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Earnings Preview: Charlotte’s Web to report solid Q1 results aided by multiple tailwinds

By Staff Correspondent |

Charlotte’s Web Holdings (CSE: CWEB; OTCQX: CWBHF) is planning to report its first-quarter results tomorrow after the bell. The company is expected to continue the momentum from last year to witness solid growth helped by strong demand for its products.

Last December, US Congress passed the Farm Bill legalizing hemp-based products production, which is expected to be a game changer for Charlotte in 2019.

In 2018, sales grew 74% to $69.5 million while adjusted EBITDA dropped to 36% compared to 30% in the prior year period. The decrease was primarily due to one-time expenses related to the listing last year and compliance expenses. However, Charlotte is confident of achieving full-year adjusted EBITDA in the range of 30% to 35%.

Since 2017, the hemp producer has been able to consistently grow its revenues every quarter. Analysts are expecting revenues to increase about 64% to $22.74 million over $13.9 million last year. Based on the historical track record, Charlotte is forecasted to report yet another strong top-line numbers tomorrow. EPS is anticipated to come at 5 cents compared to 2 cents reported last quarter.

What it does?

Charlotte’s Web is involved in the production and distribution of hemp-based cannabidiol (CBD) products. Hemp extracts are taken from the Cannabis plant which has less than 0.3% tetrahydrocannabinol (THC). Due to lower THC content, hemp-based products doesn’t give any euphoric effect, unlike marijuana which has high THC content.

CBD-based products are used to produce a wide variety of products in the food, industrial and medicinal domains. Currently, the company is producing and selling tinctures and capsules and plans to expand to supplements and health care beverages in the future.

Farm Bill Amendment

In December 2018, with the US Congress amended the Agricultural Act of 2018 (2018 Farm Bill) to legalize production of hemp and hemp-derived products. This ratification is going to be an important tailwind for the entire hemp industry.

Commenting on the Farm Bill update, CEO Hess Moallem said, “We believe this important legislation will have a positive impact on consumer access to hemp-derived CBD products and for our valuable farming communities throughout the country.”

Thanks to the bill amendment, Charlotte has expanded its retail network presence to more than 6,000 locations compared to 3,680 retail points reported at the end of 2018.

The company also anticipates high demand for its products till 2021. Hence, it is doubling the acres planted in 2019 to 600 acres which would help to address the rise in demand in the next two years.

Preliminary Outlook

Earlier this month, Charlotte’s Web provided preliminary guidance for the first quarter. Sales is anticipated in the range of $21-22 million and 50% is expected to come from e-commerce sales. Adjusted EBITDA is forecasted to be between $4-4.5 million with net income in the range of $2-2.5 million.

For the full year, revenue is expected between $120-170 million compared to about $147 million expected by the street. With a lot of tailwinds favoring the hemp producer, 2019 is going to be a stellar year for Charlotte’s Web if all things go as per the plan.

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