Stone Fox Capital

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Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry and exit points. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA. Invest with Stone Fox Capital's model Net Payout Yields portfolio on IB Asset Management as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here: Follow Mark on twitter: @stonefoxcapital

While Risky, Cannabis Stock Charlotte’s Web Is Too Cheap to Ignore

Over the course of the last couple of months, Charlotte’s Web (CWBHF) has taken a beating due to U.S Food and Drug Administration concern over CBD products. The stock offers all of the catalysts desired for a cannabis company including national expansion and the uplisting to a major stock exchange suggesting now is the time to really dig into the opportunity with the stock trading around $14.50.

Rapid Expansion

Charlotte’s Web is the premier company focused solely on the production and distribution of hemp-derived cannabidiol or CBD wellness products. Most other companies in the space are chasing the CBD market as part of a diversified retail plan that includes opening retail locations and cultivation of cannabis.

The CBD market is expected to see substantial growth in the next few years. The company quotes a revenue target in the $7 billion range by 2023. Other research firms such as Cowen forecasts the CBD market to reach $16 billion by 2025.

Either way, the U.S. CBD market is expected to see rapid expansion over the next five years. In this regard, the market likely didn’t like that Charlotte’s Web only reported slight revenue growth in Q1.

The company posted revenues of $21.7 million, only up $0.2 million from the prior quarter. On top of that, management kept guidance for 2019 revenues of $120 to $170 million leaving open the door for only minimal growth.

The market wants to see substantial growth despite the stock not trading at a rich valuation anymore.

Irrational Sell Off

The stock is down about 40% from the early April high above $25. With 95 million shares outstanding, Charlotte’s Web has a market valuation of just shy of $1.4 billion.

The revenue goal based on analyst estimates is in the $350 million for 2020. The stock trades at a very reasonable 3x forward sales estimates for a company with the potential for a premium brand positioning in the health and wellness sector of CBD.

A couple of issues hit the stock after reaching that blow off top in early April where the stock nearly doubled in a month. First, the company priced a secondary offering on May 9 for C$140 million worth of shares at C$20 per share. Second, the FDA held a hearing where the federal regulators questioned the long-term safety of CBD with suggestions that food and dietary products might not obtain approval for infusing CBD.

Charlotte’s Web is solely focused on CBD so the company has a higher risk that new FDA regulations could impact the business.


The key investor takeaway is that Charlotte’s Web is likely to trade volatile like any cannabis related stock due to government regulations. The market appears to have missed the uplisting to the Toronto Stock Exchange at the end of May due to the passing of the 2018 Farm Bill.

Now that the froth is out of the stock, investors should look to play Charlotte’s Web on the over played FDA risks and concerns about growth. An uplisting to a major U.S. stock exchange along with a another quarter of substantial growth from expanding with national retailers will have the stock back to old highs before long.

To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.


Disclosure: No position.


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