New Age Beverages stock has gone on to give back all of those gains. Its $1.30 close on Monday matches its 2018 low. However, an encouraging financial update on Tuesday that plays up the success it’s having with its patented immunity-boosting beverages is breathing new speculative life into the volatile stock.
The functional beverage specialist is playing up the success of its immunity-boosting products.
The market saw past the reported revenue growth, focusing on the lack of organic gains. It also didn’t help that gross margin would go on to decline with every passing quarter, going from 66% in the first three months of last year to 54% by the fourth quarter. Tuesday’s update finds it targeting gross margin for the recently concluded quarter to be in the low- to mid-60% range. The handful of analysts still following the stock were bracing for a slight dip on the top line, so the 6% to 10% increase — on accelerating margins — is naturally a welcome development.
Fizzing up a hot trend
Leave it to a one-time high-flyer to find a new way to get high again. New Age Beverages (NASDAQ:NBEV) had a short-lived surge in the latter half of 2018 when it introduced a line of CBD-spiked drinks, a move that took shares of the functional beverage distributor from a low of $1.30 in late August of that year to as high as $9.99 a few weeks later on the buzz surrounding the launch of its cannabidiol beverages.
After the Farm Bill was passed on December 20 th , the FDA did not change their stance on CBD-infused products and still regards them as illegal in interstate commerce. The commissioners statement surprised many CBD/cannabis investors that were hoping the FDA would ease regulation. Eric Asssarf, a Cowen analyst said the move could “come as a disappointment to CBD manufacturers” (Link). New Age was not expecting the FDA to firm their stance against CBD, and without its approval, the company will face significant delays and reduce guidance in 2019, in our opinion.
Fair value is According to the commissioner’s statement on Friday (12/20), “…It is unlawful under the FD&C Act to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived. Under the FD&C Act, it’s illegal to introduce drug ingredients like these into the food supply, or to market them as dietary supplements. This is a requirement that we apply across the board to food products that contain substances that are active ingredients in any drug.” (Link).50/share best case scenario is BAD
The FDA does not recognize CBD as a Generally Recognized as Safe (“GRAS”) substance (Link), which is the main requirement under the FD&C Act; meaning the current “pathways” give NBEV’s CBD-infused beverages no chance at approval. Without new legislation, CBD will not be legalized. Given the split control of the legislature and low priority of CBD legalization, it is unlikely that congress would act any time soon on this issue. At the minimum, we expect substantial delays for the release of NBEV’s CBD portfolio.