As of June 2020, CBD (cannabidiol) – in one form or another – is legal in nearly 80% of U.S. states and the District of Columbia. To say that it is only a matter of time before CBD products are as nationally ubiquitous as cigarettes or alcohol is to state a foregone – but misleading – conclusion; legality is no guarantee of availability, and until a myriad of state-level regulations and restrictions are harmonized, the U.S. CBD products market will remain fragmented. We are breaking down lessons from the pharmaceutical supply chain to apply to the CBD industry.
Despite that, there is good reason for those companies involved with CBD to begin looking towards a day when the opening of inter-state trade and regulatory harmonization create the possibility for expansive regional and national markets, with all the opportunities and challenges that come with them.
With challenges to the distribution of CBD products specifically in mind, it is useful to consider the history of pharmaceutical products supply chains over the past 15 years. Faced with high-profile incidents of product diversion, counterfeiting and contamination, the pharmaceutical industry undertook to implement strategies and methods that would make it easier to detect illegitimate product in the supply chain before it reached the point of dispense or use. Traceability methodologies such as “ePedigree” were instituted by U.S. State Boards of Health and Pharmacy, most notably Florida and California, in the mid-2000’s. These solutions utilized various data carrier technologies (e.g., RFID, and 2D Data Matrices) to allow unit level pharmaceutical products to be uniquely distinguished from like product packaged in the same homogeneous case. Combined with the creation of a product chain of custody, traceability and authentication of pharmaceutical product was now possible in principle.
While these solutions were sound in design, they were ultimately never widely adopted. Differences in technology standards and uncertainty around enforcement approaches kept most states holding to a “wait and see” approach. With the passing in 2013 of Title II of the U.S. Drug Quality and Safety Act – better known as the Drug Supply Chain Security Act (DSCSA), everything became clearer: a national directive now gave all pharmaceutical companies and their supply chain partners a common set of objectives to meet, and provided a staggered schedule of adherence, beginning with Manufacturers in 2015, and culminating with Dispensers in 2020. By 2023, DSCSA mandates that the entire U.S. pharmaceutical supply chain be fully electronically interoperable, effectively meaning that any authorized trading partner would be able to ascertain the legitimacy of product in their inventory in nearly real time.
Bearing in mind the precedent of evolving pharmaceutical product tracking over the past 15 years, the CBD industry should recognize itself as now being in much the same situation: licensing and governance is uniformly at the state level, making inter-state trade essentially non-existent; the threat posed by “me too” and illegitimate products will continue to make consumers wary of the industry as a whole; and implementation of technology and process solutions to protect the supply chain requires substantial investment of capital for packaging and IT capabilities.
But even given these current realities, it would be to the long-term benefit for CBD market participants to begin developing their strategic roadmaps for following the pharma model. While not inevitable, it is very likely that we should look forward to the emergence of a national governance model for CBD
products and markets. Bolstered by widening acceptance of both CBD and Cannabis as mainstream health care products, sophisticated bad actors will undoubtedly take advantage of supply inefficiencies and seek to expand the lucrative black and grey markets for both product segments.
The 15 years that it took for pharma supply chain security initiatives to evolve from proof-of-concept pilots to national legislation and industry-driven best practices is of utmost value to the CBD market. In that time, technology standards organization such as GS1 have given the global compliance community a common set of data objects, transactions and business functionality that can be readily implemented and administered. The leading Software as a Service (SaaS) vendors for serialization applications provide solutions that enable integration with distribution channel partners requiring little to no customization. And with compliance becoming a manageable core capability, pharmaceutical companies are now looking to use the data gathered during serialization activities to support advanced logistics planning, market analysis, and brand enhancement initiatives.
The next few years will present a rare and specific opportunity for the forward thinkers in the CBD industry to emerge as they prepare for a time when scalability of distribution, ease with which partnerships can be made productive, and proof of product integrity are factors which distinguish them from their competitors. Serialization, Traceability and Authentication will be among the top capabilities that help get them there.
Contributions by Michael Marrone and Robert Wojtowicz.