New Age Beverages (NASDAQ:NBEV) was a reasonably docile stock for most of 2018. Then fall hit, and NBEV stock took off. Since then, it has been as volatile as they come, climbing above $6 on four occasions and falling below that level on three.
Several things have happened in recent weeks that have put New Age Beverages’ stock in orbit; it’s up 25% in the past three months, and a double-digit price no longer looks like such a faraway dream.
What’s stoking New Age Beverages’ stock? Here are three reasons I can think of for its momentum heading into February.
Tilray/AB InBev Partnership
However, the fact the partnership seems to be more about research than the actual production of cannabis drinks suggests investors might be putting the cart ahead of the horse.
“We intend to develop a deeper understanding of non-alcohol beverages containing THC and CBD that will guide future decisions about potential commercial opportunities,” said President of Labatt Breweries of Canada Kyle Norrington. “We look forward to learning more about these beverages and this category in the months ahead.”
For New Age, it doesn’t matter that the Tilray/AB InBev partnership appears to be a case of one of the biggest players in alcoholic beverages planting its flag in the cannabis-infused drink market, because there’s plenty of room for further entrants.
Molson Coors (NYSE:TAP), which has a partnership with Hexo (NYSEAMERICAN:HEXO) to produce cannabis-infused drinks for the Canadian market, estimates that this segment of the Canadian cannabis industry could be worth anywhere from CAD$1.5 billion to CAD$3 billion annually.
And that’s just in Canada.
One estimate suggests that the legal marijuana market could be worth $75 billion annually by 2030. Molson Coors estimates that cannabis-infused drinks will account for between 20-30% of the entire cannabis industry, suggesting the cannabis-infused drink market in the U.S. could be worth as much as $22.5 billion annually within the next 11 years.
That’s worth fighting for.
Marley+CBD Mellow Mood
For those of you who don’t know Bob Marley, he was and still is the king of reggae music. His name is known around the world. In June 2017, New Age Beverages acquired substantially all of the assets of the Marley Beverage Company for three million shares of NBEV stock and a potential earn-out based on future performance.
The key to the purchase was the Marley Mellow Mood relaxation tea brand, which it had been marketing and distributing since 2016. It’s added 25 mg of cannabidiol (no THC) to the drinks; on Jan. 18, New Age launched the Marley+CBD Mellow Mood brand to be sold in Colorado, Washington, Oregon and Michigan, where recreational use is legal.
However, with the passing of the Farm Bill, hemp is legal across the country, allowing New Age to roll it out nationally as the other 46 states join in.
While skeptics suggest that New Age is merely trying to capitalize on a hot market without much substance behind the products, CEO Brent Willis would disagree.
“We’ve been really methodical in our approach because we want to be an industry leader, and as an industry leader we think you have a certain responsibility to lead responsible communication, lead efficacious product standards [with] the right dosage, and be a leader in every respect,” Willis said about the launch.
While there are no guarantees in life, New Age appears to be on the verge of something big. If only it can execute.
NBEV Stock Could Be the Next Monster
It seems ludicrous to compare New Age to Monster Beverage (NASDAQ:MNST), a company with a $31 billion market cap and a stranglehold on the energy drink market.
However, if you go back and study Monster Beverage’s history, you’ll see it had a tipping point in its business that propelled it to greatness.
“If you know the history of Monster Beverage, you’re aware the $30 billion energy drink behemoth was once at a crossroads,” I wrote on Dec. 21. “Should it continue to explore energy drinks — before launching Monster in 2002, Hansen’s Natural’s, Monster’s corporate moniker at the time had tried and failed with two previous energy drink creations — or go with the decently profitable fruit juices it had produced since the 1930s?”
CEO Rodney Sacks went with the former. The rest is a business success story.
Can New Age be the next great business success story in the beverage industry? Sure it can, but a lot has got to go right, for that to happen.
NBEV stock is a great speculative play. Do NOT confuse speculation and investing. They’re two completely different things. Go in with realistic expectations, and five years from now you might be surprised what your speculation is worth.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.