The cannabis industry might have gone through some trouble in recent times, but the same can't be said for the CBD space. That's why it may be worthwhile for investors to have a look at some CBD penny stocks. The CBD market has grown at a remarkable pace in recent times, and it is expected to hold the momentum in the coming year.
According to estimates from leading consultancy firm Ernst & Young, the CBD industry in Canada could be worth $11 billion by 2025. In such a situation, many companies in the sector that are classified as penny stocks could go on to become major players in a fast-growing industry.
The change in the regulatory framework in 2019 (cannabis 2.0) was a massive boost to the industry. Companies involved in the CBD space are now able to manufacture and sell cannabis derivatives like edibles and beverages, among others. This may be the stimulus needed to get bigger investments in the CBD sector from established players.
Here are 3 CBD penny stocks that may be worth checking out:
3 CBD Penny Stocks on the Radar: Charlotte’s Web Holdings (TSX:CWEB) (OTCQX:CWBHF)
Charlotte’s Web Holdings is the biggest CBD company in the United States, and although it has grown at a remarkable pace, there are some challenges that the company needs to tackle. Although CBD products are approved by the United States Food and Drugs Administration, the agency recently warned about the dangers of those products. While that could be considered a problem for companies like Charlotte's Web, there are other factors that make CWEB a promising stock.
First, the company’s products are available at as many as 11,000 retail outlets across the United States. The acquisition of Abacus Health Products last week will help to expand Charlotte's Web's footprint even further.
Charlotte's Web is in the process of expanding its production capacity by building a facility spanning 137,000 square feet in Colorado. This facility will increase output capacity 10 times. The company expects to have the facility ready by the end of 2020.
The company is not yet profitable, but it has a price to sales ratio of 4.77 at this point, which certainly isn't something to turn your nose up at. Its continued retail and capacity expansion also makes Charlotte's Web a company that has the potential to dominate the CBD industry.
3 CBD Penny Stocks on the Radar: HEXO Corp (TSX:HEXO) (NYSE:HEXO)
HEXO has been in quite a bit of trouble over the past weeks, and the current week did not start off well for the company. HEXO released its fiscal second-quarter results for 2020 on Monday. Revenue for the quarter stood at $12.1 million, which reflects a sequential rise of 17%. The company also managed to reduce its net losses to $213 million for the quarter from $260 million in the fiscal first quarter.
However, this didn't seem to translate well to the stock, as investors sold it off, causing it to slump by 27% on Monday. However, HEXO stock rebounded about 10% this morning.
The losses suffered by the company in the quarter are primarily due to two impairments charges totaling $179 million. HEXO produced 22,305 kilos of the product during the quarter, which is a significant improvement from the 16,107 kilos it produced in the previous quarter.
That being said, the average selling price was $3.11 per gram in the previous quarter, but in Q2, it fell to $2.49 per gram. Due to the chaos caused by the coronavirus pandemic, HEXO did not provide projections for the fiscal year or the ongoing quarter.
3 CBD Penny Stocks on the Radar: The Valens Company (TSXV:VLNS) (OTCQX:VLNCF)
The Valens Company provides cannabis extraction services to some of the biggest cannabis companies in the industry. The company is looking to sell CBD products in high growth markets as well. As with Charlotte's Web, the hemp-based CBD boom could also come as a massive opportunity for Valens.
At this point, the company counts cannabis firms like HEXO, Organigram Holdings (TSX:OGI) (NASDAQ:OGI), and Tilray Inc (NASDAQ:TLRY) among its clients. Valens has long-term deals in place with these cannabis producers, suggesting that it has the necessary CBD stock in place to sustain its business.
Valens also has the opportunity of signing white label deals with retailers like BRNT and Shopper’s Drug Mart. In 2019, Valens boosted its extraction capacity to 425,000 kilos, which should be able to help the company in the long run. By the middle of this year, Valens aims to process 1 million kilos.
Keep an eye on these 3 CBD penny stocks in the coming month.
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