It’s amazing when you think about it … a few short years ago, “grow operations” meant hidden fields of cannabis to be burned by the DEA after they threw the book at the growers.
Today, “grow operations” is what savvy investors expect legitimate cannabis companies to do … growing their stock prices in the process, securing the investor’s retirement and yacht funds.
It’s all thanks in large part to three little letters—CBD, the cannabis product everyone is raving about.
Could CBD be the trend that makes investors rich in 2020? Or is the hype just that—hype? Is the window of opportunity still open … or has the CBD money train already left the station?
CBD By the Numbers
We’ll talk about what CBD is and why experts predict huge growth in its future … but in investing numbers often speak louder than words.
Here’s what we’re looking at:
- By the end of 2018, with 7% of Americans as reported CBD consumers, CBD had generated $358.4 million in sales, up nearly 350% from 2014 when the product became legal on the Federal level.
- By the end of 2019, sales are predicted to have more than doubled to over $813 million.
If you think that means it’s too late, think again …
- New studies show that the CBD market could surpass $20 billion in sales by 2024. This far surpasses initial estimates by Cowen & Co. (New York) that predicted $15 billion in sales by 2025.
- BDS Analytics predicts the compound annual growth rate between now and 2024 to be 49% per year (across all distribution channels).
- When you factor in CBD’s stoner cousin THC, the cannabis industry is now predicted to tip the scales at $45 billion in sales by 2024.
- Growth of CBD sales at dispensaries has handily outpaced growth of total sales at dispensaries.
- Far from being aging hippies or college students, the CBD-consuming demographic averages 40 years of age, college-educated, and more likely to be employed full-time … a pretty ideal market to be selling to.
Lots of X-factors make accurate predictions hard to come by. Much of the CBD sold in the US today passes through untracked channels of distribution.
Nevertheless, projections and returns on investment for the CBD market continue to grow. CBD feels less like a passing fad or a plateaued trend, and more like an emerging market primed to blaze up.
What is CBD … and why is it booming?
Exploding on the scene after a 2014 farm bill legalized it and a 2018 farm bill opened the floodgates to its production, CBD is still an oft-misunderstood product.
The initials stand for cannabidiol. It is one of over 100 compounds called cannabinoids found in different species of cannabis plant.
Yes, the cannabis genus includes marijuana. Weed. Reefer. Pot. Ganja. The drug that caused decades’ worth of moral panic from kitchen tables to the White House, as well as decades’ worth of wall-hung tapestries and jam bands.
CBD is not marijuana. The marijuana plant contains CBD, but so does a much more boring relative—hemp. The strong fiber found in industrial help has been used in factories for decades.
Marijuana remains illegal at the Federal level, though many states have legalized it and Federal prosecutions are rare.
Since that farm bill, however, CBD products are legal in 47 states that don’t specifically criminalize it, as long as it comes from industrial help and contains less than 0.3% THC, the ingredient of marijuana that gets you “high.”
Hemp contains very little THC compared to marijuana, but robust quantities of CBD.
So CBD doesn’t get you “high” like marijuana will. What it does do (at least according to hypotheses) is stimulate receptors that contribute to internal balance.
More testing is needed before we know for sure, but early experiments show promise for CBD in the treatment of:
- Anxiety and depression.
- Cancer.
- ALS.
- Multiple sclerosis.
- Several rare seizure disorders.
- Lupus.
- Parkinson’s Disease.
- Heart disease.
- … and many others.
The most popular means of consumption is “CBD oil,” available as a tincture or suspended in a binding oil that can be dripped under the tongue, mixed with a beverage, or vaporized and inhaled.
What Will Drive Those Big Gains?
Before legalization, CBD was mainly sold through the same channel of distribution as “medical” or “recreational” marijuana in decriminalized states—licensed dispensaries.
As the stigma against CBD wanes, however, other channels are expected to surpass dispensaries—especially considering many states don’t even have dispensaries per se.
CBD is now sold in:
- Grocery stores.
- Health foods stores.
- Drug stores.
- High-end boutiques.
- Pharmacies.
- Botanical shops.
- … and many more.
Further, CBD and cannabis in general are diversified verticals. The retail sale of CBD oils and tinctures for medicinal purposes is just the tip of a very large iceberg. Expect to see the following businesses emerge in the CBD boom:
- CBD-infused snacks and edibles
- CBD supplements and pills
- CBD quality-control and testing
- CBD restaurants
- CBD dealerships, distributors, and wholesalers
- CBD merchandising and rack-jobbing
- CBD cooperatives
- CBD human resources training
- CBD dispenser/grow operator security services
- CBD graphic design
- CBD marketing
- CBD topicals and cosmetics
- CBD accessories
- CBD home-grow kits
- CBD apps and platforms
- CBD product reviewer
- CBD social network
- CBD box services
- CBD reviews and blogs
- CBD consultants
- CBD technology specialists
- CBD delivery services
- CBD event planning
- CBD bed and breakfasts
Even with state-level decriminalization, “dispensaries” still have a whiff of the illicit act about them. Decades of D.A.R.E. training don’t just go away overnight.
As consumers start to see CBD products everywhere they go—the grocery store, the salon, the gym, the mall—the stigma will start to wane even more.
The noise around CBD will start to sink into ears that don’t want to hear it today. The number of US users could start to balloon past the 7% user base on the strength of the hype and the desire to run with the pack.
And if the ongoing medical trials of CBD reveal miraculous or even statistically-significant curative properties … well, an annual doubling could start to look conservative.
A Hit of Caution
With these kinds of projections, and with publicly traded CBD stock prices skyrocketing, it’s no surprise to see investors chomping at the bit for a piece of the action.
Of course, it’s never prudent to rush any investment decision, even one with this many positive indicators.
As you consider investing in CBD companies, be aware of the following risks …
Regulatory Uncertainty
Remember, this product was all-but-illegal a few years ago. The regulatory architecture around CBD is still under construction.
While the Federal government has loosened its grip on cannabis, it could easily re-assert itself with restrictions that impede the advancement of the entire vertical.
If that happens, explosive growth in the CBD sector will be a thing of the past. Unfortunately, unless it’s the President reading this, there is little any of us can do to prevent that.
CBD Oil or Snake Oil?
New markets are rich territory for crooks and opportunists. Some publicly-traded CBD companies may not even be real.
Other companies have no intentions of fraud, but they may be looking for a quick cash-in. Many are new to the market. Their business plans may change overnight. They may or may not know what they are doing. The business plan may or may not be sound. (CBD rockets to the moon? Maybe not yet.)
Many CBD companies do not file with the Securities Exchange Commission (SEC) before selling stock over-the-counter or accepting cash infusions from angel investors. This isn’t necessarily a red flag (SEC filing is expensive, after all) but it’s one less layer of control.
Only sophisticated investors should consider putting money in an unregistered CBD company … and even then, they had better do their homework. Thoroughly check the credentials, qualifications, and reputation of every company you invest money in, CBD or otherwise.
There are key players in the CBD space with sterling reputations and longevity in the industry. No investment is a “certainty,” but these companies have proven credible players:
- Charlotte’s Web: clear industry leader, profitable at $17.7 million in sales, profiled by Dr. Sanjay Gupta and the New York Times.
- CV Sciences: Q3 sales of $13.6 million, possible uplisting to NASDAQ.
- Elixinol Global: successful Australian IPO, $8.4 million in sales, 88% from CBD.
Safer bets mean “safer” returns, of course. With the industry predicted to explode over the next five years, however, even the “safe” returns look appealing.
It’s Not Too Late to Make a Fortune in CBD
The window of opportunity hasn’t shut—in fact, all signs suggest it has barely cracked. Money that enters the CBD space now has the potential to grow exponentially—the sooner, the better.
That said, with a regulatory landscape in flux and a mixed bag of players to trust, that money had better be smart money. Don’t follow the herd. Due diligence is key.
CBD is a call to opportunity for careful investors—either a chance to invest for the long term and a piece of that $20 billion, or a chance to make explosive plays on promising startups.
Ultimately, the CBD hype is a mass-consciousness echo of a small but dedicated core of cannabis experts. They patiently told us for years that we were arresting people for possession of a product that was good for them in countless respects.
Successful investments in CBD will chase that heartfelt enthusiasm, that commitment to craft and to helping people, not the quick buck.
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