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3 Key Risks to Consider Before Jumping into Charlotte’s Web Stock
Vince Martin
InvestorPlace
April 30, 2019
The bull case for Charlotte’s Web (OTCMKTS:CWBHF) stock seems reasonably easy to make. The producer of hemp and hemp-derived CBD (cannabidiol) oil has a massive growth opportunity akin to that of marijuana stocks. Yet with the passage of the Farm Bill late last year, Charlotte’s Web products should be clearly legal in the U.S. That suggests a larger, nearer-term market opportunity for Charlotte’s Web – and perhaps more potential near-term gains for Charlotte’s Web stock.
Indeed, I recommended Charlotte’s Web stock at the end of last year. That’s proven to be a smart call. CWBHF stock has gained nicely, rising about 70%. Those gains are roughly in line with most marijuana stocks: Canopy Growth (NYSE:CGC) has gained 80%, and Cronos Group (NASDAQ:CRON) about 60%. Clearly, optimism toward the Farm Bill and a broader ‘risk-on’ sentiment in equity markets have helped cannabis and hemp stocks across the board.
At current levels, however, there are risks to CWBHF stock. Marijuana stocks on the whole look potentially stretched, and while Charlotte’s Web has some advantages over that group, its valuation too incorporates quite a bit of growth. An awful lot of good news seems priced in at this point – but there are risks that could send Charlotte’s Web stock tumbling.
The Valuation of Charlotte’s Web Stock
The story behind Charlotte’s Web, as a business, looks attractive. The company is a leader, and likely the leader, in the growing CBD oil space. Its hemp production has soared, rising more than tenfold to 675,000 pounds in 2018, per the Q4 release. And now larger retailers are coming on board: Walgreens (NASDAQ:WBA) and Rite Aid (NYSE:RAD) both announced recently that they would add CBD products to their stores.
In other words, there are several avenues for growth. Charlotte’s Web has the potential to take market share in what looks to be an extremely fragmented industry, either through acquisitions or through the eventual failure of some of the myriad producers in CBD. Points of distribution are going to rise. Charlotte’s Web on its website cites 4,000 retail locations at the moment. Walgreens has over 18,000 stores, and Rite Aid nearly 2,500.
To be sure, neither Walgreens nor Rite Aid is launching CBD products in all of its stores immediately. Rite Aid is limiting its initial exposure to just topical products in a few states. But the broad point still holds: Charlotte’s Web can take more share in a market set to reach more customers through more stores.
One key risk, however, is that the story isn’t exactly unknown by investors at this point. Charlotte’s Web stock now has a market capitalization over $2 billion. It trades at about 30x 2018 revenue and 100x 2018 Adjusted EBITDA. Those are huge numbers, mostly in line with larger marijuana stocks. Yet Charlotte’s Web, in part because it had a larger 2017 base, isn’t growing as fast as most THC-based companies.
Sales rose ‘just’ 74% in 2018. That’s an impressive rate, certainly, but lags the triple-digit rates seen elsewhere in the space. Adjusted EBITDA rose 48%. But that includes a year-over-year decline in the fourth quarter. As impressive as Charlotte’s Web market opportunity is, recent growth must repeat for years to support the current valuation. Anything less simply isn’t good enough.
Is CBD a Fad?
And that growth requires that CBD demand continue to grow at the same nearly exponential rate at which it has of late. That seems possible but hardly guaranteed. The Charlotte’s Web origin story, as Matt McCall detailed in calling Charlotte’s Web stock his best pick for 2019, is that a girl named Charlotte saw her seizures decrease dramatically when she started taking CBD oil. Many other customers swear by the product for myriad other uses.
But as the New York Times pointed out in February, at least so far there’s little scientific evidence backing the effectiveness of CBD oil. In fact, there’s little standardization even of dosing, particularly given the various types of applications. Swallowing CBD oil results in a very different dose of cannabidiol than a topical cream.
Anecdotal evidence appears to support some use for the product, admittedly. But advocates and CHWBF bulls are expecting adoption and persistence rates to stay as high going forward as they have been of late.
It remains to be seen whether that will be the case. A product that supposedly cures so many afflictions will inspire demand. But it will also raise expectations. If new customers expect CBD oil to be a super-supplement and it fails, what then?
Indeed, we’ve seen similar trends come and go, particularly in dieting. Atkins was huge, then it faded. Gluten-free sales soared among customers without specific allergies, then faded.
CBD oil obviously is different from those products. But there’s still a valid question: is it a wonder drug, or just another fad that will come and go? At this point, the jury still is out.
Where Do Margins Go?
Even assuming the market continues to grow, there’s a key question in terms of profit margins: what does a mature CBD market look like? Is it akin to food and beverage markets, where there are differentiated, branded products at the high end and low end? Or does CBD, the benefits of which supposedly are based on the underlying compound, become commoditized?
This question is key for marijuana stocks as well. But in CBD, it seems even more pressing. Charlotte’s Web at the moment has an edge over smaller rivals because it seems more trustworthy. It’s been around longer. It’s respected. Consumers can trust the manufacturing process, and trust that the CBD content is accurately measured. Smaller, less well-known rivals may not have the same level of trust.
At some point, however, that changes. A major company like Coca-Cola (NYSE:KO) may enter the space. Or clearer legalization may allow for more standardized manufacturing and more transparent production processes and labeling.
If CBD oil is simply a commodity, Charlotte’s Web almost certainly loses pricing power. If there’s no “better” CBD oil, producers will compete more on price and less on branding. Charlotte’s Web’s first-mover advantage will evaporate and margins will decline.
There are similar worries on the cannabis side. Legalization in Oregon, for instance, has led to plunging prices. The same Farm Bill that led to so much optimism behind Charlotte’s Web stock could lead to a similar outcome in CBD oil. And at 100x EBITDA and 130x net income, Charlotte’s Web stock is not priced for falling prices or stagnant margins.
That’s the broad worry at this point. Even with a decline in recent sessions, Charlotte’s Web stock still looks priced for something close to perfection. But risks lurk. At this price, it only takes one of the risks to lead CWHBF to tumble.
As of this writing, Vince Martin has no positions in any securities mentioned.
https://finance.yahoo.com/news/3-key-risks-consider-jumping-104033496.html
All good points ANIA77. Thanks. EOM
Agree with long term view. Was expressing mindset of many shorter term Trend Traders as mentioned below on another reply to Re: Trulio_217 post# 5494.
"Very true, however, many shorter term Trend Traders aren't willing to risk getting a haircut on an overnight hold with that as a possibility whereas for longer term investors this shouldn't be an issue."
Wishing all the Charlotte's Web Holdings investors healthy returns!
Very true, however, many shorter term Trend Traders aren't willing to risk getting a haircut on an overnight hold with that as a possibility whereas for longer term investors this shouldn't be an issue.
Wish they'd get Shelf out of the way sooner than later especially while still somewhat near the 52 week highs and well above the 50 moving average which is currently at 17.09. Along with overall weakness in the sector I think this Shelf prospectus may have stopped out a few longs and is also causing more to stay on the sidelines for new entries until they get this out of the way.
Obviously you could miss out on some news but as long as the Shelf is on the back burner you know you'll likely be able to get a decent discount at some point anyway.
Thanks jgusciora. EOM
Thanks super_trades. EOM
Thanks goodfela58. EOM
Thanks goodfela58. What you wrote makes sense.
Think that makes sense about the "$500,000,000 in common shares, not 500,000,000 shares."
"They specify $500,000,000 in common shares, not 500,000,000 shares. At least that’s how I read it. I would question that since this is filed in Canada, is this $500 mil Canadian dollars or $500 mil U.S. dollars? I’m assuming U.S. dollars since it was not otherwise specified."
A few concerns with $500,000,000 Shelf Prospectus
It was done in Canada. If they were close to listing in the U.S. on Nasdaq or NYSE would they have waited to file this?
While it's nice to assume the filing is there just in case they need it, it is still a huge shelf. Correct me if I'm misunderstanding, but they're not registering for up to $500,000,000 CASH but are registering "up to $500,000,000 of common shares, preferred shares, warrants, subscription receipts, units, or any combination thereof, during the 25-month period that the base shelf prospectus is effective" as mentioned here https://www.newcannabisventures.com/charlottes-web-holdings-inc-files-final-base-shelf-prospectus/
CASH vs SHARES is very different. 500 million cash would be 1/4 of current 2 billion market cap whereas 500 million shares times current price of CWEB.CA 28.54 would $14,270,000,000. BIG BIG Difference. And yes I understand they don't need to raise all of this amount at once.
Again, please correct me if I'm incorrect or misunderstanding this.
And of course I'm sure they'd make good use of any Shelf but dilution is always a concern, especially on this magnitude. And more often then not a stock takes a hit short term until the pricing terms are announced and Shelf completed.
Bazwar6 thinking u mean Billion, not million :)
Thanks ANIA77. EOM
Thanks Dogger05. EOM
Thanks CES2002. EOM
What is current market cap? Get different #'s from different websites. Yahoo shows 2.012B while Marketwatch shows 427.35M. That's a huge difference. Which is correct?
https://finance.yahoo.com/quote/CWBHF?ltr=1
Market Cap 2.012B
https://www.marketwatch.com/investing/stock/cwbhf
MARKET CAP $427.35M
Great article in CANNAINVESTOR magazine!
Article includes the Stock Symbol NYSE: AOI and mentions $200 price target. Pages 78 to 91 in the newest CANNAINVESTOR magazine. https://view.joomag.com/cannainvestor-magazine-us-publicly-traded-march-2018/0455124001520379118?short
TRPX: Wouldn't be surprised with an investment by Dr. Phillip Frost who John Stetson has direct ties with at PolarityTE. More about Frost. https://goo.gl/Q6v1ly
John Stetson reports 5.9% passive stake in Therapix Biosciences https://goo.gl/jWcZYc
John Stetson is EVP, CFO & Director at PolarityTE. Frost is big investor. https://goo.gl/iKVrd7
TRPX: Wouldn't be surprised with an investment by Dr. Phillip Frost who John Stetson has direct ties with at PolarityTE. More about Frost. https://goo.gl/Q6v1ly
John Stetson reports 5.9% passive stake in Therapix Biosciences https://goo.gl/jWcZYc
John Stetson is EVP, CFO & Director at PolarityTE. Frost is big investor. https://goo.gl/iKVrd7
TRPX: Wouldn't be surprised with an investment by Dr. Phillip Frost who John Stetson has direct ties with at PolarityTE. More about Frost. https://goo.gl/Q6v1ly
John Stetson reports 5.9% passive stake in Therapix Biosciences https://goo.gl/jWcZYc
John Stetson is EVP, CFO & Director at PolarityTE. Frost is big investor. https://goo.gl/iKVrd7
TRPX new synthetic cannabinoid IPO. Only $25 mil market cap with phase IIa for Tourette's Syndrome. Raphael Mechoulam is on the Advisory board.
Great article below
New IPO Stock Therapix BioSciences (NASDAQ:TRPX) Is Undervalued Compared To Peers – But Not For Long
Here's a look at how fresh IPO cannabis stock Therapix BioSciences (NASDAQ:TRPX) is taking advantage of synthetic cannabis to bring drugs to market quicker than its peers.
https://goo.gl/hHdGqC
TRPX new synthetic cannabinoid IPO. Only $25 mil market cap with phase IIa for Tourette's Syndrome. Raphael Mechoulam is on the Advisory board.
Great article below.
New IPO Stock Therapix BioSciences (NASDAQ:TRPX) Is Undervalued Compared To Peers – But Not For Long
Here's a look at how fresh IPO cannabis stock Therapix BioSciences (NASDAQ:TRPX) is taking advantage of synthetic cannabis to bring drugs to market quicker than its peers.
https://goo.gl/hHdGqC
Out CRBP. Long TRPX new synthetic cannabinoid IPO. Only $25 mil market cap with phase IIa for TS. Raphael Mechoulam on Advisory board. Same sector as CRBP ZYNE GWPH CARA INSY
https://goo.gl/hHdGqC
Ohio Becomes the 26th State to Legalize Medical Marijuana
By Mike Adams · Thu Jun 09, 2016
On Wednesday, without feeling the need for a highly publicized signing ceremony, Governor John Kasich put his signature on a bill that will allow patients suffering from an impressive list of qualified conditions to purchase cannabis products, including edibles, oils and vapors, from any number of dispensaries that will soon emerge across the state.
http://www.hightimes.com/read/ohio-becomes-26th-state-legalize-medical-marijuana
The Process
Vaporizing of cannabis and the oral ingestion of edibles and cannabis extract oil are the most common methods documented by patients. Smoking is not recommended due to the delicate lung functioning often associated with cystic fibrosis.
Vaporizing or Vaping
If you don’t like the idea of smoke there is the option to vaporize. Vaporization does not use combustion to heat the medicine. Unfortunately there is some confusion out there about vaporizers. There are now hundreds of vaporizers to choose from. There are three basic types: pen, hand-help, and tabletop. The differences are in price, portability and size. Some vaporizers claim to be able to vaporize plant matter (flowers), wax and oils. Some can only do concentrates, some only oil. The most important difference is the method used to heat the medicine. There are basically two methods (with hybrids on the way)- conduction and convection.
True Vaporizing is done by convection, where air is heated, and in turn the hot air turns the medicine a to vapor which is then inhaled. Conduction Vaporizing happens when a hot element (metal plate, or bowl) touches the medicine. The medicine is placed directly in a metal or ceramic bowl or chamber that is heated which then heats the medicine and the smoke is inhaled. This is still combustion, and not truly vaporizing. This is closer to dabbing but with a much cooler heating element.
Edibles
Edibles provide ways to eat or drink your medicine. Many medicated edibles and even bottled drinks are readily available at dispensaries. Be aware that most of the edibles at dispensaries are loaded with sugar and carbs. But basically what the edibles and drinks all contain are canna butter and/or canna oil. You can purchase these or easily make them at home to add to your own baked goods, snacks or even meals (especially if you are avoiding sugar or gluten).
Tinctures
Tinctures are not new. Until cannabis was banned in 1937, tinctures were the primary type of cannabis medicines. Tinctures are essentially alcohol extractions of whole cannabis (usually the flowers and trim leaves).
The best way to use tinctures is sublingually (under the tongue). Titration or dose control is easily achieved by the number of drops a patient places under the tongue where the medicine is rapidly absorbed into the arterial system and is quickly transported to the brain and body. All a patient need do with tincture is use a few drops, wait for the desired medical effects, and either use more or stop as the situation indicates. Tinctures can be flavored for better taste.
The Patient
The story of Nick Landt, he first realized that cannabis brownies greatly reduced his cystic fibrosis symptoms as a teenager, citing “my lungs would open up more, allowing better oxygen intake, and was able to decrease the amount of sputum congestion my lungs.” After realizing this correlation, he researched the interaction and began to understand the dramatic effects of cannabis as an anti-inflammatory agent and bronchodilator. This prompted him to begin using a vaporizer in 2009 and following three months of using it, he described vastly improved symptoms and having “never felt better in his life.” Upon visiting his doctor, test results revealed dramatic results including the reduction of white blood cell irregularities and stabilized pulmonary functioning. When the doctor placed a stethoscope to Landt’s chest, there was no crackling, indicating no over-congestion of sputum in the lungs that he had suffered from so long.
https://medicalmarijuana411.com/cystic-fibrosis/
Rymankoly they can't put a patent on cannabis though. They can certainly put it on a synthetic but my question is wouldn't people be more likely to use something they can grow for free? I'm trying to figure out if CRBP has a better drug for CF, Lupus, etc or if cannabis is actually better than a synthetic.
Concern: Why use CRBP's Resunab when you can grow cannabis for free?
Anyone concerned if cannabis will be fully legalized for medical uses or otherwise in the next 5 years when CRBP is ready to submit their NDA? I'd like to know what makes CRBP's Resunab better or worse then using the actual cannabinoids.
Here's a wiki on CRBP's Resunab aka Ajulemic acid. It mentions, "It does not however share the anti-emetic effects of other cannabinoids but may be useful for treating pain and chronic inflammatory conditions where nausea is not present."
https://en.wikipedia.org/wiki/Ajulemic_acid
FYI... An antiemetic is a drug that is effective against vomiting and nausea.
https://en.wikipedia.org/wiki/Anti-emetic
So why use a synthetic drug such as Resunab that may cause nausea and vomiting when you can use cannabis?
I did a search and found numerous websites recommending cannabis for Cystic Fibrosis, Lupus, etc
This website even advises the Best Strains of cannabis to use for CF.
https://www.medicalmarijuana.com/medical-marijuana-treatments-cannabis-uses/cystic-fibrosis/
Anyone know what CRBP's Resunab can do better than just using cannabis? Look forward to pros and cons.
Seabass stocks are like fishing. Gotta have some patience :) None of us on here can tell you what to do, but IMO this is a very healthy consolidation. She's gotta base a bit before the next big move.
CMO just added CRBP shares @ 3.10
http://www.conferencecalltranscripts.org/4/summary/?id=2834799
CEO just added shares @ 3.34 - New filing out
http://ir.corbuspharma.com/all-sec-filings/content/0001209191-16-126119/form4.html
Rymankoly best of luck! Will be fun to see how she plays out.
Seabass it's too soon to call. Need to see how she reacts over the next few days. I don't doubt that she'll be back above 3.75 and higher in the next few weeks assuming the overall market holds steady. Could she snapback to 3.75/3.85 tomorrow or the next day? Absolutely, but more likely she'll consolidate for a little bit first.
Rolling inflaton, I don't doubt your upside targets. CRBP was due for a healthy pullback at this juncture. I'll take a look at the charts again in the next few days after she plays out a bit more.
P&F charts currently has an 8 target. Doesn't mean we go straight up without pullbacks a long the way though.
http://stockcharts.com/freecharts/pnf.php?c=CRBP,PLTCWANRBO[PA][D][F1!3!!!4!20]
That was the healthy CRBP shakeout I was looking for. I'm Long shares at these levels.
Whether they shake out a few more shares remains to be seen but I'm personally a buyer.
Here's the previous chart I posted. We touched the 2.94 area I mentioned. Chart: charts.stocktwits.com/production/original_55968405.?1464921226
I'll have to see how it plays out over the next few days to give any upside targets, but the chart looks very healthy as long as she stays above 2.94 support area.
I wouldn't be surprised if reversal starts today. However the key is to look for the first big red candle on a closing basis. Once the retest begins I would look for anywhere from 5 to 10 days for it to complete which you should be able to confirm as a bottom on the RSI and Stochastics.
For example look at the 2.73 top back in April. You'll notice the big red candle and the retest back just above the previous breakout. It bottomed at about 13 cents above the previous high above 1.95.
Again, this is all my opinion and you should do your own due dilligence.
Best of luck with your position!
http://charts.stocktwits.com/production/original_55968405.?1464921226
It's retested every single time thus far as shown on chart. http://charts.stocktwits.com/production/original_55968405.?1464921226
The Phase 2 results aren't due until December. Overall, I think it's a bullish stock, but short term it's extremely overbought on the daily and weekly charts.
It's had a great move from 1 to almost 4's in just a few months. Best not to chase here imo. Let Stochastics and RSI bottom out.
$CRBP extremely overbought imo. Also, Insiders just granted 200K in option award at $3.
http://ir.corbuspharma.com/all-sec-filings
Chart http://charts.stocktwits.com/production/original_55968405.?1464921226
NSYS 3D stock... http://www.intercon-1.com/CoreCompetencies/mechanical.aspx
1.25m float... new income doubled .08 v .04... http://finance.yahoo.com/news/nortech-systems-reports-third-quarter-210000309.html