Cannabis, or petroleum-based industrial chemicals, are sure to become a more prominent source of material for companies creating new products in the near future.

One company at the forefront of this development is San Francisco-based Nalu Bio, which raised $12 million earlier this year in a Series A funding round led by Intrinsic Capital Partners. Nalu plans to use the funds to accelerate growth and scale production of cannabinoids for consumer products and therapeutics. The company plans to launch a full suite of cannabinoid-like products that contain the same molecule as naturally occuring CBD, THCV, CBN, CBC, CBG, and other in-demand substances.

“At Nalu Bio, we have created a platform that produces ultra-pure, cost-effective, non-hemp-derived cannabinoids so consumers and companies will have safer, more reliable products that improve everyday life,” said Caitlyn Krebs, Nalu Bio’s co-founder and CEO.

In an interview with Kathy Ireland on her Modern Living show last year, several Nalu executives made claims about why synthetic cannabinoids are safer and more effective than the naturally occurring, plant-based versions. CBD, they said, is derived from hemp plants that may contain pesticides, heavy metals, and THC, which are hard to completely remove during the extraction process. They also claimed a consistent method of production makes “chemistry-based CBD” a “worry-free” substance that is better for people and the planet.

“I think there is a place for this synthetic stuff, and the more we get down to synthetics, the more the FDA would say, ‘Oh, I understand this now,’” said Matt Reguci, chief technical director for Cannabis Safety and Quality, an industry standards group based in Colorado. “The FDA would love to have Johnson & Johnson or whatever drug company make a synthetic version of THC or CBD, right? That’s what they want. And so this has kind of opened up the ability for companies to be innovative and create new products that can be studied. In terms of the claims and stuff, I literally don’t want to go anywhere near or touch any of that.”

For now, federal and state authorities are merely playing a game of whack-a-mole by targeting delta-8 and its kin, seemingly ignoring the fact that plants in the Cannabis genus contain hundreds of chemical compounds, most of which we know little about thanks to federal research prohibitions on Schedule I substances. And it’s a good bet entrepreneurs will continue to find legal workarounds until clearer regulations are enacted at the federal level.

“The entire industry is changing at light speed right now, and regulatory agencies are trying to adapt and make new rules to prevent [those changes],” said Bushfield. “But consumers are demanding [the products]. You wouldn’t see these big sales numbers if consumers didn’t want them.” (Full Story)

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