a new strain of wellness products charlotte's web holdings...
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Charlotte's Web Holdings, Inc.
Consumer Products
Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX)The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and allthe companies and securities that are the subject of this report discussed herein.
Canadian Equity Research19 September 2018
BUYPRICE TARGET C$21.00Price (18-Sep)Ticker
C$15.56CWEB-CNSX
52-Week Range (C$): 9.05 - 18.00Market Cap (C$M): 1,636Shares Out. (M) : 105.2Implied Return to Target (%) : 35.0Net Debt (Cash) (C$M): (94)Enterprise Value (C$M): 1,543
FYE Dec 2017A 2018E 2019E 2020ESales (US$M) 40.0 79.9 169.5 296.6Gross Profit (US$M) 29.9 61.7 125.8 219.5
EBITDA (US$M) 14.1 28.3 59.0 98.9EPS (US$) 0.09 0.20 0.37 0.65EV/EBITDA (x) 84.0 42.0 20.1 12.0P/E (x) 136.2 59.6 32.2 18.5
18
17
16
15
14
13
12
11
10
9
Se
p-1
8
CWEB
Source: FactSet
Priced as of close of business 18 September 2018
Charlotte’s Web is a market leader in the productionand distribution of wellness products made fromcannabidiol, a compound extracted from industrialhemp. Based in Boulder, Colorado, Charlotte's Webmarkets its products to customers across the UnitedStates and on a limited basis internationally, throughspecialty retailers and its website (www.cwhemp.com).
All figures expressed in US$ unless otherwise stated
Derek Dley, CFA | Analyst | Canaccord Genuity Corp. (Canada) | [email protected] | 416.869.7270Alexander Diakun | Associate | Canaccord Genuity Corp. (Canada) | [email protected] | 1.416.687.6339
Initiation of Coverage
A new strain of wellness productsInvestment recommendation:We are initiating coverage on Charlotte’s Web with a BUY rating and C$21.00 targetprice. Charlotte’s Web offers investors exposure to the high-growth cannabidiol (CBD)market through its industry-leading market share and product suite at what we believe isan attractive current valuation.
Investment highlights:• Charlotte’s Web is a market leader in the production and distribution of wellness
products made from cannabidiol (CBD), a compound extracted from industrial hemp.Industrial hemp is a species of cannabis with no more than a 0.3% concentration ofTHC – not marijuana – which is a key distinction, as this definition allows Charlotte’sWeb to sell its products across the US and in many countries. In the last two years, theUS market for hemp-derived CBD supplements has experienced robust growth and isexpected to grow at a 55% CAGR over 2016-2021, according to the Brightfield Group.
• Charlotte’s Web products achieved mass consumer acceptance following the airingof a CNN documentary by Dr. Sanjay Gupta which followed 5-year-old Charlotte Figi,who has a rare form of epilepsy and suffered from over 300 seizures a day. Charlottewas administered a CBD extract and within a week her well-being had significantlyimproved. In mid-2018, the company adopted the name Charlotte’s Web Holdings Inc.,representing the inspiring story that propelled the company into the spotlight.
• Today, while still being used as an antiepileptic, CBD is typically used to promoteinternal stability and equilibrium in the body. As such, its various benefits are said toinclude relieving stress, providing users with a sense of calm and focus, and helping inthe recovery of exercise-induced inflammation.
• While legal ambiguities exist, the operations of Charlotte’s Web are legal in the UnitedStates, where the company generates approximately 97% of its revenue. With thatsaid, we believe the CBD supplements market is poised for robust growth over ourforecast period, as CBD supplement products become more widely accepted at boththe governmental and consumer level, with transformational regulation expected tobecome law prior to the end of 2018. Most notably the 2018 Farm Bill, which includesprovisions to de-schedule industrial hemp as a Schedule I controlled substance, isexpected to be signed into law by President Trump prior to the end of 2018.
• We are forecasting EBITDA of $28M, $59M and $99M in 2018, 2019 and 2020,respectively, implying a CAGR of 91% over 2017-2020.
Valuation:Our target price is derived using a DCF valuation, with an 11.1% WACC and 2.5% terminalgrowth rate, yielding a value per share of $20.88. Our target implies 16.5x our 2020EBITDA estimate of $99 million, which we convert to Canadian dollars to account for thecompany’s CSE-listed share price. Charlotte’s Web offers investors exposure to the high-growth CBD supplements market, through its industry-leading market share, impressivemanagement team, established and growing retail relationships, and strong brandpower. With the shares currently trading at 12.0x our 2020 EBITDA estimate, we believeCharlotte’s Web represents an attractive buying opportunity.
For important information, please see the Important Disclosures beginning on page 35 of this document.
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Table of Contents Executive Summary .................................................................................................... 3
Overview of operations ............................................................................................... 5
Investment Thesis .................................................................................................... 10
Risks ......................................................................................................................... 20
Financial analysis and outlook ................................................................................. 22
Valuation .................................................................................................................. 26
Appendix A: Management ......................................................................................... 31
Appendix B: Ownership ............................................................................................. 32
Appendix C: Competitors .......................................................................................... 33
Appendix D: CV Sciences financials .......................................................................... 34
Charlotte's Web Holdings, Inc.Initiation of Coverage
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Executive Summary
Charlotte’s Web is a market leader in the production and distribution of wellness
products made from cannabidiol (CBD), a compound extracted from industrial hemp.
Industrial hemp is a species of cannabis with no more than a 0.3% concentration of
THC – not marijuana – which is a key distinction, as this definition allows Charlotte’s
Web to sell its products legally across the United States and in many countries. In our
view, this positions the company as a health and wellness product distributor, not a
cannabis company, which we believe allows for a broader base of investors otherwise
hesitant to invest in the cannabis industry.
Based in Boulder, Colorado the company is the market leader in hemp-extracted CBD
supplements, with a 14% market share in 2017, selling products including tinctures,
topical products and capsules. The company participates in the hemp-derived CBD
supplement market, which is expected to grow to $1.6 billion, representing a CAGR of
55% over 2016-2021, according to a report from the Brightfield Group, “Hemp-
Derived CBD, Market Overview & Analysis”.
We believe the strong brand positioning of Charlotte’s Web, the company’s vertical
integration, and its growing retail presence, has the company well positioned to
exceed industry average growth rates and deliver healthy returns to shareholders. As
such, we are forecasting revenue to grow from $40 million in 2017 to $297 million in
2020, and EBITDA from $14 million in 2017 to $99 million in 2020 as CBD products
gain more acceptance, from consumers as well as from federal and state
governments.
Investment highlights:
Below we highlight four key investment drivers:
1. Rapid market growth expected amidst transformational regulation
2. Market share expansion expected to continue as CBD acceptance increases
3. Robust innovation pipeline positions Charlotte’s Web for long-term growth
4. Vertical integration should lead to robust EBITDA margins
Rapid market growth expected amidst transformational regulation
While legal ambiguities exist, the operations of Charlotte’s Web are legal in the United
States, where the company generates approximately 97% of its revenue. Importantly,
the distinction made in the Consolidated Appropriations Act between industrial hemp
and cannabis means Charlotte’s Web is able to deduct operating expenses related to
the production of its products. This is an important distinction from U.S. cannabis
companies, which are subject to section 280E of the Internal Revenue Code.
With that said, we believe the CBD supplements market is poised for robust growth
over our forecast period, as CBD supplement products become more widely accepted
at both the governmental and consumer level, with transformational regulation
expected to become law prior to the end of 2018. Most notably the 2018 Farm Bill,
which includes provisions to de-schedule industrial hemp as a Schedule I controlled
substance, is expected to be signed into law by President Trump prior to the end of
2018. We believe this improving regulatory environment is likely to open up support
for CBD products in the near term, giving us confidence in the sustainability of the
robust growth recently witnessed in the hemp-derived CBD supplement market.
Market share expansion expected to continue as CBD acceptance increases
Charlotte’s Web is the hemp-derived CBD supplements industry leader, with 14%
market share in 2017, almost double 2016 at 8%. We believe this is attributable to
Charlotte's Web Holdings, Inc.Initiation of Coverage
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the company’s strong brand recognition and positioning as a product of choice for a
number of larger niche and specialty healthcare retailers. The company plans to exit
2018 with over 3,000 retail partners which, along with continued growth in the
company’s e-commerce platforms, should allow Charlotte’s Web to continue to
expand its market share. Should regulations surrounding CBD products continue to
ease, we believe Charlotte’s Web is well positioned to add a mass-market retail
relationship, which is not included in our forecast and would further entrench the
company’s industry-leading status.
Robust innovation pipeline positions Charlotte’s Web for long-term growth
Currently, Charlotte’s Web offers ~23 SKUs in a number of different forms and
compositions. We believe the company will be able to leverage its proprietary hemp
strains and extraction capabilities to develop new, high-growth products over the
course of our forecast period. The company intends to introduce 5-7 new products
over the next two years, and over the long term, the company’s new product pipeline
is expected to expand the company’s applications into areas such as sports medicine,
topical cosmetics, CBD beverages and pet treats. The company’s new products which
may not all necessarily contain CBD, which we believe will open up the Charlotte’s
Web brand to a group of consumers previously hesitant to use the company’s
products.
Vertical integration should lead to robust EBITDA margins
Charlotte’s Web is fully vertically integrated, controlling its product from seed to
shelves. We believe this is instrumental and allows the company to generate robust
EBITDA margins in the 35-37% range. This is roughly 500-700 bps ahead of CV
Sciences (CVSI | Not Rated), the company’s largest competitor and owner of the
PlusCBD brand, which produces product made from externally sourced hemp. Through
its ownership of plant genetics as well as proprietary extraction and conversion
processes, the company can scale the cultivation of its proprietary hemp plants in a
cost-efficient manner which, coupled with its premium pricing ability, should allow
Charlotte’s Web to continue to generate industry-leading margins.
Compelling valuation given margin profile and robust revenue
We are initiating coverage with a BUY rating and C$21.00 target price. Our target is
derived using a discounted cash flow analysis, which results in a valuation of $20.88
per share. Our target implies 16.5x our 2020 EBITDA estimate of $99 million, which
we convert to Canadian dollars to account for the company’s CSE-listed share price. In
our view, Charlotte’s Web represents an attractive buying opportunity at current levels,
trading at 12.0x our 2020 EBITDA estimate of $99 million. This represents a discount
to health and wellness-focused supplement manufacturers, which trade at 13.2x
2020 EBITDA estimates. We believe Charlotte’s Web should be valued at a premium
to its peer group as we think the company is positioned for higher near-term growth
than its peers. As well, Charlotte’s Web maintains greater financial flexibility given its
$72 million net cash position, which leaves the company fully funded over our
forecast period to achieve our estimates.
Potential risks (see Risks section on page 20 for details)
CBD research discovers negative side effects or lack of efficacy
FDA increases intervention in the operations of the company
2018 Farm Bill not signed into law
Agricultural operations risk
Increased industry competition
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Overview of operations
Charlotte’s Web is a market leader in the production and distribution of wellness
products made from cannabidiol (“CBD”), which is a compound extracted from
industrial hemp. Based in Boulder, Colorado the company currently markets its
products to customers across the United States and, on a limited basis,
internationally. Importantly, Charlotte’s Web distributes extracts made from industrial
hemp, which is hemp that contains no more than a 0.3% concentration of
tetrahydrocannabinol (“THC”), the psychoactive compound found in cannabis. In our
view, this positions the company as a health and wellness product distributor and not
a cannabis company, which may ease concerns for some investors.
The company markets products through its owned brand, Charlotte’s Web, which
currently offers ~23 SKUs with a focus on CBD extracts. Products are sold in
numerous forms, including tinctures (liquids/drops), capsules, and topical products,
along with a product line specifically designed for canines. Charlotte’s Web is the
industry leader in the high-growth, hemp-derived CBD extracts market, with an
estimated 14% market share in 2017, up from 8% in 2016, in a market that is
forecasted to grow at a 55% CAGR over 2016-2021.
Figure 1: Current product portfolio
Source: Company web site
Since 2014, Charlotte’s Web has grown its cultivation practices to three states
(Colorado, Kentucky, and Oregon), while selling its products both online and through
2,700 retail partners. The company generated revenue of $40 million in 2017, and
EBITDA of $14 million.
Figure 2: Historic revenue Figure 3: Historic EBITDA and EBITDA margin
Source: Company reports, Canaccord Genuity estimates Source: Company reports, Canaccord Genuity estimates
Capsules Cream PawsCBD IsolateExtract Oil
15
40
16
30
0
5
10
15
20
25
30
35
40
45
2016 2017 H1/17 H1/18
$ m
m
2
14
5
1114%
35%
30%
35%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
5
10
15
20
25
2016 2017 H1/17 H1/18
$ m
m
Charlotte’s Web is the industry leader
in hemp-derived CBD extracts, with a
market share of 14% in 2017
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Vertically integrated model
Importantly, Charlotte’s Web is fully vertically integrated, allowing the company to
maintain control over its products from seed to shelves. The company leases or has
contracts in place for over 300 acres of agricultural farmland in Colorado, Kentucky,
and Oregon, which is used to cultivate industrial hemp. In Colorado, the company
owns the cultivation, as the state has progressive regulations which allow for
commercial hemp cultivation. In Kentucky and Oregon, the company uses contract
manufacturing, partnering with farmers licensed under the state’s pilot programs. In
2018, Charlotte’s Web expects to produce 250,000-350,000 pounds of industrial
hemp, up from 63,000 pounds in 2017. While we do not expect the company to sell
through the entirety of its 2018 harvest in the same fiscal year, we estimate that
production of 250,000-350,000 pounds of industrial hemp would generate
approximately $160-220 million in revenue.
Furthermore, Charlotte’s Web owns and operates a 40,000 square foot
manufacturing facility, as well as a warehouse and distribution center in Colorado,
where the company extracts CBD from its harvested industrial hemp. The company
utilizes both carbon dioxide and alcohol extraction processes at the facility, both of
which are proprietary. This facility currently has the capacity to bottle 16,000 30 mL
bottles or 8,000 100 mL bottles per day.
Figure 4: Breakdown of 2018 cultivation acreage by state
Source: Company reports, Canaccord Genuity estimates
Charlotte’s Web also operates a 2,800 square foot plant breeding facility, where it
owns the genetics and cultivates its most popular strain of hemp plants. The company
has developed a feminized seed protocol, which allows for greater standardization
across the company’s hemp production, while also providing greater scalability. These
proprietary genetics consistently produce a CBD:THC ratio that is far superior to that
of the competition, with only a limited number of cannabis strains even approaching
this ratio. In addition to the company’s genetics, the company’s extraction and
conversion processes, as well as designs, are also proprietary. In our view, the
company’s proprietary genetics and breeding operations allow the company to scale
its cultivation in a manner which would be difficult to replicate through a simple plant
cloning process, which is common throughout the industry.
The company currently sells its products both online and through brick-and-mortar
retail channels, with e-commerce sales accounting for approximately 64% of sales in
2017. The e-commerce strategy currently has roughly 200,000 “opt-in” email
45%
32%
23%
Colorado Kentucky Oregon
Current cultivation acreage: 300 ac.
Fully vertically integrated, maintaining
control over its products from seed to
shelves
Proprietary genetics and breeding
operations allow for improved
scalability in cultivation
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customers, and recently has added an average of 10,000 new email customers every
month. In addition to having products available through the company website
(www.cwhemp.com), Charlotte’s Web products are also listed through multiple vendor
sites. The e-commerce strategy allows customers to sign up for a subscription
program, and importantly, approximately 80% of sales are generated from repeat
customers, demonstrating the strength of the company’s brand power.
Figure 5: Overview of assets
Source: Company reports
Company history
Charlotte’s Web has an inimitable and meaningful history that is important to the
branding and overall purpose of the company and which, in our view, has led to the
company’s industry-leading position and 14% market share.
Figure 6: Company history timeline
Source: Company reports
The company was founded by seven brothers from Colorado, known as the Stanley
brothers. The brothers began working with cannabis and researching its medicinal
properties after their uncle was diagnosed with cancer in 2008. In 2012, the Stanley
brothers met Charlotte Figi, a 5-year old girl with a rare form of epilepsy who suffered
from over 300 seizures a day. With early research showing the applications of CBD as
an antiepileptic, the Stanley brothers developed a hemp-derived CBD extract for
Charlotte which, after being administered by her parents, substantially improved her
condition. Inspired by Charlotte’s story, the brothers founded Stanley Brothers Inc. in
2013 and began distributing high-CBD, low-THC hemp-derived extracts under the
brand Charlotte’s Web. In mid-2018, the Stanley brothers changed the name of the
company to Charlotte’s Web Holdings Inc., representing the inspiring story that
propelled the company into the spotlight.
Facility (all in Colorado) Size (sq. ft.)
Administrative office 7,100
HQ/processing/R&D 40,100
Distribution 23,000
Horticulture/breeding 6,700
Customer service 3,000
Greenhouse 16,000
Greenhouse & office 16,000
2008Stanley Brothers begin researching medicinal
properties in plants
August 2013CNN documentary by Dr. Sanjay Gupta airs
on CNN featuring Charlotte Figi
December 2013Stanley Brothers Inc. is
founded
March 2014The company
establishes its first commercial cultivation
operation
2012Stanley Brothers first meet Charlotte Figi
August 2018As Charlotte’s Web, the company goes public and begins
trading on the CSE as CWEB
2010The brothers begin
breeding plants with a high-CBD, low-THC
content
May 2015The company expands product line to include
health and wellness products
June - Dec 2015The company plants
its first crops in Kentucky; moves to current 40,000 sq.ft.
manufacturing facility
2008 2010 2013 20142012 20182015 2016 2017
June 2017Expands operations to include a 23,000 sq. ft.
storage and distribution facility
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Charlotte’s Story
Charlotte’s Web products achieved mass consumer acceptance following the airing of
a CNN documentary by Dr. Sanjay Gupta. The documentary followed 5-year-old
Charlotte Figi and her parents. Charlotte (whom the company is named after) has a
form of epilepsy called Dravet Syndrome and as a result suffered from more than 300
seizures a day. Charlotte’s parents had been looking for a treatment and decided to
try CBD, given the published research indicating the applications for CBD as an
antiepileptic. The Stanley brothers, who had been developing a strain of hemp high in
CBD content and low in THC, created an extract from this plant which Charlotte’s
parents administered, following approval from her doctor. Within a week, Charlotte’s
well-being had significantly improved.
Following the airing of this documentary, Charlotte’s Web had a waitlist for its product
of over 15,000 families. We believe the media attention received by Charlotte’s Web
in relation to the CNN documentary has helped propel the company to its industry-
leading market share. Furthermore, Charlotte’s story was instrumental in developing
broader consumer acceptance of CBD and its potential applications. Today, while still
being used as an antiepileptic, CBD is typically used to promote internal stability and
equilibrium in the body. As such, its various benefits are said to include relieving
stress, providing users with a sense of calm and focus, and helping in the recovery of
exercise-induced inflammation.
About hemp & CBD
To understand why hemp-derived CBD has been shown to have various positive
effects on the human body, it is important to understand the science behind CBD and,
more importantly, the endocannabinoid system (“ECS”). First, we will discuss the
difference between hemp and marijuana, which leads to our classification of
Charlotte’s Web as a consumer-packaged goods company, and not a cannabis
company.
A key distinction between hemp and marijuana
As previously mentioned, we believe Charlotte’s Web to be a distributor of health and
wellness products and not a cannabis company. The key distinction is in the definition
of cannabis. While it is broadly assumed to refer to marijuana, which is cannabis with
a high level of THC, the term cannabis refers to the species of plant called Cannabis
sativa (L.). Hemp is also derived from the cannabis species; however, it is defined as
being cannabis with no more than a 0.3% concentration of THC. This difference is
substantial, as THC is the main psychoactive cannabinoid found in cannabis. The lack
of legal distinction between marijuana and hemp is the reason why hemp has been
included in the United States Controlled Substances Act (“CSA”) as a Schedule I drug,
yet is still allowed to be legally transported and sold across state lines.
While research remains in its infancy, CBD efficacy is well documented
Given the fact that the shift in sentiment behind cannabinoids has only ramped up
within the last decade, the research behind the applications for hemp and hemp
products remains in its infancy. That being said, there are numerous early indicators
that point towards the efficacy of CBD for various applications, one of the first of
which being US Patent 6,630,507 issued in October of 2003. While this patent
outlines the multiple applications for cannabinoids, it notes the potential application
for CBD as an antiepileptic.
More recently the FDA approval of the drug Epidiolex, developed by GW
Pharmaceuticals, further supports the efficacy of CBD, as it was approved for the
treatment of seizures associated with Lennox-Gastaut and Dravet syndrome, two rare
forms of epilepsy. Additionally, we believe there are eight other drugs currently
conducting clinical research on treatments for various conditions such as epilepsy and
Cultivates in three U.S. states with
products sold in 2,700 retail locations
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schizophrenia. In our view, the increasing number of clinical studies being conducted
with CBD is strongly supportive of the efficacy of the compound.
Figure 7: List of drugs with CBD in development
Source: World Health Organization CBD Critical Review Report, Canaccord Genuity estimates
Lastly, in terms of the safety of the compound, the World Health Organization (WHO)
recently published a Critical Review Report on CBD. Importantly, it found the
compound to have a good safety profile, with the only adverse effects resulting from
drug-drug interactions with other patient medication, while noting that CBD exhibits no
effects that would indicate any potential for substance abuse or dependence. It was
also mentioned that there is early evidence that the compound has antitumor,
neuroprotective, antiepileptic, antipsychotic, anti-inflammatory and anti-asthmatic
properties.
The endocannabinoid system and the science behind the efficacy
The ECS is a regulatory system in the human body that works to promote
homeostasis, which is internal stability and equilibrium in the body. The ECS contains
two main cannabinoid receptors (CB1 & CB2) as well as cannabinoids, which are
either produced in the body (endocannabinoids) or can be found in different foods in
our diet. These endocannabinoids bind to activate the cannabinoid receptors. CBD
impacts the ECS by inhibiting the metabolic enzymes that break down
endocannabinoids, thereby increasing the levels of endocannabinoids in the body and
promoting more activity in the cannabinoid receptors.
In addition to promoting homeostasis, the ECS has been found to be involved in other
processes such as sleep, digestion, energy, memory, metabolism, neuro-protection,
hormones and heart function.
Management and ownership
Charlotte’s Web is led by a strong and experienced management team with an
emphasis on consumer-packaged goods experience. CEO Hess Moallem was
previously a consumer-packaged goods executive, and most recently General Counsel
at Onnit Labs. CFO Rich Mohr has over 25 years’ experience as a CFO with Nasdaq-
and TSX-listed companies.
Drug name Company Status Intended Treatment
EpidiolexGW
Pharmaceuticals
Approved by
FDA
Seizures in patients with Dravet and Lennox-
Gastaut syndromes
ArvisolEcho
Pharmaceuticals
Phase I clinical
study
Various neurological disorders, including
schizophrenia and epilepsy
ZYN002Zynerba
Pharmaceuticals
Phase II clinical
study
Fragile X Syndrome, Epilepsy and
Developmental and Epileptic Encephalopathies
N/A Bionorica N/A N/A
N/ASTI
Pharmaceuticals
Phase II clinical
studyMarijuana-induced subjective effects
N/AINSYS
Pharmaceuticals
Phase II clinical
study
Childhood absence seizures for Prader-Willi
syndrome
N/AINSYS
Pharmaceuticals
Phase III
clinical studyInfantile spasm-type seizures
PTL101PhytoTech
Therapeutics
Phase I clinical
studyPediatric intractible epilepsy
N/A Ananda ScientificPhase I clinical
studyN/A
World Health Organization has recently
found the CBD compound to have a
good safety profile
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The Stanley brothers remain involved with Charlotte’s Web, with Joel Stanley serving
as Chairman of the Board of Directors, and Jared Stanley serving as VP Cultivation as
well as a member of the Board. We estimate that the Stanley brothers own ~34% of
the shares outstanding, while insiders and management own ~10% of the shares
outstanding.
Investment Thesis
In our view, Charlotte’s Web is well positioned to expand its already industry-leading
market share, given the following:
1) Rapid market growth expected amidst transformational regulation
2) Market share expansion expected to continue as CBD acceptance increases
3) Robust innovation pipeline positions Charlotte’s Web for long-term growth
4) Vertical integration should lead to healthy EBITDA margins
Rapid market growth expected amidst transformational regulation
While sentiment and awareness as it relates to industrial hemp continues to improve,
regulations in the United States remain ambiguous. As of the writing of this report,
industrial hemp is classified as a Schedule I drug as defined by the Controlled
Substances Act (“CSA”), and thus the laws and regulations regarding industrial hemp
are enforceable by the Drug Enforcement Administration (“DEA”). As well, while many
hemp-derived CBD products are currently being marketed as dietary supplements, the
viewpoint of the Food and Drug Administration (“FDA”) is that CBD is a drug, requiring
the appropriate approval processes to be sold in the United States.
The landscape the company operates in is quite complex; therefore, we have provided
an in-depth discussion of the legal complexities below. While this analysis is necessary
to understanding the risk profile of the company, it is important to note that in the
United States, it is currently legal to:
1. Cultivate and produce hemp in 41 U.S. states,
2. Distribute hemp between all U.S. states
3. Sell hemp and hemp products anywhere in the U.S.
As such, while legal ambiguities exist, the operations of Charlotte’s Web are legal in
the United States. We present a brief summary in the table below of the key
regulations relating to hemp, ahead of the more in-depth analysis below.
Stanley Brothers maintain 34%
ownership while management and
insiders own 10%
While legal ambiguities exist, the
operations of Charlotte’s Web are legal
in the United States
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Figure 8: Summary of hemp-related legislation in the United States
Source: Company reports, Canaccord Genuity estimates
The main reason behind the strict regulation of industrial hemp is that it is technically
cannabis. While the intention behind the laws is to regulate marijuana, the lack of
legal distinction between marijuana and industrial hemp has resulted in tight
restrictions imposed on industrial hemp, notwithstanding the fact it contains no
psychoactive compound and is not addictive or dangerous. Despite the legal
ambiguity, 2018 is proving to be a transformational year for the legalization of hemp,
with numerous bills pushing for less regulation of hemp and its extracts. We believe
the passing of these bills will be a transformational event not just for Charlotte’s Web,
but for the entire hemp industry, which has experienced unjust and strict regulation
for close to a century. In our view, the removal of this legal overhang is a key inflection
point for industrial hemp, and we expect it to allow the industry to flourish.
Brief history of hemp in the United States
The cultivation of hemp in the United States traces its roots as far back as the early
1600s, when settlers of an early English settlement in Virginia were required by law to
grow hemp to produce rope, sails and clothing. In fact, throughout the 17th and 18th
centuries, hemp production was required by farmers across many colonies, as its
applications were widely used in the production of warships and merchant vessels, for
which there was substantial demand at the time. Cultivation of hemp began to decline
in the 19th century, as the demand for these ships requiring hemp was displaced by
demand for steam ships.
Regulation title Effective Summary of hemp-related regulation Impact on industrial hemp
U.S. Controlled Substances Act May 1, 1971
Cannabis (inclusive of hemp) classified as a
Schedule I drug with cultivation, manufacturing and
distribution strictly regulated by the DEA
Industrial hemp scarcely cultivated in the
United States until 2014
Agricultural Act of 2014
(2014 Farm Bill)February 7, 2014
Introduces definition of industrial hemp and allows
for cultivation and marketing of hemp under an
Agricultural Pilot Program
U.S. states now allowed to regulate hemp
cultivation; currently 36 states with pilot
programs in place
Consolidated Appropriations
Act (2015-2018)December 16, 2014
Specifies that no federal funds can be used to
prohibit industrial hemp provided it was cultivated
in accordance with the 2014 Farm Bill
Hemp and hemp products can be sold
anywhere in the United States without the
intervention of federal administrations
Agricultural Improvement Act
of 2018 (2018 Farm Bill)
TBD
(estimated prior to
the end of CY 2018)
Industrial hemp de-scheduled in the U.S. CSA;
U.S. states to regulate hemp production while the
bill provides no authorization to interfere with
interstate commerce of hemp and hemp extracts
Cultivation, production, distribution and
marketing of hemp allowed across the U.S.,
creating legal clarity across all U.S. states
The lack of legal distinction between
marijuana and cannabis has resulted in
the strict regulation of hemp
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Figure 9: Legal timeline for hemp in the United States
Source: Company reports, Canaccord Genuity estimates
In the 1900s, regulation in the United States would cause further hemp production
declines, first with the Pure Food and Drug Act of 1906 which required drug labelling
to list ingredients that were considered to be “addictive” or “dangerous”. This list of
ingredients included 10 drugs, in addition to cannabis (whose definition included
industrial hemp), including morphine, cocaine, heroin and chloroform. Further
restrictions on cannabis occurred with the passing of the Marihuana Tax Act of 1937
(“MTA”), which regulated the importation, cultivation, possession and distribution of
cannabis in the United States. A few decades thereafter, in 1970, the Controlled
Substances Act was signed into law by Richard Nixon. This act listed cannabis as a
Schedule I controlled substance, imposing strict regulations on its cultivation.
Introduction of the 2014 Farm Bill and the Hemp Pilot Program
A key breakthrough in the distinction between marijuana and hemp occurred with the
passing of the Agricultural Act of 2014, also known as the 2014 Farm Bill.
Importantly, the bill included the definition of industrial hemp, defining it as the plant
Cannabis sativa L. with a THC concentration of not more than 0.3%. As well, the Farm
Bill established an Agricultural Pilot Program to study the growth, cultivation and
marketing of industrial hemp. It allowed for the cultivation of industrial hemp by either
an institution of higher education or a U.S. state’s department of agriculture. While the
bill laid out some preliminary framework for the cultivation of industrial hemp, it
remained a Schedule I controlled substance and as such, enforceable by the DEA at
the federal level.
Consolidated Appropriations Act, 2015-2018
Given the high degree of ambiguity with the Hemp Pilot Program and the 2014 Farm
Bill, former US President Barack Obama signed into law the Consolidated and Further
Continuing Appropriations Act of 2015. The act prohibited federal funds from
contravening the Hemp Pilot Program. Obama then signed into law the Consolidated
Appropriations Act of 2016, which further specified that federal funds could not be
used to intervene in the transportation, processing, sale or use of industrial hemp, so
long as it is cultivated in accordance with the Hemp Pilot Program.
Since taking office, President Donald Trump has signed into law the Consolidated
Appropriations Acts of both 2017 & 2018, which have the same language with
respect to the Hemp Pilot Program as the Act of 2016. In our view, this bipartisan
support for the hemp industry is a strong indication that the sentiment around hemp
Early 1600Settlers in Virginarequired by law to
grow hemp; used in the production of
warships
1970Controlled Substances
Act lists cannabis, including hemp, as a
Schedule I drug
1998The U.S. begins to import food-grade
hemp products
2007Two farmers in North
Dakota granted licenses to cultivate
hemp
1937Marihuana Tax Act
introduced, regulating the importation,
cultivation, possession and distribution
1700sMany American colonies legally
required settlers to grow hemp
20142014 Farm Bill signed into law, allowing for
the cultivation and marketing of hemp
under U.S. state pilot programs
2015-2018Consolidated
Appropriation Acts prohibit federal funds from interfering with
the Hemp Pilot Program
1600 1700 19701900 20182000 2014 2015
20182018 Farm Bill passes senate, if signed into
law it would de-schedule hemp from
being a Schedule I drug
2014 Farm Bill allowed for the
cultivation of hemp under state
regulated agricultural pilot programs
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13
has changed in the United States and that the government, at the federal level, is
willing to support the burgeoning industrial hemp industry.
2018 Farm Bill to remove industrial hemp from the marijuana definition
The Agricultural Improvement Act of 2018, otherwise known as the 2018 Farm Bill, is
the most important piece of legislation for the industrial hemp industry and is
currently working its way through Congress. There are three key items proposed by the
bill that are very positive for the production of industrial hemp in the United States (all
items below are included in the Hemp Farming Act, which is included in the senate
version of the 2018 Farm Bill):
1. The removal of hemp (and all derivatives/extracts) from the definition of
marijuana, effectively de-scheduling hemp and removing it from the purview
of the Controlled Substances Act. As well, this classifies hemp as an
agricultural commodity allowing it to be distributed and sold between states.
2. Allow U.S. states to regulate the production of hemp within their own
jurisdiction.
3. The bill does not authorize any interference with the interstate commerce of
hemp and hemp extracts.
After passing the House of Representatives on June 21, 2018, the bill had
overwhelming support in the Senate and passed with a vote of 86-11 on June 28,
2018. A conference committee is now reconciling the amendments made to the bill in
the House and Senate before bringing it to President Trump to be signed into law,
which is expected to occur later in the year. Importantly, the contentious differences
being reviewed are of no relation to the hemp regulation put forth.
In our view, the anticipated passing of the 2018 Farm Bill is a transformational event
for Charlotte’s Web and more broadly the hemp industry, for three key reasons:
1. It would allow for the cultivation, production, distribution and marketing of
hemp-derived products across the United States.
2. The de-scheduling of hemp provides increased legal clarity as the industry will
no longer need to rely on the annual renewal of the Consolidated
Appropriations Act to ensure the DEA does not intervene in its operations.
3. The removal of the stigma associated with being a “Controlled Substance” is
expected to increase consumer acceptance as well as household penetration,
while increasing the likelihood of Charlotte’s Web securing distribution
agreements with mass market retailers.
2018 Farm Bill set to remove hemp
from the purview of the Controlled
Substances Act
The pro-hemp version of the 2018 Farm
Bill passed the senate with a vote of
86-11
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Figure 10: U.S. states allowing the legal cultivation of hemp
Source: mapchart.net, Canaccord Genuity
The passing of the 2018 Farm Bill is a key step in supporting the development of the
industry, as the laws currently in place are too ambiguous to allow individual states to
apply them consistently. A prime example of this is in Texas, where the Department of
State Health Services announced it would ban the sale of all CBD products and seize
all products containing CBD from store shelves earlier in the year. The department
recently put a hold on the action, as there was strong disapproval among the public
given the legal ambiguity. The department indicated it would wait for further legislative
clarity before carrying out further action. In our view, passing the 2018 Farm Bill would
remove any ambiguity relating to the legality of hemp products.
Industrial hemp and section 280E of the Internal Revenue Code
Section 280E of the Internal Revenue Code states that companies cannot deduct any
expenses that relate to the trafficking of a Schedule I controlled substance. While
industrial hemp is still classified as a Schedule I controlled substance, it is important
to note that the Consolidated Appropriations Act prohibits federal funds from
intervening in the transportation, processing, sale or use of industrial hemp, so long
as it is cultivated in accordance with the Hemp Pilot Program. As such, we believe
Charlotte’s Web falls outside of the scope of the Internal Revenue Services’
enforcement of section 280E. Furthermore, if the senate version of the 2018 Farm
Bill becomes law, industrial hemp will no longer be a Schedule I controlled substance,
and will no longer be within the scope of section 280E.
FDA and the marketing of a dietary supplement
While the viewpoint held by the FDA on CBD provides further legal complications for
Charlotte’s Web, we believe this to be non-material given the increasing amount of
research suggesting that CBD is considered a safe product.
In the United States, the regulation governing food and drugs is the Federal Food,
Drug and Cosmetic Act (“FDCA”) while the Dietary Supplement Health and Education
Act (“DSHEA”), which is an amendment to the FDCA, defines and regulates dietary
supplements. Both are enforced by the FDA, and the stance of the Administration is
that CBD cannot be marketed as a dietary supplement as there is evidence the FDA
accepted an Investigational New Drug application (“IND”) for a drug containing CBD in
2006. Under the DSHEA, an IND containing CBD would exclude CBD from being a
dietary supplement.
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15
To date, the FDA has issued a warning letter to Charlotte’s Web which focused on the
health benefits and claims being made through the marketing on its website.
Charlotte’s Web has since adjusted the website and does not make any claims that its
products are safe and effective as treatment for any conditions.
In our view, there are a variety of reasons why the FDA’s stance is non-material to the
operations of Charlotte’s Web:
1. Under the 2018 Farm Bill, there is no authorization to interfere with the
operations of companies selling hemp and hemp extracts, meaning the FDA
cannot intervene provided the company is selling hemp-derived extracts
containing CBD.
2. Cannabis and its cannabinoids have been used therapeutically and
consumed for centuries, which provides strong support for CBD being a
dietary supplement.
3. Charlotte’s Web firmly believes there is no evidence that substantial clinical
investigations were made public prior to its products being marketed as a
dietary supplement.
4. There is increasing evidence that is supportive of CBD being a safe product,
highlighted by WHO’s Critical Review of CBD in June of 2018, which found
that CBD did not exhibit any effects in humans that were indicative of any
abuse or dependence potential, and found it to be well tolerated with a good
safety profile. As well, as per Congressional finding 13 in the DSHEA, the
federal government’s intention is not to impose unreasonable regulatory
barriers to slow the flow of safe products to consumers. As such, we believe it
is outside the scope of the FDA to explore further legal action against
Charlotte’s Web.
In summary, while the legal landscape in the United States is ambiguous and at times
challenging to navigate, we believe the new regulations, which are expected to
become law in late 2018, are positive for Charlotte’s Web and more generally the
hemp industry. Following de-scheduling, we expect the company to expand and
diversify its cultivation within the United States, increasing its seed production
capacity while reducing its reliance on a small number of geographic regions.
In our view, the company is poised to benefit from the improving regulations as the de-
scheduling of hemp is expected to remove the Controlled Substances overhang on the
product. This should allow Charlotte’s Web to increase household penetration while
expanding into mass market retailers that would not support selling products
containing a Schedule I drug off the shelf. We believe the company’s industry-leading
market share and management’s strong consumer-packaged goods experience
provide the company with the best positioning in the industry to be a pioneer in new
mass-market retail channels.
Market share expansion expected to continue as CBD acceptance increases
While the market for CBD extract products is forecast to grow at a robust 55% CAGR
between 2016 and 2021 (according to Brightfield Group), Charlotte’s Web has more
than doubled the industry growth rates, with revenue increasing 172% YoY in 2017 to
$40 million. We are forecasting continued market-leading revenue growth of 100% in
2018 to $80 million. In our view, as CBD products gain further consumer acceptance,
Charlotte’s Web’s strong brand positioning, industry-leading market share, and
commitment to product quality, have the company well positioned to deliver robust
growth exceeding the industry average.
We believe Charlotte’s Web is poised to
capture market share as CBD products
gain further consumer acceptance
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Figure 11: 2016 Hemp-derived CBD supplement market segmentation
Source: Company reports, Canaccord Genuity estimates
Charlotte’s Web almost doubled its market share of the CBD supplement market in
2017, growing its market share to an estimated 14% from 8% in 2016. Outside of
Charlotte’s Web and its largest competitor Plus CBD, which we estimate has
approximately 8% market share in 2017, no other brand has more than 2% market
share of the $287 million (and growing) CBD supplements market. While PlusCBD,
which is owned by CV Sciences (CVSI-US | Not Rated), continues to gain share in the
industry, we believe the growth of Charlotte’s Web is outpacing that of PlusCBD, and
Charlotte’s Web continues to expand its market leadership position, as growth in
website traffic continues to outpace that of the company’s largest competitor.
Figure 12: Hemp-derived CBD website traffic
Source: Company reports, Canaccord Genuity estimates
In our view, the complex regulatory framework in the United States has been the key
driver of the high degree of fragmentation in the industry to date. State-regulated pilot
programs have created a barrier to entry for hemp-derived CBD producers to scale
operations nationally. While regulation of hemp is still expected to exist at the state
8%
5% 2%2%
2%
80%
CW Hemp
PlusCBD Oil
HempMeds
CannazAll
Elixinol
Other
0
100
200
300
400
500
600
Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18
Web
site
vis
its
('0
00
s)
Charlotte's Web PlusCBD
E-commerce sales accounted for 64%
of 2017 revenue; expecting this to be
50% over our forecast period
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17
level under the 2018 Farm Bill, we believe the de-scheduling of hemp will reduce the
industry’s barriers to entry. With that said, we believe the proprietary genetics and
operations of existing producers are key barriers to entry for the industry. For
Charlotte’s Web, the company’s proprietary genetics allow it to contract cultivation
globally while consistently producing products with less than 0.3% THC. We believe it
will be difficult for entrants to the industry to scale operations as efficiently as
Charlotte’s Web does, as reliance on outsourced cultivation, with unknown origins of
hemp genetics, may result in hemp extracts with a THC concentration above 0.3%. In
our view, this will force potential entrants to invest in owned genetics. As such, despite
the evolving regulatory landscape, we believe Charlotte’s Web remains poised to
capture share of the hemp-derived CBD market.
Charlotte’s Web expected to be a pioneer in brick-and-mortar expansion
In 2017, e-commerce accounted for 64% of Charlotte’s Web’s revenue, with brick-
and-mortar sales accounting for the remainder. While not included in our estimates,
we envision this sales breakdown moving to a more balanced 50-50 split over the
course of our forecast period as competitors gain distribution in larger mass market
retailers.
Figure 13: Charlotte’s Web hemp-derived CBD market share estimate
Source: Company reports, Canaccord Genuity estimates
We believe one of the keys to the company’s growth will be adding incremental brick-
and-mortar retail locations. The company currently sells its products in over 2,700
locations, with a target of 3,000 locations by the end of 2018. Today, the company
has focused on selling products through smaller, niche, health focused grocery store
chains or natural health stores, such as Thrive Market, Lucky’s Market, Erewhon,
Fresh Thyme, New Seasons, Lassens and Earth Fare.
Furthermore, Charlotte’s Web’s first-mover advantage in developing retail
relationships, along with its exclusive distribution agreement with the leading United
States natural health product distributor, has the company well positioned to remain
the market leader, as new competitors potentially look to enter the market. In fact, we
believe Charlotte’s Web will continue to increase its market share as consumer
acceptance of CBD products increases.
Mass market represents meaningful incremental upside to our estimates
As CBD supplements gain further consumer acceptance, and perhaps as soon as late
2018 pending President Trump’s signing of the 2018 Farm Bill, we believe larger
national grocery and drug store chains will look to partner with Charlotte’s Web. This
should allow the company to continue to gain market share and grow revenue well
above industry average growth rates. Furthermore, as Charlotte’s Web products
80
169
297
489
1540
8%
14%
19%
26%
30%31%
0%
5%
10%
15%
20%
25%
30%
35%
0
100
200
300
400
500
600
700
2016 2017 2018E 2019E 2020E 2021E
CW
EB m
ark
et s
ha
re
Rev
enu
e ($
mm
)
Products currently sold in 2,700 retail
locations with plans to be in 3,000 by
the end of 2018
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18
become increasingly sold through mass market channels, we believe this could lead
to an acceleration of industry sales, as the consumer becomes more aware and
accepting of the benefits of CBD.
In our view, Charlotte’s Web is very well positioned to be the first hemp-derived CBD
company to sell through mass market retailers. However, we have not included this in
our estimates and believe that it would add meaningful upside to our valuation. We
estimate that a mass market retailer would generate stronger sales per store
compared to Charlotte’s Web’s current retailers, while being slightly dilutive to EBITDA
margins. As such, we estimate that securing distribution at a mass market retailer
with 1,000 stores could generate approximately $5.5 million in incremental EBITDA
annually. We view this possibility as likely over our forecast period as the three largest
retailers in the United States have a combined store network that is upwards of 7,000
stores.
Figure 14: Sensitivity analysis of incremental EBITDA for mass market distribution ($000s)
Source: Company reports, Canaccord Genuity estimates
International expansion and acquisition potential remain untapped
While Charlotte’s Web predominantly sells its products within the United States,
roughly 3% of sales in 2017 were in international markets. The company believes
international sales will represent ~10% of overall sales by 2019. We believe western
Europe will be the first area of international expansion for Charlotte’s Web, with the
company looking to partner with contract manufacturers to serve its international
customers.
Figure 15: International revenue projection
Source: Company reports, Canaccord Genuity estimates
We believe as broader acceptance of CBD products occurs in North America, the
company will have ample growth opportunities within the United States market, which
should more than allow the company to reach its 2019 revenue targets. Therefore,
while we believe Charlotte’s Web’s international growth strategy represents an
attractive potential growth avenue, investor focus should remain on the growth
potential within the company’s core North American market.
# Stores
5,470 500 750 1,000 1,250 1,500
28.2% 2,395 3,593 4,790 5,988 7,185
30.2% 2,565 3,847 5,130 6,412 7,695
EBITDA % 32.2% 2,735 4,102 5,470 6,837 8,204
34.2% 2,905 4,357 5,809 7,262 8,714
36.2% 3,074 4,612 6,149 7,686 9,223
424
1,840
5,899
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2017 2018E 2019E
Inte
rna
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e ($
00
0s)
We believe Charlotte’s Web is poised to
be the first hemp-derived CBD company
to sell product through mass market
retailers
International revenue expected to
generate 10% of sales in 2019,
compared to 3% in 2017
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Robust innovation pipeline positions Charlotte’s Web for long-term growth
Today, Charlotte’s Web offers 23 products in forms such as tinctures, capsules, and
topical products, along with a line of products focused on canines. The company
recently introduced an isolate tincture, containing only CBD and no THC, which we
believe will convert a subset of consumers who today may be hesitant to use the
company’s products. The company believes its current product line-up alone can
outpace the robust 55% average industry growth rates. This strong organic growth,
coupled with the introduction of 5-7 new products by the end of 2019, leaves the
company well positioned to reach its revenue targets, in our view.
Charlotte’s Web’s new product pipeline will expand the company’s applications into
areas such as sports medicine, topical cosmetics, CBD beverages and pet treats.
Furthermore, the company has the technology available to develop products which
specifically assist in various consumer need states, such as sleep deprivation as well
as stress and mood management. These broader product applications should allow
Charlotte’s Web to remain the preeminent consumer brand within the industry.
Figure 16: Current product list
Source: Company reports
Vertical integration should lead to robust EBITDA margins
As mentioned previously, Charlotte’s Web is fully vertically integrated, allowing the
company to control its product from seed to shelves. We believe this is instrumental
and allows the company to generate robust EBITDA margins in the 35-37% range.
Through the company’s proprietary feminized seed protocol, Charlotte’s Web has
developed a proprietary hemp strain with a high concentration of CBD and low THC
concentration which, importantly, is not more than 0.3%. The company, through its
ownership of plant genetics as well as proprietary extraction and conversion
processes, has the ability to scale the cultivation of its proprietary hemp plants in a
cost-efficient manner.
This, along with the company’s positioning as one of the highest-quality CBD
supplement providers, and the coinciding ability to price at a premium level, has led to
robust EBITDA margins. While we expect slight margin compression to occur in the
long run as increased competition leads to lower prices, we believe the company will
still be able to maintain its best-in-class margin profile.
In our view, Charlotte’s Web will continue to generate far better EBITDA margins than
the company’s publicly traded supplement manufacturing peers. In particular, we
believe this to be due in large part to the fact that Charlotte’s Web is a vertically
integrated producer that has been refining its cultivation operations for more than
four years. Given the low cost associated with the outdoor cultivation of hemp,
combined with the strong premium pricing, and premium branding of Charlotte’s Web,
CBD Oil Tinctures Bottle Size Retail Price (US$) Capsules Count Retail Price (US$)
Full Strength 30 mL $39.99 Hemp 30 $34.99
Full Strength 100 mL $99.99 Hemp 60 $59.99
Extra Strength 30 mL $74.99 Hemp Plus 30 $69.99
Extra Strength 100 mL $188.99 Hemp Plus 60 $119.99
Original Formula 30 mL $149.99
Original Formula 100 mL $274.99 Canine product Bottle Size Retail Price (US$)
CBD Isolate 30 mL $99.99 PAWS 30 mL $74.99
PAWS 100 mL 188.99
Topicals Size Retail Price (US$)
Hemp Infused Balm 0.5 oz $14.99
Hemp Infused Balm 1.5 oz $39.99
Hemp Infused Cream 2.5 oz $49.99
New product pipeline to expand
offering to include sports medicine,
topical cosmetics and pet treats
Vertical integration allows for EBITDA
margins in the 35-37% range
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we expect the company to maintain above-average industry margins over our forecast
period.
Figure 17: Peer EBITDA margins
Source: Company reports, Canaccord Genuity estimates, Factset
*CV Sciences margins based on most recent quarterly results, as LTM EBITDA margin is not reflective of the company’s current performance
Furthermore, a portion of the proceeds from the company’s IPO will be used towards
mechanizing of the cultivation processes, and further research and development into
low cost production and seed feminization. We believe this will continue to support
strong EBITDA margins over the medium to long term.
Risks
CBD research discovers negative side effects or lack of efficacy
Despite the various reports and studies that have been conducted to evaluate the
efficacy of CBD, there remains limited conclusive evidence to support the many
claimed benefits of the cannabinoid. While the FDA’s recent approval of Epidiolex is a
testament to the proven efficacy of CBD, the scientifically proven applications remain
limited and there are multiple use cases which have yet to be empirically evaluated.
As such, while further evidence supporting the use of CBD can be very positive for the
company, the lack of evidence, or evidence that shows any negative side effects of
CBD, has the potential to substantially impact the demand for the products of
Charlotte’s Web.
FDA increases intervention in the operations of the company
Currently, CBD is not generally recognized as safe by the FDA, and the Administration
believes that CBD cannot be marketed as a dietary supplement as it was the subject
of investigation as a new drug prior to it being marketed as a dietary supplement.
Charlotte’s Web does not agree with the view of the FDA and believes that CBD was
marketed in a dietary supplement or food prior to the investigations being made
public. With that being said, increased involvement by the FDA would substantially
impact the company’s ability to market products containing CBD.
2018 Farm Bill not signed into law
The 2018 Farm Bill has passed both the House of Representatives, as well as the
Senate, and a conference committee is now reconciling the amendments made to the
bill in the House and Senate before bringing it to President Trump to be signed into
law. The bill contains key legislation related to the cultivation of hemp; most
importantly it would de-schedule hemp as a Schedule I drug under the Controlled
Substances Act. While the sentiment towards hemp is certainly improving and the
Farm Bill, including the legalization of industrial hemp, is very likely to become law,
failure of the pro-hemp version of the bill to become law would further complicate the
legal landscape that Charlotte’s Web operates in as cultivation of hemp is currently
regulated at the state level. As such, lack of federal regulation and varying state laws
may continue to create a complex legal environment for Charlotte’s Web to operate in,
potentially impacting the company’s ability to secure distribution, reducing end
demand.
Company name LTM EBITDA Margin
Supplement manufacturers
Jamieson Wellness, Inc. 19.8%
CV Sciences, Inc.* 30.8%
Glanbia Plc 13.0%
USANA Health Sciences, Inc. 15.8%
Blackmores Limited 18.6%
Group average 19.6%
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Agricultural operations risk
While Charlotte’s Web is beginning to diversify its agricultural assets, now producing in
Colorado, Kentucky and Oregon, there are various risks related to the growing of
hemp that could hinder the company’s ability to produce high quality product. This risk
is further magnified by the fact that the company’s hemp is proprietary, and
Charlotte’s Web cannot easily source replacement hemp to manufacture its products.
The company relies on the outdoor grow of industrial hemp and so abnormal weather
patterns have the potential to negatively impact crop yields or even destroy plants.
Additionally, agricultural products are vulnerable to various diseases which can reduce
crop quality or even result in the death of the plant. There is no guarantee that crop
yield will remain consistent, and if the quality or quantity of production is negatively
impacted it may hinder the company’s ability to fulfill its demand.
Increased industry competition
Improving regulation that supports the production and distribution of hemp and CBD
products is attracting competitors to the industry. While the industry continues to
evolve, there may be competitors with greater financial or marketing resources that
look to enter the space. An increased level of competition may erode the company’s
competitive advantage if Charlotte’s Web is not able to adapt to the changing
competitive landscape accordingly. While Charlotte’s Web maintains a market
leadership position, increased distribution by a competitor at a mass market retailer
could negatively impact the demand for the company’s products, particularly if it is a
quality competitive offering that is priced below Charlotte’s Web.
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Financial analysis and outlook
We are forecasting robust revenue and EBITDA growth from Charlotte’s Web over our
forecast period. While the CBD supplements market is expected to grow at a CAGR of
55% from 2016-2021, we believe Charlotte’s Web will outpace this growth, through
market share gains, new product introductions, and expanding retailer relationships.
We note the company almost doubled its market share in 2017, increasing to 14%
market share in 2017 from 8% in 2016. Furthermore, revenue increased 172% YoY in
2017, more than triple the industry growth rate.
We note, we do not include any acquisitions, or mass-market retail customer
relationships in our forecast, implying they may prove to be conservative over the next
2-3 years.
Figure 18: Estimates summary table
Source: Company reports, Canaccord Genuity estimates
Forecasting revenue to double over 2018–2019
We expect Charlotte’s Web to generate revenue of $80 million in 2018, up from $40
million in 2017, as the company continues to gain market share in the high growth
CBD supplements market. Looking ahead to 2019, Charlotte’s Web’s hemp cultivation
is expected to grow to ~250,000-350,000 pounds, up from 63,000 pounds in 2017,
providing the company with ample supply to satisfy the step-up in demand we expect
in 2018 and 2019. We are forecasting revenue to more than double in 2019 to $169
million.
Charlot te's Web Holdings Inc . F2017 Q1/18 Q2/18 Q3/18E Q4/18E F2018E F2019E F2020E
Revenue 40,007 13,092 17,217 21,866 27,769 79,944 169,481 296,592
Cost of sales 10,064 2,555 4,013 5,138 6,526 18,232 43,726 77,114
Gross prof i t 29,943 10,537 13,204 16,727 21,244 61,712 125,755 219,478
Gross prof i t % 74.8% 80.5% 76.7% 76.5% 76.5% 77.2% 74.2% 74.0%
General and administrative 11,472 4,244 4,915 6,242 7,927 23,328 48,382 84,669
Sales and marketing 5,941 2,063 2,411 3,062 3,889 11,425 23,733 41,534
Research and development 508 55 129 164 208 556 1,270 2,222
Total operating expenses 17,921 6,362 7,455 9,468 12,024 35,309 73,386 128,425
SG&A as a % of revenue 44.8% 48.6% 43.3% 43.3% 43.3% 44.2% 43.3% 43.3%
Adjus ted EBITDA 14,140 4,613 6,100 7,566 10,026 28,305 58,990 98,897
EBITDA margin % 35.3% 35.2% 35.4% 34.6% 36.1% 35.4% 34.8% 33.3%
Depreciation and amortization 842 268 307 307 807 1,689 6,620 7,844
Financing costs (247) (64) (66) (66) (66) (262) (264) (264)
Income tax expense (4,320) (1,029) (1,234) (1,798) (2,288) (6,350) (13,026) (22,697)
Net earnings 7,475 3,103 3,730 5,395 6,865 19,093 39,079 68,092
EPS 0.09 0.04 0.04 0.05 0.07 0.20 0.37 0.65
Charlotte’s Web more than tripled the
industry average growth rate in 2017,
growing sales by 172% YoY
Revenue forecast
2018E $79.9 million
2019E $169.5 million
2020E $296.6 million
2021E $489.4 million
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Figure 19: Annual revenue estimates
Source: Company reports, Canaccord Genuity estimates
Expecting stable EBITDA margins over the next two years
We believe Charlotte’s Web will be able to capitalize on its leading position within the
CBD supplements industry by leveraging its vertical integration to generate industry
leading EBITDA margins.
In our view, Charlotte’s Web’s future investments in cultivation mechanization, as well
as increased scale through greater product sales should lead to gross margin
expansion in the near term. This could be partially offset by incremental SG&A as the
company looks to invest in marketing and increasing brand awareness. This should
translate into EBITDA growing from $14 million in 2017, to $28 million and $59
million in 2018 and 2019, respectively.
Over the medium to long term, we expect increased competition to lower pricing in the
industry, compressing gross margins, while we expect increased operating leverage to
support long-term EBITDA margins. We are forecasting slight margin compression in
the medium to long term. With that said, we believe there are no existing competitors
with the scale to challenge Charlotte’s Web until beyond 2019.
Figure 20: Annual EBITDA estimates
Source: Company reports, Canaccord Genuity estimates
80
169
297
489
759
1540
0
100
200
300
400
500
600
700
800
2016 2017 2018E 2019E 2020E 2021E 2022E
Rev
enu
e ($
mm
)
28
59
99
164
256
214
14%
35% 35% 35%33% 34% 34%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
50
100
150
200
250
300
350
2016 2017 2018E 2019E 2020E 2021E 2022E
EBIT
DA
%
EBIT
DA
($
mm
)
EBITDA forecast
2018E $28.3 million
2019E $59.0 million
2020E $98.9 million
2021E $164.1 million
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Figure 21: Income statement summary
Source: Company reports, Canaccord Genuity estimates
Vertical integration and strong margins drive solid free cash flow generation
Given the company’s strong margin profile and robust revenue growth opportunities,
Charlotte’s Web generates a meaningful amount of free cash flow annually, while
retaining what we view as a very healthy balance sheet. We expect the company to
incur significant CAPEX in the near term, as it increases manufacturing capacity to
satisfy post 2019 demand. Following these above-normal expenses associated with
the company’s expansion, which we think Charlotte’s Web is well funded to complete,
we believe the company is poised to generate strong free cash flow over our forecast
period.
Char l o tte 's Web Ho l di ngs Inc.
Income statement (US$ 000s) Change Change Change
Y ear ended December 31 2016 2017 2018E 2019E 2020E 18/17 19/18 20/19
Revenue 14,730 40,007 79,944 169,481 296,592 100% 112% 75%
Cost of sales 5,121 10,064 18,232 43,726 77,114
Gross profit 9,609 29,943 61,712 125,755 219,478 106% 104% 75%
General and administrative 5,105 11,472 23,328 48,382 84,669
Sales and marketing 3,075 5,941 11,425 23,733 41,534
Research and development 449 508 556 1,270 2,222
Total operating expenses 8,629 17,921 35,309 73,386 128,425
Adj usted EB ITDA 2,000 14,140 28,305 58,990 98,897 100% 108% 68%
Depreciation and amortization 242 842 1,689 6,620 7,844
Loss from change in fair value of biological assets 95 816 (453) 0 0
Share-based compensation 323 460 421 0 0
EBIT 980 12,022 26,403 52,369 91,053 120% 98% 74%
Financing costs (39) (247) (262) (264) (264)
interest income 0 20 54 0 0
EBT 941 11,795 26,195 52,105 90,789 122% 99% 74%
Income tax expense (327) (4,320) (6,350) (13,026) (22,697)
Net earnings 614 7,475 19,093 39,079 68,092 155% 105% 74%
Basic EPS 0.01 0.09 0.22 0.42 0.73
Diluted EPS 0.01 0.09 0.20 0.37 0.65 128% 85% 74%
Basic shares outstanding 80,316 79,249 86,138 92,846 92,846
Diluted shares outstanding 86,058 84,990 95,030 105,164 105,164
Rati os 2016 2017 2018E 2019E 2020E
Gross margin 65.2% 74.8% 77.2% 74.2% 74.0%
SG&A / sales 58.6% 44.8% 44.2% 43.3% 43.3%
EBITDA margin 13.6% 35.3% 35.4% 34.8% 33.3%
EBIT margin 6.7% 30.0% 33.0% 30.9% 30.7%
Profit margin 4.2% 18.7% 23.9% 23.1% 23.0%
ROE 13.1% 59.1% 19.8% 28.9% 33.5%
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We are forecasting CAPEX of $15 million in 2018 and $28 million in 2019, followed
by $10.0 million annually thereafter, leading to free cash flow of $2.3 million in 2018,
$15.1 million in 2019 and $62.4 million in 2020.
Figure 22: Cash flow analysis
Source: Company reports, Canaccord Genuity estimates
Healthy balance sheet
Following the initial public offering of Charlotte’s Web, the company maintains a very
healthy balance sheet and, in our view, is fully funded to achieve our estimates over
our forecast period, with what we estimate to be a net cash position of $72 million.
We believe this provides Charlotte’s Web with adequate capital to rapidly expand the
company’s production capabilities, while also investing in innovative new products to
allow the company to continue to gain market share.
Figure 23: Financial policy analysis
Source: Company reports, Canaccord Genuity estimates
Return on invested capital
Given the company’s strong margin profile and ability to internally generate robust
free cash flow, we expect Charlotte’s Web will generate ROIC in the 30-35% range
over our forecast period.
Cash fl ow anal y si s (US$ 000s) 2016 2017 2018E 2019E 2020E
Cash flow from operations 1,393 9,496 20,800 45,699 75,936
Cash from operating activities 21 7,549 17,404 43,069 72,447
Capital expenditures, net (664) (2,367) (15,089) (28,000) (10,000)
Free cash flow 729 7,129 5,711 17,699 65,936
Free cash flow (inc. wc) (643) 5,182 2,315 15,069 62,447
Free cash flow per share 0.01 0.08 0.06 0.17 0.63
Free cash flow per share (inc. wc) (0.01) 0.06 0.02 0.14 0.59
F i nanci a l po l i cy anal y si s (US$ 000s): 2016 2017 2018E 2019E 2020E
Total debt 533 1,779 568 568 568
Net debt (cash) (557) (5,277) (71,655) (86,724) (149,171)
Total capital 8,273 19,454 108,296 160,643 247,323
Net debt / equity n.a n.a n.a n.a n.a
Net debt / total capital n.a n.a n.a n.a n.a
NTM EBITDA 14,140 28,305 58,990 98,897 164,072
NTM interest expense 247 262 264 264 264
Interest coverage 57.2x 108.0x 223.4x 374.6x 621.5x
Debt / EBITDA 0.0x 0.1x 0.0x 0.0x 0.0x
Net debt / EBITDA n.a. n.a. n.a. n.a. n.a.
Free cash flow forecast
2018E $2.3 million
2019E $15.1 million
2020E $62.4 million
2021E $109.5 million
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Figure 24: Return on invested capital
Source: Company reports, Canaccord Genuity estimates
Valuation
We are initiating coverage of Charlotte’s Web with a BUY rating and C$21.00 target
price. Our target price is derived using a DCF valuation, with an 11.1% WACC and
2.5% terminal growth rate, which yields a value per share of $20.88.
Our target implies 16.5x our 2020 EBITDA estimate of $99 million, which we convert
into Canadian dollars to account for the company’s CSE-listed share price. This
represents a premium to health and wellness supplement manufacturers. We believe
as both consumer and governmental acceptance of CBD supplements increases,
Charlotte’s Web’s valuation multiple will re-rate higher. The signing of the 2018 Farm
Bill by President Trump represents a key valuation catalyst, in our view.
In our view, Charlotte’s Web offers investors exposure to the high-growth CBD
supplements market through its industry-leading market share, impressive
management team, established and growing retail relationships, and strong brand
power. With shares currently trading at 12.0x our 2020 EBITDA estimate, we believe
Charlotte’s Web represents an attractive buying opportunity.
Comparable valuations
While there is a limited subset of directly comparable, publicly listed peers, we have
constructed a peer-set using health and wellness-focused manufacturing and
distribution companies as well as CBD product and cannabis oil manufacturers.
While our peer set includes companies across multiple industries, we will be focusing
on the health and wellness supplement manufacturers as the basis of our valuation,
as we believe the positioning of Charlotte’s Web as a consumer-packaged goods
company warrants this comparison. These health and wellness supplement peers
currently trade at an average of 13.2x their respective 2020 EBITDA estimates. While
the company’s health and wellness peers manufacture and distribute products with
greater consumer acceptance and less regulatory risk, we believe Charlotte’s Web is
positioned for higher near-term growth than its peers, while maintaining greater
financial flexibility given its $72 million net cash position. Additionally, we believe that
the regulatory landscape of hemp-derived CBD is poised to rapidly improve in the near
term, which is expected to support a substantial increase in consumer acceptance.
Therefore, we are comfortable valuing Charlotte’s Web at a premium to its peer group.
20%
28%32%
35% 35%
10%
60%
0%
10%
20%
30%
40%
50%
60%
70%
2016 2017 2018E 2019E 2020E 2021E 2022E
RO
IC
Company is deserving of a premium
valuation to health and wellness
supplement peers given the higher
near-term growth profile and financial
flexibility
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Figure 25: Comparable valuations
Source: Company reports, Canaccord Genuity estimates
Free cash flow yield
Charlotte’s Web is currently valued at a free cash flow yield of 0.2%, 1.2% and 5.0%,
based on 2018, 2019 and 2020 free cash flow, respectively. We note that we
anticipate significant growth in free cash flow post-2019 as the company expects to
incur significant CAPEX in 2018 & 2019 to expand its manufacturing capabilities. We
estimate that the business will generate strong free cash flow conversion, in excess of
60%, starting in 2020 following the completion of expansion initiatives.
Historical NTM EV/EBITDA multiples for peer group
Historically, Charlotte’s Web’s health and wellness peer group has traded at an
average NTM EV/EBITDA multiple of 14.8x and 13.8x over the last one and three
years.
Share and Earni ngs Informati on By Company
Shrs Mark et Enterpr i se Val ue /
O/S Cap. Enterpr i se EBITDA/Revenue YoY EB ITDA Growth EBITDA Rati os
Company Name TK Pr i ce (ml n) (ml n) Val ue (ml n) LFY FY1 FY2 FY3 FY1/LFY FY2/FY1 FY3/FY2 LFY FY1 FY2 FY3
Suppl ement manufacturers
Glanbia Plc GL9-IE $14.62 295.8 $4,324 $4,726 13.8% 13.8% 14.1% 14.3% -1.4% 7.0% 7.2% 14.3 14.5 13.6 12.7
USANA Health Sciences, Inc. USNA-US $124.10 24.8 $3,083 $2,784 15.4% 18.0% 18.1% n.a. 33.2% 8.7% n.a 17.3 13.0 11.9 n.a.
Blackmores Limited BKL-AU $136.58 17.2 $2,356 $2,405 18.5% 17.8% 18.9% 19.9% 20.6% 17.8% 17.5% 21.6 17.9 15.2 12.9
Jamieson Wellness, Inc. JWEL-CA $26.44 39.8 $1,052 $1,217 20.5% 20.4% 21.8% 22.4% 10.9% 14.9% 9.9% 19.8 17.9 15.5 14.1
Group Average 17.1% 17.5% 18.2% 18.9% 15.8% 12.1% 11.5% 18.2 15.8 14.1 13.2
CBD product manufacturers
CV Sciences, Inc. CVSI-US $5.70 112.5 $641 $635 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Isodiol International Inc ISOL-CA $3.55 30.1 $107 $91 n.a. n.a. 19.3% 21.3% n.a. n.a. 32.9% n.a. n.a. 7.2 5.4
Elixinol Global Ltd. EXL-AU $1.94 102.9 $200 $181 n.a. 5.4% 13.5% 14.3% n.a. n.a. 47.5% n.a. 100.6 29.7 20.1
Xanthic Biopharma, Inc. XTHC-CA $0.25 56.8 $14 $13 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Medical Marijuana, Inc. MJNA-US $0.09 3,444 $304 $310 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
GW Pharmaceuticals PLC GWPH-US $148.81 28.2 $4,199 $4,123 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Group Average n.a. 5.4% 16.4% 17.8% n.a. n.a . 40.2% n.a. 100.6 18.4 12.8
Cannabi s o i l manufacturers
CannTrust Holdings, Inc. TRST-CA $12.20 108.0 $1,318 $1,230 0.2% 3.5% 14.4% 21.9% n.a. n.a. 88.4% n.a. 454.6 33.4 17.7
Tilray, Inc. TLRY-US $152.63 93.1 $14,217 $14,246 n.a. n.a. 17.0% 25.8% n.a. n.a. 230.0% n.a. n.a. 538.6 163.2
Aphria Inc APH-CA $20.80 253.8 $5,279 $4,929 29.8% 15.1% 34.4% 39.2% n.a. n.a. 154.9% 810.1 882.6 57.3 22.5
Cronos Group Inc CRON-CA $14.94 206.4 $3,084 $2,982 n.a. 24.0% 31.0% 39.5% n.a. n.a. 96.7% n.a. 353.9 64.7 32.9
Group Average 15.0% 14.2% 24.2% 31.6% n.a. n.a . 142.5% 810.1 563.7 173.5 59.1
B l ended peer average 16.4% 14.8% 20.3% 24.3% 15.8% 12.1% 76.1% 176.6 231.9 78.7 33.5
Char l o tte 's Web Ho l di ngs, Inc.CWEB-CA $15.56 105.2 $1,636 $1,543 35.3% 35.4% 34.8% 33.3% 100.2% 108.4% 67.7% 84.0 42.0 20.1 12.0
Robust growth in free cash flow
expected following planned near-term
CAPEX investments
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Figure 26: Historical NTM EV/EBITDA multiple
Source: Company reports, Canaccord Genuity estimates
Discounted cash flow analysis
In addition to our peer-based valuation analysis, we support our valuation for
Charlotte’s Web through our discounted cash flow analysis. Our discounted cash
valuation yields a value of $20.88 per share. We utilize an 11.1% WACC and a 2.5%
long-term growth rate to arrive at our discounted cash flow value per share.
9.0x
10.0x
11.0x
12.0x
13.0x
14.0x
15.0x
16.0x
17.0x
18.0x
Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18
Health and wellness supplement manufacturers
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Figure 27: Discounted cash flow valuation
Source: Company reports, Canaccord Genuity estimates
Charlotte’s Web an attractive target in an industry with strong balance sheets
While we have noted that Charlotte’s Web is not a cannabis company, we think it
could prove to be a very interesting target for many licensed cannabis producers in
Canada and the United States, along with many larger supplement manufacturing
companies. As such, we believe recent acquisitions made in the industry are
supportive of our valuation and could even provide meaningful upside if Charlotte’s
Web were to emerge as a more likely target for an acquisition.
While we have recently seen an acceleration in industry consolidation, there has been
a notable shift in emphasis towards targets with a strong portfolio of brands. As we
see it, within the hemp-derived CBD market, Charlotte’s Web has the best branding
and we believe this makes it a very attractive target for an acquisition. As well, we
believe the industry remains ripe for consolidation, as most licensed producers are
well funded with strong cash positions and are looking to deploy capital in whatever
way possible to create or maintain a competitive advantage.
F ree cash fl ow to the fi rm DCF ($000s) 2016 2017 2018E 2019E 2020E 2021E 2022E
EBITDA 2,000 14,140 28,305 58,990 98,897 164,072 255,937
Less:
Interest 39 247 262 264 264 264 264
Depreciation 242 842 1,689 6,620 7,844 7,473 7,898
Taxable income 1,719 13,051 26,355 52,105 90,789 156,335 247,775
Tax rates
Effective 25% 25% 25% 25% 25% 25% 25%
Cash taxes 430 3,263 6,589 13,026 22,697 39,084 61,944
Working capital (1,372) (1,947) (3,396) (2,630) (3,488) (5,231) (5,748)
Net CAPEX (664) (2,367) (15,089) (28,000) (10,000) (10,000) (10,000)
F ree cash fl ow to the fi rm (466) 6,563 3,232 15,333 62,711 109,757 178,245
PV o f cash fl ows 257,318 Terminal Value Growth Rate
Termi nal va l ue 1,360,544 $20.88 1.5% 2.0% 2.5% 3.0% 3.5%
Tota l PV 1,617,862 9.6% 22.96 24.29 25.82 27.58 29.63
Less: debt to be repai d -72,116 10.1% 21.47 22.63 23.95 25.45 27.19
PV o f cash fl ows to shareho l ders 1,689,978 10.6% 20.15 21.17 22.32 23.61 25.10
Shares outstandi ng 105,164 11.1% 18.97 19.87 20.88 22.01 23.28
WACC 11.1% 11.6% 17.91 18.71 19.60 20.59 21.70
DCF per share (US$) $16.07 12.1% 16.96 17.67 18.46 19.33 20.31
CAD conversion 1.29915 12.6% 16.09 16.73 17.43 18.21 19.07
DCF per share (C$) $20.88
Growth rate 2.5%
Growth rate LT 2.5%
Government of Canada 10yr bond 3.0%
Market risk premium 6.5%
Beta 1.3
Tota l Cost o f Equi ty 11.5%
Cost of Debt 10.0%
Tax Rate 25.0%
After Tax Cost o f Debt 7.5%
Weighting Assumptions
Equity 90%
Debt 10%
WACC 11.1%
Impl i ed EV/EB ITDA
Enterprise value 1,617,862
2020E EBITDA in CAD 98,897
EV/EBITDA 16.4x
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Figure 28: Recent cannabis industry consolidation
Source: Factset
Figure 29: Key consolidators and financial position
Source: Factset
Target information
Implied Enterprise
Value ($mm)
NTM Sales
($mm)
EV/Sales
(NTM)
Constellation Brands Canopy Growth Corporation TBD Increased ownership to 38% 12,045 351 34.4x
Canopy Growth Corporation Hiku Brands Company Ltd. Est. 30-Aug-18 Acquisition 329 123 2.7x
Aurora Cannabis Inc. Anandia Laboratories 9-Aug-18 Acquisition 115 NA NA
Aurora Cannabis Inc. MedReleaf Corp. 25-Jul-18 Acquisition 2,356 145 16.3x
Aurora Cannabis Inc. CanniMed Therapeutics Inc. 1-May-18 Acquisition 919 150 6.1x
Aphria, Inc. Nuuvera, Inc. 23-Mar-18 Acquisition 450 NA NA
Aphria, Inc. Broken Coast Cannabis 13-Feb-18 Acquisition 225 NA NA
Canopy Growth Corporation Mettrum Health Corp 31-Jan-17 Acquisition 333 52 6.5x
Acquirer TargetTransaction
Closing DateTransaction details
Cannabis companiesMarket cap
(C$mm)
Net cash
(C$mm)
Canopy Growth Corporation 24,445 5,697
Aurora Cannabis Incorporated 5,220 45
Tilray, Inc. 18,264 -38
Aphria Incorporated 5,231 350
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Appendix A: Management
Hesaam Moallem, Director, Chief Executive Officer
Mr. Moallem has a very diverse background in leadership and C-level positions, having
held various roles in sales, marketing, supply chain, manufacturing, business
development, international expansion as well as legal/regulatory functions. He
assumed the role of CEO of Charlotte’s Web in January of 2018. Prior to Charlotte’s
Web, Mr. Moallem served as the General Counsel and Chief Compliance Officer at
Onnit Labs, a fitness lifestyle company headquartered in Austin, Texas that specializes
in the manufacturing and marketing of cutting-edge nutritional supplements. Mr.
Moallem holds an undergraduate degree in Chemistry from the University of Texas
and a Juris Doctor degree from California Western School of Law.
Richard Mohr, Chief Financial Officer
Mr. Mohr joined Charlotte’s Web as CFO in September of 2017. Prior to joining the
company, he spent over a decade with Intermap Technologies, a publicly traded
provider of global geospatial solutions and analytics, where he held the role of CFO.
Mr. Mohr has more than 25 years of leadership experience with both private and
public companies, with a background that is focused on technology-based companies,
including software, manufacturing, remote sensing, semiconductors, optical storage
and green energy. He holds an MBA from Regis University and a Bachelor’s degree in
Accounting from Colorado State University. Additionally, Mr. Mohr is a licensed CPA in
the state of Colorado.
Joel Stanley, Chairman of the Board, Co-Founder
Since the founding of the company in 2013, Mr. Stanley has acted as the company’s
Chairman and CEO, recently stepping down as CEO following Mr. Moallem’s
appointment to the role. Mr. Stanley is considered to be one of the most
knowledgeable and well-known professionals in the cannabis industry and has been
recently active in educating various state and federal officials on the benefits of the
cannabis plant to society.
Jared Stanley, Director, Co-Founder, Vice President of Cultivation Operations
Since the inception of Charlotte’s Web in 2013, Mr. Stanley has served as a Director
of the company. Recently, he has worked with his brothers to build out the cultivation
operations of the company within the three states that Charlotte’s Web operates in.
Similar to his brother, Mr. Joel Stanley, Mr. Stanley is an advocate for cannabis at both
the state and federal level. Mr. Stanley holds a degree in Applied Human Sciences
from Colorado State University with a concentration in Construction Management.
Juan Sartori, Director
Mr. Sartori became a Director of the company in February of 2018. He is the
Chairman and founder of the Union Group, a privately held investment and private
equity management firm which he established in 2007. The company specializes in
investments in Latin America, with a focus on the natural resources, infrastructure
and real estate sectors. In 2008, he formed Union Agriculture Group, a consolidator of
agricultural assets which has since grown to be the largest agricultural company in
Uruguay and one of the largest in Latin America. He began his career in 2002 as a
financial services entrepreneur, launching Union Capital Group, a Geneva based multi-
strategy asset manager and holds a Bachelor’s Degree in Business and Economics
from the University of Lausanne.
John Held, Director
Mr. Held is a legal executive with experience in mergers and acquisitions, corporate
and securities laws and corporate governance. He has been with the Omega Protein
Group since 2000, serving as the Executive Vice President, General Counsel and
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Secretary of Omega Protein Corporation since June of 2006. The company is a
producer of nutritional specialty oils and protein products, making products for
humans as well as animals. Additionally, Mr. Held has founded multiple companies
including the Byzantium Group, Red Hawk Industries and American Residential
Services. Importantly, Red Hawk and American Residential were both consolidators of
highly fragmented industries, completing roughly 20 and 100 acquisitions prior to
being acquired. Mr. Held holds a B.A. in Economics and International Relations from
Bucknell University and a Juris Doctor degree from Cornell Law School.
William West, Director
Mr. West is a strategic finance and operations executive, with substantial leadership
experience at multi-national businesses. Notably, Mr. West held multiple positions
over 6 years at HID Corporation, including Director of M&A and CFO. He also co-
founded and served as CFO & COO of ACRE, LLC, a company focused on investing in
specialized companies within the electronic security manufacturing industry.
Currently, he serves as the Co-Founder and President of Tesseract Medical Research,
a California based life sciences company. Mr. West holds an undergraduate degree
from Harvard University and an MBA with a specialization in international finance from
Harvard Business School.
Shane Hoyne, Director
Mr. Hoyne has more than 20 years of experience leading marketing and strategy for
many well-known global brands in the alcohol and spirits industry. For 12 years, he
held multiple positions with Heineken in various brand management roles. Following
that, he served as the Global Brand Director for William Grant & Sons, the world’s
third largest producer of Scotch whiskey, with brands that includes Glenfiddich and
Hendrick’s. More recently, he served as the Chief Marketing Officer for Europe at
Bacardi and is currently the CMO of the Quintessential Brands Group. Mr. Hoyne holds
an undergraduate degree from Trinity College Dublin and an MBA from the University
of Strathclyde Business School.
Appendix B: Ownership
Following the company’s IPO, which consisted of a treasury issuance of 13.3 million
shares and a secondary offering of 3.1 million shares, we estimate that insiders of the
company maintain 44% ownership in Charlotte’s Web. Importantly, the Stanley
Brothers own approximately 34% of the company while management and insiders
hold 10%.
Figure 30: Ownership summary
Source: Company reports, Canaccord Genuity estimates
ShareholderBasic shares
outstanding
Dilutive securities
held
Fully diluted shares
outstandingOwnership %
Insider ownership
Stanley Brothers 29 6 36 34%
Management & insiders 4 6 10 10%
Total insider ownership 34 12 46 44%
All other shareholders 59 - 59 56%
Total 93 12 105
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Appendix C: Competitors
Competitive environment
The market for hemp-derived CBD is competitive and rapidly evolving. As such, the
market remains highly fragmented, with the top 15 brands accounting for
approximately 22% of the total market. We estimate that Charlotte’s Web is the
market leader, maintaining approximately an 8% market share in 2016, while CV
Sciences is the only other company with market share greater than 2%, with a 5%
share of the market in 2016, by our estimates. As well, we estimate that in 2017
Charlotte’s Web rapidly gained market share, improving its market leadership
positioning and capturing market share of 14%.
We believe the market for CBD oils is poised for rapid expansion in the near to
medium term, as improving regulation substantially increases both retailer and
consumer acceptance of these products. Additionally, we believe further de-
criminalization of cannabis will increase acceptance of CBD products derived from
other species of cannabis. As such, we believe the set of companies that compete
with Charlotte’s Web will expand to include CBD products derived from sources other
than hemp.
CV Sciences, Inc.
CV Sciences (CVSI-US | US$641 million market cap | Not Rated)
Revenue (LTM): US$33.3 million
CV Sciences is a life science company that operates two distinct business segments.
The first is the specialty pharmaceuticals segment, which is developing synthetically
formulated CBD therapeutics. Currently, this business has one product, a chewing
gum containing synthetic CBD to support the cessation of smokeless tobacco
addiction and is in the preclinical stage of receiving FDA approval. CV Sciences also
operates a consumer products segment, which manufactures, markets and sells
consumer products containing plant-based CBD under the PlusCBD brand. We
estimate PlusCBD is the second largest hemp-derived CBD brand, with an estimated
market share of 8% in 2017. In Q2/18, the company grew sales by 203% YoY to
US$12.3 million and generated adjusted EBITDA margins of 27.7%.
Medical Marijuana, Inc.
Medical Marijuana (MJNA-US | US$304 million market cap | Not Rated)
Revenue (LTM): US$42.5 million
Medical Marijuana is currently focused on the development, sale and distribution of
hemp oil products containing CBD. The company owns the Real Scientific Hemp Oil
brand, a medical cannabis product sold mainly in Brazil, Mexico and Paraguay. The
company also has a collection of brands sold as dietary supplements, most notable of
which is the brand Dixie Botanicals. Additionally, the company owns various consumer
packaged goods brands such as Cannabis Beauty Defined, Kannactiv, HempVAP,
KannaKick and CanChew. In Q2/18, Medical Marijuana grew sales by 160% to
US$14.8 million.
Isodiol International Inc.
Isodiol International (ISOL-CA | $107 million market cap | Not Rated)
Revenue (LTM): $19.1 million
Isodiol is a manufacturer of pharmaceutical grade CBD and consumer products
containing CBD. The company recently received approval to manufacture CBD as an
Active Pharmaceutical Ingredient for use in Finished Pharmaceutical Products. The
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company’s consumer products portfolio includes Bioactive, which is Isodiol’s dietary
supplement brand and CannaCeuticals, a collection of topicals used for cosmetic
applications.
GW Pharmaceuticals Plc
GW Pharmaceuticals (GWPH-US | US$4,199 million market cap | Not Rated)
Revenue (LTM): US$16.8 million
Founded in 1998, GW Pharmaceuticals is a biopharmaceutical company focused on
the discovery, development and commercialization of novel therapeutics which
contain cannabinoids. To date the company has commercialized one product, Sativex,
which is a spray containing even amounts of the THC and CBD cannabinoids. The
product has received regulatory approval in multiple countries excluding the United
States and is used in the treatment of muscle stiffness and spasms resulting from
multiple sclerosis. The principal competition for Charlotte’s Web is the company’s drug
Epidiolex, an oral solution used to treat seizures associated with two rare forms of
epilepsy. Epidiolex is the first ever FDA-approved CBD medicine, and availability of the
product is pending the de-scheduling of hemp as a Schedule I drug.
Appendix D: CV Sciences financials
Given CV Sciences is the closest competitor of Charlotte’s Web, we have provided
recent historical results below.
Figure 31: CV Sciences (CVSI) historical results
Source: Company reports
2017 Q1/18 Q2/18
Revenue 20,679 8,071 12,349
EBITDA (2,305) 787 3,806
EBITDA % -11.1% 9.8% 30.8%
YoY revenue growth 87.0% 114.4% 202.5%
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Appendix: Important DisclosuresAnalyst CertificationEach authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) therecommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent andobjective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoringanalyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to thespecific recommendations or views expressed by the authoring analyst in the research.Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons ofCanaccord Genuity LLC and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communicationswith a subject company, public appearances and trading securities held by a research analyst account.Sector CoverageIndividuals identified as “Sector Coverage” cover a subject company’s industry in the identified jurisdiction, but are not authoringanalysts of the report.
Investment RecommendationDate and time of first dissemination: September 19, 2018, 04:54 ETDate and time of production: September 19, 2018, 00:43 ETTarget Price / Valuation Methodology:Charlotte's Web Holdings, Inc. - CWEBOur target price is derived using a DCF valuation, with an 11.1% WACC and 2.5% terminal growth rate. Our C$21.00 target represents16.5x our 2020 EBITDA estimate of $99 million, which is converted into Canadian dollars to account for the company's CSE-listed shareprice.Risks to achieving Target Price / Valuation:Charlotte's Web Holdings, Inc. - CWEBCBD research discovers negative side effects or lack of efficacyDespite the various reports and studies that have been conducted to evaluate the efficacy of CBD, there remains limited conclusiveevidence to support the many claimed benefits of the cannabinoid. While the FDA’s recent approval of Epidiolex is a testament to theproven efficacy of CBD, the scientifically proven applications remain limited and there are multiple use cases which have yet to beempirically evaluated. As such, while further evidence supporting the use of CBD could be very positive for the company, the lack ofevidence, or the emergence of evidence that showed any negative side effects of CBD, has the potential to substantially impact thedemand for the products of Charlotte’s Web.FDA increases intervention in the operations of the companyCurrently, CBD is not generally recognized as safe by the FDA, and the Administration believes that CBD cannot be marketed as a dietarysupplement as it was the subject of investigation as a new drug prior to it being marketed as a dietary supplement. Charlotte’s Web doesnot agree with the view of the FDA and believes that CBD was marketed in a dietary supplement or food prior to the investigations beingmade public. With that being said, increased involvement by the FDA would substantially impact the company’s ability to market productscontaining CBD.2018 Farm Bill not signed into lawThe 2018 Farm Bill has passed both the House of Representatives and the Senate, and a conference committee is now reconciling theamendments made to the bill in the House and Senate before bringing it to President Trump to be signed into law. The bill contains keylegislation related to the cultivation of hemp; most importantly it would de-schedule hemp as a Schedule I drug under the ControlledSubstances Act. While the sentiment towards hemp is certainly improving and the Farm Bill, including the legalization of industrial hemp,is very likely to become law, failure of the pro-hemp version of the bill to become law would further complicate the legal landscapethat Charlotte’s Web operates in, as cultivation of hemp is currently regulated at the state level. As such, lack of federal regulationand varying state laws may continue to create a complex legal environment for Charlotte’s Web to operate in, potentially impacting thecompany’s ability to secure distribution, reducing end demand.Agricultural operations riskWhile Charlotte’s Web is beginning to diversify its agricultural assets, now producing in Colorado, Kentucky and Oregon, there are variousrisks related to the growing of hemp that could hinder the company’s ability to produce high quality product. This risk is further magnifiedby the fact that the company’s hemp is proprietary, and Charlotte’s Web cannot easily source replacement hemp to manufacture itsproducts. The company relies on the outdoor grow of industrial hemp and so abnormal weather patterns have the potential to negativelyimpact crop yields or even destroy plants. Additionally, agricultural products are vulnerable to various diseases which can reduce cropquality or even result in the death of the plant. There is no guarantee that crop yield will remain consistent, and if the quality or quantityof production is negatively impacted it may hinder the company’s ability to fulfill its demand.
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Increased industry competitionImproving regulation that supports the production and distribution of hemp and CBD products is attracting competitors to the industry.While the industry continues to evolve, there may be competitors with greater financial or marketing resources that look to enter thespace. An increased level of competition may erode the company’s competitive advantage if Charlotte’s Web is not able to adapt to thechanging competitive landscape accordingly. While Charlotte’s Web maintains a market leadership position, increased distribution bya competitor at a mass market retailer could negatively impact the demand for the company’s products, particularly if it was a qualitycompetitive offering priced below Charlotte’s Web.Relationship with Stanley BrothersThe branding of Charlotte’s Web is closely affiliated with the branding and reputation of the Stanley Brothers. We believe there is a riskto the company’s branding should the Stanley Brothers distance themselves from Charlotte’s Web. Additionally, we believe there is riskassociated with increased competition from the Stanley Brothers, as they currently sell cannabis extracts and oils under the StanleyBrothers brand, with limited distribution in Colorado. While we do not expect the Stanley Brothers to materially compete with Charlotte’sWeb, the distancing of the Stanley Brothers name could lead to confusion in the marketplace which could negatively impact the brandingof Charlotte’s Web.
Distribution of Ratings:Global Stock Ratings (as of 09/19/18)Rating Coverage Universe IB Clients
# % %Buy 556 62.90% 44.96%Hold 213 24.10% 29.58%Sell 11 1.24% 27.27%Speculative Buy 104 11.76% 66.35%
884* 100.0%*Total includes stocks that are Under Review
Canaccord Genuity Ratings SystemBUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.
HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.
SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months.
NOT RATED: Canaccord Genuity does not provide research coverage of the relevant issuer.“Risk-adjusted return” refers to the expected return in relation to the amount of risk associated with the designated investment or therelevant issuer.Risk QualifierSPECULATIVE: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in thestock may result in material loss.
12-Month Recommendation History (as of date same as the Global Stock Ratings table)A list of all the recommendations on any issuer under coverage that was disseminated during the preceding 12-month periodmay be obtained at the following website (provided as a hyperlink if this report is being read electronically) http://disclosures-mar.canaccordgenuity.com/EN/Pages/default.aspx
Required Company-Specific Disclosures (as of date of this publication)Charlotte's Web Holdings, Inc. currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliated companies. Duringthis period, Canaccord Genuity or its affiliated companies provided investment banking services to Charlotte's Web Holdings, Inc..In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services fromCharlotte's Web Holdings, Inc. .In the past 12 months, Canaccord Genuity or any of its affiliated companies have been lead manager, co-lead manager or co-managerof a public offering of securities of Charlotte's Web Holdings, Inc. or any publicly disclosed offer of securities of Charlotte's Web Holdings,Inc. or in any related derivatives.Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Bankingservices from Charlotte's Web Holdings, Inc. in the next three months.
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Charlotte's Web Holdings, Inc. Rating History as of 09/18/2018C$18
C$16
C$14
C$12
C$10
C$8Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18
Closing Price Price Target
Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR)
Past performanceIn line with Article 44(4)(b), MiFID II Delegated Regulation, we disclose price performance for the preceding five years or the whole periodfor which the financial instrument has been offered or investment service provided where less than five years. Please note price historyrefers to actual past performance, and that past performance is not a reliable indicator of future price and/or performance.
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investments discussed in this research may not be eligible for sale in some jurisdictions. This research is not, and under nocircumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or companythat is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. This material is prepared forgeneral circulation to clients and does not have regard to the investment objectives, financial situation or particular needs of anyparticular person. Investors should obtain advice based on their own individual circumstances before making an investment decision.To the fullest extent permitted by law, none of Canaccord Genuity, its affiliated companies or any other person accepts any liabilitywhatsoever for any direct or consequential loss arising from or relating to any use of the information contained in this research.Research Distribution PolicyCanaccord Genuity research is posted on the Canaccord Genuity Research Portal and will be available simultaneously for access by allof Canaccord Genuity’s customers who are entitled to receive the firm's research. In addition research may be distributed by the firm’ssales and trading personnel via email, instant message or other electronic means. Customers entitled to receive research may alsoreceive it via third party vendors. Until such time as research is made available to Canaccord Genuity’s customers as described above,Authoring Analysts will not discuss the contents of their research with Sales and Trading or Investment Banking employees without priorcompliance consent.For further information about the proprietary model(s) associated with the covered issuer(s) in this research report, clients shouldcontact their local sales representative.Short-Term Trade IdeasResearch Analysts may, from time to time, discuss “short-term trade ideas” in research reports. A short-term trade idea offers a near-term view on how a security may trade, based on market and trading events or catalysts, and the resulting trading opportunity that maybe available. Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks. Ashort-term trade idea may differ from the price targets and recommendations in our published research reports that reflect the researchanalyst's views of the longer-term (i.e. one-year or greater) prospects of the subject company, as a result of the differing time horizons,methodologies and/or other factors. It is possible, for example, that a subject company's common equity that is considered a long-term ‘Hold' or 'Sell' might present a short-term buying opportunity as a result of temporary selling pressure in the market or for otherreasons described in the research report; conversely, a subject company's stock rated a long-term 'Buy' or “Speculative Buy’ could beconsidered susceptible to a downward price correction, or other factors may exist that lead the research analyst to suggest a sale overthe short-term. Short-term trade ideas are not ratings, nor are they part of any ratings system, and the firm does not intend, and does notundertake any obligation, to maintain or update short-term trade ideas. Short-term trade ideas are not suitable for all investors and arenot tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regardingany securities or strategies discussed herein. Please contact your salesperson for more information regarding Canaccord Genuity’sresearch.For Canadian Residents:This research has been approved by Canaccord Genuity Corp., which accepts sole responsibility for this research and its disseminationin Canada. Canaccord Genuity Corp. is registered and regulated by the Investment Industry Regulatory Organization of Canada (IIROC)and is a Member of the Canadian Investor Protection Fund. Canadian clients wishing to effect transactions in any designated investmentdiscussed should do so through a qualified salesperson of Canaccord Genuity Corp. in their particular province or territory.For United States Persons:Canaccord Genuity LLC, a US registered broker-dealer, accepts responsibility for this research and its dissemination in the United States.This research is intended for distribution in the United States only to certain US institutional investors. US clients wishing to effecttransactions in any designated investment discussed should do so through a qualified salesperson of Canaccord Genuity LLC. Analystsemployed outside the US, as specifically indicated elsewhere in this report, are not registered as research analysts with FINRA. Theseanalysts may not be associated persons of Canaccord Genuity LLC and therefore may not be subject to the FINRA Rule 2241 and NYSERule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analystaccount.For United Kingdom and European Residents:This research is distributed in the United Kingdom and elsewhere Europe, as third party research by Canaccord Genuity Limited,which is authorized and regulated by the Financial Conduct Authority. 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This material is not fordistribution in the United Kingdom or elsewhere in Europe to retail clients, as defined under the rules of the Financial Conduct Authority.For Jersey, Guernsey and Isle of Man Residents:This research is sent to you by Canaccord Genuity Wealth (International) Limited (CGWI) for information purposes and is not to beconstrued as a solicitation or an offer to purchase or sell investments or related financial instruments. This research has been producedby an affiliate of CGWI for circulation to its institutional clients and also CGWI. Its contents have been approved by CGWI and we areproviding it to you on the basis that we believe it to be of interest to you. This statement should be read in conjunction with your client
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agreement, CGWI's current terms of business and the other disclosures and disclaimers contained within this research. If you are in anydoubt, you should consult your financial adviser.CGWI is licensed and regulated by the Guernsey Financial Services Commission, the Jersey Financial Services Commission and the Isleof Man Financial Supervision Commission. CGWI is registered in Guernsey and is a wholly owned subsidiary of Canaccord Genuity GroupInc.For Australian Residents:This research is distributed in Australia by Canaccord Genuity (Australia) Limited ABN 19 075 071 466 holder of AFS Licence No234666. To the extent that this research contains any advice, this is limited to general advice only. Recipients should take into accounttheir own personal circumstances before making an investment decision. Clients wishing to effect any transactions in any financialproducts discussed in the research should do so through a qualified representative of Canaccord Genuity (Australia) Limited. CanaccordGenuity Wealth Management is a division of Canaccord Genuity (Australia) Limited.For Hong Kong Residents:This research is distributed in Hong Kong by Canaccord Genuity (Hong Kong) Limited which is licensed by the Securities and FuturesCommission. This research is only intended for persons who fall within the definition of professional investor as defined in the Securitiesand Futures Ordinance. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. Recipients ofthis report can contact Canaccord Genuity (Hong Kong) Limited. (Contact Tel: +852 3919 2561) in respect of any matters arising from, orin connection with, this research.Additional information is available on request.Copyright © Canaccord Genuity Corp. 2018 – Member IIROC/Canadian Investor Protection Fund
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All rights reserved. All material presented in this document, unless specifically indicated otherwise, is under copyright to CanaccordGenuity Corp., Canaccord Genuity Limited, Canaccord Genuity LLC or Canaccord Genuity Group Inc. None of the material, nor itscontent, nor any copy of it, may be altered in any way, or transmitted to or distributed to any other party, without the prior express writtenpermission of the entities listed above.None of the material, nor its content, nor any copy of it, may be altered in any way, reproduced, or distributed to any other partyincluding by way of any form of social media, without the prior express written permission of the entities listed above.
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