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The numbers being thrown around regarding the CBD market are mind-boggling. They also vary depending on the report you read! One study by ArcView Market Research and BDS Analytics suggested that the CBD industry in the United States alone will exceed $20 billion by 2024.
Another study, this time by the Brightfield Group in 2019, suggested the market could top $25 billion by 2025. Regardless of the available data, it all points to one thing: The CBD market is growing and is here to stay.
The 2018 Farm Bill was also a massive boost for the industry. It removed hemp from the list of controlled substances in America. While it didn’t legalize CBD per se, the cannabinoid is permitted in most states. Also, the vast majority of industrial hemp is used for the CBD market!
So, how does one get involved in this apparent goldmine? You could create a business and aim to sell the best CBD oil. Brands such as PureKana and Premium Jane have taken up the challenge and are reaping the rewards. However, creating a CBD business is hard work and costs a fortune. Unfortunately, most people simply lack the capital to get started.
Another option is to consider investing in CBD. An enormous number of people took a chance with medical marijuana stocks a few years ago. As it transpired, the best time to get involved in cannabis stock was in 2017. It grew steadily for a few months, then exploded in 2018. Alas, it began to collapse in 2019, and most stocks are now worth one-third of their peak or less. Is this likely to happen when you invest in CBD? Let’s find out the pros and cons of doing so in this article.
Why Should I Consider Investing in CBD?
Here is why it could pay to invest in CBD:
- Increased Legality: While CBD is not ‘legal in all 50 states,’ it is tolerated and permitted in most of them. Legality is an issue that continues to plague cannabis companies in the U.S., which is why it is hard to commit to investing in them.
- Rapid Growth: Consumer behavior usually plays a role in determining when you should invest. The number of CBD sales in America, and globally, has increased exponentially in recent times. From around 108 million CBD product sales in 2014 to over 800 million in 2019, it is clear that cannabidiol is trendy.
- Demographics: One of the great things about CBD is the diversity of its customer base. It doesn’t matter about gender, ethnicity, or even age; CBD is becoming popular in most corners of the United States.
- Product Range: There are now dozens of CBD products. Admittedly, not every idea is a home run, but it is at least a sign of innovation.
- Lots of Research: At present, CBD is not approved by the FDA, barring a product called Epidiolex, which contains the cannabinoid. In the past, this hindered further study. These days, scientists are receiving free rein to research CBD, and they are making positive findings.
Why Should I Avoid Investing in CBD?
As marijuana stocks proved, there is a downside to investing in this type of product.
- Volatility: When you invest in CBD, you must understand that it is an extremely volatile market at present. This is likely reflected in the share price. Take Charlotte’s Web, for example. The well-known CBD company is publicly-traded but has seen a significant dip in the share price. Its 52-week range is $2.75 – $18.31. Are you prepared to see your stock take a crash of 80% in the hope it returns to a reasonable price?
- Excessively High P/E Ratio: A price to earnings ratio (P/E) is one of the most widely used means of determining if a company’s stock is overvalued or undervalued. While a high P/E ratio doesn’t necessarily mean a company is overvalued, it is a concern. It shows that investors are happy to pay a high share price due to growth expectations. While the CBD market is growing, only a handful of companies will rise. Charlotte’s Web and CV Sciences are two of the most prominent publicly-traded CBD companies. However, their P/E ratios are both well over 50, which is way too high. A figure of 15-20 is preferable.
- Too Many Companies: Only a fraction of CBD companies will float shares on the market, and many of them will do so in a hurry. If they don’t have decent financial fundamentals, they will crash and burn, taking an investor’s money with them.
Final Thoughts on Investing in CBD
Ultimately, you are taking a risk by investing in CBD at the time of writing. It is best if you wait a while to see what happens to the companies that currently offer shares. If they recover after a dip, it is potentially a sign that you can invest in CBD. However, you must be prepared to lose your entire investment. You can learn more about cannabis and CBD stocks and investments on WayofLeaf.
