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When you see the popularity of products such as CBD capsules, it is all too easy to buy into the cannabidiol hype. Sales of CBD products continue to rise at an extraordinary pace. The market itself has gone from a small niche to an international sensation in a short period.
However, before you start investing in CBD, it is essential to do your homework. It would help if you also took note of what happened to cannabis stocks recently. Marijuana companies that went public experienced a massive increase in the share price. However, the bubble quickly burst and left countless investors severely out of pocket.
Therefore, we urge you to read this quick guide before you start plowing money into CBD investments.
1 – Its Legality Isn’t Set in Stone
The Marihuana Tax Act of 1937 prohibited cannabis throughout the United States. Practically every other nation in the world that hadn’t already made weed illegal soon followed suit. In 1970, cannabis ended up as a Schedule I substance as part of the Controlled Substances Act (CSA).
Unfortunately for hemp lovers, the plant ended up in the same category despite providing no intoxicating high. The 2018 Farm Bill removed hemp from the CSA’s banned list but didn’t actually legalize CBD. As a result, cannabidiol isn’t completely legal in all 50 states despite what you might read.
In general, CBD derived from hemp with a maximum of 0.3% THC is widely available in the U.S. You can also find it in many countries around the world. In the UK, the limit is 0.2% THC. However, until the FDA approves the cannabinoid, confusion will reign. This isn’t great news for CBD investments.
The FDA hasn’t helped by prohibiting the addition of CBD to any drinks, food, or dietary supplements. Therefore, investing in brands that sell CBD edibles or drinks is technically risky.
2 – It IS a Massive Opportunity with Enormous Margins to Play Around with
Legality questions aside, there is no question that the CBD market represents a huge chance to profit from the stock market. In 2019, the Brightfield Group released a report suggesting that the CBD market could be worth $22 billion by 2022. Bear in mind that it was worth less than $600 million in 2018!
This corresponds to a compound growth rate of almost 150%. All signs point toward the market at least coming close to this prediction. This is excellent news for those looking to invest in CBD.
At present, the price of cannabidiol is still relatively high. Highly-rated brands can charge top dollar and justify it with premium-grade hemp, safe cultivation and extraction techniques, and third-party testing. The buzz around CBD is such that consumers are happy to pay high prices for a trustworthy brand.
With little oversupply problems to contend with right now for most CBD companies, the large current margins should remain in the short to medium-term, at least. However, increased competition will ultimately drive prices down.
3 – There Aren’t Many Options, Yet
Only a small handful of prominent CBD companies have made the leap and gone public. Charlotte’s Web is one of the most famous, and you could buy stock in CW for slightly under $13 in November 2018. By May 2019, it was looking like a wise investment as the company’s share price exceeded $24.
Alas, that’s as good as it got for CW shareholders, and the share price nosedived almost immediately. Within a month, it crashed to below $13. It recovered to nearly $20 in November 2019 but then began a prolonged and frighteningly rapid downturn. By September 2020, it was worth slightly more than $3.
The sell-off began in around August 2019 when Canopy Growth, a giant of the cannabis industry, announced losses of almost 1.3 billion Canadian dollars. While CW had nothing to do with Canopy, it caused investors to question both hemp and marijuana. Q3 results from Charlotte’s Web revealed a loss, which only added to the general concern.
While CW isn’t necessarily representative of what CBD investments may look like overall, it serves as a warning. The industry is becoming ultra-competitive. While it is tempting to invest in companies that post record quarterly profits, you have to determine whether they will continue growing or plateau like Charlotte’s Web.
Final Thoughts on Investing in CBD
At present, it is hard for people to have a great deal of faith in CBD investments despite the rise of the industry. Charlotte’s Web was considered the darling of the industry at one point, yet its share price has tumbled in recent times. There are relatively few CBD companies that have floated shares on the stock market.
You are perhaps better off waiting to see if top CBD organizations such as Premium Jane will ever issue shares to the public. At that point, you can see how such brands perform before making a judgment.
