Canadian cannabis producer Aphria (APHA +0.00%) recently reported blowout fourth-quarter results that were wildly celebrated by investors. U.S.-based hemp cannabidiol (CBD) company Charlotte's Web Holdings (CWBHF +0.00%) is only a few days away from announcing its latest quarterly results, which should also be very good.
So far this year, Charlotte's Web is the bigger winner between these two cannabis stocks. But which is the smarter pick for long-term investors? Here's what you need to know about how Aphria and Charlotte's Web stack up against each other.
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The case for Aphria
Despite the big jump following its recent quarterly update, Aphria stock still looks cheap relative to its top rivals. If we ranked the five biggest Canadian cannabis producers on market cap versus projected production capacity, Aphria would be the most attractive.
Aphria claims the No. 3 spot among Canadian cannabis producers based on production capacity. It's on track to produce 255,000 kilograms of cannabis per year.
The company also stands out as a top player in international medical cannabis markets. Aphria was one of only three cannabis producers selected by the German government to cultivate cannabis in the country. It was the only licensed producer in Germany granted permission to grow all three strains of medical cannabis approved by German regulators.
Aphria's acquisition of German pharmaceutical and medical cannabis distributor CC Pharma has proven to be a smart move so far. The distribution revenue generated by CC Pharma made a huge positive impact on Aphria's latest financial results.
European medical cannabis markets, especially in Germany, present a big growth opportunity for Aphria. But the company has a significant market at home in Canada, too. The Canadian adult-use recreational marijuana market is poised to expand in October when cannabis derivative products, including vapes and edibles, will become legal.
Aphria interim CEO Irwin Simon said in the company's Q4 conference call that he expects that vapes and concentrates will make up around 30% of total sales in the Canadian adult-use market by 2021. The company appears to be in a great position to capitalize on this new market, especially with its partnership with leading U.S. vaporizer company Pax Labs.
The main question mark for Aphria relates to its strategy for the huge U.S. market. The company can't enter the U.S. marijuana market while marijuana is illegal at the federal level and remain listed on the New York Stock Exchange and Toronto Stock Exchange. But it could potentially jump into the U.S. hemp CBD market. Irwin said in the Q4 call that Aphria is "always looking for opportunities in the U.S., but it needs to be that right opportunity."
The case for Charlotte's Web
There certainly aren't many questions about Charlotte's Web's U.S. strategy. The company pioneered hemp CBD in the U.S. several years ago and emerged as the leader in the market.
Charlotte's Web planted 300 acres of hemp in 2018, producing a whopping 675,000 pounds of dried hemp biomass. But as classic rock group Bachman-Turner Overdrive sang, "You ain't seen nothing yet." Charlotte's Web is planting 862 acres of hemp this year.
The company is obviously anticipating tremendous growth in demand for its products -- and for good reason. The U.S. legalized hemp in December 2018 with the passage of the 2018 Farm Bill. That legislation literally opened a lot of new doors for Charlotte's Web: The company added 2,300 new retail locations in the first quarter of 2019, more than it did in all of 2018.
Charlotte's Web's hemp CBD products are now carried in at least 8,000 retail locations. The company announced in late July that grocery giant Kroger will stock its products in 1,350 stores across 22 states.
Estimates vary as to how big the U.S. hemp CBD market could grow over time. Hemp Industry Daily projects that the annual market size will be $7.5 billion by 2023. Brightfield Group looks for a U.S. hemp CBD market of $22 billion by 2022. I suspect the more conservative estimate will prove to be more accurate. Either way, though, Charlotte's Web has a huge runway for growth.
The company's new CEO, Deanie Elsner, appears to be a great addition. Elsner previously served as president of Kellogg's U.S. snacks division. She brings over 25 years of consumer packaged goods expertise to the table, which seems to be exactly what Charlotte's Web needs at this stage of the game.
Charlotte's Web also ranks as one of the most profitable publicly traded cannabis companies. The company has reported positive earnings for each of the last three years, something that very few other cannabis companies can claim.
Better cannabis stock
I like both of these stocks. Aphria is an underrated underdog that could be a big winner over the long run, in my view. However, if I could pick only one of these stocks, it would be Charlotte's Web.
While Aphria is starting to gain some momentum, Charlotte's Web has plenty of momentum already. Charlotte's Web's market share is still under $900 million. I suspect that it could double over the next few years as the U.S. hemp CBD market shifts into high gear.
