The Sizable CBD Problem That Most Investors Are Overlooking

You’d be hard-pressed right now to find a faster-growing industry than legal cannabis. Between 2018 and 2024, the newest report from Arcview Market Research and BDS Analytics, “State of the Legal Cannabis Markets,” predicts a near quadrupling in worldwide licensed-store sales to north of $40 billion. This better than 24% compound annual growth rate through 2024 is a big reason behind the rapid rise in marijuana stocks in recent years.

But there’s a niche within the marijuana movement that’s generating even more buzz, without actually generating a buzz. I’m talking about cannabidiol (CBD).

Cannabidiol has become Wall Street’s “next-big-thing” investment

Cannabidiol is the nonpsychoactive cannabinoid best known for its perceived medical benefits. I phrase it as “perceived,” because the U.S. Food and Drug Administration recognizes just a very small number of benefits for CBD, but otherwise views the cannabinoid as a large unknown that needs further testing.

But that’s not the case among the public. People throughout North America appear sold on the idea of CBD-based derivatives and the potential medical benefits they could bring, ranging from relief of pain to halting anxiety. According to the Brightfield Group, sales of CBD products in the U.S. alone are slated to grow from $591 million in 2018 to $22 billion by 2022. For those of you keeping score at home, this works out to an annualized growth rate of 147%, which blows broader cannabis sales growth out of the water.

This surge in sales is being made possible by the 2018 passage of the farm bill, which was signed into law by President Trump in December. This new law allows for the legal industrial production of hemp, which is rich in CBD, and a heck of a lot easier and less costly to grow than cannabis plants (which also contain some combination of CBD and tetrahydrocannabinol (THC), the cannabinoid that gets users high). This means hemp plants can become the source for CBD extraction in the U.S. in the months and years to come.

Make no mistake about it, quite a few large-scale Canadian companies have jumped at the idea of becoming major CBD players in the United States. Six of the 14 major Canadian cannabis growers have announced plans to enter the U.S. market, with another three growers expected to outline their plans, or make the jump, within the next year. The opportunity is simply too big to pass up, especially considering that CBD-infused derivatives (e.g., oils, edibles, infused beverages, topicals, and concentrates) have much higher price points and juicier margins than traditional dried cannabis.

But there’s one facet of this plan to enter the lucrative CBD market that investors seem to be overlooking: that the U.S. CBD and hemp market is considerably more diverse and crowded than the Canadian cannabis market…

 

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