The European CBD market is forecast to grow to €2.6 billion and the number of CBD users across the continent is set to hit 50 million by 2026, as highlighted in our recently published The European CBD Report: Health & Wellness report.
The report highlights how revenue growth for top CBD companies, an increase in consumption across the continent, positive market developments and legislative reform all point to a positive outlook for Europe’s CBD industry.
While further growth of the market over the next four years is forecast to be relatively strong in terms of sales and consumption, what barriers currently exist that could be holding the sector back from exponential growth?
The establishment of a clear and detailed regulatory framework for the CBD industry to operate within is an ongoing process at the European level, as well as at the national level in every European country (with the possible exception of Switzerland, which has a well-defined system for the licensing and commercialisation of CBD).
The three ongoing Novel Food authorisation processes in the EU, the UK and Switzerland run parallel to the industry in Europe. The requirement for, and current lack of, Novel Food authorisations for ingestible CBD products represents one of the primary barriers to full legitimisation of the industry. The Swiss process currently has no applications under review, while the UK and EU processes have both been widely criticised for their inconsistency, and for placing an unnecessary strain on CBD operators which is significantly hindering the sector.
In the UK, this has taken the form of the publishing and republishing of the list of ongoing applications (which determines which products can continue to be marketed legally), the moving around of deadlines for application submission, and the effective freezing of supply chains which the Novel Food application process entails.
There are a variety of other regulatory issues which present challenges to the CBD industry in Europe, including: that proposed THC limits in foodstuff products do not reflect current or expected market practice; that there is no alignment in terms of trade codes to use for CBD products; and that many national industries still adhere to regulations created for industrial hemp (focused on fibre or seeds) rather than for the CBD industry (focused on flower and cannabinoids) .
The momentous ruling in November 2020 by the European Court of Justice (ECJ) on CBD (stating that CBD is not a narcotic and can be traded within the EU) effectively ensured the continuity of the market, and in the absence of comprehensive regulation, the industry continues to grow and develop, but further regulatory changes are required to unlock its full potential.
The lack of transparency in terms of European CBD arises from a number of issues, but the most significant are regulatory uncertainty and lack of standardisation. Because there are no clear guidelines or any oversight from regulators, and because there is a lack of awareness and knowledge in the industry due to its recent emergence, there are no agreed terms of definition and it is often difficult to distinguish quality in the case of product and production.
What this means in practice is that buyers cannot always be certain of what they are buying because terms like ‘full-spectrum’ or ‘distillate’ can mean different things to different operators. This leads to a breakdown in trust between companies as it is all too easy for a buyer to be misled, intentionally or unintentionally, and ultimately disappointed.
Though the pace of progress is slow at the regulatory level, there are encouraging signs of development from within the industry. The EIHA recently released proposed definitions of terms for concentrated extract products which, if adopted by the industry, would go some way towards solving the issue of standardisation. The growth of testing within the sector also increases transparency around product quality, and raises standards as the practice is adopted across the sector.
In addition, technology is also increasingly being leveraged to counteract the lack of transparency within the industry. An B2B wholesale cannabis marketplace like Atalis, for example, requires sellers to provide Certificates of Analysis (COAs) for all of their CBD products, and these COAs are publicly visible to buyers – enabling them to make an informed purchase.
Shipping CBD products across European borders has significantly risen over the years however it can still be considered a significant ‘pain point’ in the industry. Due to the lack of education for custom authorities and the scarcity of import guidelines for CBD/ hemp products, the industry still faces importation problems with products being seized at borders, especially those from international markets.
The majority of CBD shipments in Europe tend to be small scale shipments (<10 kilograms) of CBD bulk products. They are primarily handled through standard shipping services such as DHL and UPS etc. These shipments tend to be discreet and are usually not stopped by customs officials, however, there still lies a significant risk that customs may hold the product for several months for inspection before it is released.
This has a disruptive impact on the time and costs for European CBD players and the overall supply chain, as the longer products and materials/ingredients are halted the shorter their shelf-life becomes. To mitigate this risk for larger transactions, where a blockage by customs can be financially detrimental, many CBD businesses prefer specialised distribution companies with CBD experience.
According to the players interviewed by Prohibition Partners, these experienced CBD distributors and logistic providers hold strong knowledge of the relevant regulations, practice by jurisdiction and CBD friendly entry ports.
Brexit is another factor that has made the trade of CBD across Europe significantly more complicated as importers and exporters need to obtain an Economic Operator Registration and Identification (EORI) Number by the HMRC which has to begin with ‘GB’. In addition a complete custom declaration is required and an application submitted for customs freight simplified procedures.
It is also advised by Mackrell Solicitors, a UK based law firm that specialises in cannabis laws, that companies should consider appointing a customs agent as well. Thus, post Brexit import/export procedures create additional barriers for the CBD trade between the EU and the UK as they are costly and time consuming.
As mentioned briefly in the ‘Compliance’ section of the report, the hemp varieties currently cultivated in the EU for CBD production may only stem from the EU listed varieties and are subject to a THC limit of 0.2%. In late 2021, the European Council announced it would raise the THC limit for industrial hemp to 0.3% in 2023 through the adoption of the new Common Agricultural Policy (CAP).
Although this announced increase is positive for the development of the European CBD industry, the slight increase was not received with a lot of positive response as European players felt that it did not create much of an advantage on an international level as federally in the US and Canada the THC limit is already set at 0.3%.
The reason many CBD players in Europe and the globe are urging regulators to increase the THC threshold to 1%, is that a higher THC limit broadly translates to higher cannabinoid concentrations in the hemp plant allowing companies to increase the amount of CBD they can yield.
Alongside the minute increase in the THC limit, companies and cultivators are still restricted to the variety of hemp they can grow based on the EU catalogue. This provides little space for CBD producers to use new and innovative varieties of hemp which are more cost and time effective for CBD production. It can take up to five years and be very costly to register a hemp variety in the EU catalogue.
Enecta is one of the few European hemp seeds and genetics companies who secured their high CBD and CBG strains, Enectaliana and Enectarol, in the European Plant Variety Database recently. However, for most CBD producers this procedure is not financially feasible and is therefore limited to the official list, resulting in lost potential cost benefits.
To download your free copy of The European CBD Report: Health & Wellness, click here.
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