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Why New Age Beverages Stock Fell 15% in October -- and Why It's Down 21% So Far in November

By Beth McKenna – Updated Nov 12, 2018 at 7:58AM

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Marijuana stocks in general had a tough month last month, and this beverage maker's stock has continued its fall in November for a company-specific reason.

What happened

New Age Beverages (NBEV) stock declined 15.3% in October, according to data from S&P Global Market Intelligence. For context, the S&P 500 fell 6.8% last month. Shares of the organic, natural, and healthy beverage maker have continued to drop in November, as they're down 20.5% this month through Friday, versus the broader market's 2.7% return. 

New Age Beverages is a Denver, Colorado-based maker of ready-to-drink tea, coffee, kombucha, and energy drinks. Last month, it launched a line of beverages infused with cannabidiol (CBD), which is a cannabinoid found in marijuana that reportedly has various wellness benefits associated with it.  

Hand holding a marijuana leaf over one of two cups of tea in glass mugs.

Image source: Getty Images.

So what

We can at least partly attribute New Age Beverages stock's drop last month to the marijuana sector pulling back after running up during the late summer in anticipation of Oct. 17. That's the historic date when cannabis became legal for adult recreational use in Canada. New Age stock's pullback was rather muted compared to shares of the big Canadian marijuana growers. Shares of Aurora Cannabis, for instance, plummeted 29.2% in October, though they've climbed somewhat back in November.

Driven by the company's announcement of its plans to roll out a CBD-infused beverage line, New Age stock gained a whopping 262% in September. So at least part of the modest decline in October was likely due to some investors taking profits off the table after September's big run-up. 

New Age Beverages stock's 20.5% decline so far in November is easy to explain: On Friday, shares plunged 23.2% after the company announced a $45 million stock offering. This offering isn't a surprise, as the company needs funds to power its growth ambitions. Stock drops are common after a company announces such plans because issuing new shares is dilutive to the shares owned by existing shareholders. 

Of course, a time period of a couple months is a drop in the bucket (or marijuana beverage-filled glass) for long-term-focused investors. For a somewhat bigger picture, here's a chart showing New Age Beverages stock's year-to-date 2018 performance.

NBEV Chart

NBEV data by YCharts.

Now what

The market for CBD-infused beverages has the potential to be huge. But it's going to be mighty tough for a small company like New Age Beverages, which has limited cash and an equally limited distribution network, to compete with deep-pocketed global beverage players, such as Coca-Cola and PepsiCo. The two industry bigwigs haven't yet made a move into the CBD-infused beverage space, but if this market looks like it's going to be healthy in size, you can bet one or both of these giants will want a piece of the action. 

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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