One of the biggest advantages Charlotte's Web (OTC:CWBHF) has enjoyed is its dominant position in hemp-based cannabidiol (CBD) products in the U.S. While many cannabis companies are focused on the sale of recreational marijuana, Charlotte's Web has carved out a strong market share in hemp.

However, its legacy leadership in the market could change with one big-name competitor from Canada looking to make a big splash in the U.S. CBD market: Canopy Growth (NASDAQ:CGC).

First & Free to sell CBD products in more than 30 states

On Dec. 12, Canopy Growth launched its First & Free brand, which currently sells softgels and oil drops on its website. Hemp-derived creams are also coming soon. The website doesn't indicate any physical presence, but it provides shipping to 31 states and offers free two-day shipping on orders of more than $75. 

It's still a very modest offering for Canopy Growth, but it could be the first step of a much larger move into the U.S. Investors are likely to remember the company's aggressive plan to acquire Acreage Holdings to position itself in the U.S. market. However, the deal remains pending until marijuana is legalized in the U.S., which is the earliest that it could be completed. Canopy Growth has been antsy to enter the U.S., and hemp-based CBD products offer the company a way in. A year ago, the U.S. passed the farm bill, which allowed for the sale of hemp-based CBD products in the U.S. -- in states that permit it and have programs set up to regulate it. Although more than 40 states permit hemp, it's still not entirely legal across the country. Hemp is legal federally but there are still three states where its cultivation is still not legal: Idaho, South Dakota, and Mississippi, as well as the District of Columbia. 

Canopy Growth could be a big player in the hemp space. The cannabis producer has a market cap of more than $7 billion and is one of the top stocks in the industry. In the trailing twelve months, Canopy Growth reported sales of more than $344 million Canadian dollars and has the capacity to continue growing its top line. With a production capacity of more than 10.5 million square feet, Canopy Growth has lots of available space to meet its customers' needs in Canada while also producing hemp-based CBD products to sell in the U.S.

Canopy Growth and Charlotte's Web both produce their own hemp and could become big rivals in the hemp CBD market in the U.S. 

Various hemp products.

Images source: Getty Images.

Charlotte's Web has a big head start

Charlotte's Web generated more than $71 million in sales from hemp products over the past nine months. Its products are available in more than 40 U.S. states, via big retailers, including Kroger, which carries them in 1,350 stores across the country. It's not clear why First & Free doesn't offer its products in more states. It could simply be a logistical issue as the company only mentions that products are "unavailable" in other regions.

Charlotte's Web has another important advantage. First & Free offers just five products on its website right now, while Charlotte's Web has dozens, including dog products and gummies. Charlotte's Web offers free shipping on every order within the U.S., indicating the significant economies of scale that it has achieved. First & Free's product selection is still very limited and it doesn't offer large quantities or the bundles available on Charlotte's Web's website. Notably, the Canopy Growth logo is absent from the First & Free site. 

Should Charlotte's Web investors be concerned?

The launch of First & Free should definitely have Charlotte's Web investors on alert. Canopy Growth hasn't made a big announcement surrounding the launch of the website, and its few product offerings thus far suggest this may just be a test run of the site and that the initiative is still in its infancy. Canopy Growth is approaching its U.S. expansion with caution. 

However, there's a lot of potential for Canopy Growth to provide competitive CBD products. The company partnered with Martha Stewart to work on CBD pet products and other initiatives. As Canopy Growth rolls out more products and potentially expands into physical stores in the U.S., Charlotte's Web could begin to feel the competition intensifying.

The one challenge facing both companies today are concerns surrounding the safety of CBD and whether consumers can trust the products. The U.S. Food and Drug Administration (FDA) issued a warning recently, stating that "some CBD products are being marketed with unproven medical claims and are of unknown quality" and that "the FDA has seen only limited data about CBD safety and these data point to real risks that need to be considered before taking CBD for any reason." The warning could impact consumer demand for CBD products, whether they're from hemp or not, which could make it more difficult for Charlotte's Web to continue its impressive growth. And having a big competitor like Canopy Growth vying for market share will only make things worse.

There's no word as to when Canopy Growth may ramp up its supply of hemp-based CBD products; even this launch of First & Free was relatively quiet. But what's evident is that with the company now having a formal pathway to sell on the U.S. market and a site up and running, it may only be a matter of time before more products become available and Charlotte's Web starts to see the top marijuana stock begin to chip away at its market share.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.