Understanding MLB’s Partnership with Charlotte’s Web and Implications for CBD and Sports Going Forward

Nov 18, 2022

By  Doug Sargent, of Greenspoon Marder

Last month, Major League Baseball (“MLB”) announced a ground-breaking partnership with Charlotte’s Web, one of the leading cannabidiol (“CBD”) companies in the United States. Under the deal, Charlotte’s Web will become the “Official CBD of Major League Baseball,” which is a first for major U.S. professional sports leagues. The deal reportedly includes a rights fee and revenue share, as well as MLB receiving shares of Charlotte’s Web Holdings, which is publicly traded on the Toronto Exchange. The agreement covers the 2022 MLB postseason, plus an additional three years.

In connection with the sponsorship agreement, Charlotte’s Web launched the first product in its “Sport” line: SPORT – Daily Edge. This tincture has been “Certified for Sport” by NSF International, an organization that establishes standards for safety, quality, sustainability, and performance, and tests products against those standards. Charlotte’s Web claims this new product “provides assurance to athletes that they’re getting a safe, high-quality product that’s suitable for professional, recreational and novice athletes alike to help support recovery from exercise-induced inflammation, help keep calm under pressure, and maintain healthy sleep cycles.” The certification also ensures that SPORT – Daily Edge has been tested for 280 banned substances, the contents described on the label are accurate, there are no unsafe levels of contaminants, and the product is manufactured in a facility that is certified to be compliant with current Good Manufacturing Practices. Not surprisingly, the box and label for SPORT – Daily Edge identify it as the “Official CBD of Major League Baseball” and include the famous silhouetted logo for MLB.

While this CBD sponsorship is the first of its kind for the four major professional sports leagues in the United States, the deal did not come as a surprise to those in the industry. MLB laid the groundwork for this partnership in June 2022, when it began allowing its teams to sell sponsorships to companies that market CBD products, provided they meet certain criteria, including certification by NSF International and approval from MLB’s commissioner’s office. MLB had previously removed cannabis from the league’s list of banned substance in 2019 and the following year announced that players would no longer be punished for using cannabis while they are not on the job.

Will other professional sports leagues follow suit?

It seems likely—if not inevitable—that the National Basketball Association (“NBA”), the National Football League (“NFL”), and the National Hockey League (“NHL”) will eventually enter into sponsorships with CBD companies.

Over the past decade or so, there has been a seismic shift in public perception and acceptance of cannabis, as well as the legal landscape surrounding it. Indeed, the medical use of marijuana is now legal in 39 states and recreational marijuana has been authorized in 19 states. While marijuana is still illegal federally, the federal government has shown essentially no appetite for enforcement against state-licensed businesses or individuals operating in compliance with state laws.

The same goes for hemp, which is the source of most CBD products. In 2018, the U.S. Congress passed, and President Donald Trump signed into law, the Agriculture Improvement Act of 2018, commonly known as the “2018 Farm Bill.” Among other things, the 2018 Farm Bill removed hemp from the definition of marijuana under the Controlled Substances Act, making hemp federally legal. The federal government and most states distinguish hemp as containing 0.3% THC or less by dry weight and marijuana containing more than 0.3% THC by dry weight.

Cannabis reform and acceptance show no signs of slowing down. Last month, President Joe Biden announced that he is pardoning all people convicted of simple marijuana possession under federal law. He also asked the Secretary of Health and Human Services and the Attorney General to look at whether marijuana should remain a Schedule I substance under the Controlled Substances Act.

In addition to recent de-stigmatization, the cannabis industry has proven to be incredibly lucrative. According to BofA Securities, cannabis sales topped $25 billion in the United States in 2021, a 40% jump from 2020. Further, New Frontier Data projects annual sales to exceed $57 billion by 2030 in just states that have already legalized marijuana; if additional states legalize the drug, sales are projected to surpass $72 billion by 2030.

Given the confluence of increasing consumer acceptance and the sizable—and growing—market, sports leagues will likely consider sponsorships with CBD companies. Sports leagues are always looking for new ways to increase advertising and marketing revenue, as we have seen lately with the NBA and NHL selling ad space on jerseys (MLB has approved it for next year). Sports league partnerships with CBD companies also makes sense from a branding perspective. Many of the purported benefits of CBD align well with sports, including recovering after exercise, increasing focus, staying calm under pressure, and promoting better sleep. Of particular note for the NFL, a 2017 article by Lesley D. Schurman and Aron H. Lichtman found that “CBD as well as other phytocannabinoids which do not bind cannabinoid receptors, represent promising molecules to treat [traumatic brain injury].” That said, it may take some time for another deal to be reached and leagues may wait to see how the MLB-Charlotte’s Web partnership fairs before jumping in.

What Factors Should Leagues Keep in Mind When Considering CBD Sponsorship Deals?

Despite the wave of de-stigmatization and reform around cannabis and its expanding market, sports leagues should approach potential CBD sponsorships with caution.

Leagues need to conduct extensive diligence on their prospective partners and their products. As several studies have shown, much of what is on the shelves at retailers across the country is inaccurately labeled and marketed. Some “CBD” products contain less CBD than advertised or no CBD at all; others might contain THC levels that exceed federal limits. Accordingly, leagues must ensure that their prospective partners’ products are legitimate and trustworthy. MLB is attempting to achieve this through certification from NSF International, and other sports leagues will likely follow suit.

Leagues—and their CBD partners—should also be careful in touting potential medical benefits of CBD products. While some describe the CBD industry as the “wild, wild west,” the U.S. Food and Drug Administration (“FDA”) maintains regulatory oversight over hemp thanks to the 2018 Farm Bill. Consequently, hemp-derived products—such as foods, beverages, dietary supplements, human and veterinary drugs, and cosmetics—must meet applicable FDA requirements. In practice, these requirements are largely overlooked and the FDA has done little to regulate or enforce CBD products. But one issue that has caused the FDA to issue enforcement letters is unsubstantiated claims of health benefits. Further, high-profile organizations like professional sports leagues might draw enhanced scrutiny from the FDA. MLB appears to be aware of this issue, yet is comfortable with the associated risks, as Charlotte’s Web describes purported health benefits of SPORT – Daily Edge on its website, but includes a disclaimer that “[t]hese statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure or prevent any disease.”

The partnership between MLB and Charlotte’s Web is intriguing and potentially very lucrative for both sides, but it does come with risk, particularly to MLB. It will be interesting to see how this plays out for MLB, Charlotte’s Web, and any other leagues and companies that enter into similar sponsorship agreements.

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