You might have thought that 2019 would be a great year for cannabidiol (CBD) stocks. I certainly did. After all, hemp-derived CBD was legalized in the U.S. in December 2018, when the 2018 Farm Bill passed both houses of Congress and was signed into law by the president.
But an ominous consumer warning by the Food and Drug Administration (FDA) in November caused marijuana stocks, especially those with CBD business in the U.S., to collapse. Now, though, there's a good reason to think that CBD stocks could soon skyrocket and not look back. Here's why.
Sidestepping the FDA
The FDA has been, and continues to be, especially concerned about the use of CBD in foods or dietary supplements. Several companies have been warned about selling CBD dietary supplements or including CBD in foods. The agency has been consistent in its view that additional scientific studies are needed to determine whether CBD is safe.
In the meantime, companies that market CBD products are in a sort of limbo. Although they can sell topical CBD products across state lines, the big market opportunity is in ingestible CBD products. However, another pathway to opening up this significant market now appears to be on the horizon.
Last week, Rep. Collin Peterson (D.-Minn.) introduced a bill that would amend the Federal Food, Drug and Cosmetic Act to add CBD to the list of legal dietary supplements and exclude CBD from prohibited foods. These amendments would effectively make CBD foods and dietary supplements fully legal in the U.S.
Rep. Peterson's move is basically an attempt to sidestep the FDA, which isn't known for its quick action. Investors have been worried that the agency could take years to wrap up studies to determine the safety of CBD. With Congress entering the picture, though, it's possible that CBD dietary supplements could become fully legal this year.
Prospects of passing
The introduction of a bill in the U.S. House of Representatives doesn't guarantee passage, of course. However, there is reason to be optimistic in this case.
For one thing, Rep. Peterson has both Democratic and Republican co-sponsors for his bill. Bipartisan support improves the chances of passage in the House.
Although Rep. Peterson is chairman of the House Agriculture Committee, another committee -- the House Energy and Commerce Committee -- must review the proposed amendment before it can be voted on by the full House. However, Peterson has been in office since 1990 and has established key connections during his political career. That could increase the likelihood that the Energy and Commerce Committee reviews his bill.
Hemp legalization overwhelmingly passed in the House. If Peterson's CBD bill makes it through committee review, the chances of it also sailing through the chamber appear to be pretty good.
It's a similar story in the U.S. Senate, even though Republicans are in control. Senate Majority Leader Mitch McConnell championed the 2018 Farm Bill that legalized hemp. Rep. Peterson's proposed amendment would be good news for hemp growers, which could be key to securing Sen. McConnell's support since his home state of Kentucky has a sizable hemp farming industry.
President Donald Trump would have to sign the bill into law if it ultimately passes both houses of Congress. The president had no qualms at all about legalizing hemp and has only vetoed six bills during his first three years in office. If the House and the Senate approve the new CBD bill, it seems likely that President Trump would sign it into law.
If CBD foods and dietary supplements are fully legalized in the U.S., most marijuana stocks would probably enjoy a nice boost. However, a few stocks, in particular, should be the biggest winners.
Tilray (NASDAQ:TLRY) should benefit tremendously from a CBD end run around the FDA. The Canadian cannabis producer acquired hemp foods company Manitoba Harvest last year. Another Canadian company, Canopy Growth (NASDAQ:CGC), is another potential winner. Canopy Growth recently introduced its first CBD products in the U.S. market.
I'd put Charlotte's Web Holdings (OTC:CWBHF) at the top of the list, though. The company is the leader in the U.S. CBD products market. Charlotte's Web's products are currently carried in more than 9,000 retail stores. Its major retail partners, however, don't yet sell ingestible CBD products because of worries about running afoul of the FDA.
Charlotte's Web stock more than doubled in early 2019 after the 2018 Farm Bill became law. It wouldn't be surprising to see a similar performance if Rep. Peterson's bill becomes law.