With global CBD sales potentially hitting $22 billion by 2022, here are four CBD stocks you'll want to know about. An in-depth look at the leading CBD stocks in the U.S stock market this year. Here’s what you need to know.
4 Stocks Giving Investors Direct Exposure to CBD
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Medical Marijuana, Inc.
With global CBD sales potentially hitting $22 billion by 2022, here are four CBD stocks you’ll want to know about.
Few if any industries have been as unstoppable of late as legal marijuana. Since the beginning of 2016, most pot stocks have seen their valuations rise by a triple-digit or quadruple-digit percentage, with global growth estimates for the industry soaring following the legalization of adult-use weed in Canada and multiple medical cannabis legalizations in countries around the globe.
How big could the marijuana industry become? That’s really a matter of interpretation, with a variety of Wall Street investment firms projecting anywhere from $50 billion to $75 billion in sales by the end of the next decade, and the duo of Arcview Market Research and BDS Analytics calling for a compound annual growth rate of nearly 27% between 2019 and 2022.
Image source: Getty Images.
CBD offers a compound annual growth rate of 147% through 2022
However, there’s an even hotter industry that’s budding from within the marijuana movement: cannabidiol (CBD). CBD is the nonpsychoactive cannabinoid best known for its perceived medical benefits, and since it won’t get a user high, it’s become an intriguing means of luring in new consumers who’ve never tried a cannabis-related product before.
According to a report from the Brightfield Group, worldwide CBD sales are expected to soar from $591 million in 2018 to as high as $22 billion by 2022, which works out to a compound annual growth rate of 147%, for those of you keeping score at home.
CBD itself can be extracted from two sources: the cannabis plant and the hemp plant. Generally speaking, hemp is a CBD-rich plant with minimal tetrahydrocannabinol (THC) content. THC is the cannabinoid that gets a user high. Meanwhile, CBD content in cannabis plants can be hit or miss, depending on the strain. CBD derived from hemp plants is legal in all 50 states following the December passage of the Farm Bill, whereas CBD derived from the cannabis plant is still considered illicit at the federal level. However, adding CBD of any form to food, beverages, or dietary supplements is a no-no since it still falls under the guidance of the U.S. Food and Drug Administration (FDA).
Four direct players in the CBD space
With this in mind, here are a handful of stocks that’ll provide investors with direct exposure to the burgeoning CBD market.
Image source: Getty Images.
Charlotte’s Web Holdings
Arguably no company is more attractive from a growth perspective relative to CBD than Charlotte’s Web Holdings (CWBHF -5.46% ) . Charlotte’s Web has the highest retail market share for CBD products in the United States, with access to 3,680 retail stores at the end of 2018.
This is a company that focuses entirely on hemp-extracted CBD, meaning that in one fell swoop, via a signature from Donald Trump on Dec. 20, 2018, all of its products became legal in 50 states, with some kinks to be worked out in the near future regarding CBD as a food and beverage additive. In other words, the Farm Bill’s passage rolled out the green carpet for Charlotte’s Web to get its products into new retail locations. Just about the only thing missing at this point is a brand-name retail partnership.
What isn’t missing are profits. Charlotte’s Web has been profitable on an operating basis for approximately two years, with the company generating $69.5 million in sales in 2018, representing 74% organic sales growth. For 2019 and 2020, Wall Street is looking for a successive more-than-doubling in aggregate sales to $152 million and $313 million, respectively. Again, with Charlotte’s Web already profitable, and CBD products typically yielding much higher margins than traditional dried cannabis flower, this company looks to be in excellent shape.
Image source: Getty Images.
Another CBD stock that finds itself on the right side of the profit column is CV Sciences (CVSI -1.96% ) .
Like Charlotte’s Web, CV Sciences retails a variety of hemp-derived CBD products in retail stores. According to its full-year results reported about a month ago, the company’s PlusCBD brand of hemp products was available in 2,238 stores at the end of the year, which represents a 45% increase from the end of 2017. However, the passage of the Farm Bill has already opened up new distribution avenues for the company, which means its retail door count should expand significantly in the quarters that lie ahead.
For the year, CV Sciences tallied $48.2 million in sales, up 133% from the prior-year period, while recording net income of $10 million. The lone estimate from Wall Street is forecasting 68% sales growth in 2019 and an additional 47% in 2020, with revenue hitting $119 million by the turn of the decade.
It is worth noting, though, that CV Sciences is facing possible legal pushback from a drug it’s developing that combines CBD and nicotine as a smokeless tobacco-cessation solution. Short-seller Citron Research, which often has short positions in the stocks it bashes (i.e., a financial interest), released a report in August 2018 showing that CV Sciences’ combo drug patent application had been rejected by the U.S. Patent and Trademark Office. Citron alleges this was never disclosed to investors, which has been grounds for lawsuits. It’s something to keep in mind if you’re considering CV Sciences as a possible investment.
Image source: Getty Images.
Medical Marijuana, Inc.
Even though it’s a tiny tot, another means of gaining direct CBD exposure is by considering penny stock Medical Marijuana, Inc. (MJNA 0.75% ) . Of course, don’t let the company’s $0.066 share price trick you — it has so many shares outstanding that it’s pretty much a bona-fide small-cap with a $238 million market cap.
As the name implies, Medical Marijuana, Inc. supplies hemp-derived products to the U.S., Mexico, and other international markets. This week, Medical Marijuana announced that it had secured about 100 new retail locations during the first quarter, outpacing internal expectations. Like Charlotte’s Web and CV Sciences, the passage of the Farm Bill looks to have played a big role, with CBD acceptance growing and nontraditional retailers willing to carry select CBD products.
Like its peers, Medical Marijuana has seen its top line moving in the right direction. Third-quarter revenue, reported back in November, was slightly over $16.8 million, representing a 116% year-over-year increase. Unfortunately, it hasn’t been profitable on a recurring basis, but it appears to be working toward that mark. In the third quarter, the company generated an operating profit, after expenses, of $0.6 million.
Keep in mind, though, that revaluations of the company’s investment portfolio can wreak havoc on Medical Marijuana, Inc.’s bottom line, and it has resulted in aggregate losses of $158 million through the first nine months of 2018.
Image source: Getty Images.
Lastly, investors can gain direct CBD exposure with the only marijuana stock to have gained FDA approval for a cannabis-derived drug: GW Pharmaceuticals (GWPH) .
In June, the FDA approved GW Pharmaceuticals’ lead CBD-based oral drug known as Epidiolex as a treatment for two rare forms of childhood-onset epilepsy. In multiple late-stage trials, Epidiolex wound up reducing seizure frequency from baseline by between 30% and 40%, which handily topped the effectiveness of the placebo over the defined treatment range. Epidiolex is currently the only drug approved by the FDA to treat Dravet syndrome, and its only potential competitor, Zogenix, had its new drug application for fintepla refused for the time being, giving GW Pharmaceuticals a clear runway to grow sales.
How big could Epidiolex become? That’s up for interpretation, but most Wall Street companies foresee $500 million to perhaps even north of $1 billion in peak annual sales. In the company’s most recent quarter, we learned that GW Pharmaceuticals sold $4.7 million worth of Epidiolex in its first two months on pharmacy shelves. While it’s had little trouble securing insurer coverage for its seizure therapy that costs roughly $32,500 a year, GW Pharmaceuticals is also going to need more than $4.7 million in quarterly sales to maintain a $5-plus billion valuation moving forward.
Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Investing in CBD Stocks
Sometimes the best time to invest in a relatively new market is after the initial euphoria evaporates. That could very well be the case with investing in CBD stocks.
CBD is short for cannabidiol, which is a chemical found in the cannabis plant. CBD doesn’t produce a high but has been found to have therapeutic benefits.
The U.S. legalized hemp-derived CBD at the federal level with the 2018 Farm Bill. The mere anticipation of the passage of this legislation stoked investors’ interest in the stocks of companies involved in the CBD industry.
Although federal legalization served as a key milestone, the U.S. Food and Drug Administration (FDA) still hasn’t finalized regulations for CBD food supplements. As a result, the CBD opportunity in the U.S. hasn’t delivered on investors’ lofty ambitions — at least not yet. However, the pressure is mounting for CBD regulations to be eased. Even the U.S. Congress has gotten involved with bill proposals to change the federal regulation of CBD products.
The CBD market could expand in the not-too-distant future with the finalization of regulations. Now could be a great time for investors to check out CBD stocks. Here are five CBD stocks to consider in 2022.
|Canopy Growth (NASDAQ:CGC)||$3 billion||Canadian cannabis producer with U.S. CBD operations.|
|Charlotte’s Web Holdings (OTC:CWBHF)||$172 million||Leading CBD products company.|
|Cresco Labs (OTC:CRLBF)||$2.1 billion||U.S. cannabis operator that markets CBD products.|
|Jazz Pharmaceuticals (NASDAQ:JAZZ)||$8.5 billion||Pharmaceutical company with the first FDA-approved CBD drug.|
|The Valens Company (NASDAQ:VLNCF)||$166 million||Canadian company that provides extraction services used to produce CBD and cannabis derivative products.|
For a while, Canopy Growth ranked as the biggest marijuana stock in the world based on market cap. It remains one of the largest companies in the cannabis industry with top-tier positions in the Canadian medical and recreational marijuana markets and the German medical cannabis market.
Canopy Growth can’t enter the U.S. cannabis market and maintain its listing on a major U.S. stock exchange as long as marijuana is illegal at the federal level. However, the company is already a player in the U.S. hemp-derived CBD market.
In 2019, Canopy Growth teamed up with businesswoman and TV celebrity Martha Stewart to develop CBD products for the U.S. market. The company now has a line of CBD brands with Stewart. It also has other CBD products that include Whisl, the No. 1 CBD-only vape in the U.S. market.
Canopy Growth isn’t profitable yet. However, it does have a large cash stockpile, thanks in large part to investments by beverage giant Constellation Brands (NYSE:STZ), the company’s biggest shareholder.
The CBD opportunity is only a secondary reason to consider this stock. The primary potential catalyst for Canopy Growth is the prospect that U.S. federal cannabis laws will be changed and allow the company to enter the lucrative U.S. cannabis market.
Charlotte’s Web Holdings
If you’re looking for a pure-play CBD stock, Charlotte’s Web could be right up your alley. The company pioneered the hemp CBD industry in 2011, and it still ranks No. 1 based on market share.
Charlotte’s Web markets a wide range of CBD products. From bath and beauty to ingestibles and topicals, the company covers all the bases when it comes to CBD. It even sells CBD products for pets.
The company’s CBD products are available at more than 14,000 retail outlets. About 8,000 healthcare practitioners also distribute Charlotte’s Web’s products, and the company has a strong online presence. More than half of its total revenue stems from direct-to-consumer e-commerce sales.
Charlotte’s Web isn’t resting on its laurels. It plans to launch CBD beverages in the second half of 2022. Market researcher Brightfield Group projects that the CBD beverage market will reach $1.3 billion in 2026, up from $245 million in 2021.
However, Charlotte’s Web’s stock performance over the past couple of years has been disappointing. But the company now has a new CEO with former Bacardi executive Jacques Tortoroli taking the helm in December 2021. The potential for the finalization of regulations regarding CBD dietary supplements could be just what the stock needs to mount a major comeback.
Cresco Labs is a U.S.-based cannabis operator that markets recreational and medical cannabis products in 10 states, all of which rank among the 20 most-populated in the U.S. (and with seven in the top 10).
The company isn’t just a cannabis producer and retailer. Cresco also is the No. 1 U.S. wholesaler of branded cannabis products containing CBD, including its Wonder gummies.
Cresco has achieved tremendous success in recent years. The company’s revenue has grown significantly, both organically and through acquisitions. It’s consistently profitable. Cresco’s solid balance sheet should also enable it to continue expanding into new markets.
Probably the biggest knock against Cresco is that the company can’t list its shares on a major U.S. stock exchange as long as marijuana remains illegal at the federal level. However, this limitation also is a key factor behind the stock’s attractive valuation compared to Canadian pot stocks.
You might be surprised to find a pharmaceutical stock listed among the top CBD stocks to consider. But Jazz Pharmaceuticals has a direct and important connection with CBD. In 2018, the company’s Epidiolex became the first CBD product made from the cannabis plant to win FDA approval.
Jazz actually didn’t own Epidiolex at that time. It acquired GW Pharmaceuticals, which developed the CBD drug to treat epileptic seizures, for $6.7 billion in 2021 .
Epidiolex is still a long way from generating annual sales of $1 billion or more, as some analysts projected after it was first approved in the U.S. However, sales continue to pick up as the drug launches in additional European countries.
Jazz also has other growth drivers in its lineup. Sleep disorder drug Xywav is gaining momentum. Sales are soaring for another sleep disorder drug, Sunosi, as well as blood cancer drug Rylaze and lung cancer drug Zepzelca.
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The Valens Company
One of the important steps in investing in marijuana stocks is to understand the different types of companies. Ancillary businesses that support the industry can sometimes have even more attractive prospects than pure plays. The Valens Company is a good example.
Valens is the largest third-party extraction company serving the Canadian cannabis industry. It uses different methods to extract cannabinoids (including CBD) from cannabis. Valens also markets its own cannabis products, which is part of its strategy to transition into a leading cannabis consumer packaged goods company.
The company’s Green Roads already ranks among the top 10 CBD brands in the U.S. Green Roads products are available in about 7,000 retail locations. Valens hopes to also achieve success in Canada if over-the-counter CBD sales are permitted in the country.
Like most Canadian cannabis-related stocks, Valens hasn’t made investors happy over the past year. However, its shares trade at a more attractive valuation than most U.S. and Canadian cannabis stocks.
Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Constellation Brands, Cresco Labs Inc., and The Valens Company Inc. The Motley Fool recommends Charlotte’s Web and Charlotte’s Web Holdings. The Motley Fool has a disclosure policy.