Charlotte’s Web Holdings Inc: Consider This Pot Stock on the Cheap?

Charlotte’s Web Holdings Inc: Consider This Pot Stock on the Cheap?
iStock.com/Tinnakorn Jorruang

This Beaten-Down Pot Stock Deserves a Look

Pot companies have been delivering some serious growth rates, and for a while, their share prices reflected that. Over the last few years, there have been quite a few pot stocks shooting through the roof.

More recently, though, sentiment seems to have changed. Despite the industry’s rally in previous years, 2019 hasn’t exactly been that great for pot stocks.

To give you an idea, the North American Marijuana Index is down more than 40% year-to-date. (Source: “North American Index,” The Marijuana Index, last accessed November 15, 2019.)

No shareholder likes crashing stock prices. But here’s the thing: one of the biggest concerns about the marijuana industry was that valuations were through the roof.

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So with the sector’s recent sell-off, shares of some of the fast-growing businesses are now trading at prices that are just a fraction of where they were before.

Case in point: Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF, TSE:CWEB). As a producer of hemp-derived cannabidiol (CBD) wellness products, the Boulder, Colorado-based business has grown tremendously over the years.

Consider this: in 2016, Charlotte’s Web’s revenue was $14.7 million. In 2017, the amount surged to $40.0 million. And by 2018, the company was earning $69.5 million in annual revenue. (Source: “Building a Global CPG Company,” Charlotte’s Web Holdings Inc, last accessed November 15, 2019.)

Charlotte’s Web Holdings completed its initial public offering (IPO) on the Canadian Securities Exchange on August 30, 2018. After a few months of trading, the company uplisted to the Toronto Stock Exchange on May 31, 2019.

Note that, while these are both Canadian stock exchanges, Charlotte’s Web shares also trade over the counter in the U.S. under the symbol “CWBHF,” so it’s quite convenient for American investors to get a piece of the action.

Looking at the Charlotte’s Web stock chart below, we see that the company’s shares had a strong rally earlier this year. But since the beginning of August, CWBHF stock has been travelling downhill.

With a price of just $9.55 at the time of this writing, the stock is trading at less than half of where it was three months ago.

Charlotte’s Web Holdings Inc (OTCMKTS:CWBHF) Stock Chart

Chart courtesy of StockCharts.com

Usually when there’s such a massive tumble in share price in such a short period, it implies that a company’s business must be deteriorating. So, is that what’s happening with Charlotte’s Web stock?

Well, the company recently reported its earnings. The report showed that, in the third quarter of 2019, Charlotte’s Web Holdings generated $25.1 million of revenue. Compared to the $17.7 million of revenue earned in the third quarter of 2018, the company achieved a top-line growth rate of almost 41.8%. (Source: “Charlotte’s Web Holdings Reports 2019 Q3 Earnings,” Charlotte’s Web Holdings Inc, November 13, 2019.)

Notably, the company’s business-to-business retail sales surged 66.4% during the quarter, and its business-to-consumer e-commerce sales rose 38.7%.

That means, despite the downturn in the CWBHF stock price, Charlotte’s Web was actually growing its business.

Still, as is the case with most beaten-down tickers, Charlotte’s Web Holdings Inc’s earnings report wasn’t exactly perfect. In particular, the company incurred a net loss of $0.01 per share in the third quarter of 2019. In the year-ago period, it earned a profit of $0.02 per share.

Charlotte’s Web Holdings plans to continue expanding its business. In the company’s latest earnings release, Chief Executive officer Deanie Elsner said, “We expect full year revenue for 2019 to be in the range of $95 to $100 million and to maintain growth rates for 2020 in the 40% to 50% range or until clear regulations are set.” (Source: Ibid.)

Analyst Take

At the end of the day, keep in mind that Charlotte’s Web Holdings Inc already has an entrenched position in the hemp-derived CBD market. The company offers an expanded product portfolio that includes human consumables such as tinctures, capsules, gummies and topicals—as well as pet products.

By the end of September, Charlotte’s Web’s products were sold at more than 9,000 retail locations.

With continued expansion in the company’s business, Charlotte’s Web stock could be worth a look for those who understand the underlying risks of this booming industry.