CBD stocks have been hit hard over the past year. One of the hardest-hit names has been Charlotte’s Web Holdings (CWBHF). For anyone unfamiliar with the CBD space, Charlotte’s Web CBD products are considered by many to be the best CBD products on the market. Unfortunately, this enthusiasm has not benefitted CWBHF stock.
As you can see from the CWBHF chart above, Charlotte’s Web Holdings peaked last November at $14 and it has been a steady downtrend ever since. However, the $2 level proved to be rock-solid support and now shares are finally starting to turn. In this article, we take a look at the bull case for Charlotte’s Web Holdings and why current levels represent a discount entry opportunity.
Charlotte’s Web Holdings
Charlotte’s Web Holdings, Inc., headquartered in Boulder, Colo., is the market leader in the production and distribution of innovative hemp-derived cannabidiol (“CBD”) wellness products. The Company was founded by the Stanley Brothers with a mission to unleash the healing powers of botanicals with compassion and science, benefitting the planet and all who live upon it.
The Company’s premium quality products start with proprietary hemp genetics that is 100-percent American farm-grown and responsibly manufactured into hemp-derived CBD extracts naturally containing a full spectrum of phytocannabinoids, including CBD, terpenes, flavonoids, and other beneficial hemp compounds.
Charlotte’s Web product categories include CBD Oil tinctures (liquid products), CBD capsules, CBD topicals, as well as CBD pet products. Charlotte’s Web hemp-derived CBD extracts are sold through select distributors, more than 21,000 brick and mortar retailers, and online through the Company’s website.
In Q2, Charlotte’s Web Holdings reported:
- Consolidated revenue of $21.6 million vs. $25.0 million in Q2-2019
- Adjusted gross profit of $14.0 million (excluding inventory provisions), or 64.8% of consolidated revenue
- Adjusted EBITDA loss of $5.7 million
- Direct-to-Consumer (“DTC”) eCommerce sales increased 33.6% year-over-year and contributed 71.8% of Q2 revenue
- $99.8 million cash and $155.0 million working capital on June 30, 2020
Abacus Health Acquisition
On June 11th, Charlotte’s Web Holdings completed the acquisition of Abacus Health Products, Inc. in an all-stock transaction. Abacus is a leading provider of over-the-counter topical products for pain relief and skincare containing CBD hemp extracts. The acquisition greatly extends Charlotte’s Web’s product offerings and reach and solidifies a commanding position in the U.S. hemp CBD topicals category.
In the third quarter, Charlotte’s Web commenced implementing operating cost synergies with Abacus and will continue through the remainder of the year. Further cost synergies are targeted in 2021 through integration into the Company’s new production and fulfillment center.
The deal combined Charlotte’s Web, the market leader in hemp-derived CBD wellness products, with Abacus, the market leader in OTC topical products combining active pharmaceutical ingredients with hemp extract, to create the world’s largest vertically integrated hemp-derived CBD company.
For Charlotte’s Web, the combination benefits from the current U.S. regulatory environment which favors topical- CBD products within the food/drug/mass (“F/D/M”) channel.
For Abacus, the acquisition provides the advantages of joining an established and industry-leading platform and benefiting from leading CPG management and brand equity with a low-cost vertical supply chain producing “the world’s most trusted hemp extract™”. The combined entity is anticipated to represent approximately 34.7% of U.S. CBD sales within the F/D/M channel.
Since its inception in 2014, Abacus has focused on becoming the leading practitioner and consumer choice for OTC topical medications with active pharmaceutical and natural ingredients, including a cannabinoid-rich hemp extract containing CBD. Abacus currently distributes over 50 SKUs through approximately 12,000 unique doors and 16,500 health-care practitioners.
Combined with Charlotte’s Web, the Transaction will reinforce Charlotte’s Web’s leading position in the CBD market, and substantially expand its existing topical offerings and presence in the key F/D/M channel.
Charlotte’s Web Holdings Patents
Patents on hemp genetics are a new frontier, and very few patents in this sector have been issued to date. Charlotte’s Web, the world’s largest vertically integrated hemp company, has been at the forefront of this new frontier in hemp patents and will continue to invest in its breeding program and in the science of hemp to ensure a consistent and high-quality supply is available.
On May 20 Charlotte’s Web announced it earned U.S. utility patent U.S. 10,653,085, its second U.S. patent for hemp genetics. This patent is for ‘CW1AS1’, a new hemp variety created by company co-founder Joel Stanley and Sr. Director of Cultivation R&D Bear Reel. The patent takes Charlotte’s Web’s premier proprietary genetics to the next generation and builds a strong wall of protection around it and the products made from it.
CBD Market Opportunity
CBD stocks have been hurt by two things this year – the FDA and COVID-19. FDA scrutiny of CBD stripped food products from the menu in 2019. However, the FDA appears on a path to legal clarity via a bill such as HR 8179 or a change in FDA enforcement policies. The CBD industry expects actionable guidance by the FDA in 2021 and a vaccine or treatment for COVID-19 should exist by this timeline.
Charlotte’s Web Holdings Bottom Line
Currently trading with a market cap of around $300 million, Charlotte’s Web Holdings remains tremendously oversold at current levels. Once, we get more clarity from the FDA next year, we expect sales to triple for Charlotte’s Web CBD products. CWBHF is an absolute steal here and a must-own for long-term investors.
As always, good luck to all (except the shorts)!
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Disclosure: We have no position in OTCMKTS:CWBHF or any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Insider Financial is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This article is not a solicitation or recommendation to buy, sell, or hold securities. This article is meant for informational and educational purposes only and does not provide investment advice.