Charlotte’s Web Holdings focuses only on CBD/hemp exposure – they don’t offer psychoactive cannabinoids. They claim though that flavonoids and terpenes and their proprietary mixtures of them offer an advantage over straight CBD.

The CBD market is already competitive, and product differentiation would appear to be a competitive advantage. Probably no other company has benefitted as much from the US Farm Bill more than CWEB has. Their share price has been a straight out bull run, and is an outfit that hasn’t struggled to maintain IPO price. At all.

To the financials:

• Relatively cash deep
• Using all the product they can get. Inventory low to sales rate.
• 75% gross margin — woot
• G&A/Sales & Marketing expense is a bulge. Breakdown in Note 15 is helpful: personnel cost of $17MM, which is relatively ugly.
• Appears to lack the facing costs and retailer inducements others companies attract
• SBC of $22MM. This is a big number, but, I’ve seen big numbers in outfits with zippo in sales and zero share price accretion. These guys have done both.
• SBC isn’t going to subside. $220MM more is sitting in their fins in options and warrants, which could be struck this year.
• Intangibles negligible. Nice change of pace.
• Increase of 1,000 stores carrying product, up from 2,000 at start of year.
• They anticipate 17 leases to be on balance sheet in upcoming year – not a real ‘build’ type of shop. Only $7MM in PP&E
• They’ve claimed the SBC as a deferred tax asset. First I’ve ever heard or seen of this done. Outside of cash and inventory, it’s the largest asset they have. I need an accountant

I like that they source relative to cannabinoid yield rather than by poundage. Real challenge with this outfit isn’t the sales expansion, I see their largest challenge in ensuring throughput and implicitly – sales maintenance. Fast growth is very challenging for businesses. It’s one thing when you aren’t growing – sales need to be found. It’s another when people actually have money in their hand ready to give it to you, but you have no product.

I don’t know if their inventory number is a negative portent or not. 

I do see the valuation on their share price as disconnected from reality. The high relative share price appears to have priced in not only future sales expansion potential, but also continuous margin hold and market hegemony as well.

I’d buy them really – if the share prices were within the realm of reason. I have my doubts whether they can actually crystallize the potential priced in before a whack of other production comes online and price decay initiates. All said, these are pretty good looking financials. The optionality isn’t though (a function of their own success).

I really want to see how sustainable sales and margins are. If they have a hiccup along the way, the premium in share price potential priced into the market could go *poof* far faster than it’s come about.

The preceding is the opinion of the author, and not a recommendation to buy or sell any security or derivative. The author has no position in CWEB.