With CBD making headlines everywhere, Piper Jaffray’s analysts added their voices to the chorus singing hosannas to the cannabis ingredient.
“It is a bit like gluten,” write the group in a note today. “Consumers are unsure what is,” but “they know they want it.”
Analyst Michael Lavery and his colleagues figure that the nonintoxicating CBD—short for cannabidiol—could find its way into products worth $3 billion to $6 billion next year, then grow to a market worth $8 billion to 15 billion in five years. The soothing stuff will appear in food, beverages, health products, and skin creams, notes Lavery.
That said, a lot of companies will be selling it, so it’s hard to find pure-play CBD stocks to recommend to investors—as Barron’s pointed out in an April article.
Read our recent feature: CBD Is the New Marijuana.
The Food and Drug Administration doesn’t want companies putting CBD into foods or beverages, not even pet foods. But recognizing the demand for the product, the agency has scheduled a public hearing on May 31 where stakeholders can discuss ways to allow CBD as an additive.
The Piper crew suggest that beverage companies like Coca-Cola (ticker: KO) or PepsiCo (PEP) needn’t wait for an FDA green light, if they arrange for local bottlers to sell CBD-infused drinks within state borders. The Canadian cannabis company HEXO (HEXO) already plans to sell such drinks in eight U.S. states.
Today, the U.S. CBD market remains small and fragmented, says Piper, with at least 1,000 brands on the market. The top four companies that sell CBD concentrates online and in health-food stores had a total of less than $160 million in 2018 revenue. They are Charlotte’s Web Holdings (CWEB.Canada), CV Sciences (CVSI), Elixinol Global (EXL.Australia), and Isodiol International (ISOL.Canada).
In the end, the Piper analysts recommend buying four stocks that they had already endorsed. Cannabis producers Canopy Growth (CGC) and Tilray (TLRY) are making a push in the U.S. CBD market, says Lavery.
Pharma analyst Danielle Brill recommends GW Pharmaceuticals (GWPH), which has the only FDA-approved drug derived from CBD, approved for treating some childhood epilepsies. Analyst Erinn Murphy notes that retailer Ulta Beauty (ULTA) offers a CBD skin care product in its stores and online.
“We see ways for companies to sell products within FDA rules, perhaps in unexpected ways,” says the Piper team.
Write to Bill Alpert at email@example.com