CBD is the new marijuana. Don't buy into the river for hemp stocks.
The signs are everywhere. Outside the Village Apothecary in Woodstock, N.Y., an A-frame contract blocks the sidewalk and screams: "We have the CBD!" On Manhattan 42nd Street, a new billboard shows lotions from Uncle Bud's Hemp.
In December, the congress legalized hemp and its soothing extract of cannabidiol, or CBD. Now the stock market can't get enough of things. Cannabis manufacturers like
Canopy Growth
(ticker: CGC),
Aurora Cannabis
(ACB), and
Tilray
(TLRY) quickly came into the hemp strain of cannabis lacking drugs that make marijuana more fun, but puts the pot on the wrong side of federal law. The stocks of companies that have long invested their businesses on the CBD have doubled in recent months, including Charlotte's Web Holdings (CWEB.Canada or CWBHF) and
GW Pharmaceuticals
(GWPH).
Unfortunately, there is no bargain between hemp or marijuana stocks these days.
That's not to say that CBD won't be big. It will. Soon, the newly released cannabinoid will join other skin care products in products ranging from skin cream to pet beverages. CBD-infused product sales can go into billions of dollars, according to Cowen & Co. analysts.
And as antioxidant fruits and coconut water, the health benefits of a dash of CBD are being sold by enthusiasts such as Martha Stewart and Gwyneth Paltrow. But that doesn't mean that the nostrums won't sell. Hemp snacks and CBD tinctures will help sell to cannabis companies ̵[ads1]1; and for many other consumer packages. But while the CBD cake can be large, the individual slices are probably thin.
"How do you differentiate between the 100, 200, 300 new CBD companies located in every corner?" Says Joe Dowling, CEO of CBD Supplement Seller
CV Science
(CVSI). "You're going to see a Wild West environment for a while."
Read our latest coverage story : You must be high to buy US marijuana shares
Hemp's snug nature is why it is the first member of the cannabis family to get out of the federally controlled drug law. The pact in 2014 allowed states to launch pilot projects to grow hemp and extract CBD. In December, the farm released 2018 hemp and its derivatives from the shadow of the Drug Enforcement Administration.
The fuel for the hemp's freedom train is demand for the CBD. For years, social media circulated anecdotes when used for sedative nerves and even light epilepsy seizures. These testimonies inspired seven brothers in Colorado, members of the Stanley family, to begin cultivating high-CBD hemp in 2010. Their hemp extract oils gained national publicity in 2013, when CNN reported that the five-year-old Charlotte Figi's epilepsy had improved after having consumed their product. To her honor, Stanley called their operation Charlotte's Web (claimed no association with the E.B. White book). The hemp extract is not cheap. A one-ounce bottle of Charlotte's Web Original Formula CBD Oil can set you back $ 150. Turnover grew smart and hit $ 70 million in 2018 from $ 15 million in 2016. Revenue for 2018 was $ 12 million, or 12 cents. per share.
In August, Charlotte's Web Holdings was announced in Canada on seven Canadian dollars per share (US $ 5.41). Analysts reported by Sentieo forecast that sales could approach half a billion dollars in 2021, and the stock is now trading for $ 30. It values Boulder, Colo. The company at a generous US $ 2 billion, about the same as
cheesecake Factory
(CAKE) or
KB Home
(KBH).
Hemp's moment is gratifying for Charlotte's net president Joel Stanley. "It grows up," he says about the hemp industry. "We see it in cosmetics, food, capsules, tinctures and fabrics."
Data from April 4
Sources: Bloomberg; company reports; Sentieo
Online sales have been a major part of the revenue, and the company says the products have now been implemented in 4,000 retail outlets. Other pioneers in the CBD supplement market include Australia's Elixinol Global (ELLXF) and Las Vegas-based CV Sciences – if PlusCBD oil is the best-selling brand of natural products, says CV Sciences CEO Dowling.
CV Sciences sales doubled last year to $ 48 million, to produce revenues of $ 10 million, or nine percent per share. On the OTC market, the $ 5.86 share price appreciates CV Sciences at around $ 550 million. There are more than 50 times the estimated earnings for 2019 – similar to those of Charlotte's Web.
With Farm Bill's blessing and CBD craze in bloom, hemp vendors have seen their sights in the hallways of food, drug and mass market dealers. Last year, US cannabis company Curaleaf Holdings (CURA.Canada or CURLF) said the hemp products will be in more than 800 CVS Health stores in 10 states. Basically, CVS will carry lotions and transdermal patches. Green Growth Brands (GGB.Canada or GGBXF) will create their own shelf space for their seventh Sense lotions and bath products in kiosks at nearly 100 malls run by
Simon Property Group
.
A rapidly growing consumer category has been the "functional drink" – nailed to caffeine, vitamins or antioxidants. Ever since Coca-Cola used billions to buy vitamin water and later a piece
Monster Drink
(Pattern). CBD promoters have fished on their way into the beverage line. Canada's cannabis producers began to make their moves last year. Quebec-based HEXO (HEXO) has a joint venture
Molson Coors Brewing
(LOSS). Beer and wine giant
Constellation Brands
(STZ) sank $ 4 billion in Canopy Growth, the Canadian cannabis package leader in Canada.
Farm Bill has got the DEA back from its hemp industry, but it left important federal issues that had not been resolved. They involve the Food and Drug Administration. Cannabis legalization at state level started in response to cancer patients and others who sought the drug to treat their ailments. However, federal illegality prevented the clinical testing needed to prove the medical claims for cannabis and gain FDA marketing approval. In 2017, the FDA warned a number of marketers against claiming that CBD could treat Alzheimer's disease, breast cancer and diabetes. One of these marketers was Charlotte's Web.
Joel Stanley says some medical treatment claims were made by customers, not his company. Charlotte & # 39; s Web has collaborated with the FDA and censors customers' testimonies on the company's social media. He also says that the drug approval process does not fit plant extracts. "The laws that are built around Western medicine are destroyed, to be honest," he says.
GW Pharmaceuticals is a cannabis company that has taken the scientific path. After placebo-controlled clinical trials were reported in respected journals such as the New England Journal of Medicine, the FDA approved the GW's CBD-based drug Epidiolex to treat severe childhood epilepsy, including the Charlotte Web name name. The patented drug is highly purified and chemically consistent, says GW investor relations head Steve Schultz.
"Doctors and patients want a fully characterized pharmaceutical, and one supported by insurance," says Schultz. With the monthly copy for GW's only $ 25, it's hard to justify the use of untested, unauthorized CBD products.
It was a costly way to Epidiolex's product launch in November in November, and GW had $ 201 million in $ 300 million in sales of $ 15 million. Its legions of fans on Wall Street justify GW's $ 165 share price and $ 5 billion market value by forecasting blockbuster sales if Epidiolex yarns approve adult adult epilepsy and other diseases. Morgan Stanley analyst David Lebowitz predicts revenue of $ 1.67 per share in 2025 sales of $ 1.5 billion and has a Street-high target price of $ 227.
With CBD products spreading, the FDA's outgoing commissioner revealed Scott Gottleib Wednesday's plans for regulation of cannabis-derived products. Current law still cuts food added by the CBD, he said, but an agency's working group will report this summer on the roads to legalize CBD supplements. One way to control the government of shortcuts, he can say that Congress can pass a particular law for the products.
There are still some kinks for CBDs regulators, companies and investors to train.
Write to Bill Alpert at william.alpert@barrons.com
