With recent analyst projections back moving higher for the CBD space (several firms have gone on the record with big upgrades in recent weeks), we decided it was time to really drill down and take a look at some of the most interesting trading and investment opportunities in the space.
The big shift right now that we feel is driving the upward drift in projections is an unexpected uptick in physical store sales and expected sales of CBD-based products at major chain retailers in the US domestic market. We have also seen moves by both the FDA and US Senate to potentially free up constraints on the CBD space going forward. But we feel it is the move onto the US Main Street retail scene of boxed CBD products, and the impact that has on mainstream consumer adoption, that is driving analysts, like those of the Brightfield Group, to push growth expectations above 700% in y/y terms for products containing CBD.
But the burning question is this, naturally, How do you play it?
We have three interesting ideas on that note today: Cronos Group Inc (NASDAQ:CRON), International Spirits and Wellness Holdings, Inc (OTCMKTS:ISBG), and Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF).
Cronos Group Inc (NASDAQ:CRON) began expanding into CBD last year in Q3 and Q4. The company nailed down a deal with Ginkgo Bioworks that has further fed the fire and contributed to the company’s leading status in the space given its ability to innovate on the product side. The big point of this deal was to gain access to synthesizing CBD oil in a lab rather than dealing with fields of hemp.
That was followed up by a signature investment from Altria Group Inc. (NYSE: MO) of $1.8 billion in straight cash back in March, helping to propel the stock higher.
The Company casts itself as an investment firm in the biopharmaceutical space, with a strong emphasis on medical marijuana and cannabis-related research and products. In short, the company seeks to invest in other companies, either licensed or actively seeking a license, to produce medical marijuana pursuant to Canada’s Marijuana for Medical Purposes Regulations (MMPR).
The firm typically invests in companies based in Canada. The firm is primarily an equity investor, may also advance debt as appropriate. It seeks to make minority investments with appropriate governance and shareholder rights. The firm seeks board representation consistent with the size of the investment but does not need control.
At this point, CRON is working through a consolidation with a great deal of potential ahead and a fortress balance sheet already in place, adding to better than 500% top line growth on over $23 million in sales last quarter.
International Spirits and Wellness Holdings, Inc (OTCMKTS:ISBG) is a very interesting and more speculative opportunity in the same space. We include it here because the company is just starting to get traction with its CBD sales in a significant way and we suspect you are going to be hearing more about it in the future. Volume is ramping, the company’s product appears to be taking off, and they just hit the wires with news that they are having to restock inventories ahead of schedule because of outsized demand.
This is an interesting story. The stock is extremely cheap. But don’t let that fool you: according to company materials, we are seeing substantial sales growth. And the interesting dynamic here is that the company has a combination of target markets that also includes a thriving spirits segment, with its award-winning Besado Tequila.
Ultimately, this is a branding play. The company has expertise in building brands. It has shown that in the spirits marketplace. And we are seeing that get started now in its new Health and Wellness segment, which is centered around its P19 CBD products line, including gummies, shots, and skin creams, with reportedly a number of other products on the way.
As noted, top line is really on the move in ISBG right now, with its Wellness sales on pace to increase as much as 170% on a year/year basis according to our analysis of company information. That may further improve given the company’s stated plans to focus its energy on driving more CBD products onto retail chain shelves, echoing analyst projections of where mainstream adoption may show up most dramatically in the back half of 2019.
This is a highly speculative play, but one that could represent a big opportunity given that the crowd hasn’t found it yet at all.
Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF) is perhaps the most pure-play name in the space. CBD. That’s what they do. Even before the passage of the US Farm Bill last December, the company already had its products in well over three thousand US retailers.
It’s a dominant name in the space. And if you think the space, itself, is going to expand (and most analysts do), then it’s a no-brainer to consider this stock as an option to capitalize on that growth.
The company bills itself as a company that develops and distributes hemp-based cannabidiol (CBD) wellness products. Its products include CBD hemp oils, capsules, topicals, and pet products that feature CBD hemp oil extracts. Charlotte’s Web Holdings, Inc. sells its products online as well as through distributors, and brick and mortar retailers.
The other big point to make here is that the company has already reached a state of operating profitability – something that most stocks in the cannabis-patch have yet to achieve. The top-line is also growing – albeit not quite as fast as it is in CRON or ISBG. But it is growing at triple digits (120% is the 2019 pace, y/y, at this point), which isn’t bad in any industry.
Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF) generated sales of $28.8M, according to information released in the company’s most recent quarterly financial report. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($92.3M against $20.7M).