Natural Products Industry Update
Industry Update
Industry transforms to meet COVID-19 challenges.
The panel:
Cal Bewicke, CEO, Ethical Naturals Inc., Novato, CA, www.ethicalnaturals.com
Jonathan W. Emord, President & Principal, Emord & Associates, Clifton, VA, https://emord.com
Dan Fabricant, PhD, President & CEO, Natural Products Association, Washington, D.C., www.npanational.org
Abhishek Gurnani, Partner (Chicago Office), Abhishek Gurnani, Amin Talati Wasserman LLP, https://amintalati.com
Andrew Hebard, CEO, Natures Crops International, Winston-Salem, NC, www.naturescrops.com
Karen Howard, CEO, Executive Director, Organic & Natural Health Association, https://organicandnatural.org
Wilson Lau, Vice President, Nuherbs, San Leandro, CA, https://nuherbs.com
Mark A. LeDoux, Chairman & CEO, Natural Alternatives International, Carlsbad, CA, www.nai-online.com
Sandra Lee, CEO, NJ Labs, New Brunswick, NJ, https://njlabs.com
Steve Mister, President & CEO, CRN, Washington, D.C., https://crnusa.org
Diana Morgan, Head of Scientific & Regulatory Affairs, Care/of, New York, NY, https://takecareof.com
Dan Richard, Vice President, Sales, NOW Foods, Bloomingdale, IL, www.nowfoods.com
Jim Roza, CSO, Layn Natural Ingredients, Irvine, CA, https://layncorp.com
Elan Sudberg, CEO, Alkemist Labs, Garden Grove, CA, www.alkemist.com
Industry experts tell us that the shifting sands of 2021 wrought many changes, transforming how we do things, what we produce, what we plan for and how we operate.
Many (if not most) Americans are arguably very tired hearing about COVID-19 and are weary of the disruptions and changes it has caused in everyday life.
In business, supply-chain disruptions have continued to plague the natural products industry.
Wartime-like shortages have exposed serious supply-chain vulnerabilities, have forced manufacturers to dramatically reset many pre-crisis expectations, and have led to formulation changes—and more.
At the same time, behind all of this is a backdrop of labor-market shortages, the looming shadow of government-ordered employer vaccine mandates and potentially precedent-setting anti-supplement pronouncements by the FDA (U.S. Food and Drug Administration).
Here to help us sort it out is a panel of leading dietary supplement industry experts.
NIE: What is the one top issue facing the dietary supplement industry right now, and why?
Richard: COVID-19 has dramatically affected our industry in two ways. The obvious one is in higher demand for natural products to support healthy immune systems. Our industry saw very high growth especially in 2020, and this continues for products such as vitamin C, zinc, elderberry, quercetin, NAC and many more. The increase in overall demand has caused the second key issue: supply chain. Products such as quercetin, creatine, whey, and many other supplements, personal care ingredients, and organic foods have jumped in cost due to COVID-related inflation.
Morgan: Two words: supply chain. It’s no surprise that all industries have been hit hard with supply chain shortages. In an industry that relies on international ingredients, these increased timelines and prices have caused mass disruptions for brands and retailers.
Fabricant: We are especially concerned about the FDA’s failure to act against adulterated products that violate the new dietary ingredient (NDI) notification process and reluctance to set a safe level of daily consumption for CBD.
On the other end of the enforcement spectrum, the FDA has overreached regarding NAC, setting a dangerous precedent that could extend to other products. NPA has pushed back on this forcefully, filing a lawsuit against the FDA to stop its retroactive—and misguided—application of DSHEA (Dietary Supplement Health and Education Act of 1994).
Hebard: On balance, I’d have to say global supply chain interruptions and the associated escalating costs. This has had some obvious consequences—increased costs, longer lead times and inventory management challenges, such as working capital tied up and aging materials—and some more subtle ones such as how this will impact primary producers (growers, farmers) and the decisions they make in boom-bust cycles. Raw materials make up the bulk of our COGS and whether it is commodities such as soybean oil or specialties, such as Ahiflower, producer prices are significantly higher than a year ago.
The risk premium associated with producing non-subsidized crops has gone up greatly. Managing these changes will present many challenges, especially to those businesses that are not integrated up the supply chain to the primary producer.
Mister: The production and transportation of raw materials that has been limited by the pandemic would be putting stress on the industry for fulfillment of orders anyway. The increased consumer interest in supplements—while generally a welcome phenomenon—only compounds it. These strains will test our commitment to quality and resolve not to cut corners.
Bewicke: Product quality assurance is still the top issue facing the industry, and this concern has only increased under current conditions.
For example, supply chain problems have interrupted reliable sources of raw materials, leaving many companies to buy from whatever sources they can find. Often they don’t have the time to validate these suppliers, or the resources to do cGMP (current good manufacturing practice) level testing on these new ingredients; this level of testing is time consuming and expensive.
The hundreds of brands that now seek to profit from the booming Amazon and e-commerce markets magnifies this problem. Here, speed and price are the driving forces, not the time and money required for accurate quality assurance. The end result is that consumers may be getting sub-par products that don’t provide the benefits they expect, which is not good for anyone.
Gurnani: While the industry faces many challenging issues, from our vantage point the persistent, constant onslaught on threatened and filed litigation tops the list. Whether its class actions based on label statements, Prop 65, or slack fill, we saw an increase in 2021 that shows no signs of letting up in 2022. To meet the litigation needs of our clients we opened an office in Los Angeles in 2021 with top litigators. They hit the ground running and have not slowed down.
Emord: The top issue is supply chain disruption aggravated by work force staffing issues due to the pandemic. Federal government expansion of benefits for unemployed workers, the child tax credit, and COVID-19 mandates have resulted in disruption of work all along the supply chain. That, together with COVID-19 sick leave and government mandated closures have made it difficult for dietary supplement companies to fill orders in a timely manner and obtain needed ingredients.
Howard: Imagine being prohibited from promoting immune health through supplementation. In a world where drugs are the only solution for any condition, NAC will stand as the first industry sacrifice. FDA’s overreach when it comes to the once obscure “drug preclusion” in DSHEA, clearly driven by economic interests and not safety, has enormous implications for the industry’s future.
Sudberg: Supply chain disruption is the top issue at the current time for the dietary supplement industry. By proxy, this issue has only increased the severity of prior top issues like adulteration. Our clients simply cannot keep up with demand from consumers and nor can their suppliers, so the frightening and laborious challenge of vetting new suppliers is plaguing the industry. My solution to this, as it is to so many product vulnerabilities is to test, test and test some more.
NIE: What temporary or permanent changes has your organization made in response to the crisis?
Lee: The nature of our company allows us to have some flexibility where we can obtain resources from multiple companies. But we now trend our workload and plan with three to four months lead time instead of two to four weeks. It has forced us to have more frequent meetings with clients so they are aware of any supply chain issues that might impact their projects.
Morgan: In the natural products industry, it’s really important to keep health top of mind all the time. That really should be the philosophy of all brands. Dietary supplements support health and cannot treat or cure any disease or condition. We’ve always communicated that our products support everyday health and that is what we’ve continued to do during the past two years.
Richard: NOW has made very significant changes with the biggest being a major investment in a new manufacturing building in Illinois. We purchased a building next door to our main plant about three years ago and had this in the works, but we upped our plans and have been preparing this new facility for our highest speed equipment yet. We plan to start production in Spring 2022 after spending 18 months with building upgrades. NOW also changed a lot with how we hire. NOW actually hired over 600 new employees in 2021 alone, by far a big record. Unfortunately, we are having higher than normal turnover, yet we’ve still added over 200 additional new workers. Our aim for 2022 is to continue hiring at least 200 more new positions.
NIE: Have these disruptions caused changes in formulations or shipment policies?
Bewicke: Supply chain disruptions on almost all components for supplement manufacturing continue. At Ethical Naturals, from the very beginning of COVID, we began to build substantial extra inventory in all of our ingredients, and to work closely with suppliers and customers to make sure we could meet demands. This has enabled us to maintain consistent on-time shipping policies, and manufacture products without formula changes.
Fabricant: In a recent NPA (Natural Products Association) survey, our members reported significant delays in receiving orders, price increases, and an inability to get products. Plastic products including bottle caps, bottles, packaging supplies and raw and finished products are among items businesses are having difficulty obtaining. To reduce the strain, businesses reported rationing products, looking for alternatives, opening new lines of credit, purchasing items they do not usually carry to fill store shelves and purchasing items in advance.
Lau: Lead times for machine parts can lead to machine downtimes and thus production downtimes. Another example is a company had to switch the color of their bottle caps because their original color was unavailable, which isn’t a change in formulation per se, but it’s a change in their manufacturing. I can go on and give countless other examples of changes or interruptions still happening.
Richard: NOW has not made formulation changes or shipping changes, but we have had supply problems. NOW has not had any Eyebright herb for over 12 months and it looks like we will have no supplies of creatine for many months as well due to very high costs. Other products such as Quercetin have increased in cost so much that we have to stop buying, even though this is a very big seller. Also, many low-cost items like psyllium from India, have jumped in cost almost entirely due to significantly higher container costs from Asia.
NIE: Has the pandemic brought the industry together again? Thoughts?
Morgan: One aspect I love about this industry is that we are a tight-knit community. But the first in-person event when old colleagues got to see each other again proved that. They say absence makes the heart grow fonder, and I believe that is true! Lau: I definitely think these shared challenges have created closer bonds. When there is a common goal, it pulls people together. There are a lot of calls and emails to our friends in the industry to troubleshoot issues that were new due to the pandemic. So, in a way, it did pull us closer despite us not being to be physically together at industry events.
Lee: People came together to share, learn and discuss as they found comfort and reassurance through conversations and friendships. The pandemic also brought a growing demand for supplements as consumers are looking to protect and improve their health.
Mister: In some respects, the industry is more divided on policy issues now than before 2020. Differences of opinion, misinformation and a lack of understanding have created policy disagreements on issues like mandatory product listing and safe levels for CBD. The industry needs to work toward more collaboration and understanding to achieve more unity. Otherwise, our critics will capitalize on the divisiveness as a weakness.
Richard: Perhaps. The good thing is our industry is made to help improve people’s health. Stores, distributors and manufacturers all claim to be in the business of better health and that’s a very good thing.
Emord: I sense considerable unity against heavy handed government impositions on our clients methods of doing business. All of them have successfully weathered the pandemic so far and rightfully believe they know better than governors and presidents how best to protect and care for their employees and customers. They work in an industry that has spent decades studying nutritional effects on immune function and maximizing overall health. They have a better understanding than the typical politician about the nature of the virus and how best to overcome it.
NIE: On Dec. 17, the Sixth U.S. Circuit Court of Appeals lifted the stay on the federal government’s rule requiring covered employers to ensure workers are vaccinated against the coronavirus or undergo weekly COVID-19 testing. Now potentially on to the Supreme Court. Your thoughts?
Emord: The OSHA mandate and the CMS mandate violate the OSHA and CMS enabling statutes and the United States Constitution. Even were there a federal police power that embraced national vaccination, it would still be incumbent on the President to seek the passage of legislation to alter fundamentally the lives of tens of millions of employees.
I believe the Fifth Circuit got it right on this, and I would hope the Supreme Court would reverse the Sixth Circuit’s 2-1 decision lifting the stay.
If by executive branch fiat, the President can declare a health emergency and impose restrictions on the workplace for a ubiquitous virus, there is nothing preventing him from doing likewise in response to, say, the obesity epidemic. Under this extraconstitutional power, the President could compel dietary strictures on employees to prevent heart attacks.
The OSHA emergency temporary standard was meant to be an extraordinary measure to stop a hazard originating in the workplace for which inadequate time existed for a rule making to be completed. It is being used to combat a ubiquitous virus, which even if it could be ordered out of the workplace (it cannot; the vaccinated can carry the virus; and the virus is everywhere else a worker goes), it greets people in all other venues open to them. It is grossly ill fitting and incapable of altering the trajectory of the virus one iota.
Sudberg: Born to scientists, I practically grew up in labs and hold a degree in chemistry. I feel confident that I understand virology and vaccine effectiveness much better than most of the general public. Regardless of Merriam-Webster Dictionary’s recent (July 2021) change of the definition of antivaxxers to include someone opposed to vaccine mandates, (not the Oxford English Dictionary, which has kept the original definition), I am not anti-vaxxer, but I am opposed to vaccine mandates.
As an employer, I will do everything in my power to support others opposed to workplace vaccine mandates and protect my employees’ rights to choose what goes in their bodies. This included their choice to be vaccinated as well.
Body sovereignty should be on the endangered species list, and I worry that mandates are a slippery slope to dictate highly personal decisions without public input or individual choice. And in this case, without adequate safety data, or consideration of other options including critical nutrients and botanicals or other early treatments. Somehow, we ended up with a false dichotomy policy, vaccines or nothing and if you do not like that the government will decide for you.
Gurnani: Given the recent issues with the new variant Omicron, we can see the de facto shutdowns that have resulted. Thus, the intent behind the mandate is genuine and in place to support continuity in our markets and workplace; however, the matter involves a broader legal issue, which is state sovereignty, and whether this is an issue that should be left up to each state’s government to decide. Thus, we think the Supreme Court will take a very careful look at this, not only for its present ramifications but also for broader constitutional issues.
LeDoux: Personally, mandating vaccination or ongoing testing at this late date, in the face of continued labor shortages is a very short-sighted approach to managing this epidemic, which has a 97 percent plus survival rate. This is especially true given the emergence of the far less lethal Omicron variant of this coronavirus (albeit highly transmissible), and the introduction of oral medicines and monoclonal antibody treatments that have demonstrated significant efficacy in combatting this disease.
Fabricant: We have asked the courts block the Biden Administration’s vaccine and testing mandate based on concerns from our members about how it will impact their ability meet demand for natural products that millions of Americans rely on. This rule also imposes high costs on our members already burdened by supply chain problems and labor shortages. We believe that the rule is unconstitutional and are hopeful that the Supreme Court sees it that way too. No matter where anyone sits on the issue of vaccines, we already manage and control colds and the flu as required by FDA cGMPs (current good manufacturing practices) in a manufacturing environment, its unclear as to what benefits, if any, added OSHA requirements would make the workplace safer. Additionally, COVID isn’t a workplace issue, unfortunately it can be contracted anywhere, not just in the workplace.
NIE: What is your prediction as to where the FDA will land regarding petitions and challenges to its position on N-acetyl-L-cysteine (NAC) in dietary supplements, and will NAC come out “alive”?
Mister: CRN is confident that NAC will be recognized as a lawful dietary ingredient. For the reasons laid out in our submissions to FDA, we believe the agency will ultimately recognize that the drug preclusion provision cannot be applied retroactively to ingredients that were already on the market prior to 1994.
Richard: We certainly hope that truth wins. NOW first sold NAC in 1993, which is pre-DSHEA and an important criteria for keeping NAC as a dietary supplement. NOW has been working primarily with NPA to represent our industry and we are planning to continue fighting to keep NAC legal as a dietary supplement. It’s interesting that as recently as July 2021 NOW was granted Free Sale certificates by FDA to legally export NAC to some countries, but this stopped later in the year. This is the kind of action that FDA can take that most people would not know.
LeDoux: As Chairman of the Board of the NPA, I authorized the organization to file suit against the FDA for clarification of this matter. It seems a gross overreach by the regulatory agency given the safe history of use of NAC (n-acetyl l-Cysteine) prior to the passage of DSHEA, therefore rendering NAC as essentially exempt from this position postulated by the Food and Drug Administration. We remain hopeful that the courts will provide clarity in this matter and indeed NAC as a dietary supplement will remain available for consumer procurement and use.
Gurnani: The recent lawsuit filed by NPA has made this issue a bit more interesting as it forces FDA’s hand. The industry is arguing that DSHEA’s drug exclusion language does not apply retroactively to ingredients, such as NAC, that were marketed in dietary supplements prior to Oct. 15, 1994. This is important as FDA could take this approach on a number of other ingredients that have long been used in supplements but may be excluded based on the drug study or approval. We are optimistic that FDA will ultimately reverse course and allow NAC to be marketed in dietary supplements.
NIE: There appears to be a new wave of natural brands being acquired by global corporations. What implications—if any—does this pose to the natural products industry?
Sudberg: If I didn’t say that natural brands being acquired by global corporations has got me a little worried I would be a liar.
They have new bosses who dictate the public narrative. I fear that this is why many of our wonderful organizations have yet to speak up on or even against the federal government’s rule requiring covered employers to ensure workers are vaccinated against the coronavirus.
This industry was called the alternative medicine industry at one point and was created by individuals passionate about plants, fungi and supplements, and the health benefits that their products could offer individuals seeking an alternative to modern drugs or big pharma.
I am concerned the freedom will decline in lieu of profits as global corporations continue to buy us up.
Richard: Perhaps this is inevitable due to the size of our industry and how difficult it is to pass ownership to next generations. But this dramatic change has many negatives to our industry, especially the “will” to fight unnecessary regulations. Big Pharma does not have the same interests that independent natural food stores have, nor the required heart to do what is right vs. focus on quarterly profits. It’s sad that there are so few natural supplement brands still privately owned by the same family.
Roza: Smaller natural brands built this industry and were able to move faster in response to previously smaller and more niche demand. The fact that global brands are now making sweeping acquisitions is evidence of how mainstream plant-based, healthier eating and supplementation has become—and so, the natural products industry must move forward, continuing to pave the path for the next generation of natural products. We see this cycle, honor it, and innovate to be able to both supply at global scale, and innovate new, novel, efficacious ingredients.
Gurnani: We so are proud to be a part of this industry and feel extremely lucky to be able to be advisors to some the most innovative, trend-setting, socially responsible companies in the space. We get patents for their products, trademark their names, and ensure they comply with the regulations. In 2021, we were also privileged to be at the forefront of companies helping to battle the pandemic, such as those making masks and other PPE, hand sanitizers and more. Finally, we also feel honored to be able to play an integral role, both in legislative and regulatory efforts, in bringing safe and effective hemp and CBD products to market.
Hebard: I’m not sure if there’s a new wave or whether this is part of general business evolution.
Global corporations often use acquisition as a key growth strategy to access new consumers and markets, and on the one hand it could be seen as consolidating market power into fewer hands and perhaps limiting some of the more creative, innovative, bleeding edge and “true to cause” businesses.
But, on the other hand it demonstrates the opportunity for new entrants into the market to tap into—and in many ways shape the direction, and future consumer-focused strategy of larger global corporations.
Lau: The benefit of big CPG corps acquiring natural brands is that it increases their reach and distribution. So, it will no longer be something only accessible to some, but it becomes “mass” market. So, the benefit is more people get to enjoy the benefits of our products. The downside by selling and the founders losing controlling stake is that the heart and soul of the company is no longer founder-driven.
The question is how do bring that equation in balance? How to keep the mission and founder’s impact on the brand, while spreading reach to make it a win-win situation? Or as a founder, do you build it slower, but keep control?
I don’t think the question really is one of heart and soul. I think entrepreneurship has been fundamentally changed since I entered the workforce, 20 something years ago and probably was shifting even before that. In the past, entrepreneurs built companies that they intended to run and keep until they retired or close to it, and pass on to their families.
However, in “modern” entrepreneurship and capital formation, we are looking at the exit strategy, even before companies are launched, because the need to return capital to investors or desire for a big payday. How is that for a pivot?
NIE: What is the single-biggest contribution your company or organization made to advancing the natural products industry in 2021?
Fabricant: Our fight against FDA’s unlawful regulatory actions regarding NAC has the biggest ramifications. We believe our lawsuit puts FDA’s inconsistent actions under a microscope at a time when they are requesting new authorities like mandatory product listing. As someone who used to sit in the chair, I know I would have a hard time explaining why the agency is acting against a product that has been safely on the market for more than 30 years at a time when simple things like inspecting facilities aren’t being executed. As we await the outcome of our lawsuit, we will continue to review all options as it relates to ensuring FDA is accountable to consumers and to industry.
Lee: NJ Labs has focused on sharing how important it is for the industry to properly test products to build integrity and trust. We just launched a new podcast series called “Going Beyond Testing” that is an insider’s look at testing practices and what should be tested to keep products safe and effective. Although the series is not all inclusive of information, it gives the viewer an insight on what goes on behind the scenes.
Richard: NOW continued testing less familiar supplement brands on Amazon and reporting this to Amazon, the trade, media, NPA and FDA. In 2021, NOW did testing on turmeric/curcumin and glutathione products on Amazon.
Testing included potency, heavy metals, radiocarbon testing for naturalness of curcumin, and testing on the vegetarian capsules to see if any products were mislabeled and actually used gelatin capsules. This follows NOW’s ongoing effort of testing products on Amazon and openly reporting the results.
It was gratifying for NOW to receive several industry awards recognizing our efforts to help clean up brands that cheat: NutraIngredients-USA 2021 Editors Award for Industry Initiative of the Year, and Nutritional Outlook’s Best of Industry: Leader award for this initiative, as well as NBJ’s “Efforts on Behalf of Industry” award in May 2021.
Sudberg: 2021 was a tremendous year for Alkemist Labs. We grew nearly 30 percent year over year, hired more employees and invested over $1 million in new equipment to continue to meet the needs of the industry. We’re about to begin offering additional testing services.
Several labs were gobbled up by the industry goliaths and in turn less choices are now available. Aside from being your reliable experts in plant and fungal analysis we have pioneered the concept of Next Generation Transparency. It’s a simple and nearly free concept that gives the admirable players in our industry a vehicle to showcase their quality with consumer-centric C of As.
If you are going above and beyond in the quality department, why not share proof? I started writing about this nearly seven years ago and 2021 was the year it was finally adopted by some of the best brands in the biz. Stay tuned for more on that in 2022.
Bewicke: I think I’d have to say two things: first through working on all phases of our supply chain and remaining 100 percent committed to our QA (quality assurance) programs, we’ve been able to ship raw materials and finished products equivalent to millions of bottles to consumers who really needed it this year: on-time, quality uncompromised.
Second, in spite of COVID we completed, and saw published, our new clinical study on ENI’s AlphaWave L-Theanine. This study showed significant relaxation benefits—something we all needed this year!
NIE: Anything else you would like to (briefly) add?
Roza: Our biggest commitments are twofold, the first, to innovate and bring science of the benefits of botanicals tried and true, but also new and novel, to the industry and market. The second is to continue to ensure our supply chain is fully secure so the ingredients our customers depend on get to market to benefit people, pets and the planet.
In 2021, we introduced our Supply Chain Guarantee, in which we guarantee to customers who participate and complete our forecasting collaboration program, that any contracted botanical ingredients are guaranteed in stock. That’s how much we stand behind our supply chain.
Lee: There are organizations that focus solely on the natural products industry and bringing quality products to market safely. They are the advocates that provide a balance between the consumers’ and the industry’s needs. One of NJ Lab’s goals this year is to join the appropriate organizations to contribute for the good of this industry!
LeDoux: The pandemic and its responses have been an enormous wake-up call to consumers everywhere. We believe that as we emerge from this scourge, continued adoption of healthy lifestyles and food and supplement choices will be robust and enduring. Producers and suppliers within the industry must continue to resist the potential of utilizing materials that fail to meet product specifications in the face of extraordinary demand, which may lead to some product outages, but which will be the correct course of action in the long run to preserve the integrity of the industry and its image.
Hebard: Yes! I would like to give a call out to our industry, its executives and its workforce. There is a sincerity toward doing better for people and the planet than many other industries and we are leading by example through challenging ourselves to develop healthier and more affordable products for consumers. NIE
