Are you ready? A new industry is on the cusp of significant expansion. This is according to a just-released report by the Brightfield Group. It has calculated that the hemp-CBD market alone could reach $22 billion by 2022. Even for 2018, we are looking at a $591 million industry.
CBD specifically is a non-psychoactive cannabinoid found in cannabis. This means that it only includes little to no levels of the chemical compound THC. Right now the current legal picture for CBD is murky, with the law varying widely from state to state. However, according to the report, the 2018 Farm Bill could amend the term “marihuana” to exempt hemp (i.e. less than .3 percent THC). This could open a huge new industry to farmers across the country.
So which stocks are competing for a slice of the action? We use TipRanks market data to pinpoint four top stocks you should be tracking now:
1. GW Pharma (GWPH)
UK-based medical cannabis developer GW Pharmaceuticals could be on the cusp of something huge. GWPH is about to launch a liquid formulation of purified cannabidiol (CBD), also known as Epidiolex, in the US, for severe childhood epilepsy.
The drug received regulatory approval back in June. “This approval has been a transformative event for GW, not only opening a new chapter as a commercial-stage company, but also validating and reinforcing our world leadership in cannabinoid science, and the potential of our product pipeline,” Justin Gover, GW’s Chief Executive Officer stated at the time.
And now, ahead of the Epidiolex launch, five-star Stifel Nicolaus analyst Paul Matteis (Track Record & Ratings) has initiated coverage of GWPH. This is with a Buy rating and $181 price target. He predicts a ‘strong launch’ and notes that there is already broad awareness among physicians and patients. In the near-term, Matteis says the 2019 consensus sales estimate of $115M “seems doable.” But longer term, the analyst sees Epidiolex hitting $1.5B in U.S. sales in 2023.
Bear in mind, the company has already successfully launched the world’s first cannabis-plant based prescription medicine outside the U.S. for spasticity due to multiple sclerosis.
Five analysts have published recent Buy ratings on GWPH. This is with a $195 average analyst price target (38% upside potential).
2. Canopy Growth Corp (CGC)
Canada-based medical marijuana stock Canopy Growth Corp has a goal: to be the number 1 cannabis company in the world. In April 2014, Canopy Growth became the first cannabis company in North America to be publicly traded. And it’s still the only cannabis company that’s part of a major global stock market index.
As well as selling pure cannabis via brands like Tweed and a collaboration with Snoop Dogg, CGC is also conducting R&D into improving the lives of patients with acute and chronic illnesses. For example, a new licensing deal with CURE Pharmaceutical Holding Corp enables Canopy to use CURE’s patented oral thin film for dissolving cannabis-based medication under the tongue.
Five-star Cowen & Co analyst Vivien Azer (Track Record & Ratings) believes CGC “is making significant progress in its Canopy Health segment toward developing cannabis-based formulations, including 15 clinical trials and 39 U.S. patent applications.” She has just initiated coverage of Canopy Growth with a Buy rating.
“We believe that as the largest manufacturer, [the company] is well-positioned to benefit from the growing medical cannabis industry in Canada, particularly given advantages in capacity, distribution, branding and revenue/category management” the analyst concluded.
And how’s this for a vote of confidence?! Beverage giant Constellation Brands (covered below) has just invested $4 billion for a 9.9% stake in Canopy Growth. Also in the last month, Canaccord Genuity’s Neil Maruoka upgraded the stock from Hold to Buy. See what other Top Analysts are saying about CGC.
3. Zynerba Pharmaceuticals (ZYNE)
Zynerba is looking to improve the lives of patients battling severe rare and near-rare neuropsychiatric disorders. Right now its main focus is Fragile X syndrome (a genetic condition that causes learning disabilities and cognitive impairment) and certain epilepsies.
Most notably, lead product candidate, ZYN002, is the first and only pharmaceutically-produced CBD gel that can be delivered into the circulatory system via the skin. Pivotal trials are now underway for ZYN002 in FXS, following which Zynerba can submit a new drug application (NDA) to the FDA.
“For FXS, we expect potential launch in 2021, and increase probability of success to 45% (prior 40%) on pivotal trial initiation” writes Canaccord Genuity’s Arlinda Lee (Track Record & Ratings). She has a $15 price target on the stock (118% upside potential). Meanwhile HC Wainwright’s Oren Livnat “believe[s] Zynerba has extremely positive risk-reward heading into data next year.” He is ‘perplexed’ by recent stock weakness, arguing that the $30 million financing round in July was long-anticipated.
“We already factored a 3Q18 raise into our valuation—and we aren’t aware of any other erosion of Zynerba’s fundamentals or prospects. In fact, the company is executing as promised” Livnat reassures investors. Indeed, his $23 price target indicates massive upside potential of over 200%. See what other Top Analysts are saying about ZYNE.
4. Constellation Brands Inc (STZ)
Last but not least we have Constellation Brands. This is an interesting play on the CBD trend, but with reduced exposure. As mentioned above STZ- the owner of Corona beer- recently made a significant investment in the fortunes of Canopy Growth Corp.
The deal drew a mixed response from the Street. But one top-rated analyst firmly in favor is RBC’s Nik Modi (Track Record & Ratings). According to Modi “STZ’s decision to increase its stake in Canopy Growth Company is a very smart move.” He raised his price target from $280 to $300 accordingly (over 40% upside potential).
As Modi points out, it is the companies that are investing for growth (at the expense of over-delivering on margins) that have experienced the best share price performance over the past one, three, and five years.
And in respect of Canopy specifically, he says “we believe Cannabis is going to be a large-scale, fast-growing, and high- margin category across the global CPG landscape.” This makes it an ‘ideal partner’ for Constellation Brands to have in the cannabis space.
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