Click here for an upgrade from The Motley Fool Co-Founders Tom and David Gardner.
Cannabidiol (CBD) is increasing in popularity as people learn more about its possible health advantages, which range from relaxation, discomfort relief, and combating swelling to treating people with epilepsy. There’s still a lot for researchers to find out about CBD and what it can and can refrain from doing, however in the meantime, business are putting the cannabis substance just about all over, from hamburgers to pillows to clothes. That’s why many business are getting included, consisting of consumer goods business that see a chance to assist improve their sales by participating a hot new health pattern.
Unilever ( NYSE: UL) revealed last year that it would be entering the marijuana market through one of its subsidiaries, Schmidt’s Naturals. The most recent consumer items company to get in the marijuana fray is Colgate Palmolive ( NYSE: CL)
Colgate purchases Hi Products
In January, Colgate announced it would buy an oral care brand name, Hi Products. The business sells toothpaste, floss, toothbrushes, and other oral health products.
One of the trends that Hello Products is counting on: hemp-derived CBD. Shortly after the acquisition announcement, Hello Products announced on Feb. 4 that it would be releasing a line of CBD products: mouthwash, tooth paste, and even lip balm which contains CBD.
The company states in its press release that the CBD originates from “hemp grown by partner farms based in the U.S.” Although marijuana remains prohibited in the U.S. at the federal level, hemp-derived CBD items are not, thanks to the farm Costs, and they use a method for business to remain on the ideal side of the law.
Image source: Getty Images.
Why it’s worth the gamble for Colgate
Getting into a new line of health products is a fairly safe bet for Colgate to make. It already makes comparable non-CBD products, and including a new line to its portfolio might possibly tap the business into more youthful markets and help find a new type of customer. However, it’s still far prematurely to inform how popular CBD oral care items will be and whether they’re any better than what’s on the market today. But for Colgate, it’s most likely a low-risk relocation. Hemp-based CBD is legal, and considering that the items are offered through Hi Products, Colgate’s name won’t straight be connected with marijuana– which might shut off some clients, as marijuana legislation is still a polarizing subject for many people.
And as for the opportunity, investors only need to look as far as Charlotte’s Web ( OTC: CWBHF), which offers hemp products, to see the capacity that exists. Over the past 12 months, the company generated more than $93 million in earnings, and its items are offered in more than 9,000 areas throughout the country.
What does this mean for investors?
Entering marijuana items, especially oral care products, likely isn’t going to give Colgate’s numbers much of a bump in sales. The business posted $157 billion in income in 2019, so creating even a 1%enhancement would require income of almost $160 million. For oral care, the market may not be there just. Brightfield Group estimates that the total CBD market deserved more than $4 billion in 2019, however that consists of both hemp and nonhemp items. And even though it expects the U.S. CBD market to be worth more than $24 billion by 2025, it’s uncertain how big a piece of that pie oral care might declare.
If you were going to purchase shares of Colgate, its purchase of Hi Products most likely won’t impact your choice. It’s too early to know the impact of this acquisition and whether the items will be effective in creating any considerable revenue development.
It’s a sign that there might be some more prospective marijuana acquisitions this year. A cannabis stock like Charlotte’s Web, for example, would enable financiers to use the hype surrounding hemp-derived CBD products.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Charlotte’s Web. The Motley Fool has a disclosure policy.”> disclosure policy”>