Shares of Charlotte's Web Holdings (CWBHF -2.91%) slipped 6.2% lower on Thursday after falling as much as 13.7% earlier in the day. This marked the second consecutive day of large declines after the cannabidiol (CBD) leader reported its second-quarter results on Wednesday morning. The continued sell-off appears to be due, in large part, to investors' worries that Charlotte's Web's growth could be limited until the U.S. Food and Drug Administration (FDA) finalizes its regulations for CBD.
Charlotte's Web's products are now carried in more than 8,000 retail locations. However, many of those locations, including CVS Health and Kroger, only sell the company's topical CBD products. These major retailers don't want to risk running afoul of the FDA, which has expressed its displeasure about CBD food-supplement products that make misleading health claims.
The problem is that around 80% of Charlotte's Web's sales are generated by its CBD supplement products. Charlotte's Web CEO Deanie Elsner acknowledged in the company's Q2 conference call that big retailers aren't going to market its CBD supplements until the FDA hands down its regulations. Many investors appear to be focusing on the uncertainty about when the FDA decision will be made.
However, Elsner maintained that Charlotte's Web has multiple pathways to grow while it awaits the FDA's CBD regulations. She also expects that whenever those regulations are finalized, it will present a major catalyst for Charlotte's Web.
The company's full-year 2019 revenue guidance appears to back up Elsner's take. Charlotte's Web projects 2019 revenue will be between $120 million and $170 million. That wide range reflects the question marks surrounding what the FDA will do. Even on the low end of that range, though, it reflects nearly 73% year-over-year revenue growth.
Investors, like Charlotte's Web and its retail partners, will have to wait to see what the FDA decides regarding CBD regulations. In the meantime, it doesn't seem likely that the agency will clamp down on Charlotte's Web for marketing its CBD supplements. The company continues to avoid making any unwarranted health claims that might get it into trouble.
Charlotte's Web should add even more retail locations to its distribution network in the remaining months of 2019. In addition, the company thinks it will grow revenue at a faster pace than operating expenses. The stock's pullback over the last couple of days could present an attractive buying opportunity for patient investors.