A Closer Look at the Pet CBD Industry With Pet Releaf President Steve Smith
While the cannabidiol (CBD) market seems unstoppable now, regulation is needed.
Steve Smith, president of Pet Releaf, a Littleton, Colo.-based manufacturer of cannabidiol (CBD) products for pets, exudes the enthusiasm of a life coach, especially when talk turns to the pet CBD industry.
Smith’s optimism is not unfounded.
In just seven years, Pet Releaf has gone from a home-kitchen business in Florida to a soon-to-be-completed, 25,000-square-foot facility in Centennial, Colo.
In March, Elixinol Global, a Colorado-based CBD extraction facility, purchased a 25 percent stake in Pet Releaf for $4.5 million in cash and $2 million in stock.
“We’ve been strategic partners; we’ve shared a lot of expenses for five, six years now, and we decided to formalize that relationship,” Smith said.
“For us, it was a strategic decision … it gave us access to more working capital. Because we are growing so quickly, we needed more capital.”
Smith says that, based on 2018 revenue of $8.25 million and the fact that retail CBD products are marked up 200 to 300 percent, his company now controls about 65 percent of the pet CBD market.
But legal and regulatory issues, unsavory players and other hurdles remain.
Pet Product News: Is CBD a niche product in the pet space?
Steve Smith: Right now, it is a little niche. There is extreme confusion in the general public—is it marijuana or hemp? They’re hearing crazy, anecdotal stories from the snake-oil side of the world. There’s [even] somebody in the pet world claiming … one special formula gets rid of cancer tumors.
But people are hearing more and more about it. You walk around New York City, probably at every coffee shop now, they’ll give you a shot of CBD in your coffee for $2.
PPN: Where’s the growth coming from?
Smith: No. 1 are the political factors that have given the CBD industry wind in its sails right now because it has massive bipartisan support in D.C.
Senator Mitch McConnell … was the game changer for the hemp industry. [He] has given shade … for these other drug-warrior-type republicans … They now have political cover to go all in on hemp.
For example, in my home state of Colorado, Sen. Cory Gardner (R) is a vocal supporter of hemp, as is Sen. Michael Bennet (D).
PPN: Why the move from Florida to Colorado?
Smith: The medical marijuana folks were much more advanced than any other place in the country, even California. And also, we had a very specific cluster of holistic-minded veterinarians, and a very high rate of pet parents who treat their pets already as true family members.
We needed people who knew the plant, how to work with the plant and do it the best possible way, so that’s why we moved to Colorado to start the business.
I went into all of the various medical marijuana dispensaries in Colorado and only 20 percent even knew what CBD was. We literally had to create, from scratch, a brand-new industry. There were maybe two or three human CBD companies trying to get started [at the time].
When we were a year and a half into R&D, one company popped up on the internet, and we said, “Holy cow! Someone stole our idea.” One company popped up online as we were finishing our R&D and testing, but we were the first, truly established, nationwide CBD player.
PPN: How many players are there in pet CBD now?
Smith: There’s a ton. If you ask any independent pet retailer in the country, they’ll tell you they get a minimum of two or three calls or emails a week from somebody trying to hawk a pet CBD product.
The barriers to entry right now are, unfortunately, extremely low, because they can buy what’s called CBD isolate on the internet for cheap, cheap, cheap. But it’s coming in from China, and it is almost always an adulterated product.
For legitimate companies in pet CBD, we are, by far, the market leader. There are some other competitors, but, quite honestly, we’re the only ones invested in the entire process, from seed to sale.
PPN: Is the U.S. Hemp Roundtable, which you’re on several committees for, a lobbying group?
Smith: We’re not a lobbying group per se; we hire lobbyists to work for us. I represent Pet Releaf on the board, and I am also a member of the marketing committee. I’m on the vetting committee [for] anyone who wants to be added to the board, and, most importantly … I’m on the FDA committee.
So, the FDA committee takes the direction of the board, and then, we go and sit at the table with the FDA, as the industry experts, to help guide them in their rules and regulations, as they draft them over the next 18 months.
PPN: How many people make up the Hemp Roundtable?
Smith: [There are] almost 70 members, and they represent different CBD farming groups, testing labs. We even have a company that used to be related to a tobacco industry organization, and it is switching to hemp in Kentucky.
PPN: There’s a perception of lawlessness, at least on the marijuana side, so, once the FDA rules are in place, will that help lessen the negative view some have of the hemp industry?
Smith: Hemp has more of a lawless, wild West factor than the marijuana side. They are going to codify into federal law some of these regulations so it is nationally uniform, so to speak.
There must be some regulation to protect us from those where greed takes over and dubious or absolutely dangerous products would come out as a result.
And that’s where the FDA is going to be a very, very important player, because in the hemp world it is the wild West on steroids. Everybody who lost money on bitcoin is now jumping into CBD—it’s the green rush.
There are no rules right now with the FDA [for CBD], and that’s why we’re writing the rules.
PPN: Is there anything that could stop CBD in its tracks?
Smith: The doomsday scenario that would really damage our industry—human and pet—is one of these people making bad products, and they kill a 5-year-old child because the mother is in a state where she can’t buy a CBD product [to control her child’s epilepsy] at a retail establishment.
CNN, Fox, those guys, are not going to say, “XYZ company killed a 5-year-old kid.” They’re going to say, “CBD killed the 5-year-old kid.”
CBD in general will become this bad guy, and it would give those who don’t want CBD on the market, such as the opioid-based pharmaceutical companies that hate CBD, [ammunition].
We’re trying to speed up the process of getting the FDA rules and regulations in place … that is the need for these FDA rules to get rid of as many of these pirates as possible.
PPN: Talk about the 2018 Farm Bill’s removal of hemp from the Schedule 1 Controlled Substances List.
Smith: Hemp is now defined as an agricultural commodity; however, it is a states’ rights issue, just like with guns and abortion.
There are eight states that do not have CBD-specific laws on their state books yet, so we can sell e-comm because it is legal for a person to possess in those states, but … it is technically not legal to sell it in a retail establishment.
We have two large partners in the southern area of the country where we have instructed them to not sell our products in the state of Louisiana because there’s a CBD law that’s hung up in the state legislature. We don’t want to be the source of a store having a law enforcement problem.
So, we are turning money down because a couple of competitors have told the same retail stores, “Oh, absolutely, it’s legal. You can sell it; it’s legal in 50 states.”
PPN: Describe the growth of your company.
Smith: The first test batches were in our home, and, in those days, we had to import organic CBD oil from Europe, because we could not farm it here yet. So, literally, you almost felt like a drug dealer, because you’re importing, and we had to go through the DEA [Drug Enforcement Agency] to import it.
We are at more than 30 individual SKUs [topicals, edibles, supplements] now. Our revenues started from negative, so, in 2016, we did $650,000; in 2017, we did $2.8 million; in 2018, $8.25 million; this year, we’re probably going to be $25 to $30 million.
Before this season started, we signed $15 million dollars’ worth of guaranteed farming contracts with our farmers.
These growth components are also anticipating expansion of the international market. So, we just entered Japan last year, and those sales were $10,000 the first month and will probably be $80,000 in June because our products are being quickly adopted in Japan.
PPN: Where are your farmers located?
Smith: The San Luis Valley [in Colorado], where we’ve rotated out potatoes on some farms there; in Eastern Colorado, we’ve rotated out corn silage.
PPN: Is hemp more lucrative than potatoes and corn?
Smith: Our organic farmers are making on the corn silage side five to seven times per acre with us versus what they do now with corn silage. But the caveat is there’s no crop insurance [for hemp]. We’re the crop insurance. So, it’s a risk to us.
PPN: Where do you see pet CBD in five years?
Smith: We’re going to take it to a professional level in the pet world that … will exceed the reputation and level in the human world. Because we are going to drive the conversation where you’re going to have to have science behind your product.
I think in five years you’re going to see it in many countries around the world. We are already in talks with a significant partner in Brazil; we’re about to launch in the U.K. and in four more European countries before the end of the year.
Grocery stores, Target and Walmart, they have pet sections, they’ll start allowing pet CBD stuff sometime in the next two, three years.