It was recently discovered that Charlotte's Web Holdings (CWBHF) has been awarded what appears to be the first U.S. patent for a hemp strain, according to US Patent and Trademark Office filings.
A report from Leafly noted that the related "documents describe CW2A as a hardy plant, resistant to cold and capable of producing up to 6.24% CBD and only 0.27% THC."
In the fast-growing CBD market, a patent like this could be a huge competitive advantage for Charlotte’s Web.
The patent itself
The first thing to understand about this patent is it's a plant patent, not what is identified as a utility patent. That means the patent held by Charlotte's Web gives it legal protection from a competitor growing that specific cultivar from a clone.
Charlotte's Web may have also been awarded a Utility patent as well, but that isn't available to the public until after a waiting period of 18 months. The basic difference between the two is a Utility patent also covers seeds and the various chemical compositions of the plant. A Utility patent gives a plant a wider range of protections.
As for the characteristics of the plant itself, it would yield a significant amount of dry weight CBD which would be then extracted and sold to consumers. It also appears to have the ability to be grown in a number of different environments, providing more flexibility on the production side of the equation.
With a number of U.S. hemp farmers struggling at times to keep their hemp from getting hot, which means from exceeding the legal 0.3% THC threshold, the low amount of THC in CW2A would provide a wide margin of safety.
Keep in mind that this is a hemp patent, not a cannabis patent. There have been a number of cannabis patents that have been applied for and approved of.
The difference between hemp and cannabis isn't botanical, but legal. Hemp is identified legally as having no more than 0.3% THC in it.
Significance of the patent
I've been saying for some time the long-term profitability in the cannabis sector is going to eventually come to those companies that are able to develop various strains or research-backed characteristics that differentiate themselves from competitors.
In the short term recreational pot will continue to be the biggest generator or revenue, but CBD and medical pot are eventually going to be the products that generate the widest margins and strongest earnings.
As for this hemp patent and Charlotte's Web, this could be a huge competitive advantage for the company. It's interesting that the company didn't tout the patent, which suggests to me it either is waiting for a Utility patent to be revealed, or for those of us that discover it and report on its potential.
With the well-known Charlotte's Web strain, and the Stanley brothers adding a hemp patent to their arsenal, it could be a tremendous branding and marketing opportunity for the company, which could be more important than the hemp patent and the accompanying positive characteristics.
The Stanley brothers, the founders and operators of Charlotte's Web Holdings, are excellent at branding and marketing. It's easy to see how they could leverage this to take a commanding lead in the CBD market.
That's why it's puzzling as to why they didn't go public with their achievement. It's also why I think there's more to come, by which I mean a potential Utility patent to be revealed.
Now that the cat is out of the bag, I wouldn't be surprised to see some branding and marketing movement on this front.
Whatever the timing ends up being, it's apparent the company has taken a lead on its competitors, and if consumers perceive the brand to be superior to other brands, it will be a moat that the company can defend; it would win a lot of market share in the current CBD commodity market.
The cannabis player stands as a 'Strong Buy' name among Wall Street analysts. In the last three months, Charlotte's Web has won three bullish recommendations. With a return potential of close to 40%, the stock's consensus price target lands at $23.17.
There are several things to like about the hemp patent. It adds another arrow to the branding and marketing quiver of Charlotte's Web; provides a quality product that should result in higher extraction of CBD and the ability to grow under various conditions; and most importantly, should allow the company to leverage products derived from the strain to be differentiated from competitors.
With the proven branding and marketing expertise of management, this could be a significant step into winning market share in the CBD market, which is projected to quickly grow into a double-figure multi-billion dollar market.
This is going to be a big growth catalyst for the company if the traits listed in the hemp patent are proven to be consistently accurate, and consumers consider it to be a better product than other CBD offerings.
This hot cannabis stock is also resonating with investors, with individual portfolios in the TipRanks database showing a net increase in Charlotte's Web.