Charlotte’s Web Holdings (CSE: CWEB; OTCQX: CWBHF) first-quarter results came in line with the preliminary guidance provided earlier this month. However, it failed to beat estimates on both the top and bottom line. The full-year revenue outlook remains unchanged from prior guidance. On a separate note, the company will be delisted from the CSE on May 30 after the bell.

The hemp-producer reported revenues of $21.7 million, an increase of 66% over last year. Adjusted EBITDA decreased slightly to $4.6 million while EPS came in at 3 cents. Profit contracted to $2.3 million over $3.1 million primarily due to a spike in expenses. All the metrics met the guidance provided by the firm in the first week of May.

When it comes to street estimates, revenue and earnings were expected to come in at $22.74 and 5 cents respectively. The company failed to meet analyst expectations. It’s worth noting that since 2017, Charlotte’s Web has been able to consistently grow its revenues every quarter.

Rising Expenses

Operating expenses more than doubled to $13.2 million compared to $6.4 million reported last year. Since the company is expanding its footprint, it is currently investing in beefing up its infrastructure and adding more employees to address the rising demand for its products.

However, in the latter half of the year, revenue is expected to grow at a faster rate than operating expenses. As a result, the company prior revenue guidance of $120-170 million for 2019 remains unchanged. Adjusted EBITDA is expected to be between 30-35% in line with earlier estimates.

Expanding Footprint

The company’s biggest tailwind came last December when the US Congress amended the Farm Bill legalizing hemp-based extracts production. Post the legalization of hemp-based derivatives production, Charlotte’s Web has expanded its retail footprint to 6,000 locations compared to 3,680 retail points reported at the end of 2018.

The rapid expansion would increase the demand for its products. Hence, the company also anticipates a high demand for its products until 2021. It is doubling the acres planted in 2019 to above 700 acres which would help to address the demand spike in the next two years.

Charlotte’s Web has inked deals with four national brands to sell its products through its stores. It plans to expand into all the states in the US with the help of retailers in 2019. The company has started shipping to these retailers and this would be reflected in the upcoming quarter’s sales.

Charlotte’s USP

The company is into the production and distribution of hemp-based cannabidiol (CBD) products. Since the hemp extracts taken from the Cannabis plant has less than 0.3% tetrahydrocannabinol (THC), it doesn’t give any euphoric effect due to lower THC content. This is in contrast to marijuana which gives psychoactive effect to users since it has a high amount of THC.

Hemp-derived extracts are used to produce a wide variety of products in the food, industrial and medicine domains. Charlotte’s Web is producing and selling tinctures and capsules for now and plans to expand its product portfolio to supplements and health care beverages in the future.

Charlotte’s Web recently forayed into CBD pet market with the launch of chews to address health functions. According to Brightfield Group, the CBD pet market is worth $1.16 billion and is witnessing a stupendous annualized growth of 151%.

Looking Ahead

With new CEO Deanie Elsner on board, Charlotte’s Web expects Elsner to use her experience from Kellogg’s to ramp up production and distribution in order to cater to the rising demand for hemp-based products. Investors would be expecting the company to report solid results in the upcoming quarters as it has multiple tailwinds on its side to carry the momentum from last year.

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