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Investment Radar — Top CBD Stocks to Watch

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The CBD (cannabidiol) market has a lot of potential in Canada. Popular players dominate the cannabis space. However, the cannabis market has not reached its full potential in the U.S. The U.S. made hemp legal through The Farm Bill in 2018. The main difference between hemp and cannabis is the amount of THC (tetrahydrocannabinol), which controls the psychoactive effects. Since hemp contains more CBD and less THC, it became legal in the U.S.

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However, the FDA is not convinced about using CBD products as dietary supplements. Therefore, the CBD market and producers still face challenges to earn revenue from these products. Amid the FDA's easing regulations, the CBD market has enormous potential in the longer run.

With future growth in mind, here are the top CBD stocks for investors to watch in 2020. 

Canopy Growth dominates the CBD space

Canopy Growth, a Canadian cannabis company, is an established player in the CBD market. The company launched its first hemp-derived CBD brand, First & Free, in 31 U.S. states in 2019. Currently, the U.S. allows medical marijuana in 33 states and Washington, D.C., while recreational marijuana is allowed in 11 states and Washington, D.C.

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Canopy Growth also launched This Works, which is a line of clinically-proven CBD booster skin products, in the U.K., Germany, and some U.S. states. 

Canopy Growth has a partnership deal with lifestyle guru Martha Stewart to produce hemp-based CBD products. The partnership launched a line of CBD-based cosmetics, food, and animal care products in 2019.

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Even though Canopy Growth’s recent quarterly performance was not up to the mark, the company has a strong financial position with support from Constellation Brands. Canopy Growth has the necessary security to survive the COVID-19 crisis. In the fourth quarter of 2020, the company’s revenue decreased 15 percent YoY to $107.9 million, while the adjusted EBITDA losses were around $102 million. Despite booking losses, Constellation Brands still thinks that Canopy Growth could grow and become the top cannabis player.

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Charlotte’s Web has a bright future in the CBD market

Charlotte’s Web is one of the popular vertically integrated, hemp-derived CBD companies in the U.S. The company has a wide range of products. Currently the products are sold at close to 11,000 retail locations in the U.S. Last month, Charlotte’s Web completed its acquisition of Abacus Health Products. Notably, Abacus Health manufactures over-the-counter topical products by combining active pharmaceutical ingredients with hemp extract. According to Charlotte’s Web, the acquisition gives it access to a total of “21,000 unique retail doors.”

Even though Charlotte’s Web’s recent quarterly results were a little disappointing, the acquisition opens a lot of doors for the company in the U.S. CBD market. Charlotte’s Web’s revenue fell to $21.5 million in the first quarter of 2020 from $21.7 million in the first quarter of 2019. The operating expenses rose 76.5 percent to $23.3 million, which resulted in an EBITDA loss of $5.7 million.

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In the first-quarter results, the company said that unclear regulatory guidelines from the FDA impacted the sale of its ingestible CBD products.

However, management is confident about the acquisition deal and said, "The addition of Abacus Health cements a market-leading position in both topical and ingestible products in the CBD category, representing approximately 33 percent market share of the U.S. CBD food / drug / mass retail channel.” 

Cronos Group is a force in the CBD space

Cronos Group, a Canadian company, entered the U.S. CBD market by acquiring four subsidiaries of Redwood Holding Group in 2019. The acquisition gave Cronos Group access to Redwood’s hemp-derived and CBD-infused skin care products as well as other consumer products under the brand name Lord Jones. The Redwood acquisition increased Cronos Group’s revenue to 8.4 million Canadian dollars in the first quarter of 2020, which showed a YoY growth of 180 percent.

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In the first quarter, Cronos Group’s joint venture in Colombia, Natuera, developed a hemp-derived CBD distillate. Colombia’s Narcotics Control Board classified the product as a “non-controlled substance,” which allowed Cronos Group to export it to the U.S.  

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Among the cannabis stocks this year, Cronos Group is in a good place due to its asset-light approach and its focus on research and development to produce the most innovative products. The company has worked with its partner, Ginkgo Bioworks, to manufacture cannabinoids cheaply and efficiently. The company is using a unique process of biosynthesis. As stated in the first-quarter results, the company successfully fermented one cannabinoid through this process, which could create a boom in the CBD industry. Cronos Group may have an edge over its peers after the product is commercialized. 

Despite reporting operating losses of 5.1 million Canadian dollars, Cronos Group ended the first quarter with a strong balance sheet. The company had 1.3 billion Canadian dollars in cash and short-term investments. 

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What to expect from the CBD market

CBD oil is known to have many health benefits. One of CBD oil’s well-known benefits is its ability to treat epilepsy. Epidiolex, a CBD-based prescription drug, is the only drug approved by the FDA in the U.S. 

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Epidiolex is manufactured by GW Pharmaceuticals, which is a biotech-pharma company based in the U.K. Epidiolex helped the company earn $116.1 million in global sales in the first quarter. In the U.S. market, Epidiolex’s total sales were around $106.1 million, which shows the demand for CBD products.

CBD oil may also help individuals who want to quit smoking cigarettes by alleviating withdrawal symptoms. Among the various additional benefits, CBD oil is also known to help with anxiety, depression, stress, diabetes, chronic pain, and other health issues. 

Grand View Research estimates show that the global CBD market could grow at a CAGR of 22.2 percent from 2019 to 2025 and be worth $23.6 billion. CBD companies will continue to see tremendous growth if these estimates are correct.  

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