What happened
Shares of Youngevity International Inc. (YGYI) were up 35.5% as of 12:03 p.m. EDT on Friday. The California-based multilevel marketer didn't report any news. So what drove the stock so much higher?
Youngevity appears to be continuing to enjoy momentum from its entrance into the cannabis market. Since the company announced its launch of three hemp-derived cannabidiol (CBD) products on Aug. 30, 2018, Youngevity stock is up more than 220%. The company also announced two additional hemp-based CBD tablets for mixing with water on Oct. 4.
The stock's momentum could have received an added boost from an editorial published online on Thursday by CannabisNewsWire (CNW). This editorial highlighted the rapid adoption of CBD use in mainstream wellness products. Youngevity was prominently featured in the article.
Image source: Getty Images.
So what
Investors have salivated at the prospects for cannabis-infused beverages for a while now. Constellation Brands' $4 billion investment in Canadian marijuana grower Canopy Growth in August caused considerable excitement. The two companies plan to launch a variety of cannabis-infused beverages. Reports last month that Coca-Cola was interested in the CBD beverage market only added to the frenzy of attention.
Youngevity was quick to point out in its press release announcing its initial hemp-based CBD products that the global cannabis market totaled $7.7 billion last year. But competing in a significant market doesn't necessarily mean that a company will be successful in that market.
The share price of Youngevity has skyrocketed on the assumption that Youngevity will make a lot of money with its new products. It might. But it's also important to have realistic expectations. Youngevity will face plenty of competitors, many of whom could have much deeper pockets.
Now what
Investors should be wary of becoming "cannabis crazy." The opportunities in the cannabis industry are real and significant. However, the old adage about not counting your chickens before they hatch seems appropriate.
Youngevity enjoyed sizzling revenue growth from 2013 to 2015. Its growth trajectory has slowed considerably over the last three years, though. The company's introduction of CBD products could help rejuvenate growth, but it's highly doubtful whether these new products justify Youngevity's massive stock gains in recent weeks.
