In a March 7 research note, analyst Scott Fortune reported that ROTH Capital Partners initiated coverage on Charlotte's Web Holdings Inc. (CWEB:CSE; CWBHF:OTCQX) with a Buy rating and a CA$26.50 per share price target. The stock is currently trading at around CA$17.92 per share.
A key advantage is the company's position as a "market leader in the fast growing hemp extract cannabidiol (CBD) market with high-quality supply, a recognized brand and significant new retail verticals to begin selling into the mass market," Fortune described.
Charlotte's Web has years of experience producing high-quality hemp from proprietary hemp strains, "enabling a seed-to-sale positioning among consumers with a reputation for quality," the analyst added.
Additionally, Charlotte's Web finds itself at an inflection point, facing the potential opportunity to sell into a much larger market following the passage of the 2018 U.S. Agriculture Improvement Act of 2018—Farm Bill for short—which delisted hemp as a Schedule 1 controlled substance. To meet current demand from 3,700 brick-and-mortar and online stores, the company today is cultivating more than 300 total acres of hemp in Colorado, Oregon and Kentucky, which will yield about 675,000 pounds' worth.
The farm bill legalized the selling of hemp-derived CBD products at multiple levels. They include the government, including the U.S. Food and Drug Administration and the U.S. Department of Agriculture; financial (i.e.,) banking, taxes, insurance and U.S. exchanges; hemp operations, meaning Canadian limited partnerships can legally operate in the United States; and consumer, think medical studies that create awareness.
Also positive for Charlotte's Web is the public's increasing acceptance of CBD products, Fortune highlighted, particularly as a treatment for anxiety, stress, insomnia and pain. "We believe informed consumers and large retailers will seek high-quality, full-spectrum products in various delivery formats."
Revenues from this seed-to-sale business are projected to be high and increase over time, Fortune pointed out, going from $70.5 million in full-year 2018 to $167.8 million in 2019 to $312.2 million in 2020. EBITDA is forecast to come in at $22.4 million, $52 million and $99.3, respectively.
Finally, Charlotte's Web is an ideal takeout target for, say, a large Canadian limited partnership or a consumer packaged goods company, Fortune noted.
He concluded with this, "We believe the potential large CBD market opportunity is experiencing rapid growth as regulatory illegalities are removed and consumer acceptance of hemp-derived CBD expands. Thus, we think Charlotte's Web offers an attractive Buy."[NLINSERT]
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Disclosures from ROTH Capital Partners, Charlotte's Web Holdings Inc, Company Note, March 7, 2019
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Shares of CannTrust Holdings Inc. may not be eligible for sale in one or more states.
Within the last twelve months, ROTH has received compensation for investment banking services from HEXO Corp. and Tilray, Inc.
ROTH makes a market in shares of HEXO Corp. and Tilray, Inc. and as such, buys and sells from customers on a principal basis.
Within the last twelve months, ROTH has managed or co-managed a public offering for HEXO Corp. and Tilray, Inc.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months.