Cantor Fitzgerald released a new report analyzing the possible effects of CBD reform in the stock performance of Charlotte's Web Holdings CWEB CWBHF, cbdMD YCBD and CV Sciences CVSI.
The three companies (and others in the CBD space) could benefit from positive federal legislation in months ahead, though no bills are guaranteed to pass Congress.
“We remain Neutral on the CBD stocks, there may be reasons to get constructive in the months ahead, and we would keep an eye on Charlotte's Web,” Cantor analyst Pablo Zuanic said.
FDA Won’t Solve CBD Regulation: Earlier this week, the FDA rejected an application by Charlotte's Web to market a full-spectrum hemp extract containing CBD as a dietary supplement. The decision was derived from the agency’s prior decision to treat CBD as a drug, when it approved Epidiolex, a CBD-based product, for the treatment of epileptic seizures.
This means that the FDA will likely not solve regulation for CBD, which will continue to be sold in an unregulated market until further legislation is enacted.
While this consequence won’t block CBD sales, it may leave large mainstream mass retailers hesitant to include CBD products in their listings. According to Zuanic, Amazon AMZN will sit out the CBD issue for the time being.
New Opportunities For CBD Legislation: A bill known as the “Hemp and Hemp-Derived CBD Consumer Protection and Market Stabilization Act of 2021” is currently in Congress and could set up a “clear set of regulations for a mature and regulated CBD industry,” Zuanic said. This would accelerate brand contraction by eliminating noncompliant bad actors.
The “Cannabis Administration Opportunity Act,” a draft bill meant to legalize marijuana federally, also includes CBD provisions and could help set up comprehensive regulations for the industry.
Charlotte’s Web: Cantor stayed Neutral and lowered its 12-month price target to $3.45 from $3.80, mainly due to sectoral derating.
The company reported second-quarter financial results on Thursday.
“Charlotte's Web reported a decent 2Q21,” said Zuanic, when comparing the company to others in the CBD sector. The analyst recognized that “Charlotte's Web is well-positioned to outperform.”
Although total sales increased sequentially by only 3% with virtually no improvement in online retail, sales in the B2B channel increased almost 40% from the previous quarter.
cbdMD: The same sectoral derating led Cantor to remain Neutral on the North Carolina-based CBD company and lower its 12-month price target to $2.40 from $3.25.
“In an increasingly competitive market that remains quite fragmented and 'capped' by regulatory uncertainty, cbdMD continues to build brand equity via sponsorships and other agreements,” Zuanic noted.
The analyst indicated that this strategy is working in terms of brand recognition, but results in negative EBITDA with negative 60% of sales in the June quarter versus negative 12% in the December quarter and negative operating cash flow.
CV Sciences: Cantor stayed Neutral and set a $0.42 price target.
“Sales grew [quarter over quarter] for a change (+6%), but on an annual run rate of $20mn, this is a company far below the ~$70Mn annual run rate achieved in 2Q19,” Zuanic wrote.
On the bright side, the company’s brands are now in a total of 7,800 retail locations and management is enthusiastic about recent product launches.
Lead image by Ilona Szentivanyi. Copyright: Benzinga.
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