The legalization of hemp via the 2018 Farm Bill opened up exciting new markets for cannabis companies. While marijuana remains an illegal at the federal level as a Schedule 1 Controlled Substance, cannabidiol extracts, or CBD, is completely legal in the U.S. with certain FDA restrictions. CBD is popular in health and wellness and pain management products due to the absent of THC is the products while still maintaining the benefits of cananbis.
BDS Analytics has forecast the potential for the CBD market to reach $20 billion annually by 2024. The Brightfield Group sees the near-term market size based on FDA approvals and consumer adoption providing in wide outcomes. The research firm sees the potential for the U.S. CBD market to reach $21.9 billion by 2022, but the lack of FDA approval for dietary supplements and food products could reduce the market size to only $4.4 billion in four years. Either way, CBD sales are forecasted to surge from a very small $0.6 billion market size last year.
A big growth area for CBD is within the sports market where athletes deal with constant pain management. In addition, some believe cannabis aides in the recovery process or improves concentration of athletes providing multiple benefits to athletes. The American Journal on Addictions says cannabis is now the second most widely used drug among athletes after alcohol while pain medication abuse is a major problem in the sports community.
Any company that can build brand awareness via either athlete use or actual medical data while using major athletes as brand ambassadors could open up a large market opportunity for actual sports performance and not just recreational use.
We’ve delved into three companies poised to profit from the demand for CBD products for athletes:
Canopy Growth (CGC)
The major Canadian players haven’t been able to invest in the U.S. marijuana markets due to the products being illegal on a federal level and companies like Canopy Growth and Aurora Cannabis are listed on major U.S. stock exchanges. These stock exchanges prohibit companies from listing with businesses illegal on a federal level. For this reason, the legal CBD market offers the best entry point into the U.S. market to develop name recognition for eventual approval of marijuana.
For its part, Canopy Growth made a recent acquisition of BioSteel Sports Nutrition. The company already provides sports nutrition products to 70% of the major professional teams in North America and has over 10,000 points of distribution in Canada and the U.S.
Via working with the expertise of Canopy Growth, BioSteel now plans to offer future products with CBD. BioSteel already has Ezekiel Elliott, of the Dallas Cowboys, lined up as a brand ambassador of CBD products once the NFL approves the use of the substance. The company works with several other high profile athletes that would likely easily transition to supporting their CBD products.
Canopy Growth will own 72% of BioSteel with a stated path to 100% ownership. The company didn’t provide financials, but the deal isn’t likely very material considering Canopy Growth is worth $8 billion. Regardless, the deal could provide a strong entry path into the U.S. CBD market and eventually turn into a very powerful brand in the CBD sports sector.
Overall, Wall Street sizes up CGC as a ‘Moderate Buy’ stock, as the bulls edge out the cautious on the cannabis giant. In the last 3 months, CGC has received 10 bullish ratings versus 6 analysts hedging their bets. With shares down about 60% from late April highs, the consensus price target of $36.40 hints there could be upside for investors, with the stock fetching $22.67. (See Canopy stock analysis on TipRanks)
Aurora Cannabis (ACB)
Similar to Canopy Growth, Aurora Cannabis lacks a business in the U.S. The company is looking to make a similar move into the U.S. CBD market and a recent partnership with the UFC sets the company up for brand awareness in the sports world.
Back in July, the UFC and Aurora Cannabis announced the two companies will work together to advance clinical research on the relationship between hemp-based CBD products and athlete wellness and recovery. The research will take place at the UFC’s Performance Institute in Las Vegas with fighters that choose to participate in the research program.
UFC programming is broadcast in 165 countries to more than 1.1 billion TV households worldwide in over 40 different languages. Any CBD product that can be shown to help with UFC fighters recover from a brutal sport and manage pain could quickly obtain a global consumer market.
Aurora Cannabis has a market cap of nearly $5.0 billion so again the issue is whether the entry into the CBD sports market has a material financial impact to the company. The association with the UFC will provide a prime global marketing and brand awareness opportunity, but the stock is likely to move more related to recreational cannabis sales in Canada and medical cannabis growth in key European markets.
TipRanks suggests caution has a slight grip on Wall Street analysts surveying the cannabis empire. Out of 11 analysts polled in the last 3 months, 3 bulls are betting on ACB stock, 6 are hedging their bet, and 2 bears are saying now is the time to sell. Yet, the 12-month average price target stands at $7.02, marking nearly 65% in upside potential from where the stock is currently trading. (See Aurora stock analysis on TipRanks)
Abacus Health Products (ABAHF)
One of the smallest players in the CBD space is Abacus Health Products. The stock has a listed market value of only $105 million and quarterly revenues of $3.2 million.
The CBD company recently entered into a partnership with former NFL player Rob Gronkowski to increase brand awareness of CBDMEDIC. Gronk is well known as a top athlete with numerous health issues from playing football. If anybody could make a brand awareness ambassador, Gronk would be at the top of the list.
Abacus Health already claims orders from 3,000 retail locations across 24 states. The promotion by a well-known NFL star with known pain issues could be an effective way to target potential CBD users in a crowded market. His endorsement will come across to the market as the voice of a legitimate consumer expert in the field.
The company is a high risk in a crowded market. Analysts have revenues surging to over $70 million in 2020. Assuming Abacus Health reaches this target, the stock has plenty of upside from current levels and provides the stock with the most upside directly from CBD.