The stock market had a rocky March, and the instability is likely to continue into the foreseeable future. Investing at a time like this takes careful consideration and planning, but there are major opportunities to win big if you do it right. The CBD boom may initially have been full of hype, but many investors are now looking to the cannabis and CBD industries as some of the more stable markets to invest in while we ride out the COVID-19 storm.
The onslaught of shutdowns from the current crisis has not damaged the CBD market at all. As a matter of fact, sales jumped 20 percent for that market as a whole in the month of March, as consumers stockpiled the best CBD gummies and oils to ensure they didn’t run out while stuck at home. Cannabis dispensaries are staying open, being recognized as essential businesses, and they are even getting some wiggle room from state governments to expand their services. As the need for access to alternatives in healthcare rises, so too will the value of CBD stocks.
The growth CBD has seen despite the fact that only two years ago it was lumped in with marijuana and on the federal controlled substances list, is a testament to its solidarity in the market. People are seeking it out, and despite severe marketing restrictions, CBD is projected to have a CAGR of 125 percent over the next few years.
The hesitation point of many investors is the lack of history with CBD stocks. Almost every company is either a startup or in the very early stages of operation, so it is a real challenge to know which companies have staying power and which are just here for the hype. But learning which stocks to invest in when it comes to CBD is very similar to learning how to invest in any startup.
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Here are some questions to ask as you do your research:
Is the Company Transparent and Ethical?
With a company that sits squarely in a legal grey area and is focused on health and wellness, transparency and ethics are of utmost importance. Some industries may be able to get away with shady dealings or questionable business practices, but you should never invest in a CBD company that pushes those envelopes. The risk is too great that they could get shut down by the FDA, or that public opinion will put the company under. Only invest in companies with transparency at the top of their priority list.
Was the Initial Growth High?
With all the buzz and excitement surrounding CBD gummies for sleep, anxiety, and every other symptom under the sun, every company that makes its way onto the public trading scene should have fantastic initial growth. Of course, we would expect growth to stabilize in the future, but any company that cannot gain a lot of excitement in the very beginning (especially with the support of a wildly expanding market) may struggle to get the momentum it needs for enough funding to move on to the next stage.
Is the Management Team Flexible and Experienced
When you research the company you are considering investing in, do you see indications that the team behind the business is cohesive? Do they seem to know what they are doing? Poor management and inflexibility are some of the top reasons a business fails in the initial stages. Find out everything you can about the people running the company, and only invest in a team you trust.
Is the Company Versatile?
Every company needs to be versatile and quick to adapt in order to meet the changing needs of its consumer base, but CBD brands need to have these qualities to an even greater extent. It is not just a matter of responding to fickle consumers preferring CBD oil for sleep one day and CBD lotion for sore muscles the next. Rather, companies also need to adapt to rapidly changing regulations and evolving research.
Is There a Plan For the Future?
Is the company ready to jump on the opportunity when the FDA finally relaxes regulations and takes CBD out of the grey area, making it fully legal? Is it already operating under the best possible practices and prepared in case regulations require more stringent safety guidelines? Does the company have a plan in case something suddenly changes and the FDA clamps down on brands manufacturing edibles? These are critical considerations for any CBD company.
Making a Sound Financial Decision
The same principles that apply to make a decision to invest in a young company apply to invest in CBD companies. The big difference between the CBD market and most other markets is that it sits within a legal grey area that requires a little more scrutiny before investing. You still need to investigate the management team, the initial growth of the company, and the versatility of the brand, but the most important factors in your decision to invest in a CBD company are transparent, ethical practices, and a clear plan for the future of the company. When all the pieces are there, that is when you know you have a winning stock.