FDA to Hold First Public Hearing on Cannabis: 5 Likely Gainers

On May 31, the FDA will hold its first hearing to take a decision on whether companies can add CBD, a non-intoxicating cannabis compound, to food, beverages and dietary supplements. Several CBD manufacturers, researchers, farmers and retailers have urged the regulatory authority to allow the use of cannabis.

The FDA is not likely to take any decision on the first hearing. The regulators will more likely collect data on safety and effectiveness of CBD and see how it can regulate the industry. The process will go a step forward if majority opinion goes in favor of CBD.

Marijuana Industry is Flourishing

The marijuana industry has strong potential especially after its legalization for recreational and medicinal use. Moreover, the industry is enjoying benefits of expansion into other industries like food, beverage, tobacco and cosmetics.

On Mar 28, the House Financial Services Committee voted 45-15 in favor of passing the Secure and Fair Enforcement Banking Act of 2019 or the SAFE Banking Act. The bill seeks to safeguard the process of financial lending to cannabis companies in the United States.

This bill would not only protect the industry’s credit lines but also aid cannabis ancillary industries in the country. The ancillary sector has been suffering from financial uncertainties associated with the legal status of marijuana in the past.

Cannabis is getting approval from many U.S. states for recreational uses, in addition to medical usage. Though pot remains entirely illegal at the federal level, currently 47 U.S. states offer some form of legalized marijuana for sale.

Strong Market Potential

According to Arcview Market Research and BDS Analytics, globally, spending on legal cannabis is expected to reach $31.3 billion in 2022. Out of this, about $23.4 billion will be spent in the United States. Research firm Euromonitor has estimated that the American market for legal marijuana products will reach $20 billion by 2020.

Research firm Cowen projected that the market size of the U.S. legal cannabis industry will reach $75 billion in by 2030. According to Barclays, the U.S. cannabis market would be $28 billion if legalized today, growing to $41 billion by 2028.

However, the marijuana industry is considered extremely volatile. Most of these companies are in their early stages of development and characterized as risky for investors. Even a minor negative development may cause major stock price fluctuations.

Likely Gainers

Cannabis stocks are solid long-term bets. Of these, stocks with a Zacks Rank #3 (Hold) or better and solid long-term growth potential are worth trying out despite the latent risks. We have narrowed down our search to five such stocks.

The chart below shows price performance of our five picks year to date.

GW Pharmaceuticals plc GWPH is a biopharmaceutical company, focusing on discovering, developing, and commercializing cannabinoid prescription medicines using botanical extracts derived from the Cannabis plant. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company has an expected earnings growth rate of 89.7% and 90.8% for the current quarter and next year, respectively. The Zacks Consensus Estimate for the current quarter and next year has improved 94.5% and 84.6%, respectively, over the last 60 days. The stock has surged 81.3% year to date.

The Scotts Miracle-Gro Co. SMG is the world’s leading marketer of branded consumer lawn and garden as well as hydroponic growing products especially pot. In April 2018, the company acquired hydroponic equipment maker Sunlight Supply to enter into pot business. The stock carries a Zacks Rank #2.

The company has an expected earnings growth rate of 14.6% and 10% for the current and next year, respectively. The Zacks Consensus Estimate for the current and next year has improved 1.2% and 0.6%, respectively, over the last 60 days. The stock has surged 46.8% year to date.

Canopy Growth Corp. CGC engages in growing, possession, and sale of medical cannabis in Canada. Its products include dried flowers, oils and concentrates, softgel capsules and hemps. The stock carries a Zacks Rank #3. The company has an expected earnings growth rate of 41.9% and 56.9% for the current quarter and next year, respectively. The stock has surged 57% year to date.

Aurora Cannabis Inc. ACB produces and distributes medical cannabis products. It is vertically integrated and horizontally diversified across various segments of the cannabis value chain. The stock carries a Zacks Rank #3. The company has an expected earnings growth rate of 88.1% for the next year. The Zacks Consensus Estimate for the next year has improved 40% over the last 60 days. The stock has surged 61.3% year to date.

Cronos Group Inc. CRON engages in investment in firms that are licensed to produce and sell medical marijuana pursuant to Canada's Marihuana for Medical Purposes Regulations. The stock carries a Zacks Rank #3. The company has an expected earnings growth rate of 62.5% for the current year. The stock has surged 43.4% year to date.

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