At the start of the new year, when I made the call that 2019 was going to be the “Year of CBD,” I knew we were about to see a veritable horse race of companies rushing to get those products on shelves.
Barely four months later, we’re already seeing café concoctions loaded with CBD and massive drugstore chains like CVS beginning to carry all manner of CBD creams, sprays, and lotions.
The more market share and positive coverage this segment gets, the better it will be for the choice CBD holdings in our model portfolio. And no doubt there will be a bumper crop of new CBD ventures to pore over.
One thing we won’t be doing, however, is jumping at CBD gimmicks like this…
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Expect More CBD Stunts; Don’t Pay Any Mind
Normally jelly beans wouldn’t be worth column inches or precious bandwidth, but this is 2019 – the year of CBD.
And yes, we are soon to see the advent of… CBD jelly beans.
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The creator behind the popular Jelly Belly product line has launched new beans in 38 flavors, stuffed with 10mg of CBD.
Now, there isn’t anything nefarious about what Spectrum Confections is up to, but I’m worried that it’s not providing any benefit to a cannabis industry that is trying to be taken seriously.
There are two problems with such a quick release of this product, and it has a lot to do with regulations…
One Bad Company Could Damage the Segment
As more individuals learn about the health benefits of CBD, they are going to want to buy CBD-infused beverages and CBD-infused food.
That’s fine.
But the problem is that cannabis-based medicine is still in its early stages, and the companies that rush to create CBD-infused products without due diligence may blunder, which will only delay the high-profit growth of the segment.
There are lots of ways to mess up…
Some of the products may be ill-advised creations that don’t taste very good or have such a low CBD dosage that there isn’t any reason to put it in the product (other than to make a quick buck).
For the consumer, especially, first impressions are everything. So, if we see a wave of, say, poor-quality or mediocre CBD products, the industry will find itself facing a steep incline.
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The rougher the road for consumers, the broader the road for regulators. It’s easy to envision regulators elbowing their way in with the wrong kind of regulation, throwing a wet blanket on cannabis profits.
What’s also of specific concern with the term “jelly bean” is its undeniable appeal to children. It’s never good when products intended for informed adults fall into the wrong hands.
There is a way around this. By taking the initiative to collaborate with regulators, Spectrum Confections can create a responsible package that is neither appealing to nor easily opened by children.
Such a move would be a show of good faith both to regulating bodies and concerned communities, and the brand could still be leveraged to the company’s success.
But it takes time to complete that process, and any company looking to make this move needs to consider whether it actually has a reason to enter the field - beyond a quick cash grab.
So if you see a company plans to release cannabis-infused products, even if there is no THC in the product, first ask yourself if that company has any business making a cannabis-infused product. Folks with access to NICILytics already know that we rate companies – from 0 to 5 – by subsector within the cannabis industry.
That’s just another powerful investing tool that helps you identify the top CBD stocks to own and which ones you should avoid.
Because there is a difference between CBD jelly beans and the products that the companies we own in our model portfolio make…
The difference is that the companies in our model portfolios sell oils, balms, and tinctures, all unambiguously targeting adult consumers.
Whereas health officials in New York City have cracked down on bars that sell CBD martinis, the 2018 Farm Bill legalized the manufacturing, distribution, and the sale of hemp-derived products anywhere in the United States.
Making oils and tinctures the right way is the first step in creating a CBD empire. Then, a CBD firm can partner with major companies to create CBD-infused products.
So when the FDA reaches a consensus on how infused beverages and edibles should be regulated, a company like Coca-Cola Co. (NYSE: KO) will want to partner with the firms in our portfolio because they already sell the best CBD oil money can buy.
But until then, don’t get caught up in all the gimmicks.
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About the Author
Greg Miller started working on Wall Street in September, 1987, just a month before the “Black Monday” stock market crash.
During his career there, he became an expert in just about every kind of publicly traded security - from blue-chip and small-cap stocks to municipals, junk bonds, and derivatives. As a portfolio manager, Greg was responsible for over $500 million of assets in mutual funds and insurance company accounts.
After leaving the Street, he designed a successful options trading strategy and made lucrative tech investments for a financial publication. He has also helped develop new products and worked with other editors to hone their strategies. He’s always been dedicated to deep, fundamental research - and he always will be - because he believes buying the very best companies at the right price is the best way to amass wealth in the stock market.