What the Farm Bill Has Done for Cannabis Stocks

Marijuana and money

Hemp, Cannabis and the Farm Bill

Politics makes strange bedfellows, they say, and so it was last December, when negotiators in the Senate and House reached an agreement on the Farm Bill.

Normally the result of a tug-of-war pitting conservative heartland agriculture interests vs. progressive coastal urbanites, and corporate farms vs. family farms, the current version of the Farm Bill has legalized industrial hemp for the first time in decades, thanks to the pushing of Senate Majority Leader Mitch McConnell, who argued that there will be great economic benefits from legalizing the crop—and putting it under the purview of the U.S. Department of Agriculture rather than the Justice Department.

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The previous Farm Bill, passed in 2014, started the trend toward legal hemp. It allowed state-regulated, university-affiliated agricultural research programs to grow hemp plants as long as they registered with the Department of Agriculture. But that bill expired in September, and its renewal was held up by disagreements over SNAP (Supplemental Nutrition Assistance Program) as well as a disagreement over forestry practices—a sore spot in the wake of the California fires.

The 2018 Farm Bill is big; it will govern the distribution of $867 billion over the next five years through a wide variety of food and agriculture programs.

To my mind—which admittedly has a bias toward free markets—hemp farmers don’t need help; they just need their product to be legalized so they can give the market what it wants.

And right now, what the market wants is hemp to make cannabidiol, otherwise known as CBD. The oil was already produced in many states by small producers—including Mitch McConnell’s Kentucky—but they only managed it by doing an end-run around federal prohibition, which limited interstate trade and transport of hemp products.

Now that the Farm Bill has passed with hemp legalization intact, it has kicked off a boom in the CBD industry.

In fact, Bethany Gomez, the director of research for the cannabis research firm Brightfield Group, said, “We expect that market to absolutely explode, with sales hitting $22 billion by 2022, which is higher than the U.S. cannabis industry.”

Already, we’ve seen some big moves by leaders in the cannabis industry.

Canopy Growth (CGC), the king of the fast-growing Canadian marijuana industry at the moment (though there are no guarantees it will keep the throne), has made its move in the little town of Kirkwood in upstate New York, just over the Pennsylvania border, where it will transform an old Shop Vac facility into a hemp processing facility. With 308,000 square feet under one roof, Canopy expects to process tons of hemp per year from farmers in neighboring states, and CBD will be the number one product.

Aurora Cannabis (ACB), another big Canadian cannabis company, recently announced that it will conduct clinical studies with UFC (Ultimate Fighting Championship) to research the effect of hemp-based CBD on inflammation, wound-healing, pain, and athletic recovery.

Charlotte’s Web (CWBHF), the number one grower of hemp in the U.S., with $22 million in revenues in the latest quarter, has signed a deal with Kroger Stores, the biggest retailer in the U.S., to put its hemp-based CBD in 1,350 stores in 22 states.

Cronos Group (CRON), a leading Canadian marijuana company, is acquiring Redwood, a California company that sells hemp-based CBD-infused skincare and other products under the brand Lord Jones.

Cresco Labs (CRLBF), one of the leading vertically integrated U.S. multi-state operators (MSOs), launched a new wellness subsidiary, Well Beings, that will offer a full line of hemp-based CBD wellness products eligible for national distribution, including CBD versions of Cresco Labs’ branded products including Remedi and Mindy’s Edibles.

OrganiGram (OGI), another Canadian marijuana company, has an agreement with 1812 Hemp, a New Brunswick industrial hemp company, to purchase as much as 60,000 kilograms of dried hemp flower in calendar 2019, to be extracted into CBD.

Turning Point Brands (TPB), based in Louisville, Kentucky, is an old smokeless tobacco company that first diversified into the marijuana accessories business (rolling papers and an online platform for vaping vendors) and is now making multiple inroads into the CBD market. It acquired a 20% interest in Canadian American Standard Hemp, which produces tinctures, capsules, topical products, vape cartridges and oral sprays that contain CBD at a facility in Rhode Island. And, following the same successful model used in its vaping business, it just launched a new website at directcbd.com (check it out) to sell CBD from third-party producers direct to consumers.

In short, the hemp-based CBD industry is an increasingly powerful part of the booming cannabis industry.

Best Cannabis Stocks to Buy

So what are the best investments in the sector?

I’ve been writing about the companies growing and selling both hemp-based CBD and marijuana since early 2017 in my Cabot Marijuana Investor advisory, and I’m going to keep on writing about them, as the cannabis industry as a whole has the potential to become a $3 trillion industry by 2030.

Today, my recommended portfolio holds 14 stocks and is well diversified, with stocks both in Canada and the U.S., both in marijuana and hemp, and both in production and retail. With many cannabis stocks moving as much as 10% some days, you need diversification to smooth out the bumps. But a lot of the bumps are upward, because these businesses are growing fast!

In fact, in the latest reported quarter, the average rate of revenue growth at the companies in my portfolio relative to the year before was 328%!

You also need specific expert guidance on how to invest in marijuana stocks, which is what I give my readers in every issue and every update.

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Timothy Lutts

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Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditions

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*This post has been updated from an original version.


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