Since Congress passed the Farm Bill in late 2018, which legalized hemp production in the United States, the hemp industry has seen massive growth.
Previously, hemp production programs required individual approval by the United States Department of Agriculture. This recent legalization, combined with further education and reduced stigma concerning the use of CBD and other hemp products, has led to drastically increased production and sales of hemp.
For those looking to invest in the new and often misunderstood hemp industry, there are a few key areas to understand as well as some top companies to keep an eye on.
Perhaps one of the most important, and least understood, parts of the hemp industry is the meanings of the terms hemp, marijuana, CBD, and cannabis. Cannabis is a genus of plant. Marijuana is a term used to describe cannabis plants that contain THC, which is the main psychoactive component of marijuana (the part that gets you “high”). Hemp is a term used to describe a cannabis plant that has a negligible amount of THC. This means you cannot get “high” on hemp.
Both hemp and marijuana contain cannabidiol (CBD), but most CBD products extract CBD from hemp. CBD does not have a psychoactive effect, which means you cannot get “high” from CBD. The CBD oil market is expected to reach $22 billion by 2022, according to Motley Fool.
The hemp-based CBD market isn’t without risks. The biggest concern, as pointed out by Forbes author Alan Brochstein, is the still evolving laws concerning cannabis. Based on the last few years, it seems likely that widespread production of CBD-infused products will remain legal, but it is not guaranteed. Changing laws could limit how major companies produce and sell hemp products, which would likely negatively impact investors.
Though hemp stocks can be risky, that isn’t necessarily a reason to avoid them, but it is important to do sufficient research prior to making any investments. Those interested in investing should ensure the legitimacy of any hemp company by making sure it’s registered with the SEC. And as with any investment, review basic financial data in order to gain a better understanding of the company prior to purchasing stock in that company.
For investors not sure where to start, here are a few hemp-based public companies investors will be keeping an eye on.
Holding the largest percentage of its market, Charlotte’s Web Holdings is one of the biggest producers of hemp-based CBD products. Charlotte’s Web has an impressive history when compared to others in the industry. According to Motley Fool, it has maintained low operating costs with high sales since 2016 and continues to expand.
Another company deserving of attention is CV Sciences, which also sells hemp-based CBD products. CV sciences has had 14 consecutive quarters of revenue growth. Before the Farm Bill, CV Sciences was already doing well, with its products being sold in 2,238 stores. It now has products in over 4,000 stores. The second quarter of 2019 saw record revenue of $16.9 million, which is a 36% increase from the same quarter of 2018.
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. GW Pharmaceuticals has a history of impressive growth and is expected to continue to grow, thanks to recently published research that could widen the use of its drug.
In Canada, where recreational cannabis has been legal since 2018, Canopy Growth has established itself as a leader in medical marijuana with consistent growth since its founding in 2013. Globally, Canopy Growth has the biggest market share of the recreational marijuana market. Canopy Growth 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, Canopy Growth’s recent partnership with the alcoholic-beverage company Constellation Brands, is another reason to expect potential growth.
In 2018, Hemp Inc. experienced an outstanding 1,800 percent increase in sales compared to 2017. Hemp Inc. produces and processes all over the United States including facilities on both the east and west coast. Additionally, Hemp Inc. is the force behind Hemp University, an educational seminar for the hemp industry hosted in Ashland, Oregon. Because it’s establishing itself as a leader and innovator in the hemp industry, investors may want to take note.
Because of the nature of the hemp-based CBD market, cautious investing is the general recommendation. The hemp industry has a high potential for reward, but with high reward comes high risk. When investing in hemp stocks it’s important to mitigate your risk by creating a diversified portfolio that’s appropriate for your unique financial needs and current financial situation. 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.