Is This the Breakout Cannabis Stock You’ve Been Waiting For?

Charlotte’s Web Holdings Inc. (TSXV:CWEB) has gained almost 80% since the start of the year, making it a potential “best buy” in the cannabis space.

| More on:

Getting the nod from pundits eyeing the cannabis market for steep upside today is CBD-heavy pot stock Charlotte’s Web Holdings (TSXV:CWEB).

A stock that has continuously earned the respect of the market, Charlotte’s Web is the pot stock connoisseur’s choice, having gained a massive 78% since the start of 2019.

Some exciting news is making the stock a stronger buy today, even during a week that has so far seen the deepening CannTrust crisis weighing not only on the cannabis sector, but also on the TSX Index itself.

Let’s take a look at whether the hemp grower has what it takes to cut through the current fear in the markets to deliver the upside so sought after in this turbulent new industry.

Legitimacy – and growth – are key in the new cannabis industry

It’s one thing to grow a business, but that business has to be legitimate. The CannTrust debacle is casting the new cannabis industry in a bad light and has polarized investors.

Now more than ever, profitability is key to investing in the burgeoning cannabis industry, and people are voting with their feet. Just look at the stark divide between CannTrust and Aphria on the TSX: A newcomer would question whether they are even part of the same sector.

While it may be easy to look at a big-name cannabis company such as Canopy Growth and suggest that its performance could be hampered by its profit situation, the fact is that that stock, in particular, is operating in its own sphere at this point, with bulls taking long positions and betting on the company’s eventual domination of the sector.

Meanwhile, capital gains traders are eyeing Charlotte’s Web and its ilk for speedier returns.

Partnerships will continue to make cannabis an event-driven investment

Aside from profitability and market share, the other main driver of market performance is partnership deals. Charlotte’s Web’s recent deal with U.S. grocery giant Kroger to carry the hemp company’s CBD-infused products in 22 American states is a prime example of this kind of event-based market boost, with the cannabis stock leaping to around 10% on the news.

Add to this the fact that cannabis of all sectors is weighing on the TSX and investors have a situation that calls for a potential mass migration towards classically safe assets.

However, while chief among such asset classes are gold, utilities, and consumer staples, there are few areas of investment that may end up getting overlooked in the rush to quality.

The recent development between Kroger and Charlotte’s Web therefore makes the CBD stock one of the few potentially defensive stocks in the sector.

The bottom line

Cannabis can be seen as a stock-picker’s market at the moment, with trusts out of the window as an uneven industry rewards with one hand and punishes with the other.

That’s why positive deals with defensive sectors such as consumer staples make certain stocks somewhat defensive even in the teeth of a recession.

Growth in the U.S. markets, and in the CBD space, in particular, could make Charlotte’s Web a star stock worthy of a long position.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool owns shares of Charlotte's Web Holdings.

More on Stocks for Beginners

Piggy bank with word TFSA for tax-free savings accounts.
Stocks for Beginners

2 Top TSX Growth Stocks to Stash in a TFSA for Life

These two growth stocks may not be the top in the last month, but in the last few years, they…

Read more »

people relax on mountain ledge
Dividend Stocks

Invest $10,000 in This Dividend Stock for a Potential $4,781.70 in Total Returns

A dividend stock doesn't have to be risky, or without growth. And in the case of this one, the growth…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Turn a $15,000 TFSA Into $171,000

$15,000 may not seem like a lot, but over time that amount can balloon into serious cash.

Read more »

A worker uses a double monitor computer screen in an office.
Stocks for Beginners

Why I’d Buy Fairfax Financial Stock Even at Today’s Prices

Fairfax stock just keeps edging higher. But is it now too expensive, or can investors just look forward to even…

Read more »

Piggy bank in autumn leaves
Dividend Stocks

A 5.6% Dividend Yield? I’ll be Buying This TSX Stock for Decades!

This Big Six Bank offers a large dividend, growth strategy, and stability. In short, it offers it all!

Read more »

Concept of multiple streams of income
Stocks for Beginners

Lock Up This 9.2% Dividend Yield From a Top Royalty Stock

Royalty stocks have a strong advantage when it comes to creating passive income for investors. But this one has the…

Read more »

concept of real estate evaluation
Dividend Stocks

Buy 1,154 Shares of This Top Dividend Stock for $492.54/Month in Passive Income

This dividend stock can pay out top cash every month, sure, but has even more to look forward to.

Read more »

Hourglass and stock price chart
Dividend Stocks

This 7.1% Dividend Stock Pays Cash Every Month

This dividend stock is a solid choice for investors looking for long-term cash from the healthcare sector, with monthly dividends…

Read more »