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What are we looking for?

Stocks with exposure to expanding hemp and CBD markets.

The screen

Hemp is a cannabis-family plant, but with very low tetrahydrocannabinol (THC). While hemp fails to provide a pot-associated high, it contains non-psychoactive CBD, or cannabidiol. Research is continuing, but CBD is increasingly credited with medicinal benefits, from pain relief to easing anxiety.

The U.S. 2018 Farm Bill enhances prospects for CBD products, including food and personal-care items. The legislation legalizes growing this low-THC plant, potentially making hemp a commercial source of CBD. That’s in addition to its increasing use in textiles, cosmetics and biofuel.

Still, it’s uncertain when CBD itself will win U.S. federal approval. Meanwhile, cannabis producers are developing CBD products for sale in Canada – to be legal on or before Oct. 17 – and in U.S. states where they are already legal.

Our search targeted stocks poised to benefit from CBD demand. We then applied our Cannabis Quality Ratings (see below).

The results highlight firms offering investment quality, although, not surprisingly, outsized valuations – the norm in this still-hot industry. In fact, almost all of these players need huge revenue growth to justify sky-high market capitalizations.

Conservative investors should avoid cannabis stocks. Highly aggressive investors wanting cannabis exposure could venture here – but stick with the highest-quality stocks.

Our Cannabis Quality Rating system awards points to a stock based on key factors:

  • Rising and diversified revenue;
  • Cost-competitive production;
  • Sound balance sheet;
  • International operations;
  • Industry prominence;
  • Free from dependence on a single customer;
  • Prominent clients or partnerships;
  • Market cap in line with sales;
  • Focused on organic growth, not acquisitions;
  • Stock gains in line with market averages;
  • Outside broker/media limelight.

Our Cannabis Quality Ratings (CQRs) range from a 5-Leaf CQR score for sound investment quality and reasonable valuations down to a 1-Leaf CQR for little investment quality and high overvaluation.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Cannabis Investing bulletins are the latest addition to our lineup. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Our CQR system generated five stocks. With hemp production now legal federally in the United States, Canadian leader Canopy Growth Corp. has a licence to grow that crop in New York State and aims to expand. Hemp investments for Alberta’s Aurora Cannabis Inc. include Hempco Food and Fiber Inc., a producer of food for humans and animals. Valens GroWorks Corp. in British Columbia extracts CBD for many large cannabis and hemp growers. U.S.-based Charlotte’s Web Holdings Inc. focuses on hemp-derived CBD wellness products, while B.C.-based Tilray Inc. recently acquired Manitoba Harvest, which distributes its hemp-based foods through major U.S. retailers.

We advise investors to do additional research on investments we identify here.

Stocks that may benefit from growing CBD demand 

Ranking*CompanyTickerRecent Share Price ($)**1Yr Total Return (%) Market Cap ($Mil)**Cannabis Quality Rating
1Canopy Growth Corp.WEED-T68.19131.223,210.13.5
2Aurora Cannabis Inc.ACB-T12.1153.712,323.43.5
3Tilray Inc.TLRY-Q51.95132.14,968.33.5
4Charlotte's Web Holdings Inc.CWEB-CN26.0048.82,425.83.5
5Valens GroWorks Corp.VGW-CN4.32215.3469.43.0

Source: Dividend Advisor 

*Ranking is determined by TSI Cannabis Quality Rating Score. Where overall points are the same, analysts considered company valuation and outlook to decide final placements. **Share price and market cap are in native currency. 

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 17/05/24 4:00pm EDT.

SymbolName% changeLast
WEED-T
Canopy Growth Corp
-1.07%14.81
ACB-T
Aurora Cannabis Inc
-2.8%10.05
TLRY-Q
Tilray Brands Inc
-6.6%1.98

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