The cannabis sector is certainly one segment where investors must consider a long-term buy & hold strategy in order to reap concrete benefits. As the regulatory landscape of the cannabis sector continues to evolve, it is relatively safe to focus on pot stocks with more exposure to medical marijuana and hemp markets, instead of recreational marijuana. We’ve identified 3 strong buy & hold hemp stocks for 2021 which you should consider adding to your watchlist.
While the Canadian cannabis market is much more advanced in terms of the legalization of cannabis, the US market is still fairly young and fragmented. Only a handful of states approve recreational (adult-use) cannabis, while 33 states have legalized medical marijuana. Hemp, on the other hand, is legal nationwide according to the Farm Bill in 2018.
There are 3 prominent hemp stocks in the medical cannabis and hemp sectors, including GW Pharmaceuticals, Charlotte Web Holdings, and Hemp Inc. Let’s take a closer look at each of their prospects as 3 strong buy and hold hemp stocks for 2021.
GW Pharmaceuticals: Epidiolex is the key to sustainable growth
GW Pharmaceuticals (NASDAQ: GWPH) is a strong buy & hold, pure-play hemp stock. The company derives major revenue from the Epidiolex drug. It is the sole cannabis-derived drug that the U.S. Food and Drug Administration (FDA) has approved for use in the country.
The drug has been found to be particularly useful in treating two rare forms of epilepsy: Lennox-Gastaut syndrome, and Dravet syndrome. In August, the U.S. FDA also approved its use in the cure of tuberous sclerosis complex.
Epidiolex was introduced in the market in 2018, and by 2019 it contributed nearly 95% of the marijuana stock’s revenue. In its second-quarter results released in August, the sale of Epidiolex surged 68% year-on-year (YoY) to $121.3 million. In 2019, the cannabis-based drug was also approved in Europe, paving the way for enhanced growth.
However, GW Pharmaceuticals is still far away from profitability. Moreover, the hemp stock is also set to face huge competitive pressure for Epidioiolex. Zogenix’s fenfluramine-based drug, Fintepla, has been found to be highly effective for the treatment of Dravet Syndrome. However, it is also far riskier than the cannabis-based drug. Meanwhile, Ovid Therapeutics in association with Japan’s Takeda has developed Soticlestat, which is proven to treat two rare epileptic conditions.
While the YoY growth for Epidiolex continues to impress, sequential growth was tepid. Unless its sales grow via international expansion or if GW Pharmaceuticals comes up with another blockbuster drug, the value of this hemp stock may stagnate. It remains to be seen what measures GW Pharma takes to boost the sales of Epidiolex or move closer to profitability. However, as one of the largest hemp stocks by market cap, we believe GWPH is one of the top 3 strong buy and hold hemp stocks for 2021.
Charlotte’s Web Holdings: Banking on a higher retail footprint for CBD sales
Charlotte’s Web Holdings (TSX: CWBHF) focuses on the CBD hemp market. It offers gummies, CBD oil, topicals, and other hemp-induced edibles. Besides being a focussed player in the hemp segment, the hemp producer also has a strong e-commerce presence. During the first quarter, roughly 66% of Charlotte Web’s revenue was attributable to e-commerce sales.
In terms of market performance, this year hasn’t been too encouraging for the stock. This hemp stock has declined by more than 50% year-to-date (YTD).
In its Q1 results released in May, the hemp stock saw a 0.9% slip in its revenue from the prior-year period. One big reason for this is the coronavirus crisis. Until the end of the first quarter, Charlotte Web had a retail presence across 11,000 locations.
In June, it even acquired Abacus Health for about CA$ 99 million, with an aim to expand its retail locations up to 21,000. However, we need to watch whether an increase in retail footprint will translate into higher revenue and profitability.
The hemp stock, however, had started climbing ahead of its second-quarter results on September 14. One major development in this period is the FDA sending its draft CBD enforcement policy to the White House for approval in late July. If there is a positive signal on this front, it could be a major boost for Charlotte Web’s sales.
The hemp stock’s acquisition of Abacus, if implemented well, has the potential to position it as a market leader in the CBD segment. Charlotte Web expects to clock in revenue in the range of $105 million to $115 million in 2021 and we believe this is one of the 3 strong buy & hold hemp stocks in the segment for 2021.
Hemp Inc: Set to benefit from growing industrial demand
Hemp Inc (OTCMKTS: HEMP). is one of the leading players in the industrial hemp industry. The Company has developed robust hemp farming and processing infrastructure spread across multiple states in the U.S. in the past decade. Owing to the increased demand for CBG, the company is ramping up its supply chain.
Even as recreational marijuana has taken a hit during COVID-19, the story for hemp is different. Hemp, due to its versatile nature, is not only in wide use in industrial and commercial segments, but it is also more resilient to overall demand fluctuations.
Even the CEO of Bruce Perlowin is optimistic about the growing industrial demand. He recently stated, “I believe it will be in high demand for years to come”. According to a recent report by MarketsandMarkets, the demand for hemp is anticipated to grow from $4.6 billion in 2019 to $26.6 billion by 2025.
In early August, Hemp Inc. announced that its high-quality hemp flower, Pre-98 OG Bubba Kush, has crossed $2 million in sales. This is a new milestone for the company and it expects to hit more such milestones in the coming quarters. According to Hemp Inc., focusing on a high CBD hemp growth in Southern Oregon has led to this development and increased sales in the past two quarters.
Recently, the DEA has also altered the definition of marijuana under the Controlled Substances Act. According to the revised Act, anything with less than 0.3% THC would be excluded from the exception list. To qualify under this Act, the derived hemp’s THC has less than 0.3%.
Thus, the swelling demand for both industrial hemp and cannabinoid hemp, it’s resilience in volatile times as well as relaxation on the regulatory norms are likely to strengthen the position of Hemp Inc. in the upcoming quarters. Because of this, we believe Hemp, Inc. to be one of the top 3 strong buy & hold hemp stocks for 2021.
3 Strong Buy & Hold Hemp Stocks for 2021
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