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8. June 2020
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Market Analysis: Roundup of CBD Q1 Results Highlights Strong Continued Growth and Pharma Demand

With Q1 results flooding in during May for CBD and Cannabinoid companies, it has given us a chance to analyse the financial resilience of the industry in the face of COVID-19, as well as highlighting a number of key trends.

CBD and Pharma Sectors becoming the Long-term Plays

When compared with the wider cannabis sector which has seen company share prices drop amid widening losses, the market demand for CBD products and CBD/THC-derived pharmaceuticals is resulting in strong performance for producers focussing on these growing market segments.

CBD-derived consumer products targeting a burgeoning health & well-being conscious customer base alongside regulated pharmaceuticals look set to become systemically important for the growth and mainstream adoption of cannabinoid-derived products.

For investors seeking the kind of returns usually associated with early-stage emerging industries, a shift of focus from retail cannabis markets to consumer CBD, medicinal-cannabis pharma manufacturers, and cannabinoid life science players is beginning to look like the best longer term sector play.

Outstanding Performer

Recent Q1 2020 results from UK-based GW Pharmaceuticals, illustrate this trend, with the company selling far more of its epilepsy drug Epidiolex than expected.  Q1 net sales of the drug reached $116.1 million, and there are commercial launches in France, Spain and Italy on track for later this year.

Net losses were slashed from $50 million last quarter to $8 million this time around, while revenues hit $120.6 million, up from $36 million in the same quarter last year. While clinical programs have been delayed to the second half of the year because of the Covid-19 restrictions, there are several significant trials in the pipeline.

In the first quarter of 2020, we have seen continued strength of the Epidiolex brand in both the U.S. and Europe and remain confident about prospects for growth in the remainder of the year. Having been granted priority review by the FDA for our proposed label expansion to include TSC, our US commercial team is actively preparing for the launch of this indication in August,” stated Justin Gover, GW’s CEO. “In this current environment caused by COVID-19, we have been able to support the epilepsy community remotely and maintain production of Epidiolex, while taking necessary steps to maintain the wellbeing of our employees. Looking ahead, GW is well placed to emerge strongly from the COVID-19 crisis with significant growth prospects for Epidiolex in the US and Europe, important pipeline clinical trials ready to execute, a strong balance sheet, and an unparalleled leading position in cannabinoid science.

GW Pharmaceuticals plc Q1 2020 Financial Highlights      

  • Total revenue for the quarter ended March 31, 2020 was $120.6 million compared to $39.2 million for the quarter ended March 31, 2019
  • Net loss for the quarter ended March 31, 2020 was $8.0 million compared to a net loss of $50.1 million for the quarter ended March 31, 2019
  • Cash and cash equivalents at March 31, 2020 were $500.9 million compared to $536.9 million as of December 31, 2019

Growing Demand for Pharma

Demand for medical cannabis and pharma products are showing strong growth as a dynamic regulatory landscape begins to allow companies greater access to new territories.

In Q1 results Canadian-based Aurora Cannabis announced that sales of medical cannabis rose by 3% sequentially to $30.5 million, while the company’s medical patient base expanded 8% to 91,116.

With Aurora’s recreational business facing increased pressure the medical sector is looking like it will become increasingly important going through 2020.

Aurora’s management commented in the announcement, “The global medical cannabis and hemp derived cannabinoids markets represent a significant opportunity for Aurora. To support the Company’s prospects in these markets, Aurora continues to make necessary investments that will build long-term value for its shareholders while balancing growth with prudent financial management and capital allocation.

Khiron Life Sciences Corp. (TSXV: KHRN), (OTCQX: KHRNF), (Frankfurt: A2JMZC) is another producer seeing strong growth from the medical cannabinoid sector.

Alvaro Torres, Khiron CEO and director, commented: “During Q1 2020, the Company achieved major milestones that position Khiron as the leading medical cannabis company in Latin America. Most importantly, we achieved these milestones in the middle of an extraordinary global health and social crisis, which speaks to the Company’s resilience and ability to innovate and adapt to the changing environment. As of today, Khiron is the first and only company to sell low- and high-THC medical cannabis in Colombia, and we have achieved significant milestones in our other target countries, which position us to enter the execution phase of our business strategy.”

Khiron Life Sciences Corp. Q1 2020 Highlights

  • Closed quarter with net working capital of $28.4 million
  • Achieved revenues of $1.9 Million for Q1 2020, improving gross margin by 17% compared to Q1 2019
  • Achieved first sales in Colombia of low-THC medical cannabis, and subsequent to the quarter, began its first high-THC medical cannabis sales in Colombia on May 19th 2020
  • Increased revenues from its Kuida® brand by 18% compared to Q1 2019, despite the impact of sales reduction in March due to the COVID-19 pandemic in Colombia and abroad
  • In May 2020, received first medical cannabis prescriptions for UK patients participating in Project Twenty21
  • Signed exclusive agreement with Medlive, a distributor serving 3,000 clinics and hospitals in Brazil, subsequent to the quarter

eCommerce Sales Growing

Charlotte’s Web Holdings, Inc. (TSX:CWEB, OTCQX:CWBHF)announced Q1 results that showed Direct-to-Consumer (“DTC”) eCommerce sales grew 29.4% year-over-year and contributed 65.6% of Q1 revenue.

This illustrates a growing trend across the CBD industry. Customers are increasingly engaging directly with brands, a situation that has been significantly accelerated by the COVID-10 outbreak. As customers look to cut through the CBD industry ‘noise’ they are increasingly looking for trusted brands, and with the diminishing importance of retail, this is resulting in increased DTC conversions.

The DTC business remains an important area for growth particularly as we await broad regulatory policies to land for the retail channels, and we expect online sales to grow faster than retail in the first half of 2020,” explained Deanie Elsner, CEO of Charlotte’s Web. “Our webstore provides our customers with our broadest product portfolio offering. We have increased resources into our DTC channel, increased capabilities, and improved the online experience. The result has been double-digit conversion rates that helped support a 29.4% year-over-year increase in online revenue for the quarter.

Charlotte’s Web Holdings, Inc. Financial Highlights      

  • Organic consolidated revenue of $21.5 million vs. $21.7 million in Q1-2019
  • Gross profit of $15.0 million, 69.8% of consolidated revenue
  • Adjusted EBITDA loss of $5.7 million
  • Direct-to-Consumer (“DTC”) eCommerce sales grew 29.4% year-over-year and contributed 65.6% of Q1 revenue
  • $53.0 million cash and $114.9 million working capital on March 31, 2020

Elsewhere, Tauriga Sciences, Inc. (OTCQB: TAUG), a US life sciences company with proprietary CBD & CBG infused chewing gums and edibles product(s) as well as two ongoing biotechnology initiatives, also announced that for the month of May 2020, the Company established a new monthly record – with respect to its E-Commerce sales, which again highlights the growing importance of digital sales channels.

CV Sciences, Inc. has also seen strong online retail sales growth for the period, with E-commerce sales rising to 24% of total net revenue, up from 15% for the first quarter of 2019.

We are pleased to have exceeded the high end of our first quarter revenue guidance while navigating both ongoing industry challenges and the COVID-19 pandemic. Over the past months, we have taken quick action to right-size our operations for the near-term industry outlook and to adapt our operations for the ever-changing operating environment created by the current global health crisis. Our production and distribution facilities continue to operate without interruption and our entire team of dedicated employees has risen to the challenge to ensure that we continue to deliver the highest quality hemp-derived CBD products on the market,” stated Joseph Dowling, Chief Executive Officer of CV Sciences. “We remain confident in the long-term outlook for high quality CBD products as we adapt to a challenging industry environment and the disruptions associated with COVID-19. Our enhanced focus on e-commerce has helped to mitigate the impact from a challenging retail environment and our plans for broadening our product line and vertical categories remain on track for 2020.

CV Sciences, Inc. First Quarter 2020 and Recent Operating Highlights:

  • Revenue of $8.3 million for the first quarter of 2020;
  • E-commerce sales to 24% of total net revenue, up from 15% for the first quarter of 2019;
  • Launched updated +PlusCBD™ Oil website in January 2020 to enhance customer experience and drive increased e-commerce sales;
  • Gross margin of 48.5% for the first quarter of 2020;
  • Maintained strong total cash balance of $7.6 million at quarter end with no debt; and
  • Received notice of allowance from USPTO for proprietary CBD and nicotine formulation for treatment of smokeless tobacco addiction.

For cbdMD, growth in online sales was also a key highlight of the company’s quarterly report, with e-commerce sales representing 72% of total net sales. The company also suggested that they have seen a significant shift in the overall sales blend, with direct-to-consumer online sales tracking 80% (in April 2020), up from 62%, of overall sales in fiscal 2019. Announcing results for the quarter ending March 31, 2020, the Company reported net sales of $9.4 million, a year-over-year quarterly increase of approximately 67%.

Health & Wellbeing Sector Growth

The growing consumer interest in cannabinoid-derived health products is driving continued growth across the sector, and with COVID-19, demand for products that are perceived to support healthy lifestyles remains strong.

Charlotte’s Web Holdings’ results highlight the growing impact of this demand through the company’s strategic acquisition of Abacus Health Products (announced in March). Abacus is a leading provider of over-the-counter (“OTC”) topical products for pain relief and skincare containing CBD hemp extracts. Abacus distributes the industry’s widest portfolio of topical CBD SKUs through more than 12,000 doors including the three largest U.S. pharmacy chains, and also reaches 16,500 health care practitioners. Combined, the companies currently represent approximately 34.7% market share of the food/drug/mass (“F/D/M”) retail segment.

The acquisition greatly extends Charlotte’s Web’s product offerings and reach and solidifies a commanding position in the U.S. hemp CBD topicals category which is forecasted to become fastest growing and largest CBD segment by 2021.

Aurora Cannabis’ recent announcement that the company had completed the acquisition of Reliva, LLC a leader in the sale of hemp-derived CBD products in the United States, also demonstrates the growing importance of the low-THC, hemp-derived CBD sector for major producers.

Reliva is a leader in delivering high quality hemp-derived CBD products, built on a philosophy of compliance, testing, product innovation and approachable price points. The company is one of the largest retail CBD brands in the USA with products available in over 20,000 retail stores.

It is expected that sales from Reliva will represent an increasingly important segment for the parent Company, going forward.

Author: Matthew Driver, Senior Consultant

Market Analysis | Insight & Trends