The CBD oil industry shows no signs of slowing down anytime soon. In January, the National Institute of Cannabis Investors reported that 2019 would be the biggest year for CBD so far.
However, before we delve into our picks, we explore why the CBD industry is experiencing incredible growth this year.
Marijuana stocks have experienced rapid growth in recent years with legalisation of cannabis becoming a more frequent occurrence then ever before.
The major catalyst for the events currently unfolding in regards to the CBD market growth was the passage of the Farm Bill in the US towards the end of 2018. This law made it legal to make CBD, cultivate and grow hemp and sell it on a national level.
This law opened the doors to a giant market in North America. A major benefit of the CBD is the fact it is non-psychoactive, unlike the popular cannabinoid THC. THC is ultimately responsible for the ‘high’ feeling users experience when using cannabis.
Major retailers in the US have also started stocking a variety of CBD products in their stores. Brands such as CVS Health (NYSE:CVS), Walgreens Boost Alliance (NASDAQ:WBA) and Rite Aid (NYSE:RAD) have jumped onto the CBD bandwagon in recent months.
However, recently it goes without saying that Canopy Growth Corp have endured a rough few months. A CEO firing alongside falling multiples and earnings resulted in Canopy falling to almost near-term lows. It still remains to be seen whether or not Canopy can bounce back from their summer of turmoil, but that shouldn’t stop you from keeping one eye firmly fixed on them in the upcoming months.
Canopy are a Canada based firm that was founded in 2013. Since their foundation, they have become one of the largest cannabis firms in the world.
Canopy have become something of a household name within the cannabis industry, but this shouldn’t put you off investing with them. The room for growth within the CBD industry is evidently there according to the Brightfield Group. Since the federal government legalised the production of hemp in 2018, the value of the CBD market in the US alone increased to $591 million. Brightfield Group predict those figures could soar to over $22 billion by the year 2022. This prediction represents an astonishing growth rate of 3,623%.
Another positive for Canopy Growth Corp is their brand name appeal. This is largely a result of big name celebrity partners that include Snoop Dogg, Martha Stewart and Seth Rogen.
Canopy also acquired Acreage Holdings Inc. (OTCMKTS: ACRGF) earlier this year. Acreage is a US based marijuana company which holds a diverse portfolio of cannabis cultivation, processing and dispensing operations within the United States. This acquisition is a positive move for Canopy as it positions them well for expansion into the CBD market with Acreage already operating in nine states across the country.
Currently Canopy Growth Corp’s market cap sits at $9.49 billion. This could potentially soar with further legalisation in the US and further expansion.
The company is currently trading at $27.40 with predictions of a $78 price target on this stock. If this prediction comes to fruition that is an incredible 185% potential return in one year.
One of the major issues facing Canopy is the black market. When legalisation was first spoken about, many believed it would eradicate the black market. However, due to taxes and regulations being applied to the legal cannabis market, legal cannabis simply struggles to compete with the price point of illegal cannabis.
Trying to convert cannabis users from their regular buying patterns to a more expensive and competitive marketplace is a gargantuan task to say the least. Even if Canopy Growth convert consumers to purchase their legal cannabis, they then have a battle to keep their custom as switching costs between brands is relatively low and easy to do.
Branding and marketing cannabis in Canada is very much a bleak affair. The rules surrounding the marketing of cannabis in Canada have been described by the government as â€œno excitement, no glamour, no funâ€œ. This has resulted in consumers almost buying blindly as restrictions leave little to no room for brand awareness.
The Brightfield group recently asked Canadian cannabis users about which brands they regularly buy, with almost one quarter of those surveyed not sure. The inability for a cannabis company to market and brand themselves effectively ultimately impacts the revenue of the company.
The President of the United States recently suggested his administration is to take a closer look at legalising cannabis at a federal level. This would move beyond the current system which allows the individual states of America to decide for themselves. A move such as this would be great news for Canopy Growth (NYSE:CGC).
Canopy Growth currently has a provisional deal in place with Acreage Holdings Inc. (OTCMKTS: ACRGF) for $3.4 billion. This will only go through if the production and sale of cannabis within the US becomes federally legal. As mentioned earlier in this article, the acquisition of Acreage Holdings Inc. would give Canopy a firm position within the US cannabis marketplace to build on.
This article will be regularly updated with more CBD/Cannabis stocks for UK investors to watch as of September 12th 2019 onwards.