After a dismal calendar year 2019, during which its shares slid by about 31%, Charlotte's Web Holdings (CWBHF -6.56%) isn't performing much better in 2020.
In the weeks since the new year kicked off, the company's shares are down by 23%. On the one hand, it isn't surprising that Charlotte's Web has been performing so poorly. Industrywide issues, such as poor financial results and the disappointing retail environment in Canada, have dragged pot companies down of late. Charlotte's Web is currently hovering near its all-time lows, and there are several reasons why investors should consider buying shares of this company.
A growing retail presence
Charlotte's Web develops and markets hemp-based cannabidiol (CBD) products. The company's portfolio of products includes capsules and gummies, among others. The CBD market will likely grow at a nice clip in the next few years, and to take advantage of this opportunity, Charlotte's Web has managed to build a retail presence that is wider than that of most of its competitors.
At the end of the third quarter, the company's products were found in almost 10,000 stores across the U.S., including such retail giants as CVS Health. At the end of 2018, Charlotte's Web products were sold in 3,680 stores. In other words, the company has been growing its industry-leading retail presence, and there's no reason to expect that trend to stop anytime soon.
Along with its retail presence, Charlotte's Web has been growing its production capacity. During the calendar year 2018, the company planted 300 acres of hemp. That number increased by 187% to 862 acres in 2019.
Furthermore, Charlotte's Web is currently building a 137,000-square-foot production facility in Colorado. The company's current facility is only 40,000 square feet, so the new facility will represent a significant improvement over the old one. This facility should be operational by the end of 2020 and will multiply Charlotte's Web's current production capabilities by 10. Management says the new facility will help it operate more efficiently, as well as decrease costs, thereby having a positive effect on its bottom line.
This new facility is a central part of Charlotte's Web's vision moving forward. As COO Stephen Lermer put it, "This is a time of rapid growth and transformation for Charlotte's Web and these new facilities are necessary to support the production, warehousing and distribution of our growing product lines and volumes."
A major caveat
Perhaps the biggest knock against Charlotte's Web is the U.S. Food and Drug Administration (FDA).
Last year, the health industry administrator sent out a press release warning consumers about the potential dangers of CBD. According to the FDA, CBD can have negative health consequences such as liver injury. The FDA also warned that the claims regarding the potential health benefits of CBD -- such as claims that it can cure some forms of cancer -- are unproven.
The FDA presents a challenge to Charlotte's Web in a different way, as well. The agency has yet to deliver "clear regulatory direction" in the CBD market, and the delay is hindering Charlotte's Web's progress.
Fortunately, the company seems well-positioned to deal with both of these issues. First, Charlotte's Web is in good standing with the FDA, meaning it isn't one of the companies that received a warning letter for making unsubstantiated claims about its CBD products. In fact, according to the company's CEO, Deanie Elsner, Charlotte's Web is in enthusiastic agreement with the FDA's stance on unsubstantiated products.
Second, once the FDA finally issues regulatory direction in the CBD space, Charlotte's Web believes the CBD market will grow even more, and the company is "ready with the infrastructure and capacity to disproportionally capture that growth." In short, while the FDA's recent warning may present short-term headwinds for Charlotte's Web, the company's long-term prospects still look reasonably attractive.
Why you should consider buying
Some will choose to avoid the cannabis industry altogether, and that is an understandable sentiment. After all, cannabis stocks have been hammered over the past few months, and there's still a lot of uncertainty as to how things will unravel moving forward.
But for those looking to profit from this growing industry, Charlotte's Web is a strong option thanks to its leading position in the U.S. CBD market and its ongoing growth efforts.