Hemp Stocks: Is Charlotte’s Web still a Buy?
One of the leading players in the medical marijuana space, Charlotte Web Holdings (TSX: CWEB), has experienced a subdued performance in the past three months. The hemp stock has lost more than 50% of its market value in the past six months. It has underperformed the cannabis ETFs this year and has been impacted by the overall volatility of the sector. But is this hemp stock still a buy?
Weakness in B2B segment and losses weigh on this hemp stock
CWEB stock posted mixed results for the first quarter. Charlotte’s Web revenue for Q1 slipped to $21.7 million due to weakness in its B2B (business-to-business) segment where sales dropped 31.5% year-on-year (YoY) to $7.4 million. It’s the strength in CWEB’s DTC (direct-to-customer) business that lent some support and offset losses in revenue.
Even the company’s adjusted EBITDA at $5.7 million trailed analyst expectations. In fact, in the same period last year, the hemp stock had posted a profit.
Charlotte’s Web has several expensive expansion plans lined up across the year. As a result of this, it saw a surge in its operating expense impacting profit margins. Deanie Elsner, CEO of CWEB, however, was upbeat on the company’s revenue coming in ahead of the expectations. She also indicated that the hemp stock hasn’t seen many operational disruptions due to the COVID-19 pandemic.
At the same time, the hemp giant’s cash position is under pressure too. At the end of Q1, CWEB did have $53 million in cash balance. However, considering the cash spent on its operations, the balance might not be enough to sustain beyond a few more quarters.
Yet to reap benefits of Abacus Health acquisition
On the operational front, Charlotte’s Web faces immense uncertainty until the US Food and Drug Administration gives final regulatory approval on CBD dietary supplements. Furthermore, the hemp stocks much talked about acquisition of Abacus Health, the Canadian CBD producer, failed to create the desired buzz.
CWEB was particularly upbeat about this association as Abacus manufactures and markets CBD-infused recreational and medical products. Charlotte’s Web aimed at gaining more retail presence in this space, which according to the company would be nearly 33% market share of the U.S. CBD market.
Investors continue to exercise caution with this hemp stock
The hemp company expects to post a 10-20% revenue growth and a positive adjusted EBITDA by the end of 2020. However, even though CWEB is trading well below the $22 highs last summer, we believe investors will continue to exercise caution with this hemp stock.
The cannabis sector is going through a volatile phase. There are also mounting concerns about equity dilution by the pot producer. Charlotte’s Web also has to realize the expected level of success from its Abacus acquisition. What’s positive about this hemp stock is its continuous quest for expansion. At this critical juncture, we suggest adopting a “wait and watch” approach for CWEB stock.
Hemp Stocks: Is Charlotte’s Web still a Buy?
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