Will CBD be all that it can be in terms of turning a profit?Cannabists, everyone is saying there is vast money to be made in CBD. And I used to think this as well, but unfortunately no more for the following reasons:
1. Charlotte's Web grew 862 acres of hemp this year to satisfy the consumer demand for 2020;
2. I think we can all agree that 862 acres is sweet f*ck all in terms of acreage;
3. In 2018 there were 78,176 acres of hemp grown (Charlotte's Web grew about 600 acres worth in 2018 which equates to almost 1% of the entire hemp produced last year);
4. This year 511,442 acres of hemp were reportedly grown. And Charlotte's Web is responsible for a whopping 862 acres of this to produce all the CBD they need for 2020. So this means that there is an ocean of CBD supply available to other competitors;
5. Apparently 40 lbs of hemp flowers can produce 1 kg of oil. And a good crop of hemp can produce 2,000 lbs of hemp flower per acre. So if you can produce 2,000 lbs of hemp flower per acre and 40 lbs of flower produces 1 kg of oil then you can generate 50 kgs of oil per acre if you grow it well;
6. 100 mls of oil apparently weighs about 94.7 grams. And 50 kgs of oil per acre divided by 94.7 grams means you can get 527 bottles of 100 gram oil out of each acre of well produced hemp.
7. Charlotte's Web charges $189 for a 100 ml bottle of 17% CBD. And apparently well grown hemp flower will have 14-20% CBD content so let's assume that you don't have to concentrate the oil because the flower can produce 17% CBD content.
8. For Charlotte's Web to produce revenue of $1 billion selling 100 ml bottles of 17% CBD oil at a price of $189 then they have to sell 5.291 million 100 ml bottles of oil. And to produce this they need 10,039 acres of hemp based on the calculations articulated above.
9. And last year there were 511,442 acres of hemp grown in the USA alone.
10. So that means that CBD is incredibly plentiful already. There is already a ton of supply for it and no one is going to have to look very hard to find cheap and plentiful CBD.
11. It is true that Charlotte's Web has a lead advantage in branding and distribution for CBD. But that lead can be eroded incredibly fast when other packaged goods companies enter the fray. And with that much CBD biomass available I seriously doubt that anyone is going to make all that much money on CBD.
12. So my thesis is that the CBD craze in terms of profits is mostly over before it starts for the straight up cannabis companies like Charlotte's Web because other better financed competitors can easily eat their lunch.
13. I was thinking of playing Charlotte's Web when it hits the NYSE or NASDAQ. I think Americans may really go for an American success story and bet the stock up big, but if I play this it will be for pure hype because I think the market realities of CBD are bleak. Too many farmers trying to Green Rush it and frankly you don't need that many acres of hemp to produce CBD for the entire world population is my understanding.
14. Please tell me I am wrong and why. I got into this game in part because of CBD and now I think the CBD business looks like sh*t.
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