Companies were big in CBD. Not anymore.

Just beneath rows of energy and kombucha drinks at Westside Market, a deli in Manhattan’s Chelsea neighborhood, sit a few glass bottles of Vybes. The drink, available in flavors like strawberry-lavender and blood orange-lime, is made with cannabidiol, better known as CBD.

But a lack of federal regulations and a hodgepodge of state regulations have made it impossible for Vybes to be distributed by a national retailer, such as Target or Walmart. That has hampered the drink’s potential growth, says Jonathan Eppers, who left the tech industry in 2018 to found Vybes.

“We were riding on a rocket for the first two years,” Mr. Eppers said. “But the patchwork of legislation and regulations in the sector has made it difficult to grow our business.”

Just over six years ago, CBD, the non-intoxicating compound derived from cannabis or hemp, was poised to become the next big “it” ingredient, part of a wave of drinks and foods promoted as offering healthy benefits had or relaxation. Startups flooded the market with products, many of which promised to calm stressed and anxious consumers.

At its peak around 2018, CBD was ubiquitous, appearing in water, chocolate bars, tinctures, gummies, and skin serums. Consumers could purchase casual clothes infused with CBD oil and feed their nervous pups CBD chews and treats. Big companies even jumped in. Molson Coors partnered with a Canadian cannabis company to create a line of CBD-infused drinks. Constellation brandsthe maker of Modelo beer, invested $4 billion in a publicly traded cannabis company. Ben & Jerry’s started looking into making CBD-infused ice cream.

However, in the last few years the sector has come to a standstill. Molson Coors ended its joint ventureand Constellation has more than $1 billion written off of its cannabis investments. Major companies have shelved plans for CBD products, and hundreds of startups have shut down, switched to different ingredients or simply tempered their growth forecasts.

Hope to resuscitate the market through industry efforts federal regulations of CBD in a new farm bill were dropped when Congress passed an extension of the 2018 version of the law in the fall.

Also contributing to the industry’s sudden fall is the simple fact that many people are wondering what CBD is, whether it is legal, and whether it gets them high.

The compound comes from the cannabis plant. Cannabis plants that contain high levels of tetrahydrocannabinol, or THC, are marijuana and can get users high. Cannabis plants with a lower THC content are known as hemp.

Five years ago, Congress legalized hemp-based CBD, although CBD made with higher THC levels remained illegal at the federal level. But the Food and Drug Administration has declined to establish rules allowing the use of CBD in dietary supplements or conventional foods. The agency said a new regulatory process because CBD must be manufactured and that there was not enough evidence to determine how much of it could be consumed and for how long. (The FDA has approved one drug that contains CBD and is used to treat certain seizures.)

Like marijuana, which remains illegal at the federal level, CBD has been legalized by many states, creating a quagmire of different regulations and issues for manufacturers.

“I saw the writing on the wall at the end of 2019 and 2020. It would take much longer before there were federal regulations around CBD,” says Ben Witte, who founded Recess in 2018 as a line of sparkling water with CBD. Today, those drinks make up less than 10 percent of his sales. Instead, he focuses on mocktails and Recess Mood, a line of relaxation drinks without CBD.

Even before hemp-based CBD was legalized, stores and online retailers were flooded with products containing it. But none of them had been approved by the FDA, and some pushed outrageous and unsubstantiated claims that the infused products could do everything from treating Alzheimer’s disease to curing cancer.

The FDA began issuing warning letters to manufacturers and retailers for selling unapproved CBD products or making unsupported claims around the products. In 2020 the FDA found in a sample of products that 18 percent contained significantly less CBD than indicated on the packaging while 37 percent contained significantly more CBD.

“I think the bigger question here is why do you need to have it in food at all?” said dr. Peter Lurie, president and executive director of the watchdog group Center for Science in the Public Interest. “What is the purpose? What does this ingredient actually do for you?”

He added: “These companies have managed to create the belief that society needs these products, while there is no evidence that CBD treats anything better than the rare epileptic syndrome for which it is approved.”

As questions about the drug increased, state regulators began pulling CBD products from store shelves and confiscating products. Companies also encountered obstacles when selling or advertising online.

“My account on Meta has been banned from advertising forever after I once posted about our CBD products on our company’s page and it was flagged,” said Clarice Coppolino, head of branding and product development for Vital Leaf, which offers CBD makes chocolate, skin products. care and tinctures.

The Covid-19 pandemic also took its toll on the sector. While sales soared in the early weeks and months of the pandemic as nervous consumers sought relief through CBD-infused products, interest among major companies and investors waned.

“Covid has clearly pulled consumer packaged goods companies away from the CBD space and what was possible there to focus on simply meeting food demand,” said Carmen Brace, a consultant who has worked with consumer packaged goods companies.

Amid heavy industry lobbying, some states began legalizing hemp in various products. In 2021, for example California has passed legislation which allowed hemp-derived CBD in all foods, beverages and dietary supplements sold in the state. Other states legalized CBD with restrictions on the types of products it could be used in, the quantities and where the hemp had to be grown.

Mr. Eppers started Vybes after trying CBD oil to relieve the stress and anxiety he felt while working in the tech industry. The product attracted a following in its first two years, but around 2020, California regulators began pulling the drinks from shelves. So Mr. Eppers joined other CBD manufacturers to pass laws allowing the product in the state.

But the confusing mix of rules has hampered Vybes’ growth. “We make a drink that many consumers desire, but the large chains do not want to match it,” said Mr. Eppers.

For now, Vybes, made with 25 milligrams of hemp CBD, has found a home at smaller regional and independent grocers across the country, Mr. Eppers said.

“When I entered this category in 2018, the sky was the limit,” he said. “Nobody starts a business to reach a low ceiling.”