In an April 1 research note, analyst Scott Fortune reported ROTH Capital Partners raised its target price on Charlotte's Web Holdings Inc. (CWEB:CSE; CWBHF:OTCQX) to CA$29.50 per share from CA$25.50 to reflect the cannabidiol (CBD) company's strong Q4/18 and 2018. Its current share price is around CA$32.90.
Fortune went over the Q4/18 and 2018 results. Q4/18 marks the company's 12th consecutive quarter of revenue growth, which has averaged about 15% quarter over quarter. Sales increased 21% over those in Q3/18. Revenue was $21.5 million, up 71% year over year (YOY). Net income was $3.2 million, making the year-to-date total $11.8 million, or CA$0.12 per share, versus 2017 when it was $7.5 million, or CA$0.09 per share.
As for full-year 2018, Charlotte's Web grew revenue 74% YOY to $69.5 million, with 55% coming from online sales. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the year was $21.1 million—30% of consolidated revenue—due to one-time legal expenses and costs related to the initial public offering. The company generated a gross profit in 2018 of 75%, the same as in 2017.
Product sales in 2018 increased YOY. Topical formulations, animal nutrition products and human nutrition products grew by 1,085%, 189% and 76%, respectively.
Also during 2018, Charlotte's Web expanded its retail presence to more than 4,000 locations nationwide, including grocery markets and drugstores—CVS, for example. The company forecasts that in the future, its retail segment will grow faster than its 216% rate in 2018, driven by business from retail chains.
Regarding its financial status, at year-end 2018, the company had more than $90 million in working capital and a "small amount of debt," Fortune noted.
Next, he discussed the reasons why the company is set to have a solid 2019. The outlook for Charlotte's Web in 2019, he highlighted, "is strong due to ample supply and market positioning." As for supply, the company recently harvested the record 657,000 pounds, versus 63,000 pounds the previous year. It planted 300 total acres as opposed to 70 the year earlier.
Another factor is that acceptance and, therefore, demand have grown in additional segments in CBD consumable and topical products for people and animals, as well as in the wellness category. Charlotte's Web intends to expand into those new verticals. "Strong demand trends along with new mass market retail agreements suggest sales will increase throughout 2019," Fortune commented.
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Disclosures from ROTH Capital Partners, Charlotte's Web Holdings Inc, Company Note, April 1, 2019
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months.
