Charlotte’s Web: Is this Hemp Stock a Strong Buy Now?
Although the cannabis industry is full of growth prospects with many of the industry players experiencing a massive leap in their revenues, there are still a few companies that were constantly struggling for survival. Charlotte’s Web Holdings Inc, a market leader in the spectrum of cannabidiol (CBD) hemp extract wellness products, is one such company that saw stagnant revenues and lacked profitability throughout the pandemic period. The stock lost more than 70% of its value during 2020 and a 52-week range of $2.10- $9.0380 showed the stock possesses extreme volatility. Although Charlotte’s Web is showing signs of recovery, it is still more than 50% down on a year-over-year basis. But is this hemp stock a strong buy now?
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CWBHF: Missed Revenue Estimates & Mounting Expenses
Profits in the cannabis industry are quite elusive so investors expect robust revenue growth from the companies in which they invest. Charlotte’s Web did have record-high revenue of $25.2 million in its third quarter, but it was only $100,000 higher than the prior-year period, indicating only a 0.4% increase in sales. Though its Q2 results were much worse where the company’s top line had fallen by 13.6%, recovery in Q3 was not up to the investor’s expectations.
The pandemic was primarily responsible for such poor performance. Due to country-wide lockdowns, its retail sales faced headwinds. The company lost a whopping $32.5 million in its first nine months whereas in the same period of the prior year it had seen $3.2 million in profits. The little stability it got was due to the growth in online sales for which the direct-to-consumer segment revenues increased by 27.5%.
In order to fix its top-line Charlotte’s Web needs to better manage its expenses. While there was a reduction in headcount by 5% in the Q3, its expenses increased by 27% which is not a good sign. Charlotte’s Web needs to be more aggressive in cutting down its expenses if it wants to strengthen its financials and re-instill investor’s confidence.
CWBHF Benefits from Federal Hemp Legalization
Charlotte’s Web needs to determine how to cut losses and regain its position as the undisputed market leader. Post the US elections, 15 states had legalized recreational marijuana while 36 allowed its use for medical purposes. As more states legalize cannabis, customers will get access to cannabis products for both medical and recreational purposes.
The major advantage for Charlotte’s Web is the hemp plants from which it derives CBD is legalized at the federal level provided they don’t contain more than 0.3% of tetrahydrocannabinol (THC). Also, considering the high demand for cannabis, the company’s constant research in developing hemp varietals having superior cannabinoid expressions, and hemp being fully legal, the company can try to widen its reach by partnering with top industry players and capture a greater market which can significantly add to its revenues.
However, the management did try to scale up the sales by increasing its number of physical stores from 9,000 in 2019 to about 22,000 by the third quarter of 2020. Despite more than doubling its reach, no equivalent increase in sales was noticed. But the recent ventures made by Charlotte’s Web, especially in international frontiers like expanding to Israel through an alliance with Israel’s largest and most established medical cannabis producer InterCure Ltd can bring about a change in its financials.
Bottom Line: Is Charlotte’s Web Hemp Stock a Strong Buy Now?
Charlotte’s Web has suffered consecutive quarters of negative EBITDA. The company’s expenses are pretty high and there isn’t much sales growth for the company to return to profitability anytime soon. There aren’t sufficient reasons yet, to be optimistic about its current year performance although the cannabis industry is continuously growing and has a lot to offer to its industry players. Therefore hemp stock investors should wait until there is sufficient data to back the company’s success as there are better options available in the market.
Charlotte’s Web: Is this Hemp Stock a Strong Buy Now?
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