The two big events that could've shaped the direction of New Age Beverages Corp. (NBEV 1.76%) in the near term are now fading in the rearview mirror. The market didn't have a problem with last Thursday's presentation at the 4th Annual B. Riley FBR Consumer & Media Conference, sending the shares 5% higher for the day. Unfortunately for those long the stock, a nearly 30% slide through the four subsequent trading days suggests that the unveiling of its new product line at a big industry trade show didn't go so well.
The four-day North American Convenience Store expo closed on Wednesday, and as promised, New Age Beverages did unveil its new line of ready-to-drink teas, shots, and sparkling water infused with cannabidiol (CBD), a cannabis component. The stock's sharp downturn over the past week isn't pretty, but it doesn't mean that the volatile investment failed. New Age Beverages is already a winner in this speculative age of marijuana stock trading.
Up in smoke
It's been more than three weeks since New Age Beverages announced that it would be unveiling its new CBD products at the North American Convenience Store show. The stock has more than doubled since that press release came out and nearly quadrupled since Northland initiated coverage of the stock a few days earlier, pointing out that the beverage distributor had been testing CBD products in Colorado for months ahead of the trade show debut. In short, starting lines matter.
New Age Beverages has been one of the market's more volatile stocks over the past few weeks, but it's also been one of its biggest winners. The "sell on the news" trader reaction this week isn't a death sentence. It happens, and investors are well served to stretch out the trading activity to get the bigger picture.
It's also important to remember that New Age Beverages already has a wide portfolio of functional and natural drink products outside of the CBD-infused mania that's swirling up Wall Street these days -- and those beverages will benefit from the media attention and consumer interest in the company. New Age Beverages has functional ready-to-drink teas, coffees, coconut sparkling water, and shots that generated $51.2 million in sales over the past year. Don't you think those products will benefit from New Age Beverages' increased visibility with investors and interest with retailers?
The new CBD product line is what has turned New Age Beverages into a household name among cannabis stock traders. The beverage company expects to roll out its new CBD-infused products once the 2018 Farm Bill is enacted, but it's a little more complicated than that. The House and Senate are still negotiating the differences in their bills, including hemp farming components. The bigger hurdle could be the Drug Enforcement Administration (DEA) and the Food and Drug Administration (FDA) that have yet to give CBD their blessing.
Things would naturally be pretty catastrophic for New Age Beverages if it couldn't sell CBD-infused products. Investors have been bidding up the stock in anticipation of this event and the market's thirsty reception. However, this could be a win-win for New Age Beverages.
Finding gold in silver linings
The dream scenario is that the roadblocks are cleared for New Age Beverages and others to get their CBD products on the shelves, but even then, it's not a slam dunk. There will be a glut of new product on the market, and a lot of it will come with companies that have greater financial resources. New Age Beverages believes that it will stand out in this niche with the right dosage and long shelf life of its products, but everyone probably feels that they are the ones with the killer CBD silver bullet. In the end, it will still be incremental to New Age Beverages' sales and possibly in a highly lucrative manner.
The nightmare scenario is that all of this hype comes to nothing and all of the time and energy spent on developing a CBD line gets nixed under legal if not efficacy concerns. It would be bad, but let's not assume that New Age Beverages will be the same as it was before. All of the attention that New Age Beverages is generating from retailers, distribution partners, consumers, and investors is already paying off.
New Age Beverages claims to have a presence in 40 of North America's 50 largest retailers. A good chunk of that shelf space is in the third-party brands that it distributes, but its proprietary lines are also hiding in plain sight. It wouldn't be a surprise if traders or consumers are now more aware of the brands. You are probably more likely to buy Coco Libre coconut water, Xing energy tea drink, or bucha live kombucha fermented tea beverage than before. The next time you see one of its Bob Marley–licensed canned tea or coffee drinks -- and how perfect is it that New Age Beverages was already teamed up with an icon in the cannabis community? -- aren't you more likely to buy it now?
Nearly a billion shares of New Age Beverages have been traded since the beginning of last month. We'll have to wait another quarter or two to see if the elevated exposure is lifting sales of its existing brands higher, but it should be enough to reverse the slight decline in revenue that New Age Beverages was serving up through the first half of this year. Even in the nightmare scenario, the CBD exploration still pays off.