CBD penny stocks have been on the radars of many investors ever since the United States government passed the updated Farm Bill in 2018. There was a lot of optimism around the CBD market and also around the cannabis companies involved in manufacturing CBD-based products. After the updated Farm Bill was passed, research firms stated that in a matter of a few years, the total size of the market could go up to as much as $20 billion. Considering the potential prize, many of the leading cannabis companies, like Canopy Growth (TSX:WEED) (NYSE:CGC) and Aurora Cannabis (TSX:ACB) (NYSE:ACB), pushed into the CBD business.

Several smaller companies moved into the sector as well, and those represent some of the CBD penny stocks in the market. If a small company can manage to corner a portion of a nascent industry, it can manage to generate significant returns for investors, and therein lies the attraction of CBD penny stocks.

In recent times, the CBD sector had a setback after the United States Food and Drug Administration warned against the effects of CBD. However, investors could still have a look at these 3 promising CBD penny stocks.

Charlotte’s Web Holdings is the market leader when it comes to CBD products, and its stock remains the bell-weather for the sector. In March, Charlotte’s Web stock hit its lowest level in 52 weeks, $3 a share, and currently, the company has a market cap of around $500 million. In 2019, analysts had projected sales of $500 million in 2021.

However, it should be noted that as soon as the CBD sector starts rebounding, the effect is almost certainly going to be seen in CWEB’s stock. The acquisition of Abacus Health Products is also going to be vital to the company’s future. Due to that acquisition, Charlotte’s Web now has access to more than 1,500 retail outlets, and on top of that, the company is going to have access to as many as 16,500 health providers.

If the FDA clears up the regulatory issues related to CBD-based food products, then the company’s sales could soar considerably. Analysts believe that the stock is worth backing at its current levels, and the average price target is now $7.31 a share. This represents an upside of 81% in 12 months.

One of the CBD penny stocks that could be on the radars of investors at this point is cbdMD stock. The stock has been trading below $1 in recent days after its Q2 results disappointed the market. Sales were hit due to the coronavirus pandemic, and revenue for the quarter came in at only $9.4 million.

Although it is true that the company has expanded its presence to as many as 5,300 retail outlets, it should be noted that cbdMD is still highly dependent on its e-commerce sales channels. 70% of its sales in Q2 were generated through online sales. The company has managed to generate gross margins to the tune of 65% but spent $5 million on marketing and sales activities.

By the end of March, cbdMD had $14.5 million in cash; while that is not a considerable amount, it gives the company some sort of cushion during this crisis. At this time, any investment in cbdMD stock is going to be a speculative bet at best. However, if the FDA loosens its regulations, it could prove to be a boon for the company.

Another industry that has sprung up on the back of the emergence of the CBD space is the cannabis extraction services industry. One of the major players in that industry is Valens, and according to Wall Street analysts, the company is expected to generate earnings of $0.21 per share in 2021.

The company has been performing impressively what with its extraction services now needed for CBD companies and companies making cannabis derivative products.

Valens is a profitable company and has signed up multiple long-term contracts with many leading companies. Thishas given the company a predictable cash flow, allowing Valens to plan its business well. This is a stock investors will definitely want to keep an eye on.

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