August 15 wasÂ not a good day for investors in Charlotteâ€™s Web (OTC:CWBHF) stock. Hopefully you werenâ€™t heavily allocated when the shares slid 6.6% and the stock message boards were overrun with bears â€” many of them Charlotteâ€™s Web stock bulls just a day prior.
The culprit behind the sudden sentiment change? Second-quarter earnings. Though CWBHF saw huge revenue jumps from past quarters, those jumps fell short consensus estimates. Nonetheless, I suspect that a turnaround is imminent for Charlotteâ€™s Web stock and the bears will go back into hibernation â€” and Iâ€™ve got more than a gut feeling to back up my bullish outlook.
In the case of Charlotteâ€™s Web stock, I see this as a market overreaction to heightened analyst expectations. Sure, thereâ€™s also the fact that the cannabis market as a whole declined throughout the summer, but itâ€™s the post-earnings drop that pressured a lot of weak hands to bail on CWBHF stock.
So, letâ€™s break it down: as reported by the company for the second quarter of 2019, Charlotteâ€™s Webâ€™s revenues increased by a whopping 45% year-over-year to $25 million (in American dollars, not Canadian). Youâ€™d think that 45% would have been more than enough revenue growth, but analysts were expecting the dollar figure to be $27.8 million, so the bar was set quite high â€” too high, in my humble opinion.
Iâ€™m equally impressed with the second-quarter increase in Charlotteâ€™s Webâ€™s growing capacity. As the company has reported, the total number of acres of cannabis planted increased to 862 this year, representing 182% more than the already considerable 300 acres planted last year. As a point of reference, the 300 acresâ€™ worth of cannabis planted by Charlotteâ€™s Web in 2018 produced an astounding 675,000 pounds of salable hemp product.
And so, while the analysts and naysayers werenâ€™t impressed, I liked the numbers I saw with Charlotteâ€™s Webâ€™s earnings release. Sure, itâ€™s not the biggest cannabis company or even the largest CBD-focused company, but Charlotteâ€™s Web has been growing by leaps and bounds and thatâ€™s the stuff that stock-market wealth is made of.
Indeed, with giant retailers like CVS (NYSE:CVS) and Kroger (NYSE:KR) stocking the companyâ€™s products on their shelves, I expect Charlotteâ€™s Web to become a household name in the near future. I can just see it now: soccer moms picking up a batch of Charlotteâ€™s Web CBD oil, capsules, or gummies along with their milk and eggsâ€¦
That might sound humorous, but itâ€™s not as outlandish as you might think. Deanie Elsner, the CEO of Charlotteâ€™s Web, clearly envisions the mainstreaming of the companyâ€™s CBD products as an imminent event:
â€śWe have been experiencing increased sales through both our e-commerce and retail sales channels. Top-tier mass retailers are entering the market as several national grocery and drugstore brands have announced their CBD plans. The majority of these are now carrying Charlotteâ€™s Web products. This is a significant development for the hemp CBD category.â€ť
But donâ€™t get the wrong idea â€” Charlotteâ€™s Webâ€™s future isnâ€™t just about getting the companyâ€™s products on store shelves. Perusing the companyâ€™s website, thereâ€™s little doubt that Charlotteâ€™s Web is pushing hard for online shopping and home delivery, along with its subscription service â€” a shopping feature that millennial consumers have become accustomed to.
The Charlotteâ€™s Web Autoship Program is, I must admit, hard to resist: a 10% discount on subscription orders, free two-day shipping on the first order, and every seventh order is free. Granted, the companyâ€™s CBD products arenâ€™t the cheapest on the market, but Iâ€™ve never heard anyone complain about the quality, and Charlotteâ€™s Webâ€™s proprietary hemp genetics simply canâ€™t be replicated by competitors.
Thereâ€™s no shortage of cannabis stock to choose from, and I wonâ€™t deny that thereâ€™s competition in the CBD product niche. Still, with interest from well-established retailers and a savvy subscription service for online shoppers, Charlotteâ€™s Web and CWBHF stock are setting up for a powerful post-summer recovery.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
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