Are Marijuana Stocks That Focus on CBD Future Winners or Will They Wreck a Portfolio?

The Future of the Marijuana Market

One of the things that got many investors excited (myself included) about the future of the marijuana industry was that there were so many avenues for expansion. Marijuana companies had a variety of new products to roll out, each with promise to boost their revenues.

But in 2021, with several years of the legal pot market in Canada under our collective belt, is it still the case that investors are best served by focusing on pot stocks that deal with (cannabidiol) CBD?

Furthermore, should consumers trust CBD made from orange peels?

Allow me to explain.

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Former NFL player Chris Hetherington’s company Peels is an innovator, in that Peels will be the first company to sell CBD oil created from oranges. (Source: “Former NFL Player Launches First CBD Products Made From Orange Peels,” Forbes, August 2, 2021.)

Using the orange’s terpenes, the company says it’s able to perfectly replicate the CBD molecule without any trace of tetrahydrocannabinol (THC). Peels also claims that its oil has a more consistent, pure, and stable texture than regular CBD oil.

I suppose at this point, we’d be stretching it to call Peels a marijuana company, but it’s certainly a CBD company.

Peels nabbed $4.0 million in early investments, but I’m not so much interested in the company itself (though it does offer an intriguing product). Instead, I’m interested in what it means for the overall marijuana market (and marijuana stocks) to have companies like Peels appear.

There are many CBD stocks for investors to choose from (most of which don’t use orange peels).

The first and most important thing to note is that innovation is still alive and well in the cannabis market.

From novel creations of CBD, to developing applications for medical marijuana, to new methods of cannabis consumption, many new products have been rolling out.

At one point, cannabis-infused beverages were considered one of the most exciting opportunities in pot stocks. I’ll freely admit that I was one of the proponents, expressing support of Canadian marijuana stocks whenever they partnered with major beverage producers.

But, alas, cannabis-infused beverages haven’t exactly caught on (when’s the last time you heard of someone actually drinking one?). To be fair, the product is still young, and there’s still time for growth, but it hasn’t exactly taken the world by storm.

CBD stocks, by contrast, have done well, but are they better positioned than traditional marijuana stocks?

Consider that the CBD market is expected to grow to $19.5 billion by 2025. (Source: Ibid.)

In comparison, the legal marijuana market is set to bring in about $43.0 billion by 2025 (Source: “Legal Cannabis Market Projected To Rack Up $43 Billion By 2025,” Forbes, June 18, 2021.)

I mentioned legal, knowing that we’ll probably still see the presence of a marijuana black market for years to come. Pot stocks won’t be able to reach their full potential until the black market is greatly reduced or eradicated outright, a project that will likely take a long time.

In any case, it appears that there’s more money to be made from traditional marijuana stocks than from CBD stocks.

While CBD stocks do hold great potential, I believe that, overall, they’re weaker than traditional pot stocks, and not just due to their lower market-size projections.

The issue with CBD (for me, at least) is that, learning from the cannabis-infused beverage situation, it’s more of a fad than anything else.

Is it popular? Absolutely. Is it effective and useful? Many studies point to “yes.” Will it make companies and CBD stock investors a lot of money? I believe so.

But can it last? That’s the answer I’m iffy on.

In other words, does CBD have the staying power to be more than just a boutique purchase or brief craze and actually become a long-lasting, mainstay cannabis (or orange peel) product?

While I believe that CBD stocks can develop staying power, it’s hard to bet on “can” when you know that traditional marijuana stocks will be around forever.

Because marijuana has been in circulation for thousands of years, and people have been willing to break the law in huge droves to access the drug, there’s no reason to believe that this swell of people will all drop off when there’s a fully legal market.

Quite the contrary; if anything, easier access and freedom from police persecution should help marijuana usage increase.

But CBD has the chance of being a fly-by-night product, something that thrills people for a bit but eventually disappears.

Pot stocks are much more reliable for the long term, in my view, because we already have decades of market research showing that people really like marijuana.

Which isn’t to say that CBD stocks are bad, just that they have more downside than marijuana stocks, in my opinion.

What’s more, most marijuana companies have a line of CBD products in addition to their traditional pot products. To me, that’s great.

What I’m more wary of is a company that focuses solely on CBD products. I suspect that a company like that is more vulnerable to waning interest in its products than a company that focuses more on traditional marijuana products.

Analyst Take

While the future of pot stocks holds many innovations in a variety of domains, the fact is that CBD, cannabis-infused beverages, and other less-mainstream products are much more vulnerable to a weakening in interest.

Which isn’t to say investors can’t profit from CBD stocks; far from it. It simply means that, if investors are looking for additions to their portfolios that have staying power, it might be better to go with the proven commodity of traditional marijuana stocks instead of CBD stocks.