Charlotte’s Web Holdings Inc (CNSX:CWEB) Reports Q4 and Year-End Earnings

Benjamin A. Smith
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Charlotte’s Web Holdings Inc (CNSX:CWEB) (OTCMKTS:CWBHF) delivered earnings after the bell today. While the results demonstrate the requisite triple-digit YoY revenue growth and other salient tidbits, the headline revenue number may sap momentum heading into tomorrow. We dig into the details.

If this was most other sectors, Charlotte’s Web Holdings financial numbers would look fantastic. The company experience year-over-year organic revenue growth of 74% to $69.5 million; gross profit increased 75% to $52.3 million; division segments including human nutrition products, topicals and animal nutrition products sales increased YoY 76%, 1085% and 189%, respectively. CWEB delivered growth that would be the envy of all non-early stage growth markets.

Unfortunately in the fast-growing weedstocks space, anything other than exceptionally strong growth may be insufficient to keep momentum humming.

According to four analysts estimates, CWEB’s average Q4 2018 revenue forecast was $23.09M—although there was a fairly large disparity between low and high estimate ($20.9M vs. $27.7M). While it wasn’t a big miss by any stretch, Charlotte’s Web only delivered $21.5M for the quarter. Earnings per share and adjusted EBITDA numbers also missed the target—although non-recurring legal expenditures associated with regulatory activities could be responsible for the latter.

What should all this mean for Charlotte’s Web investors heading into tomorrow? The non-beat could induce modest selling pressure tomorrow; unless there’s a partnership unveiling during tomorrow’s earnings call similar to the one Curaleaf Holdings announced earlier this week. The primary reasons for these sentiments are twofold.

The biggest of which is price action. Charlotte’s Web has been on an absolute tear, soaring ↑51.67% since March 9th (14 sessions). This has transpired in the absence of material news flow, which suggests investors were—at least in part—front-running strong earnings expectations.

Charlotte’s Web Holdings is the category leader in hemp extracted health and wellness products in the United States. CEO Hess Moallem provides an overview of the company’s operations and 2019 goals

Also consider that direct competitor CV Sciences post-earnings reaction was recently lackluster despite growth which topped that of CWEB. On March 12, the hemp-based CBD products company reported ↑133% YoY revenue growth, record net income ($10.0M), and record adjusted EBITDA of $14.0 million or 29.0% of net revenue for 2018. And what was the market’s reaction to these seemingly strong results? CVSI fell ↓5.41% the next session, and ↓12.82% peak-to-trough before paring losses.

Of course, we can assume that Charlotte’s Web will follow the same post-earnings path. However we can probably infer that the numbers—however much weigh investors ascribe to them—are likely not “blue sky breakout” supporting in the near term.

Final Thoughts

When a stock runs hard into earnings in lieu of supporting material news, it usually means a healthy dose of expectations are built into the cake. Unfortunately, Charlotte’s Web Holdings earnings report may not carry “wow” factor many were expecting.

We hope that any brief respite will be met with even stronger buying on the other side—similar to the price action CVSI experienced several days ago. After an initial modest loss, investors carried the stock to fresh 2019 highs. The difference here is that CWEB has already attracted the pre-earnings buying that CV Sciences lacked in the lead-up.

Whatever happens tomorrow, Charlotte’s Web is the undisputed cannabidiol wellness products leader, and will remain so despite any adverse share price reaction. Regardless, a pullback was due after adding almost $1 billion in market cap from the March lows alone. This earnings reports likely only expedites that process.

Midas Letter will update this submission should any material information present itself during tomorrow’s conference call.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

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