Investors’ High Hopes for CBD Sector Growth

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Growth potential in CBD stocks is less speculation, and more a series of events that investors cannot ignore. Together, they signal the sudden unlocking of an enormous yet untouched industry with immeasurable demand. It is widely known that sales of illegal Cannabis products are historically voluminous, and a drop of this river has already been tasted by US States like Colorado, Washington, and Massachusetts where impressive legal Cannabis revenues and tax gains are now the norm.

These tax benefits were predicated on State laws responding to another vital investment signal; the numerous scientific and pharmaceutical studies that show the efficacy of medicinal cannabis products in temporarily relieving a wide variety of pains, tensions, aches, and muscle and joint issues. In the biggest market for Cannabis as well as Cannabis investment—the United States—these trends have produced the end of a multigenerational ban on hemp with the December 2018 Farm Bill. 

Accordingly, there’s now a straight line between quality-controlled Cannabis products, retail vendors and buyers, and the equity market for the first time in over 50 years. With all the pieces in place and under the eyes of food and drug regulators, banks have been witness to the cash flows of the young Cannabis business for a handful of years in places like Canada. The Bank of Montreal recently estimated that the industry’s size will grow to $194 billion by 2025, with a majority of hedge funds and other institutional investors saying that it will be the biggest earner—even above tech.

Where Are the Early Birds Investing?

Stock markets in major economies like Canada and the United States feature publicly-listed CBD company stocks. The growth experienced by top-performing companies in both markets has encouraged a deluge of new entrants, which have snowballed in size due to competition and demand. The Farm Bill allows only hemp-based products with less than 0.3% THC to be sold nationally. While both the American and Canadian markets list cross-border stocks, the full spectrum of CBD products aren’t available anywhere. They currently range from cannabis producers to manufacturers of THC-free hemp extracts and other CBD-based products.

Companies with approval to put products on shelves across the continent are those which pass stringent lab standards and sell low-or-no-THC products, for instance, OTC pain relief treatments based on CBD. Products like CBDMedic, owned by Abacus Health Products (CNSX: ABCS) are available as a blended hemp extract containing no THC and therefore instilling zero psychoactive effects. CBDMedic is instead an aptly-named CBD product for temporary pain relief, often used for muscles and joints, and is produced in a cGMP facility to ensure high-quality control standards. Accordingly, it’s compliant with relevant regulations and laws at the top level in both the US and Canada.

US stock exchanges have allowed American investors to participate in these companies’ growth, and the recent passage of the Farm Bill has spurred new cross border partnerships and investment opportunities. Canopy is investing big into US hemp growth, while another Canadian company available in US stock exchanges, Tilray (NASDAQ: TLRY), just inked a deal with Anheuser Busch InBev to create a line of Cannabis-infused drinks.

The CBD Buzz Reaches Institutional Heights

Investors should be wary of any stock or opportunity that is hailed as “too good to be true”, and Cannabis is no exception. The hype about it is based on facts that have been examined, however: regulators have finally laid down a template for the market to exist, and the market has proven it should exist. This is enough for the largest institutional investors such as pension funds along with sophisticated investors like hedge funds and VC firms to begin allocating funds towards the sector at a sustainable yet notable pace over the last several years.

Typical of investing firms that must safeguard yet grow the wealth of thousands of clients, the biggest money managers like BlackRock have only dipped their toes in thus far. Just two months after the Farm Bill was passed BlackRock disclosed an $11 million stake in Curaleaf Holdings, which also announced its deal to sell hemp-based products in CVS. Despite the small investment, it’s a bullish sign for the industry that a fund with over $6 trillion of assets under management would take interest.

Public pension funds are similarly drawn by the growth they see for investors, and it was recently discovered that 13 US state funds had already invested in a cannabis Real Estate Investment Trust (REIT) called Innovative Industrial Properties Inc. (NYSE: IIPR)—an owner and leaser of property to marijuana producers. It’s undeniably interesting that even in States where cannabis is more controlled, money follows growth towards places where cannabis is less controlled. The way that State legislators like Chris Cuomo lean is obvious, and it’s expected that States other than New York will soon follow suit.

For investors in this moment, the color of cautious optimism is green. Momentum is beginning to ramp up, as the market’s typically longer timelines make the faster onset of Cannabis feel very “overnight”. Diligent investors can look further into this new industry’s innards deeper than they ever could before, however, allaying the reservations about sustainable and savvy prospects.

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