Hemp legalization in the U.S. will let this giant drugstore chain start selling cannabidiol (CBD) skin creams, patches and sprays in nine U.S. states. The company is in a strong position to profit as even more U.S. states legalize these products
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Walgreens Boots Alliance Inc., $62.83, symbol WBA on Nasdaq (Shares outstanding: 943.4 million; Market cap: $59.3 billion; www.walgreensbootsalliance.com), is one of the world’s largest operators of retail drugstores, with over 18,500 outlets in 11 countries. It also sells its goods online.
The company took its current form in 2014 when it purchased 45% of European pharmacy chain Alliance Boots GmbH for $6.7 billion in cash and stock. Walgreens later exercised its option to purchase the remaining 55% for $9.5 billion.
Switzerland-based Alliance Boots operates over 3,330 health and beauty stores and 625 optical centres. As well, its wholesale drug businesses supply medicines and a range of other health care products.
In 2017, Walgreens acquired 1,932 Rite-Aid drug stores in the U.S. for $4.375 billion.
Walgreens recently announced that it would sell skin creams, patches and sprays containing CBD in 1,500 stores in nine states: Oregon, Colorado, New Mexico, Kentucky, Tennessee, Vermont, South Carolina, Illinois and Indiana.
CBD, short for cannabidiol, is a non-psychoactive compound extracted from both marijuana and other cannabis varieties. In 2018, the U.S. Congress passed a new farm bill that makes it legal for hemp growers to extract CBD. However, the Food and Drug Administration (FDA) has so far banned companies from adding CBD to food or selling it as a dietary supplement.
Walgreens is in a strong position to profit as more U.S. states legalize cannabis. That’s because its pharmacy operations have experience distributing controlled substances and counselling customers about their effects.
The company raised its quarterly dividend by 10.0% with the September 2018 payment, to $0.44 a share from $0.40. The new annual rate of $1.76 yields 2.8%. Walgreens also continues to aggressively buy back its shares. It has $6.7 billion remaining under its current authorization. There are no time limits for those purchases.
Growth by acquisition adds risk. However, the company’s purchases have helped it compete with other big drugstore chains (like CVS Health) and mass market retailers (like Walmart).
The stock trades at 9.7 times this year’s forecast earnings of $6.46 a share. That low multiple in part reflects concerns over Amazon.com’s plans to sell prescription drugs online. As well, the FDA has criticized the company for selling tobacco products to underage buyers. Additional violations could lead to fines or other penalties.
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