Are these hemp stocks on your morning watchlist?

Legislative changes introduced in the House could unlock a $24 billion dollar industry. Here are two hemp stocks that are primed to capitalise on this.

In December 2018, Donald Trump executed The Farm Bill 2018 and with it, legalised hemp for industrial and commercial use. Almost overnight, the CBD (hemp-derived CBD more specifically) market boomed, with cannabis research firm Brightfield Group projecting sales of the new trend in wellness products, will reach close to US$24 billion by 2023.

Given CBD interacts with the endocannabinoid system (present in all human beings) that regulates sleep, movement, anxiety and hunger, amongst others, and that animals also have an endocannabinoid system, the CBD boom applies as much to the pets industry as it does human. This is one of the reasons the market is estimated to be so big.

However, it's not all good news. Almost immediately after President Trump signed the bill into law, the U.S. Food and Drug Administration (FDA) warned companies against marketing CBD in food, drinks and supplements. Ironically, legalising hemp and hemp-derived CBD actually created more grey area than before. It is likely that it will take some time for the FDA to finalise the regulations surrounding CBD-infused products.

Brightfield estimates that there are more than 1,000 CBD brands in the US alone, all ready to take advantage of this booming industry.

However, recent legislative developments should have hemp-centric investors eyeing the market for future growth. On January 13, US House lawmakers introduced a bill that would require (order is probably a better word) the FDA to treat CBD as a dietary supplement (Vitamin C as an example). This would remove much of the grey area, and with it, open up the market.

As Highlander said, "there can be only one.". In this case, we don't agree, and hence here are two CBD-centric companies that we think have a real shot at capturing a chunk of the oncoming CBD-rush.

Disclaimer: Past performance is not an indicator of future performance.

Charlotte's Web

The US industry leader, Charlotte's Web stock increased by 23% on the day they announced the bill. Charlotte's Web is the number one CBD brand in the US by market share and value.

Charlotte's Web is a hemp-derived CBD pure play. They only deal with hemp-derived CBD and do not have contact or engagement with the marijuana plant. For the difference between the two read this.

Charlotte's Web can legally move hemp across state lines, and this has led to far greater economies of scale. The company sells its CBD range in over 9,000 stores across almost the entire US (45 States). 1,500 of these stores happen to be with Kroger, one of the largest US grocers.

The company, which planted 862 acres in 2019 using proprietary genetics and strains, cultivates full-spectrum hemp which is then extracted in the company's 137,000 square foot facility. Just one of the pieces that make up this vertically integrated CBD company. 

Charlotte's Web is on track to report $100 million in revenue in 2019, and having raised $66 million in November last year through an underwritten public offering, are very well capitalised to see out this current capital crunch. 

Disclaimer: Past performance is not an indicator of future performance.

Green Growth Brands 

Green Growth Brands really popped into the mainstream when they made an audacious bid for Aphria in December 2018. At the time, Aphria had been decimated by a Hindenburg Short Report, and GGB took advantage of the moment, trying their best to convince shareholders this was a good thing for them. They were unsuccessful in their bid and very successful in moving into mainstream cannabis.

Now the company is best known for having the largest network of CBD shops in malls across the entire US. The company is completely CBD-centric, even cancelling its planned $310 million acquisition of Moxie, a mainstream marijuana brand, late last year.

As reported in their most recent quarterly announcement, the company now distributes its Inhouse developed Seventh Sense personal care CBD product in over 200 mall kiosks in over 75% of US states. In 2019, the company announced white label and distribution agreements with Abercrombie & Fitch and American Eagle, immediately positioning themselves at the forefront of the youthful market.

And to bolster that strategy, the company recently poached Victoria Secret's Chief Financial Officer (CFO), Jann Parish, to drive amplification and awareness of their CBD range. Although still a very speculative play, once regulations take control of this ferociously growing market, GGB could be one of the go-to players.

The Bottom Line

The Farm Bill ignited the hemp industry and opened up multiple channels of revenue-generating opportunities. Remember, hemp can be used as a substitute (and a better one in most cases) for paper, plastic, biofuel and cotton. CBD is one of those opportunities, and no ones will argue over the potential size of this market. 

Having potential application to so many verticals and channels, CBD-derived products will eventually be flying off the shelves in a legally, regulated market. 

Although there is a long way to go until we eventually get there, the above two companies offer investors both a long-term bankable option and a relatively speculative medium-term option.

This stock is one of the best ways to take advantage of the CBD boom

Legislative changes are blowing through the US, and with it, an ever-increasing number of states legalising cannabis for recreational use.

With the success seen in Illinois, which legalised for adult-use on January 1 and saw products moving off the shelf at an unprecedented rate, this company is primed to take advantage of the booming US CBD market.

They have secured partnerships with the biggest cannabis companies in the US, and their portfolio is second to none.

And with the sector-wide pullback of 2019, this company is now at a bargain-basement price.

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Mark Bernberg
Mark Bernberg

Mark Bernberg is a long-time cannabis investing enthusiast and founder of The Green Fund, Asia Pacific's preeminent media house, positioned at the forefront of the global cannabis industry.

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