green roads cbd stock

Green roads cbd stock

That pretty much describes the status of an entire industry–the makers of products containing cannabidiol, or CBD. The compound, added to everything from skin cream to ice cream, can be derived from hemp or marijuana and has been touted as a treatment for ailments ranging from anxiety to cancer. The catch: “It’s still in a legal gray area,” says Bethany Gomez, director of research for Brightfield Group, which studies the cannabis and CBD industries.

Marijuana is subject to a patchwork of state regulations. But the 2018 farm bill would remove hemp from the list of controlled substances, opening the floodgates for hemp-derived products. “Everyone and their mother is starting a CBD line right now,” says Gomez. “It’s absolutely a gold rush.”

With about 6 percent of the market, Davie, Florida-based Green Roads is the largest private company specializing in hemp-derived CBD, according to Brightfield. The company sells CBD-infused products such as tinctures and balms, online and in 6,000 stores and 2,000 doctors’ offices. Green Roads now has about 100 employees, and co-founder Arby Barroso estimates 2018 revenue at $45 million.

Barroso, 48, became interested in CBD after being introduced to it by a friend in Colorado. He had long taken painkillers for a crushing football injury he sustained when he was 23. When his real estate business collapsed during the financial crisis, he invested in a pain-management clinic. Barroso describes that decision as “the worst thing ever,” as he soon became addicted to opiates. Then his friend suggested he try CBD gummies, which helped him stay clean.

The CBD in Barroso’s gummies was derived from marijuana plants, so it contained another compound, THC, which is illegal in many states. ?Barosso needed something without THC–he’d been jailed for drug use, and testing positive for THC would violate his parole. In 2012, he approached a compounding pharmacist, Laura Fuentes, about making a hemp-derived CBD product that could alleviate his pain and help keep him off opiates. She came up with an oil. “I could have gotten cleaner quicker if I’d had CBD every day,” he says.

Fuentes and Barosso soon became business partners and the co-founders of Green Roads. Barroso went door-to-door to smoke shops, leaving bottles of CBD oil on consignment. “In the beginning, no one would give us the time of day,” Fuentes says. Then she started hearing that grandmothers were going into vape shops to find CBD. “I was like, we have to do something about this,” she says. “Grandmas are not comfortable in vape stores!”

The cost of doing CBD business

Unlike some producers of CBD, Fuentes and Barroso never intended to grow their own hemp, which was outlawed in Florida when they began anyway. At the time, Barroso says, it was almost impossible to buy an oil containing only minimal amounts of THC. It’s easier now, but supply can still be tricky: “We can’t always get 10 55-gallon drums of oil,” he says. Green Roads products use a blend of four to five different cannabinoids, using both oils and isolates (concentrated CBD extract in the form of a powder), designed by Fuentes.

There are other, unexpected, costs. Green Roads lost four banks when their risk-management teams decided that Green Roads wasn’t a business they wanted to be supporting. The company’s Instagram account has likewise been shut down four times, because of legal restrictions on marketing CBD products. Instead of paying standard credit card processing fees of less than 3 percent, Green Roads pays closer to 6 percent.

Fuentes says she has to deal with “tons” of shady people in the industry. She says vendors have offered to sell her extract that contains specified levels of CBD or other compounds. They send her samples, which she sends to her lab. The samples check out fine, so she orders a kilogram–but when she sends a bit of that order to the lab, “it’s not the same thing they sent me as a sample. And there is no recourse.” Green Roads spends $30,000 to $40,000 a month testing their raw materials for pesticides, solvents, and metals, and it requires certificates of origin from their suppliers as well.

Betting on the farm bill

Because CBD currently operates on the boundaries of legality, it’s tricky to figure out how big the industry is and how much bigger it could get. Brightfield pegs the market for hemp-derived CBD products at about $591 million in 2018, growing to $22 billion by 2022. Other analysts, while nowhere near as bullish, are still very positive on the sector. Hemp Business Journal says the market for hemp-derived CBD was about $190 million in 2017, and will grow to $646 million by 2022.

Experts expect the market for CBD to balloon if and when the farm bill passes, which could happen this month. That means the biggest challenge for Green Roads is yet to come. “I’m not worried about the companies that are in the market today, I’m worried about big companies,” Barroso says. “We can’t compete with those guys. I think about it every day.”

So for now, Green Roads, like other private businesses in this market, is girding for the day when it will have to compete–or collaborate–with the larger players they are sure will enter the fray. (Even Coca-Cola is rumored to be developing a CBD product.) Green Roads, for example, is involved in a pilot program with the University of Florida to bring hemp farming back to the state to bolster its profile, connections, and potentially, supply. Another CBD company, Dr. Kerklaan Therapeutics, joined together with three manufacturing facilities to create a larger entity that would interest investors; they raised $15 million.

“The day the farm bill passes, the day we’re allowed to spend $50,000 a day on marketing on Facebook, on Google Adwords, on Instagram–I don’t know if there’s enough product in the country” to fulfill demand, Barroso says. “We’re not at our full potential today, not even close.”

Green Roads is cashing in on the demand for products with cannabidiol while preparing for changes in the law that could soon transform the industry.

3 Safe Stocks to Play the CBD Craze

Global CBD sales could grow at a compound annual rate of 147% through 2022.

At the moment, there’s simply no industry hotter than marijuana. This year alone, global sales of legal cannabis are expected to rocket higher by 38% to $16.9 billion, with legalized countries seeing higher consumer demand, and a steady stream of new markets waving the green flag on weed.

But marijuana itself is a broad-based industry, and there are numerous subcategories and niches that could grow at an even faster pace than the overall industry over the next five to 10 years. One example is the cannabidiol (CBD) products industry.

Vials of cannabidiol oil. Image source: Getty Images.

The CBD craze takes shape

CBD is the nonpsychoactive cannabinoid (i.e., it won’t get you high) that’s best known for its perceived medical benefits. According to a research report from the Brightfield Group, global CBD sales are expected to soar from $591 million in 2018 to $22 billion by 2022. That’s a compound annual growth rate of 147%, which would run circles around the overall pot industry’s growth rate over the same period.

The allure of CBD products is the aforementioned potential for medical benefits. In terms of conclusive evidence, the only certainty we have right now is that GW Pharmaceuticals‘ (NASDAQ:GWPH) Epidiolex, an oral CBD formulation, works to treat two rare forms of childhood-onset epilepsy. GW Pharmaceuticals lead drug became the first cannabis-derived therapy approved by the Food and Drug Administration (FDA) in June 2018 after it demonstrated a statistically significant reduction in seizure frequency relative to placebo in multiple late-stage trials. In fact, GW Pharmaceuticals’ work on cannabinoids may incite change, at least in the way CBD is viewed, at the federal level.

The remaining medical claims on CBD are pure conjecture at this point. However, there has been university-level evidence via studies that CBD can be beneficial for glaucoma, pain management, anxiety, and a host of other ailments.

Since they do not get the user high, products containing CBD are also more likely to be tried by consumers. This is a good thing, because CBD extracts — and really all forms of alternative consumption options — bear a higher price point than traditional dried cannabis flower. In this instance, a higher price point does indeed translate into a juicier margin for CBD companies.

Hemp plants at a farm. Image source: Getty Images.

Three CBD stocks for investors to consider

So, what’s the smartest and safest way to play the CBD craze, you ask? Here are three companies — one director player, one ancillary player, and one at an arm’s distance — that could be worth a closer look.

Check out the latest earnings call transcripts for CVS and other companies we cover.

Charlotte’s Web Holdings

The most direct (but still reasonably safe) way to play the burgeoning CBD industry is by considering hemp-derived CBD producer and distributor Charlotte’s Web Holdings (OTC:CWBHF) .

I believe it’s important here to note the distinction between cannabis-extracted CBD and hemp-extracted CBD. With the passage of the Farm Bill in December, hemp and hemp-derived CBD products became legal throughout the United States, with the exception of adding any sort of CBD to food and beverages, which are still regulated by the FDA. Cannabis-derived CBD is still illegal at the federal level. What Charlotte’s Web has been and will continue to be focused on is hemp-derived CBD oils.

Before the Farm Bill’s passage, Charlotte’s Web had its hemp-based CBD products in more than 3,600 retailers in the United States. Following its passage, the company should have no trouble increasing its retail presence. Nor should it have any issue passing along higher price points to consumers or retailers given the buzz surrounding CBD products.

Despite being a direct player, Charlotte’s Web is considered safe in my view because it’s one of just a small handful of pot stocks that are profitable on an operating basis. This is a company that’s been profitable without the assistance of one-time benefits for more than a year, and appears to be on track for sales growth of more than 120% in 2019. It’s unquestionably the easiest way to give your portfolio CBD exposure.

Image source: Getty Images.

KushCo Holdings

Then again, a middle-of-the-road approach might be more appealing to some investors. If that’s the case, I’d steer you toward taking a closer look at KushCo Holdings (OTC:KSHB) .

KushCo is probably best known for providing packaging and branding solutions to more than 5,000 marijuana growers worldwide. Yes, this would include packaging dried cannabis flower, but it may also entail packaging and branding solutions for alternative consumption options, including those that contain high concentrations of CBD. Although KushCo isn’t the only company involved in the packaging space for the weed industry, it’s easily the most recognized, and it’s been ramping up agreements with major producers to supply packaging and branding solutions for years to come.

In addition, KushCo’s acquisition of Summit Innovations in 2018 moved the company into the production of hydrocarbon gases and solvents. The former are used for the production of cannabis oils, whereas the latter are necessary for the manufacture of cannabis concentrates. The real allure here would be the now-crucial role KushCo plays in supplying hydrocarbon gas for oil production. Cannabis oils are mostly rich in CBD, and in the early going, they’ve been incredibly popular with consumers throughout North America.

The icing on the cake here is that, as an ancillary player, KushCo is racking up quite a bit of revenue. According to Wall Street, this is a company angling for more than $200 million in sales by 2020. That’s pretty inexpensive when you consider that its current market cap is only $505 million.

Image source: CVS Health.

CVS Health

Lastly, should you want to dip your toes into the pond, but would prefer waiting for the temperature of the water to cool down a bit before diving in, you might consider America’s largest pharmacy chain, CVS Health (NYSE:CVS) , as a possible safe CBD stock to buy.

To be clear, we’re talking about a completely different spectrum of CBD play between Charlotte’s Web and CVS Health. Charlotte’s Web essentially relies on CBD for every cent of its sales, whereas CVS Health will only be generating a small fraction (far less than 1%) from CBD product sales. CVS Health recently announced that it would begin selling CBD products, including creams and other topicals, in approximately 800 locations in eight states. But keep in mind that CVS stores typically have thousands of front-end and over-the-counter products for sale, on top of pharmacy revenue.

Make no mistake about it, if you’re buying into CVS Health, you’re primarily buying into a long list of growth initiatives beyond just CBD products being in its stores. For example, you’re counting on an aging U.S. population (i.e., boomers) to need higher-margin prescription medicines in the years and decades to come. You’re also expecting significant cost synergies from the recently-closed acquisition of health insurer Aetna, as well as an organic growth acceleration courtesy of Aetna. But you’re also betting on improved foot traffic with CBD products in stores.

With CVS Health’s forward price-to-earnings ratio at a decade low, it looks to be a safe way to gain minimal exposure to the CBD movement.

Global CBD sales could grow at a compound annual rate of 147% through 2022.