Investing in CBD – Is It Worth It

Investing In CBD - Is It Worth It

CBD is booming!

The industry is already worth approximately $1 billion, as Money reports, and this number is set to hit $16 billion within the next five years. Lots of people, including celebrities, are investing in CBD businesses.

Should you?

Before you jump on the bandwagon, there are some things to consider, such as pros, cons, and the different ways in which you can invest in CBD companies that your favorite celebrities (or neighbors) are supporting.

With that in mind, let’s take a look at everything you need to know about investing in CBD. First things first, what’s causing the CBD investment hype right now? 

The Farm Bill Plays A Big Role In CBD’s Popularity

The Farm Bill Plays A Big Role In CBD’s Popularity

Although the CBD hype has been building for a while, with lots of CBD products hitting the market, the changing laws has helped to give it momentum.

Back in 2018, the U.S. passed the Farm Bill, and that’s had a huge impact on making the CBD industry so appealing.

This bill legalized industrial hemp, which is basically cannabis with levels of THC (the psychoactive ingredient) less than 0.3 percent of the plant weight. This opened up many opportunities for people to use and invest in CBD.

What does this bill mean for CBD?

With CBD often being seen as nothing more than a compound that’s similar to cannabis, this has set it back in the past and has made it unable to flourish in the market.

Federal law never used to distinguish between hemp and cannabis plants, for instance, and they were all deemed illegal in 1937 under the Marihuana Tax Act.

They were formally made illegal in 1970  under the Controlled Substances Act, which banned cannabis of any kind, in any shape or form, as Brookings reports.

But now, the Farm Bill has helped to change CBD’s situation by giving hemp cultivation the green light and by allowing hemp-derived products to move across state lines, such as in the case of commercial purposes.

As Brookings reports, there are no restrictions when it comes to the possession, sale, or transport of products that are extracted from hemp.

That said, although hemp is now legal according to this bill, hemp will be highly regulated in the country.

In addition, this bill doesn’t mean that CBD is now legal, and this is what can be so confusing about it.

Here’s the lowdown that you need to know, especially if you’re interested in investing in CBD businesses: Although CBD is a non-intoxicating compound derived from the cannabis plant, any cannabinoid taken from the cannabis plant will be legal if it is produced from a hemp plant.

t also has to abide by the Farm Bill, federal regulations, and be grown by a licensed grower of the crop. 

Pros Of Investing In CBD

Pros Of Investing In CBD

Right, now that we’ve looked at the Farm Bill and how it affects CBD’s legal status, let’s move on to why investing in CBD is a good thing.

There are many advantages to getting in on the action. Here are some benefits to investing in CBD.

CBD Is A Safe Substance 

With more and more people hearing about and wanting to try CBD, what really helps companies to succeed is the fact that CBD is a safe substance.

Even the World Health Organization (WHO) declared that CBD is safe for humans to consume, stating in their 2017 report that it’s well-tolerated and that there’s no evidence of recreational use of CBD.

While some people might still believe that CBD is unsafe because of its connection to marijuana, these ideas are changing and organizations such as WHO are helping to bring that point home.

More People Are Using CBD

With news that CBD is safe, as well as talk about its benefits, more and more people are becoming interested in trying CBD.

There are loads of anecdotal stories about people who are using CBD and raving about its benefits. Even professional athletes and celebrities have been doing this, claiming that CBD helps them to stay at the top of their game. 

A few years ago, back in 2014, there were 108.1 million CBD sales. By the end of 2018, this number jumped to 358.4 million, as Kyro reports!

If you bear in mind that in 2014 very few U.S. states had already legalized CBD and yet such a profit was still made, then imagine what will happen as more states open up to CBD products.

The more people use the products, and the more they are researched, the more the laws will change to accommodate the industry. 

Cons Of Investing In CBD

Cons Of Investing In CBD

There are some good reasons to invest in CBD, as we’ve outlined above.

But, we can’t deny that there are still gray areas when it comes to this compound, with the industry subject to various changes at the drop of a hat.

This can be problematic for investors. Let’s take a look at some of the most concerning things to consider.

The Food And Drug Administration (FDA) Rejects Health Claims Of CBD

Recently, the FDA sent a letter to a company called Curaleaf and told them to stop making claims regarding the CBD benefits of their products, as these remain unproven.

In addition, the FDA had problems with the company’s branding because it was selling its products as drugs. Since then, the company has removed health claims from its website as well as social media accounts. 

The danger of such cases happening is that the FDA could become stricter when it comes to regulating CBD, which could cause big players in the industry, such as CV Sciences and Charlotte’s Web, to have to decrease their marketing efforts, which will obviously have the ripple effect of reducing their sales growth, as Seeking Alpha reports.

The Industry Is Very Competitive

Not just competitive, we can see that the CBD industry is set to become even more of a cutthroat one.

As Seeking Alpha has researched, over 150 brands of hemp-derived CBD products are being sold to the public through dispensaries all over the U.S. Now, imagine all the other products that are being sold through other outlets and online?

All of this competition could result in lower pricing power and cause many CBD companies to find that they are unable to stay afloat in the industry. 

It’s Easy To Fall Into A Trap

If you’re going to invest in CBD, it’s of the utmost importance to do your homework.

Some companies trade without even filing with the SEC, and this should warn you to avoid any stock that isn’t filed with this federal agency, as Forbes reports. What is the SEC, you ask?

The U.S. Securities and Exchange Commision aims to protect investors, maintain fair and efficient markets, as well as ensure capital formation, as the SEC website explains. 

The Industry Is Volatile

As the Forbes article goes on to say, it could potentially happen that the federal government changes its policies and this could inhibit companies to work as freely as they currently do.

The laws surrounding CBD are not set in stone, especially now when the industry is growing in popularity and CBD is sitting in the spotlight. 

Different Ways To Invest In CBD

Investing in CBD - Is It Worth It 1

Now that you know the pros and cons of investing in CBD, what are you going to do?

If you’ve decided that you want to go ahead and invest in CBD, you might wonder how, exactly, to do that. Well, there are two good options at your disposal. Let’s explore them in greater detail.

You Could Invest In CBD Extraction Service Providers

Making CBD oil can be expensive, and this is largely due to how costly it is to extract the CBD from the cannabis plant.

If you invest money into extraction services, this can prove beneficial because these companies can have volume and fee-based price commitments for many months at a time – sometimes up to 36 months, as The Motley Fool reports.

This means that they’ll have streams of income during that time. Many of these companies are already succeeding, making them stable ones to align with. Examples include MediPharm Labs and Neptune Wellness Solutions.

You Could Invest In A Company That’s Ruling The Market

With so many companies and startups failing, there’s always the fear that investing in a CBD company will make you lose money.

But that’s why it’s a good idea to invest in a company that’s ruling the CBD market. Let’s look at two of the industry’s biggest players.

Charlotte’s Web

CHARLOTTE’S WEB

Charlotte’s Web is known as one of cannabis’s biggest success stories. This company focuses its attention on providing a range of CBD products, such as gummies and oils, and lots more

To provide a bit of history of the company, Charlotte’s Web was established in 2013 under the name Stanley Brothers Social Enterprises LLC.

What’s been the hallmark of the company’s success – and sets it apart from competing companies – is its customer loyalty and brand recognition.

It’s become the number-one company in the hemp-derived CBD market and stats courtesy of Proactive Investors show that it’s expanded its business to over 3,000 retail locations, planted 300 acres of hemp in 2018, and harvested almost 700,000 pounds in the same year.

You might know of Charlotte’s Web from the Charlotte Figi story, about a young girl who was suffering from severe seizures.

The strain of marijuana that’s known as Charlotte’s Web was created just for her and has gone on to help many other people with chronic conditions. To learn more about Charlotte Figi’s amazing story, read, “CBD Legal Situation – The Final Answer.”

CV Sciences

Another successful company that’s selling CBD products is CV Sciences, and it’s been called a big player in the industry by Forbes. 

The company’s stock shares increased when it declared that it had joined forces with Kroger to sell CBD products in its stores, as Value Walk reports.

Now, there are 945 Kroger stores in 17 of the states in the U.S. that are selling CV Sciences products. Despite competition from Charlotte’s Web, CV Sciences has still been thriving. 

This California company has been working with hemp for almost 10 years, and it works with specialty pharmaceuticals as well as consumer products.

One of its most promising brands is PlusCBD oil, which is a CBD brand that’s derived from hemp and has products that appear in various sectors, such as those pertaining to beauty and specialty foods.

This oil is now available in over 30 states in the U.S. thanks to the company teaming up with retailers such as Vitamin Shoppe and Southeastern Grocers

As The Green Fund reports, this has ensured the company a revenue of $12.6 million for the third quarter of 2019. 

What Is The CBD Bubble? 

What Is The CBD Bubble?

CBD has been gaining lots of attention, from the media, public, and lawmakers alike, and it seems set to continue to grow as more people become informed about it.

However, there are concerns that this hype could be nothing more than a “stock market bubble.”

What does this mean?

A stock market bubble is an economic period that’s marked by quick escalation and then deflation after similar stocks are sent above their value in relation to their rational value, as Leaf Desk explains.

What this means is that investors will purchase the products at the high prices that they’re being sold for, only to find themselves facing a sell-off.

A sell-off is when assets are sold at a low price to get rid of them. Ultimately, the bubble deflates and the hype over the stocks comes to an abrupt end.

Interestingly, this stock market bubble has been seen in the past. An example can be found in the Netherlands, dating back to the 17th century.

This period was called “Tulip Mania” because the price of tulips increased a lot as these flowers grew in popularity, but then dramatically collapsed a few months later.

It was speculation that made the prices go up so much – and the rarest tulip bulbs were trading for as much as six times the average person’s annual salary, as Investopedia reports.

With CBD the situation might prove to be different because of the interest that’s been growing in the industry and seems to be getting stronger.

Celebrities are investing in CBD and big brands such as Coca Cola are also toying with the idea of jumping on the CBD bandwagon.

Last year, it was rumored that Coca-Cola was going to join forces with a Canadian cannabis provider to create a wellness beverage that contains cannabidiol, as Forbes reports.

Coca-Cola responded to the rumors by stating that the company was in serious talks about this, which is quite exciting for CBD lovers. 

However, as Leaf Desk reports, if regulators restrict the booming CBD industry, this could indeed cause the bubble to burst, so we will have to see what happens. It’s definitely going to be interesting. 

Related Questions

Investing in CBD - Is It Worth It 2

Are other cannabinoids legal?

No!

Besides for hemp-derived CBD, other cannabinoids are still considered to be Schedule 1 substances and illegal, as Brookings reports.

Schedule 1 substances are considered to be dangerous without offering any health benefits.

Has hemp been researched a lot? 

Due to how it was always categorized as being like marijuana, there hasn’t been much scientific research conducted on hemp, and The University of Mississippi is the only federally-authorized researcher of marijuana, as The Washington Post reports. 

Conclusion 

Although the CBD industry is undergoing changes and more are set to come, such as regarding its legal status, there are good reasons to invest in CBD stocks

In this article, we’ve looked at ways in which to do this as well as provided some company success stories to motivate you, such as that of Charlotte’s Web, a company that is committed to shaking up the industry by educating people on the health benefits of cannabis.

Investing in CBD is a tricky, sometimes overwhelming, prospect, but there are many benefits to doing it – as long as you’re aware of the risks and choose to align yourself with companies that do things by the book and respect the law.

Last updated on:

Leave a Comment

Your email address will not be published. Required fields are marked *