Due to a surge in sales, legalization, and the substance's medicinal and recreational advantages, the CBD industry has expanded significantly with the rising acceptability of cannabis among worldwide consumers and their political officials. CBD, or cannabidiol, is a constituent of cannabis widely exploited for therapeutic purposes. Before passing the 2018 Farm Bill, the substance was deemed unlawful on the federal level and was used to treat anxiety, dystonia, and Parkinson's disease, among other medical ailments. CBD's increasing popularity among the general population and its efficacy in pain management and other therapies drive the sector's expansion. According to a report, the CBD market was valued at over $12.8 billion in 2021 and is anticipated to rise at a CAGR of nearly 21.7 percent between 2022 and 2028.
The global Covid-19 epidemic had enormous effects on the global economy, consequently impacting the worldwide demand for cannabidiol. The global market grew by 26.42 percent in 2020, much less than the average annual growth rate from 2017 to 2019. Nevertheless, with market functionality returning to pre-pandemic levels, the cannabis market appears to have a lucrative future, as countries such as the United States and Canada have liberalized their laws for cannabidiol products in recent years, resulting in a greater acceptance of the products by the general public. The sales of cannabis-related items are gaining tremendous traction as the demographics of customers continue to alter significantly due to CBD's incorporation into mainstream businesses like food, medicines, and cosmetics. In 2021, legal U.S. cannabis sales climbed by 35 percent to $24.6 billion, according to Leafly, an online marijuana marketplace.
An Introduction to the CBD Industry
Let us examine some of the fundamentals you must understand before investing in marijuana companies.
The CBD industry is segmented into three major groups: Growers and merchants of marijuana develop and package cannabis products for sale to customers. Biotechnology businesses create and commercialize medicinal products derived from cannabis. Ancillary marijuana firms supply cannabis corporations with products and services without touching the plant.
Cannabis can be used for medicinal or recreational purposes. Medical cannabis patients use cannabis or cannabis extracts to address medical ailments and have physician recommendations or cannabis prescriptions. Cannabis users who wish to get marijuana or cannabis extracts for recreational purposes must be over the age of 18 and be citizens of a nation that permits the use of the plant for that purpose.
Medical cannabis is permitted in a far more significant number of nations than recreational cannabis. Federally, cannabis remains illegal in the United States. Nonetheless, many states have legalized cannabis for medical and recreational use. The quick rise of the U.S. cannabis industry is translating into tremendous growth for U.S. cannabis firms. However, marijuana companies in Canada, where the plant is already federally legal, are rising more slowly. Canada is one of the global legal marketplaces where supply exceeds demand, causing cannabis stock prices to decline.
Impact of COVID-19 on CBD stocks
The COVID-19 pandemic impacted nearly every aspect of the global economy, including the cannabis industry. Many states in the United States have declared cannabis dispensaries to be essential businesses. Because people were spending more time at home and were worried about the coronavirus epidemic, sales of cannabis skyrocketed during the first few months after its discovery. Beneficiaries included marijuana cultivators and merchants, as well as suppliers of gardening equipment and other items to these businesses.
Not all cannabis enterprises, however, performed well during the epidemic. In tourist locations like Las Vegas, recreational cannabis businesses noticed a decline in client visits, prompting some dispensaries to prioritize home delivery. In the medical segment, individuals postponed doctor appointments, resulting in a decline in new patient beginnings. The logistical difficulties faced by biotechnology businesses hindered their sales and research growth.
Regarding COVID-19, the worst is over for the cannabis industry, although inevitable repercussions are still being felt.
1. Charlotte's Web Holdings
Charlotte's Web might be up your alley if you search for a pure-play CBD stock. The firm was a pioneer in the hemp CBD sector in 2011 and still has the top market share position.
Charlotte's Web sells a variety of CBD-containing products. The firm offers CBD-based bath and cosmetic products, edibles, and topicals. Even CBD products for dogs are available.
The company's CBD products are sold in over 14,000 retail locations. Around 8,000 healthcare professionals distribute Charlotte's Web products, and the firm has a robust web presence. More than fifty percent of its overall income is generated via direct-to-consumer e-commerce.
The novel Charlotte's Web does not rest on its laurels and intends to introduce CBD-infused drinks in the second half of 2022. Brightfield Group, a market research firm, forecasts that the CBD beverage industry will increase from $245 million in 2021 to $1.3 billion in 2026.
However, the stock performance of Charlotte's Web during the previous few years has been poor. In December 2021, however, former Bacardi executive Jacques Tortoroli will assume the CEO role. The finalization of CBD dietary supplement laws might be just what the stock needs to stage a significant rebound.
2. The Valens Company
Understanding different firms are one of the most critical elements in investing in marijuana stocks. Sometimes, ancillary firms that support the sector have even more promising possibilities than pure ventures, and the Valens Company serves as an illustration.
Valens is the largest third-party cannabis extraction firm in the Canadian market. Cannabis cannabinoids (including CBD) are extracted using a variety of techniques. Valens also sells cannabis products as part of its plan to become a top cannabis consumer packaged goods firm.
Green Roads now ranks in the top 10 CBD brands in the United States. Green Roads goods may be purchased at about 7,000 retail locations. Valens aims to succeed in Canada if CBD sales are authorized without a prescription.
Like most Canadian cannabis-related businesses, Valens has disappointed investors over the past year. However, its shares are valued more favorably than most U.S. and Canadian cannabis firms.
3. Cresco Labs
Cresco Labs is a cannabis operator in the United States that sells recreational and medical cannabis products in ten states, all of which are among the 20 most populous in the country (with seven in the top 10).
The firm is not limited to producing and selling cannabis, and Cresco is also the leading U.S. supplier of CBD-containing cannabis goods, notably their Wonder candies.
In recent years, Cresco has enjoyed enormous success. Significant revenue growth has occurred organically and through acquisitions, constantly generating profits. Additionally, Cresco's excellent balance sheet should allow them to continue entering new markets.
Until the federal government legalizes marijuana, Cresco will be unable to list its shares on a major U.S. stock exchange. This is perhaps the company's most significant flaw. However, this constraint is also a significant reason for the stock's inexpensive value relative to Canadian cannabis equities.
4. Jazz Pharmaceuticals
You may be shocked to discover a pharmaceutical stock on the best CBD stocks to explore. However, Jazz Pharmaceuticals has a direct and significant relationship with CBD. In 2018, Epidiolex received FDA clearance as the first CBD medicine derived from the cannabis plant.
Jazz did not possess Epidiolex at the time. In 2021, it paid $6.7 billion for GW Pharmaceuticals, which created the CBD medication used to treat epileptic seizures.
Epidiolex is still far from producing yearly sales of at least $1 billion, as some experts predicted after its U.S. approval. However, sales continue to increase as the medicine is introduced in more European nations.
There are further growth factors in Jazz's portfolio. Sleep disorder drug Xywav is gaining popularity, and Sunosi, an additional sleep problem medication, blood cancer medication Rylaze and lung cancer medication Zepzelca, are enjoying skyrocketing sales.
5. Canopy Growth
Based on market capitalization, Canopy Growth was the most extensive marijuana stock in the world for a time. To this day, it is one of the most crucial cannabis companies, with a stronghold on medical marijuana in Canada and growing recreational marijuana cannabis in Germany.
As long as cannabis remains federally illegal, Canopy Growth cannot enter the U.S. cannabis business and retain its listing on a major U.S. stock exchange. However, the firm is already a participant in the U.S. market for CBD generated from hemp.
Canopy Growth partnered with entrepreneur and television personality Martha Stewart in 2019 to create CBD products for the U.S. market. Stewart currently represents a line of CBD products for the corporation. Among its other CBD products is Whilst, the leading CBD-only vape in the United States.
Canopy Growth is currently not profitable. The company's largest stakeholder, beverage behemoth Constellation Brands (NYSE: STZ), has contributed significantly to the company's substantial cash position.
This stock should be considered for reasons other than the CBD potential. Canopy Growth's primary potential stimulus is the possibility that U.S. federal cannabis regulations may be altered, allowing the business to access the lucrative U.S. cannabis industry.
6. Cronos Group Inc. (CRON)
Cronos Group is headquartered in Toronto and has a comprehensive portfolio of cannabis-related businesses. Cronos Group has expanded into three hemp-derived CBD companies, including a beauty care brand, Happy Dance, in partnership with Kristen Bell if you are interested in CBD-infused cosmetics.
Since many millennials are incorporating CBD into their everyday self-care practices, we foresee a prosperous future for Cronos Group Inc.'s CBD holdings. Currently, CRON trades at $8.50 per share, and the stock has also seen a robust revenue increase year-over-year.
Joy Organics takes pleasure in offering our clients CBD products of the highest quality, whether they want to invest or test CBD. You may feel confident that you are receiving only safe, high-quality CBD, so you know precisely what you are ingesting.
7. GW Pharmaceuticals
GW has primarily built its brand and future on prescription CBD products. It is the parent company of Epidiolex manufacturer Greenwich Biosciences. In addition, its Sativex treatment has been approved in various countries. The therapy for multiple sclerosis is a cannabis-extracted spray containing CBD, and it is a treatment for multiple sclerosis.
Despite several of its medicines in uncertain, GW stock remains expensive. However, it has been harmed by the price fluctuations of the marijuana market. Additionally, the organization has a significant pipeline of medicines under development. Furthermore, acceptance of them might explode this CBD stock.
8. Innovative Industrial Properties
Since marijuana remains illegal at the federal level, it is difficult for U.S. cannabis enterprises to obtain funding from banks or other financial institutions. Innovative Industrial Properties (IIP) assists marijuana businesses in overcoming their liquidity crisis. It acquires assets from U.S. medicinal cannabis operators and rents them back to the operators. The sale of the land to IIP provides the cannabis business with much-needed capital, while the lease agreements generate a regular revenue stream for IIP.
Innovative Industrial Buildings has experienced substantial growth over the past decade and owns properties in 19 states, and the firm continues to see robust sales and profit expansion. Because Innovative Industrial Properties is structured as a real estate investment trust (REIT), at least 90 percent of its taxable revenue is distributed to its stockholders.
9. Tilray Inc (TLRY)
Tilray is a Canadian firm that manufactures and distributes medicinal cannabis products. They are well renowned for being the first firm to legally export cannabis for medical purposes from North America to Europe (Greece). The most recent information is that they have joined the recreational cannabis market. The company's emphasis on research and development has enabled it to introduce new products, such as High CBD Oil Drops for anxiety reduction and sleeplessness. They are also famous in Canada because all medical marijuana patients are registered with CanvasRx, Tilray's online system. Due to its very erratic price movement during market hours, day traders frequently trade Tilray shares. Currently, the price per share is $5.3.
10. Aurora Cannabis (ACB)
Aurora Cannabis is a Canadian manufacturer and distributor of medicinal cannabis products. They are most notable for being the first marijuana firm publicly traded on an American stock market. Aurora Cannabis just announced its entry into the European market with the acquisition of a German firm. The price is now $3.1. Experts suggest that CanniMed Therapeutics might be worth $600 million due to the recent acceptance of their formal offer to purchase the firm. Aurora is one of the most significant companies to purchase since it is currently inexpensive owing to its Canadian marijuana output. Nonetheless, they have declared their ambitions to expand throughout Europe, revealing more possibilities.
How to Select CBD Stocks
Examine the firm's financial reports, mandatory for any publicly listed company, while deciding which CBD company to invest in.
Earnings Per Share (EPS)
This represents the net income or loss per share of the CBD firm. Examine the EPS patterns of the whole CBD sector at the time to determine how the firm stacks up against the competition.
Price to Earnings Ratio (P/E)
The P/E ratio can indicate if a firm's shares are cheap or overpriced. In general, you should seek stocks with a lower P/E ratio since this implies that the company is likely cheap. A more excellent P/E ratio may suggest either predicted future growth or an overvalued stock.
Annual Revenue Increase
If you examine the annual sales of a CBD firm, you may get a sense of the company's trajectory. The CBD industry invests heavily in technology, equipment, and research. In the following years, successful organizations will likely continue to expand.
Choose Pure CBD Over Synthetic
We encourage investment in businesses that utilize genuine CBD instead of the synthetic form. The effects of synthetic CBD on the body are still being investigated, so until more information is known, we advocate investing in firms that employ the natural version.
Select Transparency
Companies that provide customers with openness are more likely to profit from any impending regulatory reforms. Consider firms that describe their hemp sourcing and CBD extraction processes.
Analyze Industry Trends
During the previous quarter, several CBD firms experienced a decline in sales, so bear this in mind while evaluating businesses. This is also an excellent approach to evaluating where to invest in the CBD area since you will know what each firm is planning.
Are CBD Stocks a Good Fit for You?
You do not need to invest in a fashionable new industry with plenty of press and development potential just because it is trending. If you invest in broad-based index funds, you are protected regardless of which stock market sectors do well. Conservative investors who desire minimal risk would likely be best off avoiding cannabidiol stock investments.
Pot stocks are likely to appeal greatly to aggressive investors with a high-risk tolerance. The cannabis business is still in its infancy, and there are vast market prospects, especially as more U.S. states legalize cannabis. Investing in stocks is a high-risk endeavor with the potential for significant returns.
Final Thoughts
Investing in cannabis companies is an excellent way to diversify your portfolio and discover new possibilities. Investing in them gives overseas investments and ownership liquidity through buybacks of stock or dividends.
Future growth projections for CBD stocks indicate that they are a good investment decision. The latest product development has resulted in a tremendous increase in interest in CBD stocks; thus, it is essential to remain current on this market.
There are many ways to evaluate cannabis-related holdings in your portfolio, depending on your particular inclination and portfolio requirements. Concerning all new sectors, investors should be cognizant of the inherent dangers and have a plan for asset allocation and diversification to mitigate the inevitable sector volatility.
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