Will Hype Keep Driving Up CBD Investments Over THC?

Driven by a craze that is assuming almost cult-like proportions, money is pouring into the sectors of the cannabis industry that are focused on cannabidiol (CBD) products.

In the latest case, Denver-based Mile High Labs, which bills itself as the world’s leading cannabinoid extractor, earlier this month announced a $35 million infusion from both institutional and private equity investors — said to be the largest Series A financing in cannabis market history.

Mile High Labs says it plans to use the capital to expand the production capacity of its CBD extract operations “to meet rapidly increasing market demand.”

The press release on the investment cites recent market research by the Brightfield Group finding that the hemp-derived CBD market is projected to reach $22 billion by 2022 — outpacing the rest of the cannabis market combined.

“We believe the CBD market is in the early stages of a 20-year secular growth trend, the size and scope of which the world’s largest consumer packaged goods companies cannot ignore,” said Mile High Labs CFO Jon Hilley. “We are already the CBD platform of choice for many of the market’s most recognizable brands and we welcome the chance to work with anyone seeking to explore this immense opportunity.”

Terminological Confusion and the THC Stigma

The Chicago-based Brightfield Group’s projections state that the CBD market is only likely to grow to this size if Congress passes federal hemp legalization with the 2018 Farm Bill.

In the case of federal hemp legalization, a firm distinction would likely be drawn between CBD derived from hemp and CBD derived from cannabis, often referred to as marijuana or high-THC cannabis when compared to hemp because of general public confusion around the differences between the two plants.

Legally, hemp is simply cannabis with 0.3 percent or less tetrahydrocannabinol (THC), by the federal government’s definition. Marijuana is cannabis with more than 0.3 percent THC — a cannabinoid long demonized by official propaganda, which apparently still lingers even as the cannabis industry has gone mainstream and boomed.

The old “marijuana” stigma may also account for the relative unfashionability of THC compared to CBD — the former gets you “high,” while the latter does not. This may be causing investors and companies to overlook the medical potential of THC.

Having completed a “critical study” of CBD earlier this year, the World Health Organization has now opened such a study on THC. When the results come in, it could begin to spur renewed interest in THC’s potential for application by the medical industry.

Some industry observers are already warning that it’s time to tone down the CBD hype, and return to a more balanced view of cannabinoids and the cannabis plant.

Cannabis Slips on the NYSE

A possible sign that cannabis company valuations have become unsustainably overheated by the CBD hype is the lackluster performance of Aurora Cannabis, one of the Canadian industry majors, when it debuted on the New York Stock Exchange on Oct. 23. Shares dropped more than 15 percent before recovering toward the end of the day.

And other cannabis companies, which had recently been surging, also fell sharply. Ironically, CNN Business notes that investors have been dumping cannabis stocks since Canadian legalization officially took effect last week, calling it a “classic case of buying the rumor and selling the news.”

Shares of Canopy Growth, Cronos and Tilray all fell some 10 percent on Oct. 23 — and each was already down about 30 percent in the past five days. This was after Canopy Growth, recent recipient of a $4 billion investment from beer giant Constellation Brands, had surged more than 50 percent in the past three months.

Back in May, Ontario’s Canopy Growth made history when it became the first “plant-touching” cannabis company to list on the New York Stock Exchange. It has since been joined by Edmonton-based Aurora, Toronto-based Cronos and Vancouver Island-based Tilray.

TELL US, do you have any CBD investments?