EC Stance on CBD Deemed as Terminal Blow to European Hemp Sector

By Noah Tomares, Research Analyst, New Frontier Data

News broke last month  that the European Commission (EC) planned to suspend applications to include CBD in its Novel Food Catalogue, recommending that CBD and other extracts from hemp flowers would be better regulated as narcotics under the United Nations (U.N.) Single Convention on Narcotics of 1961.

That decision was immediately rejected by the European Industrial Hemp Association (EIHA) as a “preliminary conclusion” which the trade group decried as “against all reason, the latest scientific literature and the EU green ambition,” while permitting synthetic cannabinoids instead of plant-derived extracts, essentially ending opportunities and business plans for a legal, regulated, hemp-derived CBD industry.

Since the decision was not final, no definitive conclusions were to be drawn from the announcement. However, should the decision stand, the implications for Europe’s CBD market cannot be overstated: The ruling would not only render it impossible for Europe’s CBD market to exist in its current form, but also constrict cannabinoid research and hinder innovation throughout the continent’s markets.

Reasons behind the contentious policy stance are unclear. Given the low numbers of applicants for the Novel Food Catalogue, the EC may be hoping that producers will recognize that compliance with the novel food regulations is preferable to complete prohibition. Alternately, the EC may be responding to pressure from pharmaceutical companies who see plant-derived CBD as a threat to their markets for medications and nutraceuticals. Whatever the motivations, the development underscores the significant influence which the U.N.’s Single Convention continues to have regarding cannabis policy, despite surging consumer demand and growing legal commercialization globally.

Given the considerable and expansive consumer demand for CBD, and that a major proportion of transactions occur online, existing CBD businesses are generally unlikely to cease operations, thereby creating a large gray market replete with existing consumers and operational structures. Similar markets have flourished in a post-pandemic economy.

The quality of CBD bought and sold on the unregulated gray market would be of dubious and indeterminate quality, resulting in higher risks of each contaminated or low-quality products, improper labeling, and unfounded marketing claims. High prevalence of substandard-quality CBD flooding the market would not only negatively impact consumer experiences, but adulterated or contaminated products contained in unregulated products may endanger public health.

The EU and its member states are unlikely to marshal or dedicate the resources to aggressively enforce a blanket prohibition on the existing CBD market. Enforcing a ban on such widely available products would not only be costly, but the widespread nature of the current CBD market would require a significant regulatory or policing effort, potentially diverting resources from other enforcement priorities. Given the COVID-19 pandemic-induced economic contraction which has acutely impacted European governments, it seems unlikely that the EU or its member states would invest heavily in new CBD-focused policing resources.

Due to Brexit, and the U.K.’s decoupling from the EU, CBD producers there may face a brighter future than their EU counterparts; the U.K. Food Standards Agency has asserted that it will continue to consider CBD as novel foods.

The provisionary decision will face serious pushback from the industry, and may increase pressure to amend the U.N. Single Convention to remove cannabis from its prohibited classification under international law. That would have implications reaching far beyond the CBD and extracts market, potentially shaping the future of higher-THC cannabis in the bloc. In the interim, New Frontier Data anticipates intense lobbying from industry stakeholders to both national governments and officials in Brussels in efforts to reverse the proposed ruling.

New Frontier Data will continue to monitor developments around the issue, and analyze the potential impact for stakeholders in the continent and beyond. For a detailed exploration of the current state of the European Union’s CBD Market, consult the EU CBD Consumer Report Series Volume III: Market Size & Demand.