CBD Stocks & Investment Options
How can you invest in CBD in the Stock Market?
The legal cannabis market is currently one of the fastest growing industries in the world. Global sales of legal cannabis are projected to grow by as much as 38% in this fiscal year alone, to a whopping $16.9 billion. The legal cannabis market, expanding at its current rate, is expected to grow 350% in the ten years from 2017 to 2026. It is projected to be a 20.9 billion dollar industry by 2022. If these numbers are accurate, every investor in America will want to learn more about the cannabis industry, and the related stocks in the coming years. Areas that have already legalized cannabis are seeing higher demand from consumers. As a result, the creation of new cannabis companies, and products has been consistent. Another reason for this unprecedented growth is that legal cannabis has a wide range of applications, and isn’t limited by a single niche use or market. Multiple offshoots and subcategories simply related to cannabis could grow at an even faster rate than the marijuana industry itself over the next five to ten years.
The main example of this is the CBD market, which is growing even faster. CBD is short for cannabidiol. Cannabidiol is one of over 113 cannabinoids found in the cannabis plant. CBD is closely related to tetrahydrocannabinol (THC), the compound that causes the high feeling commonly associated with marijuana use. However, unlike THC, CBD doesn’t have the same psycho-active effects. Thus, CBD won’t make the user feel “stoned” when they take it, which makes it appealing for people looking to enjoy the health benefits of cannabis without experiencing mind altering side effects.
Global CBD sales are expected to grow from the $591 million recorded in 2018, to an incredible $22 billion by the end of 2022. That’s an astonishing annual growth rate of nearly 150%. If these projections are correct, that level of growth would dwarf the general marijuana industry’s growth rate in the same time period. This should certainly interest potential investors trying to capitalize on the budding market.
Part of the reason why CBD products are so appealing is because CBD is known to potentially treat or prevent a broad list of negative health conditions. In addition to a myriad of online testimonials and some celebrity endorsements, there are a multitude of scientific studies from prestigious Universities that claim CBD can be beneficial for a host of illnesses. It has also been scientifically proven to treat epileptic seizures in some patients. This fact has led the U.S. government, and other governments across the globe, to fund research looking into CBD’s potential as a treatment for a wide range of health problems such as:
- Neurological disorders such as dementia, Parkinson’s & Alzheimer’s disease, MS, stroke and various forms of traumatic brain injury.
- Autoimmune issues related to inflammation such as rheumatoid arthritis.
- Skin conditions such as acne, dry skin and psoriasis.
- Diabetes and metabolic syndrome issues related to obesity.
- Digestive issues like IBS, colitis and Crohn’s disease.
- Psychiatric illnesses like schizophrenia, PTSD, ADHD & Autism.
Some physicians experimenting with CBD in treating some forms of cancer have already found it to be beneficial to cancer patients in relieving the negative side effects of chemotherapy such as decreased appetite and nausea. Even people who aren’t sick can still benefit from CBD, as one of its main selling points is stress relief. These days, Americans seem to be more stressed out than ever. It’s certainly a trend worth looking at when considering CBD’s investment potential.
With such an extensive list of potential uses, it’s no surprise that people are becoming more interested in CBD. Additionally, products containing CBD are becoming widely available. Consumers are able to purchase hemp derived CBD products online, as well as from physical stores in areas where it’s legal. Several restaurants and coffee shops now offer products like CBD infused lattes, and in some areas, CBD has become so popular, you may even see a kiosk for it at the local mall.
CBD can also be sold through state-regulated medical cannabis programs. In fact, a big part of the reason cannabidiol has taken off in the past few years is because of the passage of the New Farm Act in December of 2018. This act allowed pilot programs for hemp production in states that allowed it. The law basically states that CBD can be derived from plants that fall outside the definition of industrial hemp, with THC levels above 0.3% of the weight. This currently allows for greater production opportunities, and also greater investment opportunities.
Investing in CBD
With such massive growth in the market, the number of publicly-traded cannabis stocks is skyrocketing. So, what’s the best way to invest in CBD? In short, do plenty of due diligence. Any savvy investor will tell you there’s no such thing as a risk free investment. It’s very important to thoroughly research a company before investing in it. The opportunities that the legalization of CBD has presented, as expected, has attracted many opportunists. The market has seen an increasing number of companies pop up quickly as a result. It’s important to consider which companies appear to be substantial versus those that might be running a pump and dump scheme. In general, it’s a good idea to find companies with innovative, and proprietary products, as well as those than can offer certified lab results assuring quality and confidence in the products sold.
Here’s a Look at Some of the Major Players:
Trulieve Cannabis (NASDAQOTH: TCNNF)
Trulieve has licenses in four states, however they have remained laser-focused on their home state of Florida. Over 90% of their dispensaries are located in the Sunshine State, in the areas where medical marijuana is legal. By centralizing efforts on their home turf, Trulieve has been able to take the market share lead in the potentially billion-dollar Florida cannabis market, while managing to keep their costs down. Trulieve expects to expand outside of Florida as well in the coming years. Recent acquisitions have given Trulieve the ability to grow medical marijuana in Massachusetts, Connecticut, and California. California alone is expected to reach $11 billion in cannabis sales by 2030.
Even with the higher costs of building their brand outside of their home state, Trulieve’s success at home should easily keep the company profitable. Growth estimates from the company following its most recent quarter, project that total annual sales should double to $240 million in 2019 from $102.8 million last year. Growth is even expected to reach $400 million in 2020. This forecast is a huge reason why Wall Street’s consensus profit projections for next year have been on the rise.
Planet 13 (NASDAQOTH: PLNHF)
Specialty dispensary operator Planet 13 packs quite a lot of value despite being possibly the smallest stock listed here. Planet 13’s business approach is unique, but their aims are high as they are looking to be the main cannabis experience in the United States. The company’s primary location is just off the Strip in Las Vegas, Nevada. This superstore currently spans 16,200 square feet, but will hit 112,000 square feet once the current expansion is completed. This flagship mega-complex’s third quarter should feature a coffee shop, pizzeria & bistro, event center, and a consumer-facing processing center with around a dozen windows. Since opening their doors at the beginning of November, the number of visitor per day has nearly doubled, and the average ticket price has already increased by nearly $11 to $90.63 in May due to popular demand. One futuristic feature of this location is a handful of self-checkout kiosks to expedite the shopping experience for regular visitors.
Planet 13 has also recently announced plans to expand into Southern California with a 40,000-square-foot store just 10 minutes from Disneyland. These factors all indicate that the company’s sales, and value, should begin to rise quickly in the coming months.
Charlotte’s Web Holdings (NASDAQOTH: CWBHF)
Charlotte’s Web currently has the largest piece of hemp-derived CBD market share in the United States. Competition is starting to pick up as every company wants their share of a pie with such massive projections. This company ended 2018 with its products in nearly 3,700 retail stores. Charlotte’s Web finished March with its CBD-based topicals, capsules, and oils in over 6,000 retail locations.
In the company’s most recently quarterly report, management announced their intentions to more than double their hemp planting and extraction from 300 acres a year to 700 acres in order to meet growing product demand. This explains why Wall Street projects the company will nearly double sales in 2019 and grow their revenue by another 135% in 2020. Right now, Charlotte’s Web has a forward P/E of just under 15, yet full-year sales could more than quadruple between 2018 and 2020. That’s an amazing value to say the least. Being a direct player in the CBD market means Charlotte’s Web is considered a safe investment because it’s one of just a small handful of pot stocks that are profitable on an operating basis. This is a company that’s been profitable without the assistance of one-time benefits for more than a year, and appears to be on track for sales growth of more than 120% in 2019. It’s unquestionably the easiest way to give your portfolio CBD exposure.
KushCo Holdings (NASDAQOTH: KSHB)
If a middle-of-the-road approach is more appealing to you as an investor, consider taking a closer look at KushCo Holdings. KushCo is probably best known for providing packaging and branding solutions to more than 5,000 marijuana growers worldwide. That includes packaging dried cannabis flower. They also provide packaging and branding solutions for different consumption options, including concentrations that contain high amounts of CBD. Although KushCo isn’t the only player when it comes to packaging and branding solutions in the cannabis industry, it is easily the most widely recognized. They have been ramping up agreements with major producers to supply packaging and branding solutions for years to come. Additionally, KushCo’s acquisition of Summit Innovations in 2018 brought the company into the world of hydrocarbon gas and solvent production. This is major because these are both necessary in the production of cannabis oils, and in the manufacturing of cannabis concentrates. Cannabis oils are generally rich in CBD, and they’ve been incredibly popular with consumers throughout North America. So much so, in fact, that according to Wall Street, this company is on track for more than $200 million in sales by 2020.
GW Pharmaceuticals (NASDAQ: GWPH)
GW Pharmaceuticals is one of the biggest names in the industry as they created the first FDA approved drug derived from botanical cannabis, Epidiolex. Epidiolex is an oral CBD formula which is used for the treatment of seizures in treatment-resistant forms of epilepsy. Specifically, two rare forms of childhood-onset epilepsy, Dravet syndrome and Lennox-Gastaut syndrome. In June 2018 Epidiolex demonstrated a statistically significant reduction in seizure frequency relative to a placebo in multiple late-stage trials. In fact, GW Pharmaceuticals’ work on cannabinoids may have been the catalyst that incited the recent change in the way CBD is viewed by the U.S. government at the federal level.
Green Growth Brands (CSE: GGB) Remember when I mentioned above that you might soon see a kiosk selling CBD based products at your local mall? Enter Green Growth Brands. This company primarily sells online, however they are leading the charge into the retail storefront market. They have already opened several Seventh Sense kiosks, and have a deal with Simon Properties to open 108 locations to sell CBD based cosmetics. Another benefit of CBD cosmetics is that they are less likely to be vulnerable to strict FDA regulations compared to products that are consumed orally. The company also has close ties to the Schottenstein family of American Eagle Outfitters.
Cronos Group (NASDAQ: CRON) announced a partnership with Ginkgo Bioworks in September that will allow the company to use Ginkgo’s microorganism platform, making this company one to watch in terms of new cannabinoid production methods. Cronos and Ginkgo are able to use yeast strains to pinpoint what cannabinoids they want to produce. This means cannabinoids that are rare and have been hard to produce in masse can now be manufactured in greater quantities.
CVS Health (NYSE: CVS)
To clarify, this is a different kind of CBD business. Comparing Charlotte’s Web to CVS Health, for instance, is a little like comparing apples to oranges. Charlotte’s Web relies on CBD for every cent of their sales, CVS Health will only be generating a small fraction of sales (far less than 1%) from CBD products. CVS Health announced that they would begin carrying hemp-derived topicals in roughly 800 stores in a total of eight states. Although, if you’re buying into CVS Health, you’re buying into a long list of growth initiatives beyond just CBD products. Keep in mind that CVS stores have thousands of over-the-counter products for sale, not to mention their pharmacy revenue. This might be a great stock to buy if you’re counting on an aging U.S. population needing prescription medicines in the years and decades to come. You’re also betting on a decent amount of foot traffic for regular products in their stores. With CVS Health’s forward price-to-earnings ratio at its lowest point in a decade, this appears to be a low risk way to participate in at least a piece of the CBD movement.
Walgreens Boots Alliance (NASDAQ: WBA)
Walgreens Boots Alliance made a similar announcement just days after CVS stating it would also be adding CBD products to approximately 1,500 stores. One can look at Walgreens Boots Alliance in the same light as CVS as the two companies are extremely similar in terms of services, products, and general business operations.
Another benefit of the CBD industry is high margins. High margins are incredibly attractive to investors. Since most CBD products are created from dried hemp flower. Most growers throughout North America have turned their attention to CBD oils and other products to keep these margins high. Products containing CBD (including oil, topicals, vapes, edibles and capsules) typically have higher price points than traditional dried hemp flower or isolate, and most consumers are often willing to pay a higher price to avoid the hassle of the manufacturing process.
Another important factor to consider when selecting a CBD stock is that local and state government crackdowns are still possible. Although the passage of the farm bill opened doors for CBD companies and products, there are still states and counties where CBD is considered illegal, despite being legal at the federal level. It’s worth noting that President Trump’s fiscal 2020 budget request also asked Congress to revert to less-restrictive language. This would loosen legalization restrictions in Washington, D.C. with other states sure to follow suit, however, in the meantime one should think about shutdowns as a possibility among companies operating in areas where the law isn’t clearly defined. In conclusion, here are some basic rules to follow when investing in cannabis stocks:
- Research the company. As stated previously, it’s always a good idea to start by researching the company or companies you’re considering investing in. Check SEC filings. If a company isn’t listed there, it might not be worth your investment consideration.
- Carefully consider the amount you’re investing. As a general rule of thumb, consider investing like gambling. Never risk more than you’re willing to lose. Good research can often lead to strong returns, but nothing is guaranteed. CBD stocks, like all other stocks, are volatile and can be unpredictable as environmental factors change.
- Timing is everything. Every good investor knows timing is critical. When to buy and when to sell can be the sole difference on whether a stock will be a profitable investment or not. It’s important to have a timeline set up when investing. For instance, if stock X drops below a certain margin, I’ll sell. It’s a good idea to base this on your initial investment after you have hopefully seen some growth.
- Select a stockbroker you are comfortable with and understand as much as you can about them. This step is for when you are ready to buy your shares, but doing research on a broker can be as important, if not more so, than researching the stocks themselves.
Successful trading requires information and active engagement. There are several publications that can help you achieve this goal, and it’s highly recommended to read up on current market trends and world events often as you follow your investments. This will, hopefully, allow you to see patterns in the market and allow you to make informed decisions when selecting stocks to buy or sell, as well as the best time to do so. All of the advice and tips on investing in CBD stocks, as well as the stocks themselves listed in this article, are meant to serve as examples, and not to be taken as concrete financial advice. One thing I can tell you for sure, however, is that the potential for profit based in cannabis stocks as the market continues to emerge in various places around the United States and the world is palpable. We wish you the best of luck with your investments in this exciting new market space, and hope you will tell your friends and family about CBD and the potential benefits it holds as you watch your portfolio change and grow with cannabis stocks.
For more great CBD education and resources check out Cannabidiol Life.
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