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Why Charlotte's Web Holdings Stock Just Dropped

By Rich Smith - Feb 23, 2021 at 12:44PM

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The CBD seller's stock seems to be tangled up with the tech sell-off.

What happened

Has the market correction finally arrived? It sure feels like it today, with the Nasdaq first falling nearly 4%, then rebounding, but now falling again, and currently off about 2.4% as of 12:15 p.m. EST. Tech stocks seem to be taking the biggest hit, but marijuana shares, and marijuana-adjacent stocks like CBD seller Charlotte's Web Holdings (CWBHF 0.92%), are getting tangled up in the selling. As of 12:15 p.m. EST, Charlotte's Web was down 6.8%.

So what

Analysts are uncertain what's causing the sell-off, citing everything from a recent rise in government bond rates to a "risk cluster" surrounding investors who've sunk their money into high-flying tech stocks.    

What does any of that have to do with Charlotte's Web Holdings, you ask? I'm honestly not sure -- but neither am I optimistic.

It's not as if investors have a lot of gains in Charlotte's Web stock that they could be concerned about losing in the middle of a tech sell-off. Charlotte's Web shares are only up about 6% over the past year. But on the other hand, the stock's really not heading into this sell-off in any kind of position of strength. Sales were anemic last quarter, growing only a fraction of 1%, and the company hasn't reported positive earnings since mid-2019, back even before the recession began.

White arrow declining sharply atop a stock tickertape display bathed in red

Image source: Getty Images.

Now what

With a negative P/E ratio, negative free cash flow, and a fair slug of debt on its books, Charlotte's Web doesn't look to me like any kind of a bargain -- a safe port in a sell-off storm that investors might flock to as the rest of the market tanks. Meanwhile, prospects for marijuana legalization in the new year aren't likely to benefit Charlotte's Web much, either, because the easier it gets to buy "real" marijuana, the less interested I'd expect consumers to be in buying "marijuana-lite" products like CBD.

I may not be able to explain why investors are abandoning Charlotte's Web stock today in particular, but I'm pretty sure they're right to be skeptical of the stock's potential in general.

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Stocks Mentioned

Charlotte's Web Holdings, Inc. Stock Quote
Charlotte's Web Holdings, Inc.
CWBHF
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