CBD or cannabidiol is a cannabis plant component that can be derived both naturally and synthetically and which has a wide range of medical benefits. Besides, it is non-psychoactive substance unlike the THC, which makes it an ideal option for many patients all over the world who suffer from serious diseases.
This compound has become extremely popular since the documentary Weed was filmed by Sanjay Gupta, the Medical Correspondent at CNN, and GW Pharma Company created the first remedy called Epidiolex – a CBD-enriched oral solution. Nowadays, the extracting of cannabidiol is not limited as it was just several years ago, because numerous states allow its production for medical purposes. However, it can be sold only in the state where it was produced. Despite the fact that industrial hemp doesn’t fall under this limitation, its legalization is not yet clear.
Today CBD stocks are extremely popular amidst investors, thus many people start musing about investing in this potentially rich sector. But should you invest in CBD oil stocks? Or there are some pitfalls that can bring you down? Let’s figure this out.
The current situation on the market
As stated by Hemp Business Journal, the market of cannabidiol or CBD produced from industrial hemp will increase from $50 million as of 2014 to $736 million in 2020. With this promising growth, some big companies have already invested in stocks of businesses that deal with industrial hemp. For instance, Alliance One – a leading company in the tobacco sector, has already invested about $10 million into Criticality. This way it has become an owner of 40% stake of this licensed industrial hemp company from North Carolina. Because of the recent interest in CBD products, more and more companies as well as private investors think about investing in this industry.
Today you can find numerous CBD-oriented businesses that offer public trading, thus anyone can bet on them. However, you should not spend your money once you find a company that specializes in industrial hemp, because there might be some pitfalls on your way that will lead to negative impacts. So, what you should look at when choosing a company to invest your money in? Here are the four essential questions you have to ask each time you find a company that looks promising:
- Do they file with the Securities and Exchange Commission (SEC)?
The first thing that can filter companies that are not credible for investing your money is a fact that they do not file with SEC. In most cases, such businesses lack the main thing – transparency, which is a crucial factor when dealing with publicly-traded stocks. What is more, neglecting this aspect can result in, for example, dumping a stock without notification or filing electronic disclosures.
- Do they have any revenue?
Another yet important factor to consider is the actual revenue of the company. Does the company have some financial transactions? It’s very strange if the business, especially that is cannabis-related, does not have current transactions, so be careful because this investment may be very risky. It is very simple to tell that you are in a business now, but you can’t pretend you sell products if you don’t have actual transactions.
- Are the production methods and sources of CBD explained clearly?
The question #3 is that you should always find out the company’s production methods and sources of the CBD. In most cases, you can find this information on the company’s website or public disclosure documents. Avoid choosing companies that do not give this information, as this is very suspicious.
- Do they have an independent assessment of the product they offer?
The last, but not least is searching for feedback and independent reviews and assessments. First, look at some authoritative sources like, for example, Hemp Business Journal to find information about the company you are interested in. Of course, you may not find it and in this case, you can ask people who are engaged in this industry about this particular brand. If they know nothing, then it’s a red signal, as this may happen because of the poor quality of the products offered and you should not deal with such businesses.
Companies you should avoid dealing with
Keeping in mind the four factors described above, we have listed some companies that don’t meet these criteria. Among them are:
Medical Marijuana Inc
This famous publicly-traded company that was created in 2009 and has as for now a market cap of about $325 million. It declared that in 2013 it would file with SEC and would have a clear financial audit, but up to date none of these promises were made. Moreover, in recent years company had large financial losses and looks very weak and overvalued now.
This is another company, which specialized in CBD sales and has some issues as well. First, as of the end of 2017, it declared a very high level of income and sales, but it’s not clear whether all of them are connected with CBD trading. Another problem is that this company doesn’t reveal its management and the sources of CBD.
This is the most controversial company in our list. It says almost nothing about the products it offers and the people who run it. You will not find any recent lab reports or info about CBD percentage in the packages as well. But the weirdest thing that will stop you from investing in it is the statement on their website, where they say that their USA made products are legal in all 50 states, which is not true.
Companies worth investing in
The following companies look promising:
The company develops synthetic CBD and health products that can be already found in the stores.Last year it had 90% growth with positive cash flow and decent balance sheet. Their market cap of about $35 million looks undervalued.
This company uses its own ingredients to develop new consumer CBD products, which then it distributes itself and wholesales to other companies. They raised capital through the equity sales, report significant growth every year and look very promising.