The big CBD bull market of 2019 didn’t exactly pan out like so many had believed following the landmark US Farm Bill, signed into law in December 2018. That was supposed to be the spark that lit the flame. We know end-demand growth for CBD products is there – the industry is demonstrably engaged in what analysts call “mainstreaming”: when a small, niche product market expands at an epic pace as it gets discovered by the rest of the population.
In this case, experts are still looking for over 125% CAGR growth over coming years.
But we also know that growth in supply has kept up with that mainstreaming expansion so far, and regulators have been slow to really help send it to the next level. In fact, the FDA has been working to set things back a bit, even going so far as to issue a warning on CBD in November 2019. That helped to set off a downside capitulation phase in many stocks with CBD in their DNA.
But it hasn’t impacted the viability of the mainstreaming thesis at all. More importantly, there is movement from the US Congress to sidestep the FDA on CBD and push for it to be added to the list of legal dietary supplements in the Federal Food, Drug and Cosmetic Act through an amendment measure and to exclude CBD from prohibited foods.
The bill was introduced in the House by the chairman of the House Agriculture Committee with bipartisan support last month, so it has strong prospects to pass the House. If it gets to the Senate, Mitch McConnell is vulnerable and Kentucky is the capital of Hemp farming. The implications aren’t difficult to work out.
Given the brutal slide most of these stocks have seen over the past 12 months, a push from regulators could send the whole space significantly higher, offering a ripe opportunity for new investors.
With that in mind, we have compiled a list of our favorite names for upside potential on the coming recovery rally, which we believe will represent a reassertion of the investment implications of the CBD boom in full: Tilray Inc (NASDAQ:TLRY), Sun Kissed Industries Inc. (OTCMKTS:SKDI), Canopy Growth Corp (NYSE:CGC), Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF), and GenTech Holdings, Inc. (OTCMKTS:GTEH).
Tilray Inc (NASDAQ:TLRY) acquired hemp foods company Manitoba Harvest last year, which puts it squarely in the CBD marketplace. The stock has been hit on debt-servicing costs, but short interest appears high and a return of momentum in the CBD theme should pay off here.
The company offers its products in Argentina, Australia, Canada, Chile, Croatia, Cyprus, the Czech Republic, Germany, New Zealand, and South Africa. Tilray, Inc. was incorporated in 2018 and is headquartered in Nanaimo, Canada.
Tilray Inc (NASDAQ:TLRY) pulled in sales of $51.1M in its last reported quarterly financials, representing top line growth of 408.6%. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($122.4M against $130.2M, respectively).
Sun Kissed Industries Inc. (OTCMKTS:SKDI) is an emerging high-growth-potential play at the center of the CBD theme. The company just completed its acquisition of Hakuna Supply, which is a strong brand in the high-end CBD products marketplace.
Shares of the stock have started to surge in recent action likely in anticipation and reaction relative to this news.
Sun Kissed Industries Inc. (OTCMKTS:SKDI) bills itself as an emerging leader in the CBD-based products marketplace that is openly interested in pursuing meaningful acquisitions as part of an aggressive M&A strategy designed to position it as a dominant player in a well-defined, high-growth niche within the rapidly expanding CBD sector.
The recent acquisition of Hakuna backs up that idea. Liquidity has picked up in the name and we would expect it to respond very well to a return of CBD sector momentum.
Canopy Growth Corp (NYSE:CGC) has clearly been working hard to establish itself as a leader in the CBD space for the past 24 months. We would strongly expect a bounce in the space would evidence itself well for CGC shareholders.
The company has a strong and well-developed venture arm, and understand how to scale a new strategy. And the market recognizes this and will assume the company has a very real path to leadership here if ROI in CBD remains on track as a long-term premise.
Canopy Growth Corp (NYSE:CGC) engages in growing, possession, and sale of medical cannabis in Canada. Its products include dried flowers, oils and concentrates, softgel capsules, and hemps.
According to its own materials, the company offers its products under the Tweed, Black Label, Spectrum Cannabis, DNA Genetics, Leafs By Snoop, Bedrocan Canada, CraftGrow, and Foria brand names. It also offers its products through Tweed Main Street, a single online platform that enables registered patients to purchase medicinal cannabis from various producers across various brands.
CGC managed to take in revenues of over $90M in its most recent quarterly data – which represents a rate of top line growth of nearly 250% on a year/year basis. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($3.2B against $372.8M).
Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF) is the current leader as far as pure-play names in the CBD space, with over 9,000 points of distribution across North America. Hence, a pop in CBD on a thematic basis would obviously play our well for CWBHF shareholders.
The company sells its products online as well as through distributors, and brick and mortar retailers. Founded by the Stanley Brothers, the company’s premium quality products start with proprietary hemp genetics that are responsibly manufactured into whole plant hemp extracts naturally containing a full spectrum of phytocannabinoids, including CBD, terpenes, flavonoids and other beneficial hemp compounds. Industrial hemp products are non-intoxicating.
Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF) develops and distributes hemp-based cannabidiol (CBD) wellness products. Its products include CBD hemp oils, capsules, topicals, and pet products that feature CBD hemp oil extracts.
Charlotte’s Web pulled in sales of $33.5M in its last reported quarterly financials, representing top line growth of 50.6%. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($67.2M against $18.3M).
GenTech Holdings, Inc. (OTCMKTS:GTEH) is an interesting emerging play in this space. The company is rapidly running toward the launch of a premium and CBD-infused coffee subscription package that could power the stock significantly higher.
To help augment the push that could follow from that launch, the company also just announced what it calls “an aggressive anti-dilution initiative”. That sends some very good signals for the market.
GenTech Holdings, Inc. (OTCMKTS:GTEH) plans to significantly reduce its authorized share allowance over time as debt is retired from the balance sheet and convertible notes are paid down ahead of conversion, according to its release.
Management notes that the majority of outstanding notes do not fall due until next year or later, but the company wants to be proactive in removing that risk to send a strong message to the market that this represents a significant transition and commitment. Older outstanding obligations will be retired. Some portion of more recent obligations will be converted into a tranche of preferred equity and some will be paid off. In addition, the 25% reduction in authorized shares is expected to be completed and visible within six weeks.
David Lovatt, CEO of GenTech, commented, “Our mission is to become the largest coffee subscription provider in the premium and CBD-infused niche in the US market. We have put in place a path toward that goal that is de-risked from the perspective of front-end investment. That allows us to begin proactively moving toward an aggressively non-dilutive framework and relationship with the capital markets, which holds the potential to add tremendous value for current and prospective shareholders.”
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