3 Stocks Ready To Ride The CBD Wave

3 Stocks Ready To Ride The CBD Wave

The CBD market represents one of the most exciting growth opportunities and we have been closely monitoring this emerging sector.

Demand for CBD products continues to increase, and we think this a trend that will become even more pronounced in 2019. During the last two years, we have been very focused on the CBD market and considered it to be an emerging market. A lot has changed in the last two years and the CBD market is a multi-billion-dollar market with enormous growth potential.

Last week, the United States Food and Drug Administration (FDA) rescheduled GW Pharmaceuticals’ (GWPH) Epidiolex product to Schedule V. The CBD product treat patients that are suffering from severe seizures and the approval represents a major milestone for the cannabis industry.

CBD is derived from cannabis and is the second best known chemical compound in the plant (THC is the best-known compound). The cannabis plants offer amazing therapeutic benefits, and this has been one of the driving factors behind the demand for CBD products.

Although there are a number of companies claiming to be best and largest CBD company, investors need to be cautious and conduct thorough due diligence. We have been closely watching this sector and have highlighted three companies that are capitalizing on the burgeoning CBD industry.

Phivida Holdings: A CBD Execution Story

Phivida Holdings (VIDA.CN) (PHVAF) has been laser focused on the burgeoning CBD market and has been executing flawlessly on this.

Last month, Phivida announced a major milestone with the launch of its Oki brand which is a new line of functional beverages and supplements that are infused with Active Hemp Extract and will be available to consumers in up to 2,400 natural specialty store locations within the United States.

The initial bottling production run of Oki products was 100,000 units, with an additional 150,000 currently scheduled. Distribution is planned to a broad range of retailers through its exclusive national agreement with Natural Specialty Sales (NSS), which has a national network that includes major retail banners such as Whole Foods Market, Sprouts Farmers Market, and National Co-op Grocers.

In August, Phivida and WeedMD Inc. (WMD.V) (WDDMF) formed a joint venture called Cannabis Beverages Inc., which is focused on manufacturing, marketing and distributing cannabinoid-infused beverages for the medical and future adult-use cannabis markets.

Phivida is highly levered to two major growth opportunities in the cannabis sector, CBD and smokeless products. The company has been laser focused on growth and we are monitoring how the team continues to execute. The launch of the Oki brand and the joint venture with WeedMD are major growth drivers for Phivida and this is a company to monitor. 

LiveWell Canada: A High-Quality Cannabis Company

During the summer, LiveWell Canada (LVWL.V) commenced trading on the TSX Venture Exchange and we have been favorable on this cannabis opportunity. LiveWell is in the middle of a major expansion and has secured strategic partners in Canopy Growth (WEED.TO) (CGC) and Canopy Rivers.

For the past several years, LiveWell has been quietly building a platform to capitalize on the CBD opportunity which it has recently unveiled. The company is an early mover in this burgeoning market and this is just starting to pay off.

Last month, LiveWell signed its first CBD supply agreement in Brazil for at least 5,000 kilograms a year at US$7,000 per kilogram over the next 12 months (US$35m revenue).  This is the largest CBD supply agreement we’ve seen from any company to date and are favorable on this agreement which contains annual renewals for up to five years. The agreements represent 20% of the initial expected CBD supply to be extracted from the industrial hemp biomass secured by LiveWell. The company is in active discussions regarding the balance of its CBD supply for 2019 and we expect to hear more announcements soon.

LiveWell recently secured 1,000 acres of Canadian industrial hemp biomass for the purpose of extracting and producing cannabinoids (including CBD). Using current extraction technology licensed to LiveWell, the company anticipates extracting 25,000 kg of CBD isolate.  This was a strategic purchase and it is already paying dividends to the company. As part of the agreement, LiveWell has an option to buy an additional 1,000 acres of Canadian hemp biomass and we expect to see this option exercised.

At the estimated market value of this product, LiveWell trades at approximately 1x 2019 revenue. LiveWell is undervalued especially when compared to its peers and we think the market significantly underappreciates this opportunity. The company has massive growth potential, has secured one of the best strategic partners, and is focused on expanding into new markets. This is a company to watch!

Tree of Knowledge: Continues to Enter New Markets

One company we have been closely watching is Tree of Knowledge International Corp. (TOKI.CN) (TRKWF). During the last month, the company has been trending higher and we have been monitoring this. Tree of Knowledge is in the middle of a major growth cycle and has leverage to the CBD market in North and South America, Asia, and Europe. Tree of Knowledge benefits from having an early mover advantage and this is an important aspect of the story.

Although the CBD market in North America is in the early innings of a major growth cycle, the market is fragmented and EVR is focused on increasing market share. The company has partnered with several large distribution groups that have started to gain market share and drive revenues. Canada represents a major opportunity and offers EVR access to the world’s largest indoor grow, to a significant distribution network, and an R&D and teaching facility. We are going to monitor how this market develops over the next year and are favorable on EVR’s position in it.

South America represents a significant opportunity for EVR which has been gaining market share in Argentina and Brazil, two of the largest markets in South America. In these markets, CBD products are prescribed by doctors after being approved through the government. This is not an easy process but EVR has been successful in both countries. We are favorable on EVR’s position in these markets and will monitor how the company is able to increase its position going forward. In Brazil, EVR is one of 11 approved suppliers to the doctors and is the most well-known and requested CBD product line. In Argentina, EVR is one of only two approved supplies. In 2018, the company expects to generate approx. $1 million in revenue from these two markets and we expect 2019 should be even more significant.

Although Asia represents a significant opportunity for CBD companies, the market is still in its infancy. China represents a major opportunity for EVR and the company expects to generate $1.5 million in revenue in China this year. EVR has a strategic relationship with a major distributor and expects to start distributing 50,000 units a month by the end of the third quarter. We are favorable on the growth potential and will monitor how this region adds value going forward.

EVR has entered the European market through Ireland and the company plans to expand over the next year. EVR plans to increase market share in Europe through its operations in Ireland and we are monitoring this opportunity. In 2018, EVR expects to generate $1 million in revenue in Ireland and if the company can expand into new European markets, this part of the business can prove to be very significant.

Tree of Knowledge has been trending higher and we are monitoring the recent move higher. The company has significant growth potential due to the attractive leverage to burgeoning CBD markets and we are monitoring how the team continues to execute.

Published at Tue, 02 Oct 2018 11:38:46 +0000

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