A Beginner's Guide to Hemp Stocks

By Mary Sauer
Mark Finn/Unsplash

Thanks to the Farm Bill signed at the end of 2018, widespread hemp production has become legal. In the past, hemp was only legal to produce under the umbrella of pilot programs that were being individually approved by the United States Department of Agriculture. Now, hemp can be transported across state lines (mostly) and widespread commercial production of hemp products is legal throughout the United States.

In light of this, investing in hemp stocks has become a hot topic of conversation and it’s one that has caught my attention. I’m definitely a beginner in the world on investing, and investing in hemp, but I’m interested in learning the basics. I know this is an industry that is expected to grow as further education leads to reduced stigma concerning the use of CBD and other hemp products. CBD oil is a subcategory of the legal cannabis market with a market value of $591 million in 2018. But it’s expected to reach $22 billion by 2022, according to Motley Fool.

So, I dug into hemp stock investing, looking at the risks and finding a few good options of public companies to invest in—if I decide to take the leap.

Should I Invest in Hemp-Based CBD Stocks?

The hemp-based CBD market isn’t without risks. The biggest concern, as pointed out by Forbes author Alan Brochstein, is that the laws concerning cannabis are still evolving. While the last few years suggest that hemp laws will continue to allow for widespread production of CBD-infused products, this could always change. Changing laws could limit how major companies produce and sell hemp products, which would ultimately negatively impact investors.

That being said, this isn’t necessarily a reason to avoid hemp stocks altogether. If you’re ready to dip your toes in the water, proceed with caution and do your research as you decide on which public companies you’d like to buy stock in.

What Hemp-Based CBD Companies Should I Buy Stock In?

As you look into public cannabis companies, the first thing you need to do is ensure the company is a legitimate company registered with the SEC. Next, you’ll want to take a good look at their history as an indication of future performance.

Here are a few public companies that are getting a lot of attention because of their success in the world of hemp-based products.

Holding the largest percentage of its market, Charlotte’s Web Holdings is a producer of hemp-based CBD products. This company has an impressive history when compared to others the industry. According to Motley Fool, they have maintained low operating costs with high sales since 2016. Their company continues to expand, too. On May 7th they added to their canine products, adding 12 new CBD products for pets to their offerings.

Another company deserving of attention is CV Sciences. This company also sells hemp-based CBD products. Before the Farm Bill in 2018, they were already doing well with their products being sold in 2,238 stores. They’ve experienced impressive growth so far in 2019, with their products in 3,308 stores and $14.9 million in sales at the end of the first quarter of 2019.

The recent success of GW Pharmaceuticals has much to do with the FDA approval of their drug, Epidiolex, in 2018. This prescription drug is indicated for two difficult-to-treat and rare pediatric seizure disorders. They have a history of impressive growth and are expected to continue to grow thanks to recently published research that could widen the use of their drug.

In Canada, Canopy Growth has established itself as a leader in medical marijuana by growing consistently since its founding in 2013. Globally, this company has the biggest market share of the recreational marijuana market. There’s good news for those interested in investing in the hemp industry because this company took the 2018 Farm Bill as a chance to join the world of hemp production, beginning with a $100 million dollar investment in a large, hemp production facility. According to Motley Fool, partnering with Constellation Brands is another reason we expect them to continue to be a huge success, with the alcoholic-beverage company recently upping their stake in Canopy Growth to 38 percent with a four billion dollar investment.

Lastly, in April 2019, Hemp, Inc shared about their growth over the last year in an annual report. In 2018, they experienced an outstanding 1,800 percent increase in sales compared to 2017. It’s no wonder they’re experiencing so much success, they’re producing and processing all over the United Staes including facilities on both the east and west coast. Additionally, they’re the force behind Hemp University, an educational seminar for the hemp industry hosted in Ashland, Oregon. Because they’re establishing themselves as leaders and innovators in this growing industry, buying their stocks may become a profitable investment.

Getting Started in Hemp Investing

Because of the nature of the hemp-based CBD market, cautious investing is the general recommendation. Since there is risk involved it may be best to begin with a smaller investment and slowly build up your portfolio after you experience some success. If you’re a beginning investor, it is never a bad idea to reach out to an advisor to talk through the process and get advice on making smart and profitable investment choices.

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