The hemp/CBD phenomena grows. Investors appear to be catching on. Our universe of publicly traded CBD "pure-plays" suggests the two "best-of-breed."

Charlotte's Web Holdings Inc. (CWEB:CSE: CWBHF:OTCQX) (CWEB) and Elixinol Global Ltd. (EXL:ASX; ELLXF:OTCQX) are pioneers in hemp/CBD. Both are fast growers. Elixinol, the fastest over the second half of 2018, has new, cutting-edge products and a lower relative valuation. This balances with CWEB's stronger name recognition and larger retail sales base. CWEB's Q4 sales rebounded after a hiccup in Q3 and had solid Q/Q sales growth of 21%. Both companies have positive EBITDA, which must be a shock to cannabis investors, with what we believe is a superior business model to cannabis growers. (Disclosure: A director of Fincom Investment Partners is a long-time CWEB reseller).

Re-iterating our suggested target price: $5.95

We continue to suggest fair valuation for Elixinol remains one-half of CWEB's—discounted 20%. CWEB's sales are more than 2X, which equates to US$5.95.

Elixinol's 2018 sales were US$26 million, up 121% annually. CWEB's were $69 million, up 74% annually. Much of Elixinol sales are in lower margin private label, which becomes a strategic advantage since neither CWEB nor CV Sciences can boast significant experience with private label, third party or bulk CBD sales. Elixinol, perhaps, has a "leg up" on branded partnerships, building the "powered by Elixinol" brand—the brand behind the brands. We believe this is a stronger competitive "moat" than just selling through fickle retailers.

The Great CBD Boom starts

From our February 4 report: "We believe, however, the CBD boom will continue, after any near-term lag—most likely towards the second half of 2019, as new, larger retailers, such as Whole Foods and the Vitamin Shoppe, and perhaps drugstore chains, etc., begin stocking product."

CVS, the largest U.S. drugstore chain, began selling CBD products on March 20. This date may represent, in the clarity of perfect hindsight, the paradigm shift into the vast reaches of mass market CBD. CVS is taking a cautious approach, starting with topicals (external balms and lotions) to avoid any FDA repercussions.

Following CVS, Walgreens announced March 27 it would start selling CBD products in 1,500 stores. No reports on supplier. We doubt any retailer will sole source, so there is room for several CBD suppliers.

We suggest the CVS news is the spear's tip, and we expect 2019 will continue to be an exciting year for CBD.

We have long argued CBD (the cannabidiols, a non-intoxicant) is a larger market—and a better investment—than cannabis. We believe CBD will become a health standard, available in multiple OTC forms and routinely sold by mass retailers, like aspirin. The OTC market for pain relief, stress and sleeping issues is massive. CBD is a perfect fit.

Wall Street is beginning to catch on:

Yes, the Canadians are coming. But not quite yet.

Many of the large Canadian cannabis companies have announced intentions to enter the U.S. CBD space. These include Canopy Growth (CGC), which has talked up a $150 million investment into U.S. hemp farming and CBD production. It is not afraid to spend money. We suspect Canopy is most likely a CBD-brand buyer once it figures out that farming is not where the big bucks are—the $5 billion cash infusion from Constellation Brands came from selling and branding, not hops and barley farming.

Tilray (TLRY) recently purchased hemp (not CBD) maker Manitoba Harvest, which sells hemp granola, oil, protein powder and milk. Making and selling CBD is an entirely different process from making granola. Nice idea, but still quite a way from CBD. Otherwise, Tilray continues its long slide back to fair value (lower) from our September 2018 call to sell TLRY/buy CBD.

Aurora Cannabis (ACB) has purchased several hemp processors, but has no actual CBD brands in the market. There was considerable chatter about partnering with Coca-Cola to produce CBD-infused drinks, but so far nothing formal. And it still has to solve the CBD-is-oil problem (see below).

Cronos (CRON) has a partnership with Ginkgo Bioworks that may (someday) produce lower-cost custom yeast strains capable of producing cannabinoids. We hope this works out—something better—CRON Q4 cannabis sales of US$4.2 million hardly seem to justify a $3.3 billion valuation. Even if Marlboro invested.

The Canadian cannabis crowd are smart people and surely see the CBD opportunity. It's real. It's happening now and it's happening all across the U.S.

We expect more CBD-related listings in the U.S., but investors can own two quality producers now. We also suggest investors recognize CBD is not software. Planting crops, building production facilities and selling into a pipeline that already has plenty of quality product is not easy. It is going to take at least two years, at the earliest, before a new player can develop into serious competition. 2019 remains opportunistic for existing CBD pure plays. Given the challenges, we think cash and stock–rich cannabis companies would be wiser to try and buy CBD producers...with their inflated stock.

Another reason to sit with CBD shares.

Stick with the Best-of-Breed

Charlotte's Web was "launched" by a 2013 CNN documentary and has been growing since. Elixinol founder/CEO Paul Benhaim has worked in the hemp industry since 1991. There are now hundreds of wannabe CBD start-ups; we avoid them because we doubt they have staying power or pricing power. Competition will increase. The vitamin and "wellness" industry attracts charlatans like moths to flame, a risky combo when combined with the penny-stock crowd. Be careful.

Other CBD producers include CV Sciences (OTC: CVSI), and we own some shares (from a low 2018 price point) in case something happens. We have been disappointed with management. Retailers complain about poor customer service; investors complain management ignores them. Quarterly sales growth has fallen off a cliff, down to just 4% in Q4. Its NASDAQ application has sat DOA now for nine months, which means there has to be something wrong? Plus, management still bizarrely insists in dividing the company, confusing investors and wasting half the presentation—as a pharmaceutical developer. It has no patent, which the U.S. Patent Office keeps denying. To us, the drug dream is presently "worthless" and only heavily promoted as some sort of ego trip.

CWEB is better known in the U.S. and Canada

Yet Elixinol shares were Exchange-approved and the IPO underwritten by a quality firm (audited by Deloitte). Since over 80% of sales are in the U.S., the company belongs in the U.S. peer group.

CWEB sales are roughly split between e-commerce and independent retailers, while about two-thirds of Elixinol's U.S. sales are in private label and bulk.

Elixinol has about $30 million in cash; CWEB $73million.

Of the pure-play CBD manufacturers, Elixinol has, by far, the largest global exposure; it is expanding operations in Japan, throughout Europe, and, of course, Australia. The company is emphatic its investments are gaining traction and will pay off handsomely. We look forward to upcoming news. It already has a strong reputation for quality in the U.S.; if combined with what could become a true global CBD brand, Elixinol should present a compelling value proposition.

Evidence of aforementioned success could also make Elixinol an irresistible target for numerous global behemoths with fear of missing out on the CBD boom.