[Editor’s note: This story was previously published in March 2019. It has since been updated and republished.]
Traffic stats don’t lie: among investment categories, few have the draw of legal marijuana. And within this broad segment, companies specializing in cannabidiol, or CBD, have generated significant buzz. But what exactly is this three-letter acronym, and how can CBD stocks boost your returns?
Let’s start with basic definitions. Cannabidiol represents one of several cannabinoids, or chemical compounds found in the cannabis sativa plant. But unlike the most famous cannabinoid tetrahydrocannabinol (THC), CBD does not trigger any psychoactive effect. In other words, users can enjoy this compound’s benefits without getting high.
This opens up profound opportunities for marijuana stocks that have exposure to CBD. First, since this compound inherently lends itself to medicinal use, it tends to be treated favorably by legislation. Most states allow CBD use for therapeutic purposes. Given political and public sentiment, it’s not inconceivable that all states will eventually green-light cannabidiol.
Second, CBD has the potential to help solve a huge societal problem. Turn on the news, and you’ll eventually find stories about the raging opioid crisis. What is less reported is that pharmaceutical companies contributed to the problem with highly addictive painkillers. Since CBD is not physically addictive, it could be a viable replacement for many addictive opioids.
Finally, the U.S. may be the leader of the free world, but it stymies itself with antiquated laws. Our neighbors to the north became the first G7 nation to legalize recreational weed, while we still classify cannabis as a Schedule I narcotic. But growing legal momentum, especially with CBD-based medication, suggests we’re turning a corner.
In the meantime, here are four CBD stocks to consider adding to your portfolio:
It’s confession time: I’m very disappointed with how Tilray (NASDAQ:TLRY) and other CBD stocks have performed this year. For TLRY stock, shares are down over 38% since January’s opening price.
That said, I think we have some encouraging news. First, TLRY stock popped up over 7% on Friday’s session. More importantly, shares are finding strong support at the psychologically significant $40 level. Recall that in late May to early June, TLRY fell below that mark. Since then, however, shares have only briefly dropped below $40.
That to me communicates that TLRY stock is ready for a comeback. Fundamentally, I believe the shift in sentiment is well justified. Recently, the company shipped a bulk package of CBD into the U.K. Not only did this represent a significant departure from the North American cannabis market, British demand is incredibly strong. For instance, patients in the U.K. have requested CBD prescriptions from their doctors as an alternative to typical pharmaceutical products.
Plus, Tilray has a production facility in Portugal, where they have successfully distributed CBD to other European countries, including Croatia and Germany. That’s a big plus, not only for TLRY stock but for other CBD stocks as well.
Aurora Cannabis (ACB)
On paper, Aurora Cannabis (NYSE:ACB) is a winner. Year-to-date, stakeholders of ACB stock are sitting on a 29% profit. That’s not bad at all, considering that the benchmark S&P 500 index is up only 18%.
But like many other CBD stocks, Aurora Cannabis is only a winner of the first quarter. Since the end of March, ACB stock has shed an alarming 30%. Is there any hope for this once high-flying cannabis play?
One of the big reasons why many investors dumped ACB stock is the financials. Although Aurora Cannabis has many potential catalysts in the pipeline, this is part of the problem: stakeholders must hang their thesis on the term potential.
On the other hand, what’s real in the here and now is cash burn. Like other fancied CBD stocks that are now suffering volatility, Aurora is in a race against time. Management must convince prospective buyers that they have the financial stability necessary to wait until their catalysts start turning.
Admittedly, CBD stocks are a risky play. But similar to Tilray’s narrative, multiple international markets are coming around to medicinal marijuana. With Aurora’s dominating international presence, I believe you can trust ACB stock.
Most investors realize that marijuana stocks of all stripes are ridiculously volatile. But even with that understood caveat, Hexo (NYSE:HEXO) has truly taken shareholders on a wild ride.
Between the opening volley of this year to the end of April, the Hexo stock price skyrocketed nearly 131%. But from the first of May, shares have plummeted nearly 44%. Earnings season wasn’t too kind on marijuana stocks. Thus, questions about fiscal stability dogged the sector.
But despite the ugliness, I think Hexo stock has serious potential. And I’m not just saying that. Recently, I put skin in this game by buying up a stake. Like other shareholders, I’m feeling the pain from this wild investment. Still, my encouragement to you (and to myself) is to hold on.
For one thing, Hexo stock received a credibility boost when it moved over to the New York Stock Exchange. In every other sector, this is just a natural progression for a company on the rise. But for Hexo, it represents collective legitimacy that lifts other marijuana stocks.
Further, growing mainstream acceptance of CBD stocks is crucial for this market to eventually tap into traditional forms of financing. It also encourages other non-CBD related companies to partner with names like Hexo.
Charlotte’s Web (CWBHF)
Most CBD stocks hail from Canada, which is absolutely no surprise. Since our northern neighbors beat us to the legalization punch, they should get the glory. But a few companies call the U.S. home, and one of them is Charlotte’s Web (OTCMKTS:CWBHF). And while CHWBHF stock doesn’t have the same pedigree as the other marijuana stocks on this list, it still carries weight.
That’s because Charlotte’s Web scored a massive coup recently when it announced a deal with grocery market giant Kroger (NYSE:KR). Kroger has just started carrying Charlotte’s Web products. Moreover, they will expand their CBD offerings to 1,350 stores covering 22 states. Obviously, this is a massive victory for both CWBHF stock and CBD stocks overall.
I’m not just excited about the headlining print. If you look at the 22 states where Kroger will sell CBD, many of them are conservative. We’re talking places like Arizona, Kentucky, Montana and Texas. If these states can accept a marijuana derivative, it shouldn’t take much for the rest of the country to follow suit.
This is also the reason why CWBHF stock has taken a massive leap in the markets. Although I don’t like chasing shares near their all-time highs, I think Charlotte’s Web is a worthy candidate.
As of this writing, Josh Enomoto is long HEXO stock.