3 Best Buy and Hold Hemp Stocks for 2020
Ever since the legalization of recreational cannabis in Canada, hemp stocks have been struggling to generate revenue as per consensus estimates due to lower than expected demand and supply chain issues. Because of this, most hemp stocks remain incredibly volatile and painfully unprofitable. However, there are 3 hemp stocks we believe to be the best buy and holds for 2020.
As profitability has always been a matter of concern, it seems like cannabis producers were targeting to expand their topline growth and sacrificing profit margins. Since the beginning of 2020, several hemp companies are working up out full-fledged cost reduction plans to contain their losses. They are looking to reduce cash burn rates to offset a tepid demand and tide over the current environment which is volatile and uncertain.
While many hemp stocks can be expected to remain fairly stagnant in the short-term, let’s look at 3 buy and hold hemp stocks that are well poised to gain momentum when the markets rebound and build significant wealth for long-term hemp stock investors.
CV Sciences: Tweaking strategies to explore alternative paths
For an investor looking at long-term prospects in the cannabis sector, we have seen it is wise to focus on CBD players than those in the recreational cannabis space. One such leading player in the CBD segment is CV Sciences (OTCMKTS: CVSI). But why is this one of the best buy and hold hemp stocks for 2020?
The company has recently experienced a sharp plunge in its revenue; however, the company is still hopeful of gaining traction on the back of new launches and retail expansion. In its second-quarter results announced last month, the cannabis producer saw a 68% YoY drop in its revenue.
CV Sciences also posted a quarterly loss of $3.4 million, compared to a profit in the prior-year period. The company’s CFO, Joerg Grasser indicated that the ongoing pandemic, regulatory hurdles, and rising competition are the major reasons behind its dismal performance.
The stock has lost more than 40% of its value since the beginning of the year. While being a CBD focused company is relatively safer considering the regulatory landscape, there are also many unique challenges that come accompany companies in the hemp industry.
The players in the CBD space are witnessing intense competitive pressure. However, it is noteworthy that CV Sciences is trying to survive the ongoing volatility by tweaking its strategies. The company is shifting its focus away from core-cannabis products while CEO, Joseph Dowling, announced that the hemp company is launching CBD-free immunity-boosting products.
The first offering from this line is called ‘CV Acute’ which will be sold through various retail channels. Being CBD-free, this product can also leverage the power of e-commerce platforms such as Amazon for sales. Besides this, the hemp stock has also launched Happy Lane, a zero-THC product at a competitive price of less than $20/unit.
With $8.1 million in cash at the end of the second quarter, CV Sciences is confident in financing its development plans. Though the company is showing resilience, investors are yet to be convinced about its long-term prospects. The prospects for CV Sciences look bright, however, it will take some time for it to overcome its short-term challenges and reap the benefits of new product lines. Despite all of this, we still believe that this hemp stock is a strong buy and hold for 2020.
Canopy Growth: Inching closer to profitability
In the past few weeks, Canopy Growth (NYSE: CGC) has taken serious measures to expand its retail footprint and focus on rationalization of costs. The hemp stock has opened ten new retail outlets in Alberta under the names ‘Tokyo Smoke’ and ‘Tweed’. Canopy Growth has chosen Alberta as the province has friendlier policies for cannabis producers, with dense population centers. The company also indicated that it plans to open more retail outlets across the country in the upcoming months.
Canopy Growth is one of the leading CBD producers in the world and this market continues to show promise. Its Q1 results revealed that the 22% YoY growth was primarily due to medical cannabis sales in Germany and Canada. Its recreational segment saw an 11% YoY drop owing to stiff competition in the dried flower market.
However, the prospects for Canopy Growth look encouraging as it aims to reach the break-even point in the next few quarters. In Q2, Canopy’s losses narrowed as did its cash burn rate.
The cannabis and hemp company is looking to command a higher market share in Canada through vapes, edibles, beverages, and related products, and increasing its retail footprint is a step in that direction.
Moreover, Canopy Growth has been betting big time on Cannabis 2.0 and the company’s association with Constellation Brands further strengthens its position in the cannabis-infused beverages segment. As the largest cannabis company in the world by market cap, we still believe that this hemp stock is a great buy and hold for 2020.
NewAge: Poised to gain through acquisitions
This has been quite a volatile trading period for hemp stocks so far, and NewAge Inc (NYSE: NBEV)., previously known as New Age Beverages is not an exception. It has been a roller-coaster ride for the pot stock since January, but overall, it has gained nearly 12% year-to-date.
The company’s Q2 revenue jumped 13% in the United States, while its gross margin slipped to 60.8%. NewAge also posted a net loss of $0.10 per share. The result was mixed and didn’t come in as per analyst expectations, and the company cited the COVID-19 crisis as the main reason for the miss.
Last month, NewAge announced its completion of a merger with a couple of e-commerce and direct selling channels including Ariix. Analysts believe that once the merger is finalized in the third quarter, the combined company is likely to earn an annual revenue exceeding $500 million.
The CFO of New Age, Greg Gould, stated, “…With the imminent disposition of many of the low margin retail brands and the expected cost savings accruing from the merger of more than $20 million, we expect the combined entity to generate significant positive EBITDA going forward.”
NewAge has successfully taken the “inorganic” path to growth. Its acquisition of Morinda and Brands Within Reach proves this. NewAge has also launched its Noni+CBD product in Japan during the second quarter.
While NewAge is yet to launch its CBD beverages in the US and is awaiting regulatory approvals on this front, its CBD topicals are already popular in Hong Kong and China.
New Age is an attractive investment option for those looking for a diversified portfolio, and not a pure-play hemp stock. The company is likely to benefit immensely from its impending acquisitions.
NewAge is also looking at turning the COVID-19 situation into an opportunity and launched immunity-boosting patented beverages.
In a nutshell, this hemp stock (as well as Canopy Growth and CV Sciences) are up for a positive 2020 and beyond. Add these 3 hemp stocks to your watchlist for 2020.
3 Best Buy and Hold Hemp Stocks for 2020
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