Stock investors seeking to profit from fast-growing demand for CBD -- the non-intoxicating ingredient derived from marijuana used in everything from medicines to foods -- should look closely at six stocks, according to a team at Piper Jaffray.

Stocks best positioned to gain include pure-play companies that sell CBD concentrates, such as Charlotte’s Web Holdings (CWEB.Canada), CV Sciences Inc. (CVSI), Elixinol Global Ltd. (EXL.Australia), and Isodiol International Inc. (ISOL.Canada). Another top CBD-related pick includes GW Pharmaceuticals PLC (GWPH), which currently has the only FDA-approved drug derived from CBD for treating childhood epilepsies. And also Ulta Beauty Inc. (ULTA), which offers a CBD skin care product in its stores and online.

The growing use of CBD is nothing but good news for these stocks. “It is a bit like gluten,” wrote Piper Jaffray. “Consumers are unsure what is,” but “they know they want it.”

6 Stocks For Investors Seeking New Highs

  • Charlotte’s Web Holdings (CWEB.Canada); CBD concentrates
  • CV Sciences Inc. (CVSI); CBD pharmaceuticals and consumer products
  • Elixinol Global (EXL.Australia); CBD oil producer
  • Isodiol International (ISOL.Canada); sells high quality CBD and hemp products
  • GW Pharmaceuticals PLC (GWPH); British bio-pharmaceutical company
  • Ulta Beauty Inc. (ULTA); mass cosmetics and skincare maker

Source: Piper Jaffray, per Barron’s

CBD Market Size $16 Billion by 2025

CBD, short for cannabidiol, is one of more than 100 compounds called cannabinoids found in the marijuana plant, and has been shown to treat illnesses such as epilepsy, depression, anxiety and substance abuse/withdrawal. THC is the much better known and widely used cannabinoid and is the main active ingredient in marijuana, also called cannabis. THC is known for its psychoactive effects that cause the cannabis “high.”

Analysts at Cowen note that CBD products "are now available through increasingly diverse retail channels, including Amazon, Sephora and Neiman Marcus." They peg the value of 2018 retail sales for products containing the compound between $600 million and $2 billion, and expect that number to skyrocket to $16 billion by 2025, per an earlier Investopedia story. Cowen adds that its estimates are based on conservative assumptions, forecasting a 40% increase in consumer use of CBD, and spending of less than $2 per day per consumer.

Piper Jaffray analyst Michael Lavery estimates that CBD could find its way into products worth $3 billion to $6 billion next year. In five years, the analysts expect the market to grow to $8 billion to $15 billion as CBD is more commonly used in food, beverages, health products, and skin creams.

To expand sales in the U.S., companies will need to overcome opposition from the U.S. Food and Drug Administration (FDA), which wants to ban CBD from foods and beverages, and even pet food. The agency has scheduled a public hearing at the end of the month where stakeholders can discuss and share information on the science, manufacturing and sale of CBD.

Looking Ahead

Even the FDA may not be able to stop broadening use of CBD. Piper Jaffray says beverage companies like Coca-Cola Co. (KO) and PepsiCo. (PEP) don’t need wait for an FDA green light to dive into the new market. These food and beverage giants could start having local bottlers to sell CBD-infused drinks within key state borders. The Canadian cannabis company HEXO Corp. (HEXO) already plans to sell such drinks in eight U.S. states.