One well-chosen small-cap stock can deliver life-changing gains. That's because businesses with strong competitive positions in rapidly expanding markets can grow exponentially, earning you a fortune along the way.
In this regard, few markets are expected to grow faster than the global cannabis market. And within this booming industry, perhaps no segment is as popular as cannabidiol (CBD). Read on to learn more about CBD, as well as the company best positioned to profit from its exploding global growth in the years ahead.
The coming CBD boom
CBD is one of more than 100 chemical cannabinoids found in the cannabis plant. People use CBD to treat a variety of ailments. Outside of GW Pharmaceuticals' CBD-based epilepsy drug, these medical benefits are not proven, according to the U.S. Food and Drug Administration (FDA). Still, unlike tetrahydrocannabinol (THC) -- the cannabinoid associated with marijuana's intoxicating effect -- CBD isn't psychoactive so it doesn't get people high, therefore appealing to a wider audience.
Due in part to the passage of the U.S. Farm Bill in December -- which legalized hemp-derived CBD in all 50 states -- the industry is expected to enjoy explosive growth. Global CBD sales could grow as much as 147% annually, reaching $22 billion by 2022, according to the Brightfield Group.
The market leader
Perhaps no company is better situated to profit from CBD's rapid growth than Charlotte's Web Holdings (NASDAQOTH: CWBHF).
Based in Boulder, Colorado, Charlotte's Web is the world's leading brand by market share in hemp-based CBD. As of the end of 2018, the company's products could be found in nearly 3,700 retail locations. Now that the Farm Bill is on the books, that figure is likely to rise rapidly.
Notably, Charlotte's Web produces its own hemp -- its 2018 harvest yielded 675,000 pounds of raw hemp -- thereby ensuring a steady supply. It also acts as its own distributor to retailers; the company increased its retail presence by 80% in 2018. And it has a booming direct-to-consumer e-commerce business, which saw a 58% spike in sales the fourth quarter.
Moreover, Charlotte's Web -- unlike many cannabis companies -- is already profitable. A focus on higher-margin CBD oils and topicals has helped it experience not only rapid sales growth, but also strong profit growth. In 2018, the company's revenue surged 74% to $69.5 million, while gross profit soared 75% to $52.3 million. And its net income -- adjusted to exclude IPO costs -- leapt 76% to $13.1 million.
Massive growth potential
Better still, Charlotte's Web' revenue growth is projected to accelerate from 2018's levels in the coming years. Wall Street expects the company's sales to rise 119%, to $152 million, in 2019. Analysts predict an additional 106% surge in sales, to $313 million, in 2020.
Best of all, Charlotte's Web' current $1.8 billion market capitalization likely understates its true growth potential as the leader in a global CBD market set to exceed $20 billion by 2022. Investors who buy shares today could very well enjoy handsome gains in the upcoming years.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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