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Charlotte’s Web Holdings: Featured Cannabis Stock

CWBHF (OTC), CWEB (CSE)

Should you invest in Charlotte’s Web Holdings, Inc. hemp stock? CWBHF (OTC), CWEB (CSE)? Recommendation: Keep Reading

Charlotte’s Web Holdings, Inc. engages in the production and distribution of hemp-based, cannabinoid wellness products. Its products is comprised of tinctures, capsules, topical products, powdered supplements, single-use, beverage, and sport and professional products. The company was founded in 2013 and is headquartered in Boulder, CO.

Fundamentals

Profile

HQ: Boulder, CO
Founded: 2011 as Stanley Brothers Holdings Inc
Incorporated: 2018 became Charlotte’s Web
Symbol: CWBHF (OTC) & CWEB (CSE)

Focus: Strong

Charlotte’s Web Holdings, Inc. produces and distributes hemp-based, cannabidiol wellness products in the US. It does not produce or sell medicinal or recreational marijuana-based products. Its products are made from proprietary strains of whole-plant hemp extracts containing a full spectrum of phytocannabinoids, including CBD, terpenes, flavonoids and other hemp compounds. It believes the presence of all these compounds work synergistically to heighten the effects of the products, making them superior to single-compound CBD isolates.

Its products include tinctures, capsules, topicals and pet products. CW distributes them under the Charlotte’s Web and CW name through its e-commerce website, wholesalers, and physical retailers.

Planned future products include powdered supplements, single-use, beverage, sport, and professional products (for dedicated health care practitioners).

Operations: Strong

Cultivation: CW grows its own hemp on over 862 acres of leased farms in eastern Colorado, and buys hemp from farms in Oregon and Kentucky.

Current production:  CW produced over 2.34 million pounds in 2019.

Extraction: CW has its own extraction operations

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Distribution: Strong

CW distributes via natural food stores (e.g. Erewhon, Fresh Thyme), online sales, chiropractic and doctors’ offices, gyms, massage therapy offices, salons, animal clinics and pet stores, and a few dispensaries, which they are de-emphasizing as they move to neutraceutical positioning. They are targeting not just cannabis users, but the broader health and wellness market. CW is one of the dominant brands in natural food stores and medical companies in the US. Its future distribution plans include national grocery chains, drug chains, pet, and natural retailers.

Direct sales: 57% of sales on eCommerce sites
Store networks: 43% of sales (11,000 retail stores)

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Financials: Strong

Revenue grew from $14 million in 2016, to $40 million in 2017, around $70 million in 2018, and $95 million in 2019. Few companies show such growth.

Revenue rank in the hemp industry: 1
Revenue Growth (QoQ): 36%
Shares Outstanding (diluted): 96.54 mil
EPD (diluted): (0.21)

Management: Neutral

CEO: Deanie Elsner
CFO: Russell Hammer
CIO: Paul Lanham
CCO (Chief Cultivation Officer): Jared Stanley

Branding: Strong

Branding is a major focus for Charlotte’s Web. CW is an attractively packaged, well-recognized, leading brand among consumers. The brand includes tinctures, topicals, capsules, and pet products. Its products are whole-plant extracts of proprietary hemp strains and do not contain psychoactive THC.

In September 2018, CW introduced two new products, Maximum Strength Hemp Extract Oil and CBD Isolate Oil. The first is a 100% CO2-extracted product containing the highest level of CBD to support overall wellness. The second is a THC-free extract that gives consumers the ability to boost their full spectrum routine with additional amounts of CBD.

Just this week Charlotte’s Web acquired Abacus Health (ABAHF) a provider of pain relief and skincare products for all stock valued at $69 mil. This will grow the brand into the consumer health markets and health care practitioners.

Valuation: Neutral

Current share price: US $4.80 (CWBHF)
Price to Sales: 4.90 (Biopharma industry average = 7.5)
EV / Revenue: 4.90
52 week low/high: US $2.75-$25.25
Price/Book: 3.39

Financings: Strong

Charlotte’s Web went public with an IPO on August 30, 2018 and changed its name at the same time from Stanley Brothers to Charlotte’s Web. The IPO raised US$69 million, selling 13 million shares at CAD $7 (US$5.41) each. Recently JP Morgan has given Charlotte’s Web a $10 million line of credit with the accordion feature to grow that to $20 million within 3 years.

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Risks: High

The markets in the CBD and hemp extracts industries are competitive and evolving. CW faces strong competition from both existing and emerging companies that offer similar products.

Given the rapid changes affecting the global, national and regional economies generally, and the CBD industry, in particular, no company can guarantee to maintain a competitive advantage in the market forever. They are #1 now so should be in everyone’s crosshairs.

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Recommendation: Strong

Charlotte’s Web has many strengths going for it:

  • a leading market position in a rapidly growing segment
  • an established, trusted brand
  • positive industry trends supporting its continued growth (legalization, growing popularity)
  • a track record of new products to expand its portfolio
  • a focus on consumer-centric branding
  • scalable cultivation and production platforms
  • good financial performance, including consistent revenue growth, and profits
    strong management team

CW Hemp’s management believes its future growth depends on:

  • product innovations;
  • further penetration into international markets;
  • growth in retail, wholesale and distributor partnerships;
  • growth in e-commerce distribution;
  • improvements in operating income, gross profit and operating expense margins.

It believes that its success depends on its ability to:

  • develop new products that appeal to consumers,
  • expand brand loyalty and brand recognition,
  • improve competitive position in the markets, and successfully market products in new geographic areas.

CW is now generating revenue at a pace of about $96 million per year. With recent legalization, the market appears ready to grow substantially—potentially over 30% per year for several years.

CW’s Price to Sales and Price to Earnings ratios, when viewed in relation to comparable industries, are very reasonable (less than 5.0). The downtrend of the markets now has revealed many opportunities. CW is one of those. The recent news about JP Morgan and Abacus has grown the stock over 10% this week but it is still a steal. The price isn’t currently matching revenues and potential growths given these two deals and they have plenty of cash on hand to continue their growth plans in 2020 ($68.6 million).

The company is still turning a profit, unlike many cannabis companies, so we are encouraged that the management is focused on shareholder value and strong profit margins in the future. Given that its current valuation is not unreasonably high, we give this company a strong rating as a potential long-term hemp stock investment.

Should you invest in Charlotte’s Web Holdings, Inc.? CWBHF (OTC), CWEB (CSE)?

See our comprehensive analysis on these other cannabis and hemp stock opportunities

Charlotte’s Web Holdings: Featured Cannabis Stock


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