Walgreens’ Embrace of CBD Could Be Its Future Catalyst

It won't be an immediate mover for Walgreens Stock, but keep an eye out

Cannabis is still a moving target in the United States, meaning investors should take any quantitative outlook about it with a grain of salt. Even without knowing exactly what the future may hold for it though, Walgreens Boots Alliance (NASDAQ:WBA) expects its future will be big enough to make a point of wading into those waters now. It’s something that could move Walgreens stock at least a little.

On Wednesday, the company announced to consumers as well as owners of Walgreens stock that it would soon offer CBD (cannabidiol) products in states where it was decidedly legal to do so.

It’s not a game-changer for the company, but it’s certainly a solid first step into what could eventually be a multi-billion market.

Legalized Drugs and WBA Stock

Though now legal in some states for a myriad of reasons, at the federal level, all marijuana remains technically illegal. The DEA has chosen not to enforce those laws in states where legalization has been responsibly enacted however. This is a tacit acknowledgment that laws surround cannabis and its derivatives are complicated and incomplete.

To that end, the cannabis-based products Walgreens will soon be offering at 1,500 of its stores spanning nine states are a far cry from the recreational marijuana that’s put states like Colorado and Washington in the spotlight.

CBD, short for cannabidiol, is found in cannabis plants, but doesn’t cause the “high” that ultimately defined marijuana as a drug. Rather, CBD is a phytocannabinoid that delivers multiple therapeutic effects. It’s commonly sold as an oil, which can be used to make a variety of products including edibles and pills. Sometimes it’s used dermatologically.

Walgreens has not explicitly explained what sort of CBD-based products it intends to carry in the locales where it doesn’t expect to run into legal hurdles. The company only commented: “This product offering is in line with our efforts to provide a wider range of accessible health and wellbeing products and services to best meet the needs and preferences of our customers.”

Most likely though, the bulk of offerings will look and be packaged like typical drugstore fare.

Opportunity Abounds in CBD

The company’s initial move into the cannabidiol arena may be on a small scale, with room to grow. Walgreens stock holders may soon see an expansion of that line.

The numbers vary from one analytical firm to another. Cowen anticipates the CBD market in the U.S. alone could be worth $16 billion by 2025. Brightfield Group says $22 billion worth of revenue as soon as 2022 is possible.

The disparate numbers are largely a function of the newness of the discovery of CBD as a supermolecule that can do wonders for a body. They’re also a reflection of the fast-increasing understanding and acceptance of cannabidiol as something other of its once-maligned cousin marijuana.

Bolstering the growth outlook is the federal legalization of closely-related hemp late last year, which at least paves the way for the true legalization of CBD-based products.

The world has become well educated about CBD’s health benefits, and that not all cannabis is psychotropic.

Walgreens’ decision also follows that of CVS Health (NYSE:CVS), which announced just a day prior to Walgreens’ news that it was getting into the CBD business as well, in eight states. Many of CVS Health’s states overlap with Walgreens.

Rival Rite Aid (NYSE:RAD) has not yet introduced cannabidiol products at any of its locations, but may do so now that its top competitors have done so.

Bottom Line for Walgreens Stock

It’s not a reason in and of itself to buy Walgreens stock. Walgreens has done $135 billion worth of business over the past four quarters.

Even if the pharmacy chain captures more than its fair share of the growing CBD market, it’s a market that is and will likely remain highly fragmented. Many consumers still prefer to make their purchases from small specialty shops.

Still, major pharmacy chains like Rite Aid, CVS and Walgreens that can use cannabidiol as an opportunity to cross-sell other goods may find the new product lines create a respectable sales bump… a few quarters from now.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2019/04/walgreens-stock-cbd-cannabis/.

©2019 InvestorPlace Media, LLC