Stocks in the cannabis and hemp sectors continue to remain incredibly volatile as price movements are largely news-driven. However, several cannabis stocks have recently gained pace on optimism with a new presidential administration and the introduction of the SAFE Banking Act. As the cannabis industry is still in its early stages, investors and analysts are divided on how to value these high-growth but largely unprofitable companies. It can be difficult for investors to identify winners given most pot stocks are grappling with widening losses resulting in dilution of shareholder wealth. But these companies may also provide you an opportunity to grow your wealth over the long term. One such company is Charlotte, NC-based cbdMD but should you remain bullish on this hemp stock?
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The current scenario in the cannabis sector can be compared to the dot-com bubble. As the internet wave swept through Wall Street, the valuations of several tech companies soared before the bubble burst and eroded a massive amount of investor wealth. Currently, while the cannabis space is ripe for disruption, it is still a highly fragmented industry which suggests investors need to brace for a period of consolidation or even hostile acquisitions.
Here, we take a look at a little-known hemp stock- cbdMD Inc to see if it’s a prudent to remain bullish on this hemp stock for 2021 and beyond.
cbdMD: An overview
This hemp company was founded in 2015 and is headquartered in Charlotte, North Carolina. They produce and distributes CBD (cannabidiol) products and owns as well as operates consumer hemp-based brands including Paw CBD and cbdMD.
cbdMD brand products include CBD tinctures, topicals, gummies, bath bombs & salts, capsules, and sleep aids. It also offers veterinarian-formulated products under the Paw CBD brand. cbdMD distributes products through its e-commerce portal, third-party e-commerce platforms, wholesalers, and multiple brick and mortar retailers in the U.S.
Despite the ongoing pandemic cbdMD managed to increase sales in fiscal 2020 (ended in September). It continues to evaluate and assess its product offerings and focuses on innovative ways to provide CBD products that meet consumer demands. In the first quarter of fiscal 2021, the company launched CBD lidocaine products and it also plans to introduce a line of CBD-based skincare products in the near future.
In fiscal 2020, cbdMD experienced strong direct-to-consumer sales in the Paw CBD business segment. This no small feat as the new vertical was launched just 12 months back and is already one of the leading CBD pet brands in North America.
According to a recent report by Hemp Industry Daily, the hemp-derived CBD market for pets is forecast to grow between $40 million and $60 million in 2020. As this industry continues to expand, cbdMD aims to cross-sell products and ensure a high customer retention rate that will allow the company to launch a subscription and reward program in fiscal 2021.
Similar to other cannabis and hemp companies, cbdMD is also open to growth via accretive acquisitions and drive top-line higher over time.
Customer Acquisition Focus for cbdMD
cbdMD aims to build a strong brand as it operates in an emerging market. As it is part of a new market, the customer acquisition cost will not be too high, and its has invested heavily in brand promotion and online marketing. In fact, cbdMD spent $14.92 million in fiscal 2020 and $7.8 million in fiscal 2019 on brand development, marketing, and sponsorships.
In the first quarter of fiscal 2021, cbdMD’s net sales rose 22% year over year to $12.3 million, up from $10.1 million in the prior-year period. Its gross margin increased significantly to 72.2% from 63.5%. In fact, the company reported record e-commerce, direct-to-consumer net sales of $9.7 million, an increase of 41% year over year. Comparatively, Paw CBD sales were up 83% at $1.5 million, accounting for over 10% of total sales.
cbdMD also managed to lower operating expenses by 15% which meant its operating loss fell by 71% to $1.8 million in the December quarter.
Bottom Line: Should You Remain Bullish on cbdMD?
Analysts tracking cbdMD stock expect the company to increase sales by 25.9% to $52.75 million in fiscal 2021 and by 17.9% to $62.2 million in fiscal 2022. Its adjusted loss per share is also forecast to narrow from $0.13 in fiscal 2021 to $0.05 in fiscal 2022.
This suggests cbdMD is trading at a forward market cap to sales multiple of less than 4x given its market cap of $205 million which is very reasonable. Analysts expect the stock to reach $6.03 in the next 12-months which is 40% higher than its current trading price. Cannin believes investors would be wise to remain bullish on cbdMD.
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