No long-term impact of FDA crack down on Curaleaf’s CBD marketing

Morningstar analyst Kristoffer Inton believes that the shares remain undervalued

Kristoffer Inton 24 July, 2019 | 3:00AM
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Cannabis plants

On July 22, the Food and Drug Administration sent a warning letter to Curaleaf (CURA) regarding the marketing of its CBD products. The FDA stated that Curaleaf’s CBD products, including lotions, tinctures, pain-relief patches, and animal treatments are unapproved and misbranded drugs. Drugs can only be approved by the FDA, which it has not done for Curaleaf’s products. In addition, the FDA claimed Curaleaf is marketing with unsubstantiated therapeutic claims that the products can treat serious diseases and conditions, such as cancer or pain. In response to the news, shares dropped more than 14% before recovering to about 5% down, as mid-day yesterday.

Curaleaf has announced that it will work to adjust to the FDA letter and reiterated that the focus was on marketing of hemp-derived CBD products, not product quality or consistency. As such, we see little-to-no impact, especially in the long term or to non-hemp cannabis products. Demand will not be stifled by the FDA’s warning. Although the therapeutic claims on Curaleaf’s website were too bold for standard FDA compliance, we do not think the claims themselves drove significant sales. We expect the company will take the necessary action within the 15 mandated working days to address the FDA’s concerns.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Curaleaf Holdings Inc14.60 CAD0.00Rating

About Author

Kristoffer Inton

Kristoffer Inton  Kristoffer Inton is an equity analyst for Morningstar, covering gold, coal and cement companies. Before joining Morningstar in 2013, he was an investment banking associate for Guggenheim Securities in New York. He holds a bachelor’s degree in finance with high honours from the University of Illinois.

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