The valuations of marijuana stocks are generally off the charts. Tilray (NASDAQ:TLRY) stock sports a market cap of $4.5 billion while Cronos Group (NASDAQ:CRON) is at $5.3 billion and Canopy Growth (NYSE:CGC) trades at a hefty $13.9 billion. These valuations are reminiscent of the wild dot-com days when companies with minimal revenues were speculatively bid up, based on their potential growth opportunities.
Yet there are still relatively cheap cannabis producers. Just look at New Age Beverages (NASDAQ:NBEV) stock. Consider that the market cap of NBEV stock is a mere $337 million. What’s more, NBEV is trading at a relatively reasonable 3.4 times its sales (by comparison, red-hot marijuana stocks can easily have multiples of over 50 times their sales). Since October, New Age Beverages stock actually has been in a downward trend, going from nearly $10 to $4.66.
Founded in 2010, NBEV began with a focus on healthy brands. According to NBEV’s website, “While our core function is to deliver healthy alternatives to the planet, we believe companies have a responsibility to positively impact society and function as global agents of change. Our goal is to inspire positive shifts in the lives of those we reach by providing best-in-class ‘Better for You’ products & valuable content that motivates people to take ownership of their health and radically pursue their life’s purpose.”
That’s a lofty mission. NBEV has drawn on science and innovation, including 11 patents, as it looks to accomplish those goals. For example, its flagship product is ENHANCED Recovery, which is a hydration beverage that uses micronutrient science.
NBEV has been transforming itself recently by investing aggressively in the development of CBD-infused drinks. These beverages feature cannabidiol, or CBD, from the cannabis plant, which is a component of marijuana that does not produce highs. There have been indications that CBD can alleviate a number of medical conditions, including pain.
Late last year, the company launched its first drink, called Marley (it’s a reference to the legendary singer, Bob Marley). As should be no surprise, the launch supercharged NBEV stock.
NBEV has also been aggressive when it comes to M&A. In December, the company acquired Morinda, which has a set of healthy beverages that are distributed across more than 60 countries. NBEV hopes that, by becoming a great platform for developing CBD drinks, Morinda will meaningfully boost NBEV stock.
NBEV also bought Brands Within Reach, which has licensing and distribution rights to brands like Nestea, Volvic and Illy Ready to Drink Coffee. That deal will provide NBEV with exposure to large retail customers like Walmart (NYSE:WMT) and Costco Wholesale (NASDAQ:COST).
According to the press release announcing the deal: “BWR and New Age together will have the most extensive one-stop-shop of healthy beverages available to any foodservice or retail customer in North America, with an extensive low-cost national distribution and logistics footprint.”
The Bottom Line on NBEV Stock
There are several analysts who are upbeat on the prospects of NBEV stock. Roth Capital has an $11 price target on New Age Beverages stock, while Compass Point has a $9 price target on the name.
But I think the Street’s enthusiasm about NBEV stock may be overdone. Most of NBEV’s revenue comes from healthy/performance beverages, which is generally a relatively small, crowded niche.
More importantly, the company’s CBD opportunity is still in the early stages, and the CBD market’s growth outlook is far from clear. Besides, large cannabis players like CGC, which is backed by Constellation Brands (NYSE:STZ), and Hexo (NYSEAMERICAN:HEXO), whose main partner is Molson Coors (NYSE:TAP), are also looking to enter the space. If anything, these companies seem much better positioned -than NBEV and are likely better investment opportunities than NBEV stock.
Tom Taulli is the author of the upcoming book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.