Better Cannabis Stock: Aurora Cannabis vs. Charlotte's Web Holdings
Aurora Cannabis (NYSE: ACB) and Charlotte's Web Holdings (NASDAQOTH: CWBHF) rank as two of the hottest stocks in the cannabis industry so far in 2019. Aurora is up more than 70% year to date, while Charlotte's Web shares have gained more than 65%.
But which of these two cannabis stocks is the better pick for investors now? The decision comes down to growth prospects and the ability to capitalize on those prospects. Here's how Aurora Cannabis and Charlotte's Web Holdings stack up against each other.
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The case for Aurora Cannabis
Here's a number for you to keep in mind: $166 billion. That's the amount of annual global marijuana sales that Bank of America analyst Christopher Carey projects could be attainable in the future. Carey isn't out in left field with his estimate. Others have tossed around figures of a worldwide marijuana opportunity of around $150 billion.
Even if these estimates are overly optimistic, they could be way off and still reflect an enormous growth opportunity for Aurora Cannabis. The company's market cap of around $8.8 billion might seem steep right now, but it would only take a small market share of such a huge global market for Aurora to be worth a lot more.
How well positioned is Aurora to capture a decent share of the global cannabis market? Let's look at a couple of key considerations.
First, Aurora is on track to have the highest production capacity in the cannabis industry. It expects to have an annualized production run rate of more than 500,000 kilograms by mid-2020. Aurora's total funded capacity tops 625,000 kilograms. This capacity will enable the company to meet demand and also reduce its costs through efficiencies of scale.
Second, Aurora is in great shape in international medical cannabis markets. Bank of America's Carey thinks that markets other than the U.S. and Canada will comprise close to 63% of the total addressable cannabis market of the future. That's good news for Aurora. The company currently leads all of its rivals in international sales and operates in more international markets than its peers as well.
There are two notable negatives for Aurora right now, though. One is that the company can't compete in the world's largest marijuana market -- the United States -- as long as marijuana remains illegal at the federal level. The other issue is that, unlike several other Canadian marijuana producers, Aurora doesn't have a big partner from outside the cannabis industry.
But these could only be temporary impediments for Aurora. It's possible that the U.S. could change its federal marijuana laws in the not-too-distant future, paving the way for Aurora to jump into the huge market. The company is already considering how it might enter the U.S. hemp market now that hemp is legal throughout the United States. Aurora has also signed up billionaire investor Nelson Peltz to help line up major partners from other industries.
The case for Charlotte's Web Holdings
Charlotte's Web focuses on the hemp-based cannabidiol (CBD) market. The opportunity for hemp CBD products is big -- but just how big depends on whom you ask. Cannabis market research company Brightfield Group thinks the U.S. hemp CBD market alone could reach $22 billion by 2022. Hemp Industry Daily is optimistic but not that optimistic, with a projection of up to $7.5 billion in U.S. hemp CBD sales by 2023.
Regardless of which market estimate is more realistic, Charlotte's Web appears to be poised to win. The company claims the No. 1 brand in the U.S. hemp CBD market. And it continues to beat the industry with strong revenue growth.
Charlotte's Web is also a leader in production capacity. The company had 300 acres planted with hemp last year, up from only 70 acres in 2017. This enabled Charlotte's Web to produce 675,000 pounds of hemp in 2018 -- more than 10 times more than the prior year.
The company's products are carried in more than 4,000 retail locations across the United States. That number is likely to grow considerably thanks to the passage of the Farm Bill in December, which legalized hemp throughout the country.
Charlotte's Web should also see a boost in revenue as it launches new products. It plans to introduce several new products and formats this year in animal nutrition, wellness topicals, and human consumables.
Better cannabis stock
You might look at these two companies' market caps and projected total addressable market sizes and conclude that Aurora is the clear winner. Aurora's market cap is much smaller as a percentage of the potential market than Charlotte's Web's market cap is for its market.
But it's important to keep in mind that Charlotte's Web is already a top player in the large U.S. hemp CBD market while Aurora hasn't moved into the U.S. in any major way so far. Also, it could take a really long time for those $150-billion-plus projections for the global marijuana market to be realized. Meanwhile, the U.S. hemp CBD market is likely to explode over just the next three or four years.
There's also one other thing to note: Charlotte's Web is consistently profitable, but Aurora isn't. That could increase the likelihood that Aurora will have to raise more cash through stock offerings in the future, which would dilute the value of existing shares. Both companies have filed shelf offerings to pave the way for stock offerings, but Aurora's financial position and acquisition fever makes it more likely to go to the well more often than Charlotte's Web.
For these reasons, I think that Charlotte's Web gets the nod as the better cannabis stock in a head-to-head matchup with Aurora. But I certainly wouldn't dismiss the possibility that Aurora could deliver tremendous gains in the coming years.
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Keith Speights 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.