By Matt McCallMar 31, 2019
Investing in the leader of one of the fastest-growing industries in the world makes for a great opportunity. Investing early is even better.
According to Brightfield Group, the hemp-derived CBD market is poised to increase from $591 million in 2018 to $22 billion by 2022. That is nearly 40X growth in four years. I am not aware of any other industry that has that kind of potential.
Currently, 29% of the hemp-CBD market’s sales come through natural food stores, 24% are online, and 23% are derived from smoke shops. By 2022, Brightfield predicts that 64% of sales will be through retail chains like Walmart (WMT), Target (TGT), CVS Health (CVS), and more.
Think about that for a moment. Most drug and grocery stores from coast to coast will sell CBD products.
Buying the early leader in a booming, up-and-coming industry is a no-brainer. And that’s exactly what we’re doing with my pick in the Best Stocks for 2019 contest.
Charlotte’s Web (CWBHF) is the world’s leading CBD brand by market share. It produces and distributes CBD wellness products to nearly 3,700 retail locations. It sells everything from tinctures to topicals to capsules, both online and in stores. It also has a line of pet-focused products, which is a niche area that is booming right now.
The company has been a pioneer in the industry since being founded in 2013. Its brand became well known after a CNN documentary aired based on the life of a little girl named Charlotte Figi. Charlotte suffered from up to 300 grand mal seizures per week, but she found treatment – and almost a cure – in cannabis oil. The brothers who manufactured the strain went on to found Charlotte’s Web.
If you’re interested in reading more about Charlotte’s story, check out my initial recommendation here.
CBD is headed for the big time after the 2018 Farm Bill became law in late December. The bill legalized hemp in the United States for the first time in more than 80 years. It also made CBD legal, since the compound can be found in hemp as well as cannabis. The groundbreaking legislative decision was long overdue and has created one of the biggest investment opportunities in decades.
Charlotte’s Web was already a leading global supplier of hemp-derived CBD products before the Farm Bill was passed. Now that the world’s largest economy allows the production, import, export, and sale of hemp, the sky is the limit for what this company can do.
Charlotte’s Web has gotten off to a fantastic start in 2019. I don’t mean to toot my own horn, but my pick is leading the Best Stocks for 2019 contest – the shares are up 80% as of March 29.
But this is only the beginning for this company.
Today, Charlotte’s Web has the #1 brand market share in the country and is available in 3,680 retail locations. That reach is impressive. However, in a couple of years I expect that number to multiply several times over as the big chain retailers embrace the industry.
We’re already starting to see that happen. During the last week of March, both CVS Health and Walgreens (WBA) announced that they would start selling CBD in several different states. This is a big deal – especially for Charlotte’s Web, as these companies are going to want to partner with the country’s largest suppliers.
Think about it. Walgreens needs to supply 1,500 locations just to start. That means it will only want to work with suppliers that can handle the demand. And today, there really aren’t a lot of suppliers that can do that.
Charlotte’s Web produced 675,000 pounds of hemp in 2018 on 300 acres of planted land. The company only had 70 acres of planted land in 2017 and 45 acres in 2016. And over 10 times more hemp was produced in 2018 than in the previous year. So if there’s one company that’s prepared to supply the big chain retailers… it’s Charlotte’s Web.
Fourth quarter 2018 results were released after the close on March 28 and marked the 12th consecutive quarter of revenue growth for the company. The top line came in at $21.5 million, up 71% from one year earlier and 21% from the third quarter. Both figures are extremely impressive.
Full-year revenue came in at $69.5 million, up 75% year-over-year. Charlotte’s Web ended 2018 with a cash balance of $73.4 million and working capital of $93.4 million. Even more importantly, the company has very little debt.
On the conference call, one of the biggest highlights was increased inventory, which means it should have little problem meeting demand. Charlotte’s Web’s primary focus in 2019 will be on retail expansion. Management said their products are already in major retailers, and there are currently ongoing talks with others. There was also a mention of expansion into Europe and Latin America.
When asked what retailers carried the company’s products, management named the largest pharmacy company in the United States – CVS Health. The size of the order wasn’t mentioned; however, CVS only has plans to roll out CBD products in 800 locations across eight states. If and when that footprint expands, it would be a major boost to Charlotte’s Web’s top line.
It’s also worth noting that the company is initiating clinical trials of its products to help show their efficacy. This is important because as the brand continues to expand its market share, Charlotte’s Web will need to have the data to back up its claims.
All that said, the biggest takeaway from the conference call was the mention of a potential uplist to multiple major stock exchanges. The stock currently trades on the over-the-counter market in the United States and the Canadian Securities Exchange in Canada.
Management said they had already begun the process of uplisting to the Toronto Stock Exchange (TSX) in Canada. That will create more liquidity and open the company up to more institutional investors. But in what would be an even bigger move, management also said they were in discussions with both the NASDAQ and New York Stock Exchange (NYSE) in the U.S.
Based on all of the above, 2019 is shaping up to be a very exciting year for the market leader in hemp-CBD. Its market share has increased from 8% in 2016 to 14% in 2017 to 18% in 2018, and if that trend continues, we should start to see a big increase in revenue.
Aside from the financial numbers, Charlotte’s Web also has several major catalysts in its future that could send share prices much higher. The possibility of uplisting is one. The announcement of a major retail customer is another. Plus, there is the continued expansion overseas.
The hemp-CBD industry is set to explode 40X in the coming years. Charlotte’s Web is at the forefront of that trend. And as I mentioned earlier, buying the early leader in a booming, up-and-coming market is a no-brainer.
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