Top Three CBD Stocks to Watch Closely in 2021
There’s a lot of overlap between CBD stocks and pot stocks. Which, of course, makes perfect sense. The cannabis plant has scores of active chemical compounds in it. One of them is delta-9-tetrahydrocannabinol (THC). This is the compound that gets stoners… stoned.
The other big one is cannabidiol (CBD). This compound has no psychoactive properties. But there are a whole lot of potential health benefits. Now, marijuana producers have no need to weed out the CBD. However, companies focusing on CBD do have to keep out the THC if they want to sell their products over the counter. But it’s not terribly difficult if the CBD is derived from industrial hemp – which, unlike marijuana, is not a controlled substance.
To complicate matters even further, the Food & Drug Administration hasn’t compiled a whole lot of information on CBD. So it lingers in a state of near-limbo… due, if nothing else, to its close proximity to THC. It’s not quite legal. But based on how easy it is to find CBD products at the local pharmacy, grocery store and coffee shop, it’s obviously not illegal either. However, its legal status can depend on which state you live in.
Here’s how that works…
In 2018, President Trump signed the Agriculture Improvement Act. This is better known as the 2018 Farm Bill. In that act, there was a section that removed hemp from the Controlled Substances Act. Thanks to that bill, CBD – which can be extracted from hemp – was deemed legal on the federal level. The bill actually targeted the agricultural aspect, though. Compounds extracted from hemp – à la CBD – aren’t privy to the same complete green light as hemp itself. So CBD operates in a mixed jurisdictional realm.
Warning: More Politics & Science Ahead
The federal government won’t arrest folks for growing hemp anymore. Extracting CBD or possessing it isn’t a federal crime anymore either. Well, as long as there’s less than 0.3% THC content. But not all states see eye to eye with the feds. Some states still want to see more evidence of the benefits and lack of drawbacks. And in some states, CBD remains blacklisted.
But here’s a big feather in the cap of CBD. The Food & Drug Administration has approved a CBD product to treat Lennox-Gastaut syndrome. It’s also been approved to treat Dravet syndrome. To paraphrase, it’s been proven to help those suffering from certain types of epilepsy.
When Greenwich Biosciences received approval for its epilepsy drug, Epidiolex, it was initially considered a controlled substance… simply because it was derived from marijuana. But when the company requested it be removed from the controlled substances list, the Drug Enforcement Agency (DEA) agreed. This was a big deal because it was the first time the DEA removed any type of cannabis compound from Schedule 1. And this could eventually prove to be a tipping point.
Regardless of what the FDA says, studies have shown that CBD can help to treat insomnia and anxiety and even act as an antidepressant. It has also helped those dealing with chemotherapy and can treat acne. Nonetheless, not everyone remains sold on the prospect of CBD. And at least part of the problem is bad actors.
The FDA had to warn folks to stop claiming CBD could cure the coronavirus. Also, it probably can’t fix “dryness and frizz” in hair or prevent it from turning gray. That’s the kind of claim the FDA is looking out for. And more importantly, we know at this point that it can do some positive things. And here are three companies proving it…
Three CBD Stocks Worth Investing In
- GW Pharmaceuticals (Nasdaq: GWPH)
- Charlotte’s Web Holdings (OTC: CWBHF)
- CV Sciences (OTC: CVSI)
We’ll start with the big one. GW has essentially built its future and reputation on prescription CBD products. It’s the parent company of Greenwich Biosciences – the maker of Epidiolex. It has also received approval of its Sativex therapy in several countries. This treatment is a cannabis-extracted spray containing CBD. It’s used to treat multiple sclerosis.
Even right now, as some of its therapies remain in limbo, GW stock is pricey. But it’s proven to be insulted from the price swings of the marijuana market. The company also has an impressive pipeline of therapies in the works… and approval of any of them could send this CBD stock skyrocketing.
Charlotte’s Web Holdings
Charlotte’s Web Holdings can be viewed as the bellwether of the CBD industry. If CBD sales are on the rise, this CBD stock will be one of the first to indicate it.
The company recently acquired the topical treatment manufacturer Abacus Health Products with the intention of increasing its product line. The plans have already paid off, with sales up 17%. And increasing product lines should only help the company’s bottom line. This Colorado-based company has deals with major retailers, including Kroger (NYSE: KR), The Vitamin Shoppe and CVS (NYSE: CVS). Once the FDA clears up the regulatory uncertainty surrounding CBD food products, you can expect this CBD stock to soar.
This company has two distinct segments: consumer products and drug development. The consumer products one is straightforward. It focuses on manufacturing, marketing and selling CBD products. On the other hand, the pharmaceutical division is constantly trying to push the needle and develop novel CBD-based therapeutics. But the company already has the top-selling hemp-derived CBD oil on the market.
CV Sciences’ PlusCBD Oil was the first supplement to receive “generally recognized as safe” (GRAS) status. And the company continues to grow its product line. The company is in the midst of developing synthetic CBD-based medicine and is pursuing FDA approval for drugs. But again, once regulations around CBD are relaxed, this CBD stock is expected to see a major bounce.
The Bottom Line on CBD Stocks
Bills have been introduced to amend the Federal Food, Drug and Cosmetic Act and its regulations of hemp-derived CBD. The best guess as to why they haven’t moved forward is that Congress got distracted by the pandemic. But they should be picked up again. If the FDA finally gets out of the way, these CBD stocks are going to be major beneficiaries.
Unfortunately, for now the prospects of this budding industry are still tied up in politics. And the FDA’s approval (or lack thereof) can change the trajectory of these stocks quickly.
About Matthew Makowski
Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about the markets for 20 years. Equally comfortable identifying value stocks as he is discounts in the crypto markets, Matthew began mining Bitcoin in 2011 and has since honed his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dog, Dorito.
Best Medical Marijuana Stocks to Watch
Keith began writing for the Fool in 2012 and focuses primarily on healthcare investing topics. His background includes serving in management and consulting for the healthcare technology, health insurance, medical device, and pharmacy benefits management industries. Follow @keithspeights
The global medical marijuana market is projected to grow at an annualized rate of almost 18% through 2028, according to Data Bridge Market Research. Much of this growth will likely be in the U.S., where 37 states have already legalized medical cannabis. Medical cannabis products sold in the U.S. include dried flower, vaping concentrates, cannabis-infused edibles, and topical products such as lotion.
Investors who opt to buy individual medical marijuana stocks can choose among Canadian or U.S. companies. Canadian medical cannabis companies can legally list on U.S. stock exchanges, while U.S. medical cannabis companies operating legally at the state level can legally list on Canadian stock exchanges and over the counter (OTC).
Before you invest in medical cannabis companies, find out what you need to know about this growing sector.
Top medical marijuana stocks
These five medical marijuana stocks are top buys for 2022:
Village Farms International (NASDAQ:VFF)
Grows, produces, and sells medical cannabis products primarily for the Canadian market and cucumbers, peppers, and tomatoes for the North American market.
Jazz Pharmaceuticals (NASDAQ:JAZZ)
Trulieve Cannabis (OTC:TCNNF)
Innovative Industrial Properties (NYSE:IIPR)
Data source: Yahoo! Finance. Data current as of April 25, 2022.
1. Village Farms International
Village Farms International’s roots lie in the fresh produce business. The company still generates slightly more than half of its total revenue from selling cucumbers, peppers, and tomatoes. However, Village Farms’ primary growth driver these days is cannabis.
The company’s Pure Sunfarms ranks as the top-selling brand for dried cannabis flower products in several of Canada’s biggest recreational marijuana markets, including Alberta, British Columbia, and Ontario. But Village Farms is poised for strong growth in the medical cannabis arena, too.
Pure Sunfarms received European Union Good Manufacturing Practices certification in March 2022. This paves the way for the business to begin shipping products to key European medical cannabis markets, including Germany, beginning in the third quarter of 2022.
Meanwhile, Village Farms already sells hemp-derived cannabidiol (CBD) health and wellness products in the U.S. market. The company hopes to enter the U.S. cannabis market if and when marijuana is legalized at the federal level.
Valens is a Canadian company that provides extraction services for companies that make cannabis products, including medical cannabis products such as capsules, soft gels, topical ointments, and tinctures.
Valens contracts with top medical cannabis growers and claims to have the largest extraction capacity among its rivals. The extraction company has multi-year agreements with many Canadian growers, including Canopy Growth (NASDAQ:CGC) , HEXO (NASDAQ:HEXO) , OrganiGram (NASDAQ:OGI) , and Tilray (NASDAQ:TLRY) .
Extraction opportunities related to medical cannabis are growing in the U.S., Europe, Australia, and Latin America. The company’s solid revenue growth is likely to be further boosted by its deal with Signifi Solutions to place Green Roads CBD product kiosks in major malls across the U.S.
Valens is also a top 10 licensed cannabis producer in Canada. The company claimed a market share of 3.1% in February 2022.
Like many Canadian cannabis companies, Valens isn’t profitable yet. However, it expects to achieve positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by the fourth quarter of 2022.
3. Jazz Pharmaceuticals
Jazz Pharmaceuticals became the largest cannabis-focused drug developer following its acquisition of GW Pharmaceuticals in May 2021. Sativex, developed by GW, is a medical cannabis drug that contains both the high-inducing tetrahydrocannabinol (THC) and the non-psychoactive CBD. It treats spasticity associated with multiple sclerosis. Epidiolex, also developed by GW, is a CBD drug. Sativex is approved in multiple countries, excluding the U.S., and Epidiolex is approved in both the U.S. and Europe.
Epidiolex, which generated sales of more than $658 million in 2021, is significantly boosting Jazz’s revenue. Its sales growth should continue with a recent commercial launch in Ireland and a 2022 launch in France. In addition, Jazz is evaluating Epidiolex in a phase 3 clinical study as a potential treatment for epilepsy with myoclonic-atonic seizures (EMAS).
Jazz is not a pure-play medical cannabis company. It makes the sleep disorder drugs Xyrem and Xywav, which account for more than half of its sales. Jazz also sells the cancer drugs Rylaze, Vyxeos, and Zepzelca.
4. Trulieve Cannabis
Trulieve Cannabis is a vertically integrated U.S.-based cannabis company that grows medical cannabis and distributes medical cannabis products to its own retail dispensaries. The company’s primary operations are in Florida, where it runs 114 medical cannabis dispensaries and commands a market share of close to 50%. Trulieve also has operations in Arizona, California, Colorado, Connecticut, Massachusetts, Maryland, Nevada, Pennsylvania, and West Virginia.
Trulieve’s acquisition of Harvest Health & Recreation in October 2021 made it the most profitable U.S. multistate cannabis operator. The deal also resulted in Trulieve becoming the largest U.S. cannabis company based on retail and cultivation footprint.
Unlike most of its peers, Trulieve regularly delivers quarterly profits. The company’s earnings growth remains strong, which gives Trulieve considerable financial flexibility to invest in expanding its business.
5. Innovative Industrial Properties
As a real estate investment trust, or REIT, Innovative Industrial Properties is the leading real estate provider for the U.S. medical cannabis industry. The company buys properties from medical cannabis operators and then leases the properties back to the operators, providing needed cash to growing cannabis businesses and stable income for Innovative.
Innovative Industrial Properties currently owns properties that are leased to tenants in 19 states. The company is increasing its customer base not only in the states where it already operates but also in additional states that legalize medical or recreational cannabis.
Few medical cannabis stocks have delivered the level of growth that Innovative Industrial Properties has achieved. During the past five years, the company’s revenue has skyrocketed more than 4,500%, while its earnings have vaulted nearly 7,700% higher. This performance has enabled the stock to generate an almost nine-fold gain.
As a REIT, Innovative Industrial Properties distributes at least 90% of its taxable income to investors in the form of dividends. The company’s consistent profitability is due in part to its diversification across many tenants.
How to choose the best medical marijuana stocks
Investors should consider the same key attributes for medical marijuana stocks that they would for any stock:
- Financial performance: Many medical marijuana companies aren’t yet profitable, but the best companies have clear and defined plans for achieving profitability in the future. The safest companies also have plenty of cash, which creates financial flexibility and preserves the value of the stock.
- Growth opportunities: The patchy regulatory framework of the marijuana sector means that medical cannabis companies’ growth prospects vary widely. The best companies are minimally limited by geographic constraints.
- Competitive position: Leading medical marijuana companies have high production capacity, plenty of distribution channels, and beneficial partnerships with established companies.
If you don’t want to choose specific stocks, another way to gain exposure to medical marijuana stocks is to buy shares in a cannabis-focused exchange-traded fund (ETF). Such funds confer instant diversification across the cannabis sector (although currently no pure-play medical cannabis ETFs are available).
Should you buy medical marijuana stocks?
Investing in the medical marijuana sector is relatively risky as long as cannabis remains federally illegal in the U.S. The plant’s federal status also constrains the growth of the sector, and investors have no guarantee that the federal government will continue to allow states to treat cannabis as legal.
But the long-term prospects of the medical marijuana industry are excellent. More countries and U.S. states are recognizing the potential benefits of medical cannabis and legalizing the use and sale of medical cannabis products. More individuals and the broader medical community are also recognizing the plant’s medicinal benefits, driving demand higher for medical marijuana.
Risk-tolerant investors with long investing horizons are likely to profit by investing in medical marijuana.