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FDA Says CBD Is Not A Dietary Supplement, Tasks Congress With New Oversight Plan

The U.S. Food and Drug Administration (FDA) is looking for Congress to take charge in regulating cannabinoid (CBD) products after concluding the agency’s existing authority over food additives and supplements does not provide all the necessary tools for managing the risks of CBD. The news arrived nearly five years after the FDA announced it would begin looking into developing guidance on cannabinoid use.

Additionally, the FDA denied three citizen petitions that requested CBD be regulated as a dietary supplement. That decision came from findings of the FDA’s CBD working group which examined studies on Epidiolex, a CBD-based drug, and concluded that the risks of CBD do not align with the existing safety parameters for dietary supplements or food additives. The agency is asking for additional data and more studies.

In lieu of taking the lead itself, the FDA is asking for Congress’ help to develop a new regulatory body that can serve as a gatekeeper for legal CBD. Whether that body resides within the existing structure of the FDA remains to be seen, but the agency was clear on its position that these products need to be regulated so that consumer demands can be met and the emerging industry can grow within a federally-set framework.

The agency believes the new body will need to have the authority to effectively regulate labeling of CBD products, prevent contaminants, institute CBD content limits and wield the power to put minimum purchase age limits in place. Access and oversight plans for CBD products and for how consumption of CBD by animals could potentially impact and infiltrate the human food system will also be developed through this proposed regulatory path.

The news came days after the federal agency released industry guidance for the development of cannabis-based drugs, including specific processes and factors for scientists to consider when working with hemp and marijuana ingredients. As CBD products continue to be sold in the market, the FDA said it will continue monitoring how those products are marketed, sold and take appropriate action when necessary in accordance with state regulators.

“We will remain diligent in monitoring the marketplace, identifying products that pose risks and acting within our authorities,” the agency said in a statement. “The FDA looks forward to working with Congress to develop a cross-agency strategy for the regulation of these products to protect the public’s health and safety.”

Looking forward, Congress has quite a regulatory task in front of them. While the legislative branch could grant the FDA the ability to generate a new CBD regulatory body on its own, the agency’s broader human food regulatory functions have also come under recent scrutiny.

The release of the Reagan Udall Foundation report analyzed the function of the FDA’s human food program and recommended that an internal structural overhaul may be necessary for the agency to be able to effectively regulate the food, a change that would likely require congressional approval. This means that while the FDA may need congressional help to create a body for CBD oversight, it may at the same time be seeking permission to adapt its own structure.

This move means that CBD food and beverage brands essentially will keep on doing what they have been: waiting a bit longer before they can begin selling products at major retail chains. Many retailers have stated they will not merchandise ingestible CBD products until federal guidance is published since the ingredient remains unregulated and illegal to include in food and beverage products. For now, most brands are limited to online direct-to-consumer platforms and independent retail outlets but are optimistic about the impact of today’s announcement.

According to John Simmons, co-founder of CBD/THC beverage brand Weller, his team has been incorporating the suggested risk management tools relative to CBD labeling, contaminants and content limits for several years to ensure the products are ready to go into major retailers when federal regulatory guidance is released. He explained many of these measures are table stakes for early-CBD adopting retailers like Wegmans and Sprouts.

Relaxation beverage brand Recess also believes the overall industry is steadily progressing along its path to retail. The company, which recently expanded its CBD-free Mood line due to increasing consumer demand, has previously said that line has helped the company secure and maintain key retail placements as it awaits federal CBD guidance.

“We are encouraged by FDA’s announcement to work with Congress to establish a workable regulatory framework for CBD at the federal level,” said Ben Witte, founder and CEO of Recess. “We look forward to maintaining a constructive dialogue with policymakers to ensure that regulations are established that protect consumers and establish clear rules for suppliers, brands and retailers to operate within.”

Jonathan Eppers, founder of CBD beverage brand Vybes, said he doesn’t believe much will change for the CBD industry in the short term following the announcement. He said VYBES continues to see strong demand, highlighting that the category is likely growing slower due to the lack of federal regulation preventing it from entering major retailers, but believes overall, CBD is on an upward track.

“I’m encouraged that FDA is asking Congress, who has been pro-CBD for years, to write laws that regulate CBD,” said Eppers in an email. “CBD regulations are one of the only bipartisan issues both Republicans and Democrats agree on, so maybe we’ll get something sooner than we all think.”

Simmons believes regulation could come as early as mid-summer and expects that CBD regulation will be added to the 2023 Farm Bill.

“The timing of this statement from the FDA gives legislators the opportunity to ensure the missing pieces from the 2018 Farm Bill can be properly added to the new version,” said Simmons. “That’s probably the smoothest legislative pathway, since Congress has been unable to pass independently introduced CBD legislation in years past.

Hot Stuff: Fly By Jing Brings in $12M to Scale Brand & Retail Presence

After moving from online into retail last year modern Chinese food brand Fly By Jing announced in March it raised an additional $12 million in funding to fuel continued expansion primarily in conventional grocery stores.

Existing investor Prelude Growth Partners and Pendulum, an investment and advisory firm for leaders and founders of color, were the two largest investors, with entrepreneur Dave Gruntman, Palm Tree Crew and numerous other angel investors also taking part.

“As a founder, and someone who did everything myself in the early days, it’s a constant evolution of thinking bigger,” founder and CEO Jing Gao said. “Bringing on private equity investors is an example of allowing others to help me propel my vision forward.”

The capital, Gao said, will be used to drive further expansion mainly in conventional retailers. After launching in stores last year, the company has achieved a 50/50 split in revenues between retail and D2C; this year, Gao expects that ratio to rise even further, closer to 70/30.

“The next period is really about figuring out the transition to a true omnichannel brand,” Gao said. “Our next phase is about really establishing a brand for everyone, and not just to coastal cities, not just for the foodies, but really an everyday item, like sriracha and Heinz ketchup.”

Since its $5 million raise in 2021, the company has grown its door count to 4,000 retailers including distribution in Whole Foods, Sprouts, Target, Costco and Wegmans.

Gao said she originally wanted to focus on the natural retailers to start; Target however, offered to collaborate with the brand on how it could address the “problem” of the “ethnic” aisle, which segregates certain items away from their conventional counterparts. The chain agreed to test Fly By Jing’s Chili Crisp in the hot sauce aisle, though sales data later showed that it performed better in its original placement in the Asian food set.

“It’s not just us, there’s a rising tide of founder identity and mission driven brands that are now starting to pop up in the ethnic aisle. It’s no longer the stale aisle that people didn’t really go down — it’s actually a destination,” Gao said. “That was actually a big unlock for us. There’s been a reclamation of the ethnic aisle that we’ve been a key part of.”

Gao has a cookbook, The Book of Chili Crisp, coming out in 2023, which she believes will also help drive awareness and understanding of the company’s signature product.

The plan, Gao said, is to eventually build out a larger platform of products, likely more condiments. Online, the company will continue to offer a larger “pantry” of products, such as a wider array of spices, hot pot bases, black vinegar and dumplings, which Gao says serve as a vessel for its sauces. In retail, Fly By Jing wants to focus on shelf stable products that can be merchandised in the same set. Earlier this year, it introduced an extra spicy version of its chili crisp in Whole Foods. Another D2C product, Chili Crisp Vinaigrette, could also make the jump into retail.

To support the growth across product types and retailers, the company has also grown its c-suite, recently bringing on former Follow Your Heart CFO Matt Dunaj as its COO/CFO and former Sovos Foods VP of sales Jason Parasco as its chief commercial officer. Fly By Jing also recently earned B Corp certification.

Gao herself is dedicated to continuing to push the CPG industry on its acceptance of new products and brands created by female, BIPOC and AAPI founders. As an example of the hurdles Fly By Jing has had to overcome, Gao said the reason why the brand went D2C initially was simply because retailers would not give the product a chance.

“As we have proven ourselves again and again, there’s finally more and more people giving us a shot, and giving others a shot as well, which is kind of this idea of the rising tide. I think that all we can hope for is progress — and we are making progress in the right direction,” Gao said. “There’s excitement, which really, I would say, we, along with other brands like us, created ourselves. We really had to exert ourselves in order to make this happen.”

Ace in the Hole: Oats Overnight Raises $21M

There are many ways to fund a startup, but using the winnings from a career as a successful, high-stakes professional poker player is certainly not the norm. However, Oats Overnight CEO Brian Tate is ready to go all-in, announcing in March a $21 million investment.

The oversubscribed round included participation by Singh Capital Partners, BFG Partners, Impatient Ventures, Watchfire Ventures, Morrison Seger Venture Capital Partners, Vanterra Ventures, Access Capital, and Pure Ventures. Prior to this, the company had been self- funded by Tate, and then raised $9 million in funding, mainly via several SAFES.

Tate formerly was one of the top poker players in the world, prior to that career playing Magic the Gathering professionally. The inspiration for the company came from his preferred meal while on tour playing poker; several members of his executive team are also former professional poker players.

Founded in 2015, the Arizona-based company has a run rate of over $100 million, with $55 average order volumes, and profitability expected by April, according to Tate.

The new capital will mainly hit the balance sheet, Tate said, and go towards acquiring more inventory and upgrading its manufacturing processes via new equipment purchases. Oats Overnight is a vertically integrated company, handling the manufacturing, packaging and fulfillment of its protein-enhanced, low-sugar, creatively flavored oats. To support these efforts, the company has 250 employees, largely on the manufacturing side.

“We feel really excited to have this capital for the balance sheet to invest in machinery, invest in this new facility and get efficiencies up. Automation, of course, is always a big win from a margin perspective, and really helps us reach that profitability faster,” Tate said. “We took just what we needed to be both comfortable going into whatever this next year will bring at a macro level…we want[ed] to make sure we can be solid, but also maybe [go on the] offensive.”

Currently the business’ sales are 80% direct-to-consumer, 10% on Amazon and 10% in retail, but the company hopes to bring that online to retail ratio closer to 50/50 by 2026.

In brick and mortar, which Oats Overnight entered two years ago, the company sells shelf-stable bottles, filled with 2.2 oz. of oat milk powder and its flavored oat/protein mix, requiring consumers only to add water. The packaging was selected because the end product is more like a shake than a bowl of oatmeal and is easier for on-the-go consumption. Though the bottle format is unusual in the oatmeal set, Tate says the product competes with single serve heat-and-eat oatmeal bowls. The brand is in over 2,000 stores including Walmart, Whole Foods SoPac region, HEB, Meijer, Safeway Albertsons, and Wegmans.

However, it’s online where the brand has really taken off, selling 2.8 oz. sachets which retail for $60 for 16 meals, or $84 for 24 meals and are far more efficient to ship. Customers add their own liquid and then, ideally, shake the mix in a blender bottle or blend.

In addition to one-time purchases, the company also maintains an active subscription business, currently with 130,000 subscribers. First-time subscribers are offered $21 off their order as well as a free blender bottle, and then subsequently receive $6 off every future order. Subscribers typically order 16 packs per month, Tate said, and the company “overindexes on retention” with most shoppers who pause their subscriptions returning in six months, spurred to rejoin by the release of a new flavor.

“We’ve seen LTV expand at a 25% CAGR over the last five years and those LTV expansions allowed us to pay incrementally higher CACs while still maintaining a really, really healthy payback period,” Tate said. “We have a very strong brand LTV which allows us to be much more nimble.”

This emphasis on flavor variety and limited time offerings has been another key to the company’s growth. Every subscriber’s order includes a packet of a flavor currently in testing, with customers encouraged (and incentivized) to provide feedback. These real-time focus groups then help Oats Overnight determine which products should be offered on the wider ecommerce platform as well as what may eventually make it to retail.

Subscribers not only have a private Facebook group, which currently has 21,000 members and an average of 1,000 comments per day, but access to exclusive flavors. Currently that subscriber-only storefront, for example, has 35 flavors while one-off customers have access to only 21 options.

“We always give feedback to our customers. We say ‘this is what we heard from you. This is how we changed the formula,’ or ‘this is why it was not released,’” said Nina McKinney, chief strategy officer. “There’s this actual incentive to be involved in our product development process because their voice is truly being heard and listened to.”