What Does CVS Health’s CBD Oil Move Mean for the Cannabis Sector?
CVS Health (NYSE: CVS) has decided to ease its way onto the cannabis bandwagon: The pharmacy giant will begin selling products containing the hemp-derived and nonpsychoactive compound cannabidiol -- aka CBD oil -- in eight states where it's legal. CBD definitely won't get you high, but whether it will do anything else for you medically beyond providing a potent placebo effect is much less clear.
However, our concern is what it can do for businesses and your portfolio, so in this segment of the Motley Fool Money podcast, host Chris Hill and Fool senior analyst Emily Flippen address that subject. They'll consider what it will mean for CVS's business, how it will factor into stock valuations in the already-optimistically priced pot sector, and more.
A full transcript follows the video.
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This video was recorded on March 22, 2019.
Chris Hill: Reports this week that CVS Health has started selling cannabis-based products in eight states. These are topical products like lotions and sprays. They're being sold in Alabama, California, Colorado, Illinois, Indiana, Kentucky, Maryland, and Tennessee. Emily, you're one of the advisors on The Motley Fool's marijuana investing service. Is this a good move by CVS Health?
Emily Flippen: Undoubtedly a good move by CVS Health. This is going to mean great things for those 10 states that have access to these products now through their local CVS stores. It brings much needed legitimacy, I think, to the CBD market in general. So I think it means great things, not just for CVS, not just for Curaleaf, who is the brand of CBD products they will be stocking, but for any producer of CBD, honestly.
What's really exciting is the fact that CVS is testing this. That means that if there is success in these 10 markets, I think it's likely that we see this continue to expand. Currently, you can only sell CBD in these types of forms. It's a pretty new thing. CBD comes from the marijuana plant. Up until December of last year, the passage of the hemp bill, it was actually illegal, because it was part of that same plant. CBD does not get you high like THC does, but the people who use it, many say that it provides some medicinal benefits. Those statements obviously need to be inquired upon, but for the time being, it's an exciting move in the industry.
But it's really important not to forget just how overweight this sector is in general. There's a lot of companies flying high on really high valuations. Curaleaf, the brand that CVS is stocking, for reference, we talked about Levi's, with a $9 billion valuation. Curaleaf, on the other hand, has a $5 billion valuation on sales of $77 million vs. $5.5 billion for Levi's.
So, just to give you a perspective about how high that stock is valued. There's a lot of really strong expectations built into these companies. This is a step in the right direction, but it's a small step.
Chris Hill has no position in any of the stocks mentioned. Emily Flippen has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.