Three CBD Stocks to Dominate a Budding Industry

Key Points

• Charlotte's Web is the largest U.S. publicly traded pure play on CBD. 
• Cresco Labs is a diversified integrated cannabis company and a leading multistate operator. 
• Jazz Pharmaceuticals and its subsidiary have the only FDA-approved CBD drug on the market. 

The CBD industry has faced its share of hurdles but one thing is clear: It is here to stay and should grow at a high double-digit compound annual growth rate (CAGR) for the next six years or more. As of 2021, the CBD industry was valued at just over $12.8 billion and is expected to grow at a 20% CAGR through 2028. That’s a gain of 250% over the next six to seven years and the estimates could be low. Sales of CBD products accelerate as the industry deepens its penetration and consumer awareness grows. At the end of 2021, up to 30% of all Americans had tried CBD and the number continues to grow. As of November 2022, more than 60% of all Americans think CBD is safer than alcohol and 26% use it on a regular basis. 

The biggest hurdle to CBD industry growth? Federal regulation, despite legalization in the 2018 Farm Bill, but not in the way you may think. In many cases, its uses are medicinal in nature and that brings in the FDA. CBD products cannot be labeled to make consumers believe they have medicinal qualities, even though many consumers use them for that reason.

You may want to keep an eye on CBD stock like Charlotte's Web, Cresco Labs and Jazz Pharmaceuticals for their market-shattering capabilities. 

Charlotte’s Web: The Largest U.S. Pure Play 

Charlotte’s Web (OTCMKTS: CWBHF) is the largest CBD pure play in the U.S. and a publicly traded company. The No. 2 through No. 5 players are all privately held. Charlotte’s Web was founded in 2013 to help alleviate people's pain and suffering. Created specifically as a vehicle to help Charlotte Figi, who suffered from a rare form of epilepsy, its products are CBD-specific and wellness-oriented.

The company’s revenue should top $75 billion in 2022, which is down on a year-over-year (YOY) basis but growth should resume in 2023. Profitability remains the biggest hurdle for this business but that is due in large part to reinvestment in the business and the development of new products. 

Price action in Charlotte’s Web retreated to an all-time low below $1 in 2022 but analysts still rate the stock as a "buy." The four analysts with current ratings render the MarketBeat consensus as a "moderate buy" with a price target above $1. That implies a gain of nearly 85% and it could be just the beginning as the use of CBD and CBD regulatory approvals gain traction. 

Cresco Labs and CBD Exposure 

Cresco Labs (OTCMKTS: CRLBF) is not a pure play on CBD by a long shot but it is one of the leading U.S. multi-state cannabis operators. In terms of scale, the company has operations in 10 states, operates 50 dispensaries, grows cannabis in 28 cultivation/production facilities and serves over 1,000 wholesale clients.

The company’s revenue should top $900 million in fiscal 2023 and hit the $1 billion mark by 2025, so profitability is at hand. The added benefit to investors is the exposure to the medicinal and recreational THC markets, which should get a substantial boost from federal legalization at some point in the future.

Jazz Pharmaceuticals Has FDA Approval 

Jazz Pharmaceuticals (NASDAQ: JAZZ), through its subsidiary, GW Pharmaceuticals (NASDAQ: GWPH), has the only licensed CBD-based drug in the U.S. The drug, Epidiolex, was approved in 2018 for epilepsy treatment. Sales of Epidiolex topped $463 million in 2022 and were up 22% YOY in Q3 2022 and about 12% of total revenue. Because the company recently expanded the scope of its GW-based cannabis platform, the odds are high that the company will come up with another winner.