Boulder CO-based Charlotte’s Web Holdings, Inc. (TSX:CWEB, OTCQX:CWBHF), the market leader in hemp CBD extract products, today reported it has increased its planted hemp acres to 862 to meet growing demand, a 187% increase from 300 acres planted in 2018.
Investors liked the news and bid the stock price higher by 10% to $14.22.
This uptick comes after 2.5 months of sliding stock price. The drop is attributable not to company failings, but to a general price decline across the cannabis industry as investors sober up and take a more realistic look at industry valuations versus what the industry can deliver in profit in coming years. The stock price has slid from a high of $24 in early April. This 10% rebound signaled that many investors think it has dropped enough and is worth buying again.
Is this a buying opportunity for you?
We think so. It is the US market leader in hemp-based CBD production, in an industry that is projected to grow by double digits for quite a few years. The company’s Price to Sales ratio is now about 15, or roughly 3x what the average P/S ratio is in the mature tobacco industry. This is high for most industries, but not high for the inflated cannabis and hemp industry.
Charlotte’s Web is currently on an annual revenue pace of $86 million. We think it is priced for revenue of about $250 million. This means we do not think its current stock price will be firmly justified in solid revenue (grounded against occasional price drops) for several years, until it reaches $250 million in annual revenue.
But its production capacity will eventually allow it to produce much more revenue than $250 million, perhaps $800 million or more. And as a responsible company and a leader in the CBD market, it is not likely to be beaten down or fail in the near term. So, at this price, it looks to us like a good long-term investment now.
Growing production capacity
In 2016, 2017 and 2018, the company produced 41,000 lbs., 63,000 lbs. and 675,000 lbs., respectively, of dried hemp biomass. That is solid production growth. Its gross margin is a very respectable 73%. And rather than racking up ridiculous losses like many competitors, it delivers a small but appreciated profit to its bottom line, showing fiscal restraint.
Charlotte’s Web grows more hemp than it needs to minimize risk of shortfalls against rapid market growth. Dried hemp can be stored for years, and longer in its extracted form.
“Our 2019 planting strategy ensures we will have the required raw materials to deliver on production targets…through 2020 and into 2021,” stated Deanie Elsner, CEO.
100% USA grown by American farmers
It cultivates hemp outdoors in diverse regions across the United States to hedge against weather risks. Of the 862 acres planted, 19% are in Colorado, 38% are in Kentucky, and 43% are in Oregon. The Colorado farms are run by its own team, while others employ family-owned contract farmers, supporting the American agricultural economy.
All acres are cultivated using natural farming methods. Up to 53% of the land is designated for organic certification, with more planned in coming years.
Its vertical integration allows quality control for its proprietary genetic strains from seed to sale. By the time customers receive their product, products have typically been tested over 20 times. All its products are certified by the U.S. Hemp Authority.
Charlotte ‘s Web products contain a full spectrum of phytocannabinoids, and include CBD Oil tinctures (liquid products), CBD capsules , CBD topicals , as well as CBD pet products.
Its CBD extracts are sold through distributors, retailers, and online through its website at www.CharlottesWeb.com.
Shares of Charlotte’s Web trade on the Toronto Stock Exchange (TSX) as CWEB and on the OTCQX as CWBHF. It has 43 million common shares outstanding and 135,500 proportionate voting shares convertible at 400:1, for an equivalent of 97 million common shares outstanding.