Charlotte’s Web Holdings Stock Forecast
Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF, CNSX:CWEB) may just be the best hemp stock you’ve never heard of. Thanks to industrialized hemp being legalized in the 2018 Farm Bill, chances are excellent that you’ll start hearing more about this cannabidiol (CBD) producer in 2019.
In fact, Charlotte’s Web Holdings is shaping up to be one of the more interesting U.S. marijuana stocks in 2019.
The world’s leading company by market share in the production and distribution of hemp-based CBD products, the company is backed by strong brand power, quality products, and financial strength. This makes CWBHF stock one to watch in 2019.
Charlotte’s Web Holdings cultivates its hemp crops outdoors in various places across the U.S. to hedge against weather and other crop-related risks.
Charlotte’s Web planted 300 acres of hemp in 2018, up from just 70 acres in 2017. Farmers produced a robust hemp crop in 2018, with a total harvest exceeding the company’s initial estimates of between 250,000 and 350,000 pounds.
Because of optimal growing conditions, Charlotte’s Web announced a total production capacity of approximately 675,000 pounds in 2018—more than 10 times the 63,000 pounds of hemp harvested in 2017.
The 2018 record harvest of hemp provides Charlotte’s Web Holdings with enough raw material to help it build inventory for 2020. (Source: “Charlotte’s Web Hemp Harvest Increases 10X, Building Inventory to Meet Growing CBD Product Demand,” Charlotte’s Web Holdings Inc, January 15, 2019.)
The company sells its products throughout the U.S. in 3,045 retail locations so far (as well as through the company’s web site).
The passing of the $867.0-billion Agriculture Improvement Act of 2018 (2018 Farm Bill) in December, which removed hemp as a controlled substance (having once been in the same league as LSD and heroin), will help increase access and distribution. It means that local and national retail chains can now legally sell hemp-based products.
Not only that, but now that industrialized hemp is legal, university, medical, and pharmaceutical companies can study the benefits of CBD. So far, studies have shown that CBD—when consumed as a pill, tincture, spray, oil, or topical ointment—can help with pain, anxiety, and bipolar disorder.
Limited scientific studies have also shown that CBD can be used to treat arthritis, alcoholism, diabetes, multiple sclerosis, post-traumatic stress disorder (PTSD), epilepsy, and Parkinson’s disease. It can even reduce symptoms associated with schizophrenia and other neurological disorders. (Source: “Cannabidiol (CBD) — what we know and what we don’t,” Harvard Medical School, August 24, 2018.)
To that end, Charlotte’s Web’s massive array of products include CBD oil tinctures, CBD capsules, CBD topicals, and CBD pet products.
Charlotte’s Web Holdings IPO
Charlotte’s Web stock went public back in September 2018, but the company has been around for a number of years and has developed a loyal legion of fans.
The company, founded by the seven Stanley brothers from Colorado, got its start in the marijuana industry when they began to research alternative cancer treatments for an uncle who was diagnosed with pancreatic cancer in 2008. (Source: “Our Company,” Charlotte’s Web Holdings Inc, last accessed January 22, 2019.)
By 2011, the brothers had developed proprietary hemp genetics that would eventually become the basis for Charlotte’s Web Holdings.
The company was thrust into the spotlight in 2013 when it was revealed that their CBD products helped a young girl by the name of Charlotte, who suffered from a severe form of epilepsy (Dravet syndrome) and suffered more than 300 grand mal seizures a day.
After exhausting all of their pharmaceutical options, Charlotte and her family started to use CBD products developed by the Stanley brothers. Since taking Charlotte’s Web products, her quality of life improved and her seizures were drastically reduced. She even started to go to school for the very first time in her life in 2015.
In 2013, Charlotte’s story was featured in Dr. Sanjay Gupta’s CNN documentary WEED, as well as on the TV shows The View and 60 Minutes. The story was also reported in The New York Times, The Wall Street Journal, and many other national and international papers.
Taking Charlotte’s Web public was a natural evolution of the company’s extraordinary success.
Charlotte’s Web Quietly Closes Largest Hemp IPO in History
On August 30, 2018, Charlotte’s Web successfully closed its previously announced initial public offering (IPO) and secondary offering of its common shares, for total gross proceeds of CA$115.1 million. (Source: “Charlotte’s Web Holdings, Inc. Completes Initial Public Offering,” Charlotte’s Web Holdings Inc, August 30, 2018.)
The company said it would use the proceeds from its IPO for international expansion, production and cultivation, distribution, and acquisitions.
This gave the company a valuation of about CA$650.0 million, with shares priced at the top end of its previously announced range of between CA$6.00 and CA$7.00.
While the broader marijuana industry is not exactly known for being the model of self-restraint, when it comes to self-promotion, there was little fanfare around Charlotte’s Web’s IPO, which, to date, was the largest hemp IPO in history.
Still, investors liked what they saw, and by the end of the first day of trading, the Charlotte’s Web share price jumped to CA$9.70. It has since gone up even higher.
There are more than enough growth factors for investors to like when it comes to Charlotte’s Web.
- Since 2016, Charlotte’s Web Holdings has reported strong revenue growth in every quarter.
- Revenue soared 391% from Q3 2016 (US$3.6 million) to Q3 2018 (US$17.7 million)
- Annual revenue increased 172% from US$14.7 million in 2016 to US$40.0 million in 2017
- Gross profit grew from US$9.6 million in 2016 to US$29.9 million in 2017.
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) grew from US$2.0 million in 2016 to US$14.1 million in 2017
- 2017 e-commerce sales growth up 60%
- Sales for fiscal-year 2018 are projected to be US$65.0 million to US$80.0 million
- Estimated adjusted EBITDA for fiscal 2018 is US$23.0 million to US$30.0 million
(Sources: “Our Company,” op cit and “Financial Highlights,” Charlotte’s Web Holdings Inc, last accessed January 22, 2019.)
Charlotte’s Web Holdings Stock Financials
Charlotte’s Web Holdings continued on its winning ways in the third quarter of fiscal-year 2018 ended September 30, 2018.
As mentioned above, third-quarter revenue increased 57% year-over-year to US$17.7 million. Third-quarter net income came in at US$1.8 million (US$0.02 per share) compared to net income of US$2.0 million (US$0.03 per share) in the same prior-year period. (Source: “Charlotte’s Web Holdings, Inc. Reports Third Quarter 2018 Financial Results,” Charlotte’s Web Holdings, Inc., November 27, 2018.)
Gross profit, before biological asset adjustments, increased by 54% to US$13.8 million (78% of consolidated revenue). Adjusted EBITDA increased 23% to US$5.4 million (31% of consolidated revenue).
During the third quarter, Charlotte’s Web invested heavily in marketing for its brand relaunch, which will be leveraged throughout 2019 with packaging, its web site, social media, print, PR, and additional brand awareness, customer acquisition, and retention efforts.
In the third quarter of 2018, the company’s advertising, promotions, and selling costs were US$2.8 million. In the third quarter of 2017, those same costs were US$0.6 million. As a percentage of revenue for the quarter, these costs were 15.8% (versus 5.3% in 2017).
“During the third quarter we completed a successful initial public offering and private placement that generated significant capital for the Company that is being deployed to accelerate our growth in the hemp-derived CBD sector,” said Hess Moallem, President and CEO. (Source: Ibid.)
For the first nine months of fiscal-year 2018, revenue soared 75% year-over-year to $48.0 million. Net income for the period was $8.7 million ($0.10 per share), a 70.5% increase over the $5.1 million ($0.06 per share) in the first nine months of fiscal-year 2017.
Gross profit increased 80% to $37.1 million (77% of consolidated revenue). Adjusted EBITDA increased by 71% to $16.2 million (34% of consolidated revenue).
Year-to-date 2018 advertising, promotions, and selling costs were $4.7 million, compared to $2.1 million in 2017.
When it comes to CBD stocks, Charlotte’s Web Holdings is the one to beat.
The company continues to launch new products and ramp up its marketing efforts. Thanks to the passing of the 2018 Farm Bill, CBD products can now be found in many retail locations in the U.S., opening up a world of long-term growth for Charlotte’s Web.
The company continues to report strong quarter-over-quarter revenue growth, and it quietly secured more than CA$100.0 million in the world’s largest hemp IPO.
Charlotte’s Web’s market dominance is fierce, and 2018 looks like it will have been another record year for the company. By the looks of things, 2019 and 2020 are shaping up to be even stronger.