How to Invest in the Fast Growing Cannabidiol Industry

CBD-Oil-Stocks-2018
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CBD Oil Stocks 2019

Before President Donald Trump signed the $867.0-billion Agriculture Improvement Act of 2018 (referred to as the “farm bill”) into law in December 2018, industrial hemp and hemp derivatives were federally controlled substance, classified along with marijuana, LSD, and heroin as a Schedule 1 drug. Legalizing hemp is a game changer for the cannabidiol (CBD) industry and opens up a world of opportunity for investors.

Industrial hemp is not marijuana and the farm bill makes a legal distinction between the two. Whereas marijuana is still a controlled substance—which, according to the U.S. Drug Enforcement Administration (DEA), has no currently accepted medical use (which is categorically untrue) and a high potential for abuse—industrial hemp is the opposite.

President Trump’s farm bill defines hemp as any part or derivative of cannabis with a tetrahydrocannabinol (THC) level below 0.3% on a dry-weight basis. Some of the most potent cannabis strains can have THC levels above 24%.

Hemp has three primary uses: fiber (paper, cloth, carpets, clothing), seeds (hemp oil and food), and CBD oils. CBD oils are the most profitable of the three and has the biggest potential. When consumed as a pill, powder, topical ointment, tincture, spray, oil, etc., CBD has been shown to help with anxiety, bipolar disorder, and Parkinson’s disease.

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For these, and other reasons, the CBD market is exploding, and why, over the next four years, it is expected to post a compound annual growth rate (CAGR) of 31%. (Source: “Global CBD Oil Market 2018-2022 to Post a CAGR of 31%,” Business Wire, July 23, 2018.)

It’s difficult to find undervalued marijuana stocks at the moment, but for now, the CBD market is still largely untapped. And in 2019, you can still find a large number of CBD stocks trading in attractive ranges.

Farm Bill Paves the Way for the CBD Industry

The 2014 farm bill eased some federal regulations on CBD, but the 2018 farm bill went a lot further. Namely, it removed hemp and hemp derivatives from the Controlled Substance Act. Instead of being watched by the overlords at the DEA, hemp is now being supervised by the Department of Agriculture.

This paves the way for the lucrative American cannabidiol industry. But just how lucrative is open for some debate.

Before the farm bill was passed, CBD operated in a murky, grey area. But, it is thought that the market for hemp-derived CBD products was about $591.0 million in 2018 and is projected to hit $22.0 billion by 2022. Some projections are less bullish, but still strong.

Why the projected explosion in CBD sales? CBD, the non-psychoactive cannabinoid of marijuana, is a popular ingredient in a huge number of products. Advocates of CBD say it can reduce pain, soothe anxiety and stress, and combat insomnia. You can find CBD in everything, including personal care products (moisturizers, etc.), to vitamins, massage oils, cookies, teas, alcohol, ice cream, and dog treats.

The medical community is also excited about CDB because of its antipsychotic effects.

CBD is a chemical in the cannabis sativa plant and is a naturally occurring compound found in the leaves, flowers, and stem of hemp and cannabis plants. To date, over 100 chemicals have been identified in the cannabis sativa plant.

Now that cannabidiol is legal and under the purview of the Department of Agriculture, universities, scientific studies, and drug companies can now obtain grants and conduct research on CBD.

How exactly cannabidiol works is not yet clear, but clinical research into it shows that it prevents the breakdown of a chemical in the brain that affects, mood, pain, anxiety, and mental function. It also appears to reduce symptoms associated with schizophrenia.

Scientific studies (many sponsored by the U.S. government) show it could be used to treat a wide range of conditions, including arthritis, diabetes, alcoholism, multiple sclerosis, post-traumatic stress disorder (PTSD), depression, epilepsy, and other neurological disorders. (Source: “Cannabidiol (CBD) — what we know and what we don’t,” Harvard Medical School, August 24, 2018.)

The farm bill and push to legalize hemp was spearheaded by Mitch McConnell (R-KY). The otherwise conservative McConnell, and others, also see the local benefits to hemp. Legalizing hemp gives farmers an opportunity to grow a new, environmentally friendly, crop.

The hemp plant has been shown to detoxify the soil and prevent soil erosion. It also requires much less water to grow, and doesn’t require pesticides; this makes hemp much more environmentally friendly than traditional crops. It’s also a crop that is in demand, unlike tobacco, which was once the biggest agricultural crop in Kentucky. (Source: “Hemp 101: What Is Hemp, What’s It Used for, and Why Is It Illegal?Leafy, July 14, 2015.)

Cannabidiol Market Forecast

The legalization of recreational marijuana and medical marijuana in a growing number of U.S. states and in countries like Canada has moved cannabidiol to the front burner when it comes to research and development. Not only are the prospects of CBD oil massive, but so too is the demand. And Wall Street knows it.

What is the market forecast for cannabidiol? It depends on who you ask. Some see the CBD market hitting $22 billion by 2020. The Hemp Business Journal forecasts U.S. sales of hemp will grow to $1.9 billion in 2022 with an estimated 5-year CAGR of 14.4% (2018-2022). (Source: “The U.S. Hemp Industry grows to $820mm in sales in 2017,” Hemp Business Journal, last accessed January 16, 2019.)

Why the big discrepancy in the CBD market forecast? Just because hemp is legal, states are not obligated to create hemp programs. In fact, some states may very well simply reject having an industrial hemp program.

The demand for CBD products is there though and it’s huge.

According to a 2018 report, the demand for CBD used for chronic pain is expected to help fuel the medical cannabis market. The medical cannabis market is projected to grow from $7.0 billion in 2017 to over $55.0 billion by 2024. (Source: “CBD Demand for Chronic Pain Treatment is Set to Grow the Medical Cannabis Market,” Cision, September 4, 2018.)

As the CBD and medical cannabis market grows, investors will be looking for the markets with the most investment opportunities. Right now, the U.S. (the world’s biggest economy) and Europe (the world’s largest economic region) are the leaders when it comes to CBD, recreational cannabis use, and medical cannabis.

By all accounts, the U.S. and Europe will continue to dominate the CBD field.

By 2022, marijuana sales in Germany are forecasted to reach close to $1.6 billion. While less than one percent of the German population consumes medical marijuana, the future looks bright. Germany only just legalized medical marijuana in 2017.

The laws in the United Kingdom (England, Wales, Scotland, and Northern Ireland) governing marijuana are very strict. However, the U.K.’s Advisory Council on the Misuse of Drugs has recommended that cannabis-derived medical products be available by prescription. (Source: “Cannabis-derived medicinal products recommended to be available on prescription,” U.K. government, July 24, 2018.)

In Switzerland, there are more than 400 registered companies manufacturing or trading CBD. The combined total is just $62.0 million, but that is expected to increase significantly over the coming years.

Top Cannabidiol Oil Stocks for 2019

The medical cannabis and cannabidiol markets are expected to experience tremendous growth over the next few years, making them some of the hottest stocks in the marijuana market. Unfortunately, a rising tide lifts all boats, which means that many CBD stocks are not really worth a second look.

Keep in mind that the best CBD oil stocks are not pure plays; they also operate in the medical and recreational marijuana sector. Others still sell products infused with CBD.

Furthermore, many of these stocks trade in Canada (in addition to the over-the-counter stock market). That’s because medical marijuana has been legal in Canada since 2001, giving Canadian-based companies 18 years to develop their infrastructure, strains, partnerships, and supply agreements. Now that recreational marijuana is legal in Canada, more and more companies will be ramping up operations.

Despite the fact that recreational marijuana is legal in a number of U.S. states, marijuana is still illegal on the Federal level, making for a confusing, disjointed environment for weed companies to operate. Until recreational marijuana is legal on the Federal level, the biggest and best pot stocks will be found in Canada.

The tables will turn, though, once the adult use of recreational marijuana becomes legal in the U.S.

With this in mind, here is a list of the top CBD stocks for 2019. Some are doing well, while others are still facing headwinds from the October 2018 stock market sell-off. They all have great long-term growth potential, however.

Company Name Stock Ticker
Aphria Inc NYSE:APHA, TSX:APH
Aurora Cannabis Inc NYSE:ACB, TSX:ACB
Cannabis Sativa Inc OTCMKTS:ISOLF, CNSX:ISOL
Canopy Growth Corp NYSE:CGC, TSX:WEED
CV Sciences Inc OTCMKTS:CVSI
Emerald Health Therapeutics Inc TSX.V:EMH, OTCMKTS:EMHTF
Golden Leaf Holdings Ltd. TSX:GLH, OTCBB:GLDFF
GW Pharmaceuticals PLC NASDAQ:GWPH
Isodiol International TSX:ISOL, OTCMKTS:ISOLF
Insys Therapeutics Inc NASDAQ:INSY
MPX Bioceutical Corporation TSX:MPX, OTCBB:MPXEF
Neptune Wellness Solutions Inc NASDAQ:NEPT, TSX:NEPT
New Age Beverages Corp NASDAQ:NBEV
CannaRoyalty Corp CNSX:OH, OTCMKTS:ORHOF
Terra Tech Corp OTCMKTS:TRTC

Analyst Take

The CBD oil market looks extremely bullish over the next few years. That said, the cannabidiol industry will have periods of volatility while it finds its legs. Still, there are a large number of well-established CBD oil stocks in 2019 that are set to take advantage of current market trends and exciting advancements in the cannabidiol market.

That said, like cryptocurrencies, many CBD oil stocks are classified as penny stocks. That’s why it’s important to do a lot of research and determine which CBD oil stocks are poised for growth in 2019 and which ones deserve to go up in smoke.