The hot topic of cannabis is again in the news, this time for the production of hemp. As the U.S. Federal government is in no mood to allow the sale of cannabis as dietary supplements, congress is doing everything they can tackle the situation. The new regulations are holding back the sales of cannabis or CBD. There were lots of expectations this year from the help Agriculture Improvement Act (farm bill) legalized hemp production, as it was assumed to have a strong sales in the market, but the FDA put a halt on it by blocking the use of CBD in dietary supplements.
The amount of tetrahydrocannabinol (THC) present in hemp is less than 0.3%, while marijuana contains up to 30% of the psychoactive compound. Although CBD contains qualities that can be used for pain management and medicinal use, the FDA continues to block its way blaming the lack of research done on the hemp infused CBD. FDA does not allow hemp infused CBD to be used in edibles and released in the market.
This is the reason behind the reduced CBD sales. The majority of the retailers have not filled their inventory with CBD edible products because of the potential threat of the FDA. The CBD companies also could not meet their sales target this year.
The expectations were very high for the industry and its assumed sales, but the FDA regulations spoiled the game. There was an estimate that if the FDA allows CBD in food and supplements than the CBD market, which currently stands at $17 billion, will rise up to $40 billion after the sales of CBD.
Recently the bill introduced garnered some support from Congress. The bill mentioned the removal of FDA regulations about CBD testing. The bill stated that CBD has been used for a long time and it was listed as a controlled substance in the Federal Food, Drug, and Cosmetic Act. But some of the members opposed the bill saying prolonged use of CBD could be harmful and more research is needed. Long term safety is the concern and hence we cannot allow CBD to be used in the food and dietary supplements.
Since the market for CBD is so big and there are a lot of companies who can’t wait to get their hands into the market once CBD is allowed to be used in food and edibles. So here we have shortlisted some top companies that will see an exponential rise in their sales once the FDA approves the use of CBD in food products.
CbdMD is a major company that received the biggest blow due to FDA regulations. They suffered in the market despite the revenue growth. They were forced to sell 16 million shares at a very low price. Although they did some good business at the start of the year, eventually it went from bad to worse.
The company faces a lot of trouble as the sales increased during the year, but the gross margin went down from 63% to only 56.7%. Adding to that the revenue guidance was expected to be between $80 million to $90 million, went down to $62 million to $70 million.
CbdMD is a very risky stage, all they are hoping is relief from the FDA. Year before FDA allows the hemp infused CBD to be used in food products cbdMD will have a huge opportunity to cover up their sales. But the investors must wait and hope for some good news.
CV sciences are a powerful company that deals with 5,435 stores as of September 30. They hold on to a lot of national retailers, although the company was hit by the FDA regulations and could not achieve the target in Q3. But they did manage to reach a record number of 5,700 stores. Even though it failed to increase their sales. The sales in the September quarter were only $12.6 million, which led to a net loss of $1.1 million.
CV sciences had a cash balance of $14.4 million at the end of the quarter. The company is expected to achieve revenue anywhere between $55 million to $57 million with the December revenue reaching only $11.6 million.
Experts have predicted a rise in the 2020 revenue of about $75 million. But the prediction can only come true if the FDA allows the use of CBD in food products. Last year the experts predicted the sales of $120 million, but they could not see the obstacle coming in the way. If we look at the records the analysts have failed to predict the nature of the market, especially what is coming next from the FDA. Their decision is very important as a lot of lives are dependent on their decision.
Charlotte’s Web Holdings
Charlotte’s Web is unsurprisingly a leader in the CBD market. They have an estimated market valuation of $1 billion, even though this year the retailers pulled back from providing the hemp infused CBD they managed to generate $25 million through their sales.
A major blow to them came right after the summer when their stock was above $25, especially after the predicted growth in the CBD sales considering the FDA approval. But right now they are going down to $9. This looks momentary as the CBD market is still expected to be at an all-time high.
The company hopes for a positive response from the FDA as they rely heavily on the decision. The management believes once the approval is given the retailers can help them cover up 85% of the sale only through the blocked products.
CWH once had a great time doing business with the retail market, but the FDA regulations have been creating problems for them. Since no retailer is ready to stock up hemp infused CBD due to lack of clarity from the FDA.