Ever since the passing of the US Farm Bill of 2018, cannabidiol (CBD) has become a major topic of discussion in the investing community, and for good reason. The Farm bill legalized the cultivation, production and sale of hemp and CBD across the largest market in the world. Ultimately, the Farm Bill opened the door to an emerging product market that is being met with incredible demand.
Considering this, it’s not surprising that companies involved in aspects of the cultivation, production or sale of CBD are getting quite a bit of buzz. As with any sector, however, there are picks that will yield strong returns, and there are a select few that have the potential to lead to incredible profits. Below, I outline what I believe to be the top five picks in the CBD space, and why.
First and foremost, we have GW Pharmaceuticals
The company is engaged in discovering, developing and commercializing prescription medicines using botanical extracts from the cannabis plant. At the moment, the company has two commercial-stage treatments.
Here are a few key reasons that investors should be keeping an eye on GW Pharmaceuticals:
- Commercial Stage Biotechnology – The company currently is generating revenue through the sale of its approved products, including Sativex and Epidiolex. Commonly prescribed for Parkinson’s disease patients, Sativex helps to relieve spasms commonly caused by MS or Parkinson’s disease. Epidiolex is a treatment that is designed for severe forms of epilepsy like Dravet syndrome.
- Heavy Investor Interest – GW Pharmaceuticals has been on the top of the list for several investors for some time now. Even before CBD became legal in the United States, the company was cleared for studies that proved to be successful leading to the commercial approval of its products. Many investors have been following the stock throughout the process, and interest only seems to grow by the day.
- No Spring Chicken – Due to the fact that the CBD industry is emerging, most companies that you find in the space are relatively new. That’s not the case for GW Pharmaceuticals. The company has actively been in business for several years!
The company is a full-spectrum CBD play that is not reliant on any outside sources. Veritas owns and operates a 140-acre production facility, where it grows its own hemp, extracts and refines its own CBD, manufactures various products and ships for sale.
Key reasons to be excited about Veritas Farms:
- Not Reliant On Third Parties – This is a huge advantage. Most CBD companies handle only one or some of the growth, extraction and refining, production or sales phases. So, for the process to work properly, there are significant coordination and logistical issues that need to be addressed. Since Veritas Farms handles the whole process from seed to sale, however, these are not issues that they experience.
- Increasing Investor Interest – As the company continues to release positive news, investor interest in the stock is increasing. In fact, in the past couple of months, we’ve watched as average daily volume climbed from around 30,000 shares to well in excess of 100,000. A buzzing investing community often portends good news ahead.
- Big Box – Recently Veritas Farms announced a label and packaging change. In the press release, the company also mentioned that its products are now featured in various brick and mortar and online locations, one of which is CVS
CVS. Considering that the company got into CVS, I think may be going after other significant bix box distribution channels.
Aurora Cannabis is a larger cannabis play than just a CBD play. However, there’s a good reason that it’s on this list. The company is one of the largest cannabis companies in the world, with a global footprint that is largely unmatched in the space.
I think the company is highly undervalued due to a lack of cash on its balance sheet, an issue that Aurora is attempting to remedy through a $750 million shelf registration. This, combined with my predictions of an entrance into the United States CBD market relatively soon, suggests that Aurora Cannabis is a strong play in the space.
Key reasons to be excited about Aurora Cannabis:
- A Likely Entrance Into The US – In recent releases, Aurora Cannabis has mentioned a desire to enter into the United States CBD space, stating that they will do so when the time is right. With only around $110 million in free cash, however, there isn’t much room for acquisitions or investment through which to build a footprint in the region. Nonetheless, with the recently announced $750 million shelf registration, I believe that the time for an entrance into the market is upon us.
- A Strong History In Cannabis – Aurora Cannabis, like GW Pharmaceuticals, is no spring chicken. The company has been around for several years as a medical cannabis company in Canada. When Canada legalized recreational cannabis for adult use, the company quickly and effectively took a leadership position. With such a strong history in a highly-regulated space, the company and its leadership have the experience and knowledge to take the CBD space by storm.
- Valuation – As mentioned above, when compared to peers like Canopy Growth Corporation and Cronos, the valuation of Aurora Cannabis is low. At the end of the day, there’s no better opportunity for long-term growth than a strong company with a low valuation in comparison to its peers.
In February, Tilray made its biggest acquisition yet with the purchase of Manitoba Harvest. The company spent more than $300 million to acquire Manitoba and did so for the sole purpose of bolstering its portfolio of CBD-related assets.
Key reasons to be excited about Tilray:
- United States CBD Entrance – With the acquisition of Manitoba Harvest, the company has made one of the biggest moves in the CBD space. As a result of the acquisition, the company said that it will be launching CBD-derived products in the United States as early as this summer.
- A Strong History – Like Aurora Cannabis, Tilray has a strong history in the medical cannabis space in Canada, and quickly has become a leader in the recreational cannabis space. With plenty of experience in the cannabis market, the company has the knowledge to tackle this market and emerge as a leader.
- Strong Global Footprint – Finally, Tilray is another company in the cannabis space with a strong global footprint. In fact, the company is selling products in several countries around the world and continues to expand its reach as regulations evolve.
Finally, we have Cronos Group
While the company hasn’t yet made an entrance into the United States CBD market, there’s a strong argument that this will happen soon. After Altria Group
Key reasons that investors should be watching Cronos:
- Altria Group – Altria Group, the company mentioned above that made a multi-billion dollar investment in Cronos Group, is an American tobacco giant. With plenty of experience in the highly regulated tobacco market, Altria Group is a perfect partner at this stage of the game in a highly regulated CBD market. This type of partner could propel Cronos to the top in the US CBD space relatively quickly.
- A Strong History – Cronos is another Canadian cannabis giant with a strong history in the space. Moreover, the company has long seen the benefit of the medical properties of CBD, and already has a strong line of products that are created using the compound.
- Billions To Invest – Finally, thanks to the investment made by Altria Group, Cronos has $1.8 billion more in cash to invest in expansion, with the potential of another $1 billion if Altria exercises warrants it received as part of the investment. In emerging markets, those that invest now will reap the rewards later. So, this is a huge advantage.
With the CBD market quickly emerging, investors are coming in in droves. As investor interest rises, more and more companies are working to join the list of potential CBD-related investments. Nonetheless, there are only a few that will emerge as the big players in the end. I believe that the companies listed above have the potential to become these leaders, making them compelling investment opportunities.