cbdMD (YCBD) is starting to get attention along with other CBD and cannabis names. A big part of the enthusiasm surrounds the upcoming elections next month and the betting markets starting to price in a Democratic sweep. After Vice Presidential candidate Kamala Harris said on the debate stage that the Biden/Harris administration is in favor of cannabis legalization on the federal level, CBD and cannabis stocks that have been badly beaten up over the past year are starting to wake up.
One name in particular that we like is cbdMD. One of the big reasons is that instead of trading on the OTC Markets like most other CBD plays, YCBD is listed on the NYSEMKT, the former American Stock Exchange. This Big Board CBD play can attract institutional investors that cannot buy OTC stocks. In this article, we take a look at the bull case for cbdMD and why this Big Board CBD play is a must-own.
First up, here’s a little background info for those not familiar with the company. cbdMD, Inc. is one of the leading, most highly trusted, and most recognized cannabidiol (CBD) brands, whose current products include CBD tinctures, CBD capsules, CBD gummies, CBD topicals, CBD bath bombs, and CBD pet products. cbdMD is also a proud partner of Bellator MMA and Life Time, Inc., and has one of the largest rosters of professional sports athletes who are part of “Team cbdMD.” Over 6,000 retail outlets carry cbdMD products.
PRO Group Distribution Deal
cbdMD just signed a deal with PRO Group that will see PRO Group distribute cbdMD and PawCBD brands nationwide to its network of 140 distribution centers serving all 50 states. PRO Group is a multidivisional international merchandising and marketing organization, with combined sales volume exceeding $6 billion through its member distributors and an alliance with the VAL-TEST Group.
Life Time Deal
Last month, cbdMD signed a new retail distribution agreement with Life Time that expanded cbdMD’s original, exclusive marketing and sponsorship agreement from October 2019. As the Exclusive CBD Partner of Life Time, cbdMD has a presence within all Life Time clubs, including its internal TV channel, digital signage, atrium signage, banner units, and poster units, as well as in Experience Life magazine print and digital media.
cbdMD is also the annual sponsor of numerous Life Time events, including Presenting Sponsor of The Miami Marathon and Half Marathon, Title Sponsor of Chicago Tri, the world’s largest triathlon, Escape to Miami Tri and Big Sugar gravel bike race, and Official Sponsor of the New York City Tri, Minneapolis Tri, Crusher in the Tushar, Chequamegon, Lutsen 99er and Barn Burner bike races, Chicago Spring and Fall Half Marathons, Turkey Day 5Ks in Minneapolis, Chicago and Miami and the iconic Leadville Race Series.
cbdMD Q3 Results
cbdMD record net sales of $10.6 million in its third fiscal 2020 quarter ended June 30, 2020. The highlights from the June 2020 quarter were:
- Net sales of $10.6 million for the three months ended June 30, 2020, a year-over-year quarterly increase of approximately 33% and a sequential quarterly increase from the three months ended March 31, 2020 of approximately 13%.
- Quarterly e-commerce, direct to consumer (DTC) net sales of $8.2 million, an increase of 77% year-over-year and a sequential quarterly increase of approximately 21%. The Company’s e-commerce, direct to consumer (DTC) sales accounted for in excess of 77% of total net sales in the June 2020 quarter, an increase from 58% from prior year’s quarter.
- The Company’s CBD pet brand, Paw CBD, reported an approximate 64% increase in net sales from its March 2020 quarter of approximately $750,000 to approximately $1,229,000 for its June 2020 quarter.
- Gross profit margin of 64.7% as a percent of net sales as compared to 63.4% for the comparable period in fiscal 2019 and adjusted non-GAAP gross profit margin as a percent of net sales was 67.7% as compared to a 65% in the comparable period in fiscal 2019.
- Working capital was $19.7 million and cash on hand was approximately $15 million on June 30, 2020, respectively.
cbdMD has an exclusive CBD partnership with 12-Time PGA tour winner and two-time Masters Champion Bubba Watson through the end of 2022 for prominent logo display and collaboration both on and off the golf course; signed since May 2019.
In its upcoming marketing and advertising campaigns, Mr. Watson will serve as the main headliner of the brand’s premier athletic sponsorship program, “Team cbdMD”. Utilizing consumer habits of CBD across the golf community in targeted marketing and media advertising campaigns, the company targets 25M+ U.S. golfers through its DTC business model and 15K+ golf course pro shops in the U.S. via its wholesale division.
cbdMD has extended its category-exclusive Official CBD marketing partnership with Bellator MMA, a wholly-owned subsidiary of ViacomCBS. The cbdMD brand will be prominently featured on the mat at all Bellator MMA fights and throughout all Bellator MMA social media content.
“With the onset of additional advertisement opportunities, we can generate significant brand awareness to help deliver increased sales conversion for the brand,” commented Scott Coker, President of Bellator MMA.
Patents on hemp genetics are a new frontier, and very few patents in this sector have been issued to date. Over the summer, cbdMD filed a new patent application with the USPTO that will allow it to pursue patented protection in several key areas, including novel formulations and delivery systems, as well as methods of manufacturing and use. The recent submission is part of its ongoing intellectual property strategy to ensure appropriate protection around its product lines.
CBD MARKET OPPORTUNITY
CBD stocks have been hurt by two things this year – the FDA and COVID-19. FDA scrutiny of CBD stripped food products from the menu in 2019. However, the FDA appears on a path to legal clarity via a bill such as HR 8179 or a change in FDA enforcement policies. The CBD industry expects actionable guidance by the FDA in 2021 and a vaccine or treatment for COVID-19 should exist by this timeline.
cbdMD BOTTOM LINE
Currently trading with a market cap of around $100 million, cbdMD is an incredible opportunity at current levels. Once, we get more clarity from the FDA next year, we expect sales to triple for cbdMD products. YCBD is an absolute steal here and a must-own for long-term investors.
As always, good luck to all (except the shorts)!
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Disclosure: We have no position in NYSEMKT:YCBD or any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Insider Financial is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This article is not a solicitation or recommendation to buy, sell, or hold securities. This article is meant for informational and educational purposes only and does not provide investment advice.