Charlotte’s Web: Q3 Earnings Missed Analysts’ Estimates

Today, Charlotte’s Web Holdings (CWEB) (CWBHF) reported its third-quarter earnings, which ended on September 30. For the quarter, the company missed analysts’ revenue and EPS estimates. Charlotte’s Web’s revenues were $25.1 million—lower than analysts’ estimate of $32.51 million. The company reported a net loss of $0.01 per share, while analysts expected profits of $0.05 per share.

Charlotte’s Web’s revenue growth

During the third quarter, Charlotte’s revenues grew 41.5% from $17.74 million in the third quarter of fiscal 2018. Introducing new products and expanding the company’s retail presence to over 9,000 locations drove the revenues. Year-over-year, the company’s B2C business grew 38.7% and generated 51.2% of its total revenues during the quarter. Supported by marketing and social media programs, the company’s online traffic rose 68%, which drove the segment’s revenues.

Charlotte’s Web’s B2B business reported a strong performance by growing 66.4%. During the quarter, Kroger, Vitamin Shoppe, and CVS Pharmacy expanded Charlotte’s Web’s products to more stores, which led to a growth in the segment’s revenues. In the third quarter, Kroger introduced the company’s products in five new states to increase the product distribution to 1,350 stores in 22 states. Also, during the quarter, Vitamin Shoppe introduced the company’s CBD gummies in 738 of its stores.

Adjusted EBITDA fell

For the quarter, Charlotte’s Web reported an adjusted EBITDA of $0.7 million, which represents an EBITDA margin of 2.8%. Meanwhile, the company reported an adjusted EBITDA of $5.3 million at a margin of 29.9% in the third quarter of 2018. The lower gross margin, higher operating expenses, and investments in growth initiatives lowered the company’s EBITDA. Charlotte’s Web’s gross margins fell from 78.0% in the corresponding quarter of 2018 to 71.3%. The company’s operating expenses increased from $2.4 million to $4.7 million during the same period.

For the quarter, Charlotte’s Web reported a net loss of $1.3 million or $0.01 per share—a fall from its net income of $1.8 million or $0.02 per share in the third quarter of 2018.

Capacity expansion

Charlotte’s Web is investing to expand its cultivation, production, R&D, and extraction capacities at a 136,610 square-foot industrial space in Louisville, Colorado. The company leased the building in August 2019. Charlotte’s Web’s management expects the facility to significantly raise its production capacity and lower its production and distribution expenses by the third quarter of 2020.

In the first three quarters, the company spent $24.8 million on operations and $12.9 million on investment activities. At the end of the third quarter, the company had $35.0 million in cash—a fall from $51.4 million at the end of the last quarter.

Charlotte’s Web’s YTD stock performance

Year-to-date, Charlotte’s Web stock has fallen 12.5% as of Tuesday. The lower-than-expected second-quarter performance and weakness in the cannabis sector dragged the stock down. During the same period, MedMen Enterprises (MMEN) (MMNFF), Curaleaf Holdings (CURLF) (CURA), and Cresco Labs (CL) (CRLBF) have returned -64.4%, 0.8%, and -8.6%, respectively.

On Thursday, Aurora Cannabis (ACB) and Canopy Growth (WEED) (CGC) will report their earnings. Read Aurora Cannabis: Can It Boost the Industry in Q1? and Why Analysts Seem Pessimistic about CGC’s Earnings to learn more. Also, visit 420 Investor Daily for more cannabis-related news.