You might not think of Canopy Growth (CGC 2.41%) and Charlotte's Web Holdings (CWBHF -0.25%) as rivals. And they're not -- at least not yet.
Canopy Growth, of course, is the biggest marijuana grower in the world in terms of market cap. It's active in multiple countries but doesn't market any products in the U.S. at this point. Charlotte's Web is well known in the U.S. for its hemp products.
Soon, though, Canopy Growth will make its mark on the U.S. hemp market and potentially compete directly against Charlotte's Web. Even with Canopy's great gains so far in 2019, Charlotte's Web has been the bigger winner over the last 12 months. But which of these two stocks is the better pick now?
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The case for Canopy Growth
It's pretty easy to identify strengths for Canopy Growth. The company's Q3 results showed that it's the clear leader so far in Canada's recreational marijuana market. That's not surprising, considering that the size of Canopy Growth's supply agreements with all of Canada's provinces gave it an advantage over its rivals.
Canopy Growth appears to be in a great position to dominate in the next phase of recreational pot in Canada, too. The market for cannabis beverages, edibles, and concentrates is expected to open later this year. Canopy and its partner, Constellation Brands, plan to launch multiple cannabis-infused beverages.
Meanwhile, Canopy Growth is active in marijuana markets across the world. International sales generated 16% of the company's total medical cannabis sales in the last quarter. Canopy Growth should enjoy more growth as medical cannabis markets in Europe and Latin America mature.
The legalization of hemp in the U.S. in December 2018 opened the door for Canopy Growth to at long last enter the U.S. The company can't participate in the U.S. marijuana market and maintain its listings on the New York Stock Exchange and the Toronto Stock Exchange while marijuana remains illegal at the federal level. But hemp -- cannabis that contains low levels of psychoactive ingredient THC -- is now legal and doesn't present an obstacle for Canopy Growth.
Canopy quickly took advantage of the opening. The company announced in January that it had obtained a license to produce hemp in New York state. Canopy Growth is investing between $100 million and $150 million to build a hemp industrial park in New York. The company expects to have hemp-based cannabidiol (CBD) products on the market in the U.S. by the end of 2019.
This major move was made much easier because of Canopy Growth's relationship with Constellation Brands. The big alcoholic beverage maker invested $4 billion in Canopy Growth last year. That gave Canopy a nice cash stockpile to use in expanding its operations.
Canopy Growth claims a large production capacity, solid international operations, and a big partner with deep pockets and a track record in building successful consumer brands. These factors arguably establish the company as the top contender in the global cannabis industry.
Check out the latest earnings call transcripts for Canopy Growth and other companies we cover.
The case for Charlotte's Web
Charlotte's Web might not have the big partner and the big cash position that Canopy Growth has. But it has something else that's very important: the No. 1 brand in the hemp CBD market.
The company currently markets 12 liquid products, four capsule products, four topical products, two canine products, and a CBD isolate all under the Charlotte's Web brand. It's planning to launch multiple new products this year, including consumables, additional pet products, and topicals/cosmetics.
Charlotte's Web has a strong distribution network already in place in the U.S. Its products are sold through 3,680 retail locations. In addition, the company's e-commerce operation is solid, with direct-to-consumer sales through its website soaring last year.
Unlike Canopy Growth, Charlotte's Web has been consistently profitable. The company posted year-over-year revenue growth of 57% in its last reported quarter, with adjusted EBITDA of $5.4 million and GAAP earnings of $1.8 million.
Charlotte's Web is seeking to expand internationally. The company is exploring partnership opportunities and the potential to establish foreign subsidiaries, with a focus on the European Union, South America, and Asia.
Legalization of hemp in the U.S. presents great growth prospects for Charlotte's Web. Hemp Industry Daily projects that the U.S. hemp CBD market could reach $7.5 billion by 2023. Cannabis market research company Brightfield Group is even more optimistic and expects U.S. hemp CBD sales of $22 billion by 2022.
Better marijuana stock
Yes, technically Charlotte's Web is a hemp stock and not a marijuana stock. That would make Canopy Growth the "better marijuana stock" by default. But I don't think Canopy Growth needs a technicality to win in the matchup between these two stocks.
I think that Charlotte's Web has a lot of room to run and view it as a great way to play the U.S. hemp opportunity. However, my view is that over the long run Canopy Growth will be the bigger winner.
Granted, Canopy Growth's market cap of close to $16 billion means that a tremendous amount of growth is already baked in. But with Canopy's significant opportunities in recreational marijuana in Canada, medical cannabis across the world, and now hemp CBD in the U.S., I suspect that those lofty growth expectations will be achieved.
