As the cannabidiol (CBD) market takes off, investors look increasingly for the stocks to buy that are driving this market. The industry received a massive boost from the 2018 Farm Bill, which legalized hemp across the United States. This frees hemp companies from Schedule I restrictions, allowing them relative freedom to operate within and outside of the United States.
Other more mainstream marijuana players have entered the CBD market. Canopy Growth (NYSE:CGC) grows the product and rumors abound that Aurora Cannabis (NYSE:ACB) will soon follow. However, both stocks have fallen in recent months due to compressing multiples and falling prices in dried cannabis.
Some CBD stocks have not seen dramatic stock price increases. The following stocks to buy appear well-positioned to profit CBD-focused investors:
Aphria (NYSE:APHA) has become the world’s third-largest cannabis producer. With prices of dried cannabis in decline, CBD has become one distinct outlet for adding value. It already offers an extensive line of products. In the U.S., it has worked to build partnerships to bring CBD products to market as it awaits legal status for its marijuana-based CBD.
In addition to the high capacity, APHA stock also offers a low valuation. It maintains a forward price-to-earnings (PE) ratio of around 23.7. It also trades at just over 9.5 times sales, which comes in well-below many larger peers. Moreover, Wall Street believes it will turn profitable this year. Analysts forecast four Canadian cents (three cents) per share in earnings this year and 32 Canadian cents (24 cents) per share in 2020.
APHA stock has also avoided the severe decline to hit larger Canadian names in the cannabis industry. Despite giving up most gains from earlier in the year, the price of APHA has remained steady since about May. Moreover, it has logged a 20% gain since the beginning of the year. This stability should position APHA stock to recover once sentiment turns.
Charlotte’s Web Holdings (CWBHF)
Charlotte’s Web Holdings (OTCMKTS:CWBHF) has not yet become a household name. However, that may quickly change for the Boulder, Colorado-based producer and distributor of hemp-based CBD products. With companies such as Kroger (NYSE:KR) and CVS (NYSE:CVS) stocking their products, the public should increasingly recognize Charlotte’s Web as more than just a children’s book.
The stock suffered in August as it reported an earnings and revenue miss. Still, amid the ups and downs, the stock has risen by nearly 65% since the beginning of the year. Investors may also pick it up at a discount as it has fallen by over 23% since just before the company missed estimates.
Despite the miss, revenue grew by 45.3% year-over-year. Although profits fell from the four cents per share in the same quarter last year, operating expenses nearly doubled to fund expansion.
Moreover, the forward PE ratio stands at just 24, a bargain considering the price-to-sales (PS) ratio of many unprofitable cannabis stocks exceeds that figure. Furthermore, Wall Street forecasts profit growth of 58.3% this year and 263.2% the following year. Given the low valuation and massive growth coming, investors should put CWBHF stock on their stocks to buy list before it becomes better known.
Curaleaf Holdings (CURLF)
Like Charlotte’s Web, Curaleaf Holdings (OTCMKTS:CURLF) is another stock on the verge of becoming better known. Based in Wakefield, Massachusetts, Curaleaf produces cannabis and hemp-based CBD products for wellness.
Though much of its business faces Schedule I-based restrictions, it has managed to establish operations in 12 states. Still, with hemp-based CBD, they have the segue needed to go nationwide no matter what happens with marijuana laws.
Moreover, the market seems intent on pushing CURLF stock higher. Despite a recent earnings and revenue miss, Curaleaf stock rose on a 231.2% increase in revenue year-over-year. Furthermore, despite volatility in the equity, CURLF stock has risen by almost 60% year-to-date. It has also begun to recover from a downturn in the stock that saw its value fall by about 43% between early May and mid-July.
Admittedly, multiples offer a mixed picture. A PS ratio of 25.3 makes this one of the more expensive CBD stocks to buy. Also, it will need loosened Schedule I restrictions to achieve its potential. However, with it trading below its book value, investors should consider CURLF stock before it becomes more recognized.
CV Sciences (CVSI)
CV Sciences (OTCMKTS:CVSI) is the leading CBD oil maker in the U.S. It sells CBD-based products under its PlusCBD brand. The San Diego-based company also runs a specialty pharmaceuticals division that produces CBD products to treat specific medical conditions.
The company continues to position itself for expansion as it has begun construction on a 45,500 sq. ft. facility in the San Diego area. This will allow the company to increase production by an estimated 500%.
CVSI stock earned a profit last year of nine cents per share. Despite rising revenue, it will swing to an estimated loss of four cents per share this year as the company invests in expansion. However, this should not take CVSI off of any stocks to buy list. Wall Street predicts a profit of 13 cents per share next year.
CV Sciences stock has lost about 25% of its value since the beginning of the year. Still, CVSI should become one of the stocks to buy hinges on its valuation. Despite the massive growth, CV Sciences trades at about 24.2 forward earnings and less than 5.2 times company sales. With revenue and sales set to spike, this makes CVSI stock look like a buying opportunity, not one investors should unload.
GW Pharmaceuticals (GWPH)
GW Pharmaceuticals (NASDAQ:GWPH) has built its future on prescription-based CBD products. It manufactures Epidyolex, the first CBD-based drug approved by the Food and Drug Administration (FDA). By taking this step, it made itself a leader in prescription-based CBD products. Now that its other drug, Sativex, is now on the market in several countries, its prospects should only improve.
At a forward PE ratio of almost 111 and trading at more than 31 times sales, GWPH may not look like it belongs on any stocks to buy list. However, Wall Street expects the company to turn profitable next year. It also forecasts 93.4% earnings growth in fiscal 2019 and 295.2% the following year.
I recommended a buy on GWPH stock at $155 per share. Admittedly, that prediction may have come early. However, with the prospects for GW Pharma to lead this niche, I stand by the overall forecast.
Moreover, it has seen fewer negative effects from the selloff in cannabis stocks than larger peers. Although it has fallen by more than 27% from its 52-week high, it has still risen by about 43% year-to-date. Given the strong sales of its CBD products, expect to see revenue and profit increases in the company’s pipeline.
HEXO Corporation (HEXO)
HEXO (NYSE:HEXO) presents a unique opportunity in many areas of the cannabis industry, including CBD-based products. With its 30% market share in its home province of Quebec, it maintains a base from which it can move into markets in both Canada and the U.S. Moreover, with its alliance with Molson Coors (NYSE:TAP), it presents a unique opportunity in the CBD and cannabis-based beverage market.
HEXO stock trades at just over $4.20 per share as of the time of this writing. It has lost about half of its value since peaking at $8.40 per share in late April. This makes HEXO somewhat risky as it has followed larger Canadian peers on a downward trend.
Our own Laura Hoy likes HEXO stock but warns against holding a position going into earnings. I agree with this sentiment. However, the decline has taken its forward price-to-earnings ratio to about 47. While that may seem high amid flat growth for 2019, analysts are looking for 170.6% earnings growth for fiscal 2020.
Although HEXO stock remains one of the riskier stocks to buy, its position in Quebec and its alliance with Molson Coors should give the company market niches with which it can lead in CBD and perhaps cannabis in general.
Planet 13 Holdings (PLNHF)
Planet 13 Holdings (OTCMKTS:PLNHF) has made a name for itself in its home market of Las Vegas through retailing. Its Cannabis Entertainment Complex, otherwise known as the “Superstore,” attracted a record number of visitors in August.
But aside from its gaining fame as a retailer, it also happens to produce CBD. In May, Planet 13 announced the introduction of its Planet M CBD brand. They made this available at its Superstore, the Fashion Show Mall, with plans to expand to other retail outlets. They also made Planet M available online.
This strategy appears effective. Analysts believe that this is one of the stocks to buy in large part because it will probably turn a profit this year. Earnings should grow quickly from there. Analysts predict an increase of 118.2% this year and a staggering 450% in fiscal 2020. Despite the massive growth, it trades at only 17.5 times forward earnings and just over 16.1 times sales.
PLNHF stock has stagnated since May, trading in a range between $1.80 and $2.20 per share. However, it has not suffered the decline seen in most other cannabis stocks. It has also risen by around 107% since the beginning of the year.
As the Superstore increasingly becomes a destination for cannabis shoppers, it should not only bolster sales of CBD products, but it should also boost the growth of PLNHF stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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