Charlotte’s Web Holdings has 68 per cent upside, PI Financial says

Brand leadership means a lot in the nascent cannabis sector and its CBD wellness products industry, thus as a pioneer in the space with currently over 3,000 US retailers, Charlotte’s Web Holdings (Charlotte’s Web Holdings Stock Quote, Chart: CSE:CWEB) is poised for top and bottom line growth, says analyst Jason Zandberg of PI Financial, who in a coverage initiation on Monday gives CWEB a “Buy” rating and a C$26.00 target, representing a projected return of 67.7 per cent.

Colorado-based Charlotte’s Web is a vertically integrated hemp company with production operations in Colorado, Kentucky and Oregon. The company began trading on the Canadian Securities Exchange on August 30 of this year and is set up to benefit from the US Farm Bill, potentially up for a vote before the end of the year, which includes a section on the legalization of industrial hemp production at the federal level. The Farm Bill’s passing will allow hemp farmers access to the national banking systems, crop insurance and water rights, among other agricultural benefits, says Zandberg, who sees the development as likely to propel CWEB’s revenue growth.

“CWEB currently ranks among the fastest growing cannabis or hemp businesses while reporting one of the highest EBITDA margins (> 32 per cent) while the stock trades at less than half of its peers price to sales multiples (16x vs 39x),” says Zandberg. “We believe CWEB’s revenue potential is superior given its strong position within the CBD market and the fact that its sales are not limited within state borders.”

Charlotte’s Web produced revenue in 2016 and 2017 of $14.7 million and $40 million, respectively, and EBITDA in 2016 and 2017 of $2.0 million $14.1 million, respectively. (All figures in US dollars unless noted otherwise.)

Zandberg’s forecasts include revenue in 2018, 2019 and 2020 of $70.0 million, $140 million and $186.5 million, respectively, and EBITDA in 2018, 2019 and 2020 of $23.4 million, $47.2 million and $63.4 million, respectively. His C$26.00 target stems from a valuation of EV/EBITDA of 28x based on his 2020 estimates.