New Age Beverages (NASDAQ:NBEV) has emerged as a backdoor cannabis play. The Denver-based purveyor of ready-to-drink healthy beverages has seen its stock price spike amid rumors that it would begin to make cannabis-infused drinks.
Now, after New Age hired a new CFO and with Canada on the verge of full marijuana legalization, many think the company provides a good investment opportunity. NBEV stock remains high-risk, but given New Age’s earnings forecasts and an improving legal environment, NBEV could become a profitable, speculative play.
CFO Pick Boosts NBEV Stock
NBEV stock spent most of the summer trading below $2 per share. Since its IPO in 2014, it had failed to sustain any rally. However, that changed amid rumors that the company would start making cannabis-infused drinks. The rumors took the NBEV stock price from $1.59 per share on Sep. 14 to $7.85 per share just six days later. NBEV stock, however, gave back some of its gains in subsequent days.
But the New Age Beverages stock price has again surged north of $7 per share. The rally came after NBEV announced that Gregory Gould would become its CFO. Gould’s background has sparked interest. He has previously been the CFO of companies in the biotech and life sciences sectors. It seems that New Age would be more likely to hire a CFO with such experience if it was preparing to develop CBD-infused products.
Gould has built his reputation on performing mergers and increasing sales. His experience with mergers could indicate that NBEV would like to sell itself. The new CFO’s experience would serve NBEV well if a company such as Coca-Cola (NYSE:KO) chose NBEV as the vehicle by which to enter the CBD-infused drinks market.
The Speculative Case for New Age Beverages Stock
However, as with most other cannabis stocks, NBEV stock presents both opportunities and dangers. Investors must first remember that marijuana’s Schedule I designation curtails all U.S.-based marijuana businesses. Many believe the Trump administration will push for full legalization of medical marijuana after the 2018 election. If medical marijuana is legalized, states would still be able to decide whether to make recreational marijuana legal or illegal. However, the future status of the CBD market will be unclear until these issues are decided.
Also, thanks to the recent spike in New Age Beverages stock, NBEV now trades at a high valuation, although its valuation is not yet as high as that of its Canadian peers. However, Canadian companies Canopy Growth (NYSE:CGC) and Tilray (NASDAQ:TLRY) will soon operate in a fully-legal environment . As such, they understand the rules by which they have to operate in their home country. I believe NBEV stock would rise if the company was able to work under well-defined rules. Still, for now we can only speculate about moves at the federal level.
Also, NBEV stock has reached a market cap of about $346 million. Analysts believe the company will report $54.6 million of revenue this year. So NBEV stock trades at about 6.3 times its annual revenue. By comparison, CGC stock trades for more than 46 times its revenues. This difference likely reflects the disparity between the political risk faced by the companies.
Moreover, if the more optimistic analysts prove correct, NBEV will become profitable next year. Also, while we do not yet have details, the political environment appears to be turning more pro-cannabis with each passing month. As a result, I believe Congress will make medical marijuana legal. as soon as 2019. For this reason, I would not object to investors buying New Age Beverages stock, at least with money they can afford to lose.
The Bottom Line on NBEV Stock
NBEV’s focus on CBD-infused drinks as well as the possibility that it will recruit valuable partners and benefit from a more favorable legal environment make New Age Beverages stock an intriguing speculative play. New Age Beverages should benefit from the background of its new CFO if it enters the cannabis-infused beverage market. Furthermore, some analysts believe the company will earn a profit next year, which would reduce the risks associated with this equity. Moreover, if the federal government loosens rules regarding cannabis, NBEV stock could easily spike.
The risks posed by NBEV remain high. However, given the possible rewards, buying shares of NBEV could bring investors the highs that come from picking a winning 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.