New Age Beverages (NASDAQ:NBEV) stock is a rare company that “graduated” from an over-the-counter pink sheet listing, valued at 19 cents, to a listing on a stock exchange valued at more than $5 in less than three years. Since then, NBEV stock gained more than 2,000%.
The handful of analysts that follow this money-loser think NBEV’s thinly traded stock has got more room to run and have an average 52-week price target on the stock of $9.
NBEV stock appears to be benefitting from the growing demand for products made from a Polynesian fruit called Noni, which its fans claim can treat all types of ailments, thanks to its recent $85 million cash and stock acquisition of Morinda Holdings. Morinda’s is a multi-level marketer like Amway with a network of 3o0,000 “independent product consultants,” mostly in Asia.
CBD Has Got the Potential To Be Huge
However, what has gotten investors — especially retail ones — especially excited is the benefits that NBEV may reap from the sales of beverages infused with a non-psychoactive compound found in cannabis called cannabinoid oil (CBD).
The company has even announced plans for a line of CBD beverages named after the late Reggae legend Bob Marley. A couple of caveats need to be explained.
First, publicly traded “pot companies” including NBEV are staying out of the U.S. market until the legal status regarding cannabis and related products is crystal clear. Indeed, FDA Commissioner Scott Gottlieb killed the buzz of CBD fans when the Farm Bill was passed in December which legalized domestic hemp production. He noted that CBD to food products including beverages remains illegal. Though the FDA is developing regulations to address the issue, it’s unclear how long the process will take.
To be clear, the CBD beverage market may be huge. Market researcher Zenith Global, expects the U.S. market for Cannabis-infused beverages to hit $1.4 billion by 2024. Unfortunately for NBEV, some of the giants of the beverage business including Anheuser Busch-InBev (NYSE: BUD), PepsiCo. (NYSE: PEP) and Constellation Brands (NYSE: STZ) are also “buzzed” about the sector as well.
NBEV’s Recent Rocky History
NBEV also has experienced its share of setbacks and last year was especially difficult.
“2018 was an extremely challenging as we spent almost the entire year recovering from inventory shortfalls due to working capital constraints,” Chief Executive Brent Willis said in the company’s earnings press release, without specifying a cause. Those impacts completely distorted the underlying strength of the firm.”
According to Willis, NBEV didn’t lose a single “major” customer and recovered from its financial issues and replenished its inventory during the last six weeks of the year. He explained further that the company now has the resources and personnel across 60 countries “to capture the full potential of what we believe are unparalleled opportunities worldwide.”
Short Sellers Favorite
Skeptics, though, abound. The company also is a favorite of short-sellers who hold about 31% of the float. NBEV also is really volatile and will continue to be that way for the foreseeable future.
My bottom line on NBEV stock is simple: It’s a stock that most investors should avoid given its volatility and the fact that is a small fish competing against some of the biggest whales of the beverage industry.
As of Dec. 31, 2018, NBEV’s accumulated deficit was $22.6 million, making the road to profitability difficult at best.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.