Though not a pure cannabis play, New Age Beverages (NASDAQ:NBEV) came to recent prominence thanks to its licensing partnership with Docklight Brands, along with the family of Bob Marley. This allowed New Age to market the cannabidiol-infused beverage Marley+CBD. In theory, this should have provided a distinguishing catalyst for NBEV stock. However, theory and reality don’t always align.
In the initial phase of the Canadian cannabis boom, the mere fact that a legal market opened was more than enough to skyrocket several publicly traded companies in the space. After all, we were talking about a previously illegal market from which government agencies could not extract tax revenue.
Then, in December 2018, both Democrats and Republicans came together to sign the Agriculture Improvement Act. Obviously, it was remarkable that the U.S. made its first significant step toward full legalization of marijuana. Further, we’ve never seen such political vitriol before. Thus, the fact that the two sides came together – for cannabis, no less – augured very well for NBEV stock.
As much as everyone loves Canadians, the harsh reality is that this market was destined to play second fiddle if the U.S. opened its doors to recreational botany. Stateside, New Age Beverages could market to a larger audience, one that has proven very receptive to cannabidiol (CBD)-based products.
Unfortunately, New Age met regulatory hurdles last year, forcing the delay of Marley+CBD. Though CBD – which is defined as a hemp derivative that contains no more than 0.3% tetrahydrocannabinol (THC) content – was legal under federal law, the Food and Drug Administration imposed restrictions on the compound being added to food and supplements.
That and the poor environment for cannabis hurt NBEV stock.
Jittery Patience May Lead to Big Gains for NBEV Stock
Like most other cannabis-related investments, New Age Beverages hit all the branches of the tree of volatility. Given the broader pressures associated with the coronavirus from China, NBEV stock is hardly what you’d call a confidence-inspiring name. Still, that doesn’t mean it doesn’t have upside potential. It’s just that you’ll have to be prepared for some white-knuckle-inducing sessions.
First, a major positive development is that the FDA is slowly starting to ease up on its historical anti-cannabis bias. For instance, the agency approved GW Pharmaceutical’s (NASDAQ:GWPH) Epidiolex, which is a cannabis-based drug that treats seizures in young children. Specifically for retail cannabis companies, the FDA’s website appears to give the okay for CBD-infused beverages, so long as they meet certain requirements and don’t make unsubstantiated health claims.
Second, experts forecast that the CBD beverage market in the U.S. will hit $1.4 billion. That’s a very healthy tally for New Age, considering that the company’s enterprise value is only $175 million. Furthermore, the company’s trailing 12-month revenue is a mere $208.5 million.
Of course, this isn’t to say that New Age will grab all the CBD market share. One of the main concerns that management had was that federal ambiguity regarding interstate commerce of CBD stymied publicly traded companies, allowing private-equity firms to jump ahead.
However, that early leap might not be as significant an advantage as previously feared. At the end of the day, cannabis is cannabis. In a fresh market, it’s difficult for any competitor to establish engagement and brand awareness with the consumer. It’s not as if Coca-Cola (NYSE:KO) is jumping into the fray with Coke CBD.
But Marley+CBD is different. Everybody knows who Bob Marley is, even folks who don’t smoke ganja.
Technicals Are Very Enticing
Another factor that makes NBEV stock compelling right now is its technical posture. Admittedly, shares have experienced some wild swings. But after all the craziness and the coronavirus scare, New Age is still up 12% for the year.
Of course, that could change in a hurry. We could have a crippling epidemic in North America. The mysterious illness that Pope Francis got could be the coronavirus (although hopefully it isn’t). Finally, NBEV could tumble just because.
Nevertheless, NBEV stock is currently trading above the $1.75 support line. I believe this is significant, in large part because cannabis is one of the few exciting business sectors that is not beholden to China. In fact, China views marijuana legalization as a threat to their way of life.
Though intriguing, NBEV is a very dynamic name in a currently shifting environment. I’m not opposed to a measured bet here, especially with the price having come down drastically from last year. Just be sure to keep the powder keg dry.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.