Cannabis stocks since inception have fascinated investors. Prolonged trade tensions will, no doubt, affect the global economy and squeeze corporate profits. To light things up a little, weed can be legalized, opening the door to a multi-billion-dollar industry.
Medical marijuana has already been legalized in 33 states and is being exported in large amounts. Europe, in particular, is open to marijuana-based treatments, while some Asian countries have endorsed it as well.
But cannabidiol or CBD is a sensation right now. We all know that hemp got legalized in the 2018 Farm Bill, following which a slew of hemp-based commodities were sold online and in mom-and-pop stores. However, CBD was placed under the review of the FDA, which recently said that there may be real risks associated with it.
But the regulatory authority acknowledged that there is immense public interest in CBD as a wellness aid. Lest we forget, CBD is widely used in treating pain, inflammation and epilepsy.
Talking about strong demand for CBD, analysts estimated that nearly 65 million Americans have tried CBD and 63% found it effective. What’s more, CBD is a growing industry. Market research firm Brightfield projected that CBD sales in the United States alone will jump 55% to $648 million by the end of this year. In fact, they expect the U.S. hemp CBD market to reach a worth of $22 billion by 2022.
And if we consider a more conservative estimate, the numbers are still encouraging. For instance, investment firm Piper Jaffray forecasted annual U.S. hemp CBD sales close to around $15 billion by 2023.
Hence, this is the time to cash in on the hemp CBD craze. We have, thus, highlighted four CBD stocks that investors should keep an eye on this month —
GW Pharmaceuticals
GW Pharmaceuticals plc GWPH predominantly focuses on manufacturing CBD drugs. Last year, it’s CBD drug Epidiolex was the first cure made from Cannabis sativa plant species to win approval from the FDA. The drug is primarily used to treat rare forms of epilepsy.
GW Pharmaceuticals reported higher-than-expected sales of Epidiolex during the first quarter, and the drug is also the primary reason for GW Pharmaceuticals’ share outperformance against the broader Medical - Products industry so far this year (+80.3% vs +6.8%).
GW Pharmaceuticals, by the way, has announced promising results from a phase 3 study of Epidiolex in treating another rare type of epilepsy. Meanwhile, the Zacks Consensus Estimate for its current-year earnings has increased more than 100% over the past 60 days.
Canopy Growth
Canopy Growth CGC is one of the first major Canadian marijuana manufacturers to enter the U.S. hemp CBD market. The company is now expected to buy This Works, a London-based skin care company, for around $55 million. Such acquisitions will bolster its plans to sell more hemp-derived, CBD based wellness products to customers.
The company is also constructing a large-scale hemp production facility in New York state, and has secured the rights to acquire U.S. cannabis company Acreage Holdings. Notably, Constellation Brands has a 38% stake in Canopy Growth and is helping the company produce and market cannabis-related products.
The Zacks Consensus Estimate for its current-year earnings has risen almost 108% over the past 60 days. The company has easily outdone the broader Medical - Products industry on a year-to-date basis (+44.1% vs +6.8%).
Aurora Cannabis
With a greater number of people using CBD to cure a variety of ailments, demand for cannabis has increased by leaps and bounds. And this is how Aurora Cannabis ACB will benefit immeasurably. After all, Aurora Cannabis is currently the largest producer of cannabis. It is expected to produce more than 625,000 kilograms of cannabis annually by 2020, thanks to its acquisitions of MedReleaf, CanniMed and ICC Labs, to name a few.
Being the largest producer of cannabis, Aurora Cannabis enjoys a competitive advantage over small-scale producers. The company can easily generate higher profit margins, thanks to its larger revenue base.
The Zacks Consensus Estimate for its next-year earnings has increased 3% over the past 60 days. The company has performed better than the broader Medical - Products industry on a year-to-date basis (+44.4% vs +6.8%).
Hexo
If you are late into the cannabis game, you might be reluctant to invest in the top-tier names, as they might be pricey. So, beginners may consider Hexo HEXO. Yes, the company may not be known to all, but it’s underdog status actually helped its share prices advance 18.8% so far this year, beating the broader Medical - Products industry’s rise of 6.8%.
That said, Hexo’s share price has more upside left. After all, Hexo has tied up with alcoholic beverage-maker Molson Coors Brewing (TAP) to produce CBD filled, non-alcoholic drinks.
Nonetheless, while GW Pharmaceuticals flaunts a Zacks Rank #2 (Buy), Canopy Growth, Aurora Cannabis and Hexo have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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