CBD is the compound that everyone's talking about. Take a look at our top 3 CBD stocks for 2020.
Cannabidiol – CBD – the non-psychoactive compound within cannabis, has played a central role in the global cannabis industry, while also weaving its way into industries such as wellness, pharmaceuticals, athletics, pet food and many more.
Scientific researchers even found that Google searches surrounding CBD have exploded in popularity in the UK, and is now generating more online interest than many traditional therapies and alternative medicines such as "acupuncture" and "meditation."
Even Walmart and Target are beginning to investigate incorporating it into their existing product ranges.
Most of the rise of CBD can be attributed to the passage of the 2018 Farm Bill in the United States, which saw the federal legalization of hemp, the source for all things cannabidiol. We've since seen CBD prove to be an enormously beneficial compound in providing pain relief and treating symptoms such as epilepsy, which saw Epidiolex, a treatment for rare forms of epilepsy, become the first CBD-based drug to receive FDA approval.
And Brightfield bets the market for hemp-derived CBD will grow to $22 billion by 2022.
For all these reasons and more, we've decided to bring you our top 3 CBD plays for the new year, starting with CV Sciences.
1. CV Sciences (OTCMKTS: CVSI)
Based in San Diego, California, CV Sciences have been studying and working with hemp for nearly a decade, operating through two primary divisions; specialty pharmaceuticals, and consumer products.
CVSI currently has only one drug candidate in the pipeline, CVSI-007, which is a chewing gum containing nicotine and synthetic CBD to support cessation of smokeless tobacco use and addiction.
As CVSI-007 remains in the development pipeline, investors should instead place their focus in CV Sciences' flagship brand PlusCBD Oil, a hemp-derived CBD brand that boasts products across an array of sectors including nutraceutical, beauty care, specialty foods, and vaporizers.
PlusCBD™ Oil was the first hemp CBD supplement brand to invest in the scientific evidence necessary to receive self-affirmed Generally Recognized as Safe (GRAS) status, and has since been made available at more than 5,500 retail locations throughout the U.S.
CV Sciences propelled its PlusCBD oil across over 30 U.S. states through a series of retail partnerships such as with Southeastern Grocers, Kroger Co., and Vitamin Shoppe, bringing the company a revenue of $12.6 million for the third quarter of 2019. CVSI's Q3 results also showed that the company maintained a total cash balance of $14.2 million at quarter-end.
The company's CEO, Joseph Dowling has mentioned that the Q3 revenue was a "modest decline" from previous quarters, which he attributes to the "uncertain regulatory environment for CBD resulting in state by state ambiguities that are impacting retailer activities, as well as the short-term impact of new competition in the natural product channel."
The "uncertainty" Dowling speaks of is the FDA's recent announcement that they would be looking into the effects of CBD, leading many to wonder if the CBD industry has simply been mutton dressed as lamb – and in many cases, it may well have been.
New York, for example, had to ban CBD edibles because of the frequent false advertising that surrounded them.
However, with a strong management team, close to a decade in experience and hemp knowledge, and a growing range of GRAS-approved CBD products across various markets, we believe that CVSI is well-positioned to capitalize on the multi-billion dollar CBD industry.
2. Charlottes Web (CSE: CWEB)
If you haven't heard of Charlotte's Web, you haven't been paying attention. Charlotte's Web is the undisputed market leader in the hemp-derived CBD market.
The Colorado-based, vertically-integrated business, operates on over 300 acres of irrigated farmland, with a 50,000 square foot in-house production and manufacturing facility. They also have contract farming agreements for their hemp in Kentucky and Oregon.
With a direct to market sales platform via their e-commerce site, and wholesales distribution network, they were able to produce consolidated year-over-year revenue growth of 41.8% to $25.1 million as shown in the companies Q3 results.
In 2019, Charlotte's Web secured deals with Kroger in 1,350 stores across 22 states, as well as Vitamin Shoppe, just as CV Sciences did. This highlights both the quality of CWEB's products and the crowdedness of the CBD industry.
While Charlotte's Web's adjusted EBITDA of $0.7 million in Q3 certainly didn't get investors excited, the company is currently working on upping its production capacity, reporting that CWEB has signed a building lease on a newly constructed 136,610 square-foot industrial building located at 700 Tech Court in the Colorado Technology Center (CTC) in Louisville, Colorado.
The new Louisville facility is expected to increase current capacity by 10X with significant future operational and production cost savings through higher efficiencies by Q3 2020. Therefore, investors can predict that the company's recent low EBITDA is only a short-term blip and will provide much higher returns in 2020.
With the #1 CBD brand in the US, a very strong management team with deep experience (and track record) in cultivation, distribution, sales and finance, Charlotte's Web is in prime position to take advantage of the CBD market in 2020.
3. Cronos Group (NASDAQ:CRON)
Last, but not least on our list is Cronos Group, a global cannabinoid company with international production and distribution across five continents.
The Cronos Group stock is one of the most widely traded shares in the cannabis space, and for good reason too.
In November 2018, Cronos received the second-largest cannabis industry investment, when Altria invested USD$1.8 billion to acquire a 45% stake in Cronos. This partnership opened the gates to Cronos for global distribution, knowledge, experience, and one of the best distribution platforms in the regulated products' industry.
This partnership was put to use when Cronos released its 'Peace+' range of CBD tinctures. These products will be tested in over 1000 retail stores across the US, utilising Altria's distribution network.
Then, in August 2019, Cronos paid just over $300 million ($225 million in cash and the rest in Cronos shares) to purchase Lord Jones, an upscale producer of CBD-based beauty care products that are sold in retail outlets such as Sephora and the Standard Hotel.
This deal serves as Cronos' primary entry point for the U.S., laying the foundation for national brand exposure and awareness. This one deal could be the driving force behind the Cronos Group stock price in the coming 12 to 24 months.
Cronos' 2019 Q3 results showed revenue growth of 24% quarter-on-quarter driven by a higher volume of cannabis kilograms sold, with Cronos producing 3,142kg of cannabis.
On top of revenue growth, following on from the Altria deal, this quarter Cronos had almost $1.4 billion on the balance sheet. This makes Cronos the second most capitalised company on the planet (behind Canopy Growth thanks to their Constellation deal).
Though this capital may prove to be desperately needed for Cronos, given that the adjusted EBITDA for the company this quarter was -$23.9 million, 20% higher than what analysts expected. Off the back of these results, Cronos' stock dropped significantly.
Though this may be the perfect time to invest in CRON, as we see potential in Cronos not only in the company's CBD product ranges but also in Cronos' decision to focus on cannabis extracts and derivatives.
The company recently stated that it would begin purchasing its cannabis wholesale, in order to focus on more R&D, production and brand creation.
This includes repurposing some of the facilities at its Peace Naturals Campus to facilitate more R&D and turn the campus into the production hub for its derivative products.
With a higher profit margin on cannabis derivatives such as CBD products, Canada's recent legalization of these products, and plenty of cash in the bank, Cronos won't be going anywhere soon. This is our third stock to keep your eye on in 2020.
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