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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 9, 2023
Charlotte’s
Web Holdings, Inc.
(Exact name of Registrant as Specified in Its Charter)
British Columbia |
000-56364 |
98-1508633 |
(State or Other Jurisdiction
of Incorporation) |
(Commission
File Number) |
(IRS Employer
Identification No.) |
700 Tech Court
Louisville, Colorado
|
80027 |
(Address of Principal Executive Offices)
|
(Zip Code) |
Registrant’s Telephone Number, Including
Area Code: (720) 617-7303
Not applicable
(Former Name or Former Address, if Changed Since
Last Report)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2.
below):
☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of exchange on which registered |
N/A |
N/A |
N/A |
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange
Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act.
Item 2.02 |
Results of Operations and Financial Condition. |
On November 9, 2023,
Charlotte’s Web Holdings, Inc. (the “Company”) issued an earnings release
announcing its financial results for the three months and nine months ended September 30, 2023. A copy of the earnings release is
furnished herewith as Exhibit 99.1 and incorporated in this Item 2.02 by reference.
Item 9.01. |
Financial Statements and Exhibits. |
(d) Exhibits
The information in the press release attached
as Exhibit 99.1 is intended to be furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities
Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific
reference in such filing.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
CHARLOTTE’S WEB HOLDINGS, INC. |
|
|
|
|
Date: November 9, 2023 |
|
By: |
/s/ Stephen Rogers |
|
|
|
Stephen Rogers |
|
|
|
Senior Vice President - General Counsel and Corporate Secretary |
|
|
|
|
Exhibit 99.1
Charlotte’s Web Reports 2023 Third Quarter
Financial Results
New CEO Reinvigorates Organizational Focus
and Strategic Discipline;
Washington D.C. Making Headway on Federal
CBD Regulatory Framework
Louisville, CO, November 9, 2023 - (TSX:
CWEB, OTCQX: CWBHF), Charlotte’s Web Holdings, Inc. (“Charlotte’s Web” or the “Company”), the market
leader in full spectrum hemp extract wellness products, today reported financial results for the third quarter ended September 30, 2023.
CEO Appointment Signals Strategic Changes
On September 13, 2023, Charlotte’s Web
appointed Bill Morachnick, Chief Executive Officer of the Company. Mr. Morachnick is an accomplished executive with a track record of
building premium, differentiated products and brands. He brings an operational and data-driven mindset fixated on growth through the integration
of marketing, sales, innovation and technology, with a consumer-centric focus.
“Since I joined Charlotte's Web in the
late third quarter, I have been truly impressed by the talent, passion, and scientific expertise within the company," stated Bill
Morachnick, the CEO of Charlotte's Web. "Following less-than-satisfactory third-quarter revenue, we have quickly mobilized a decisive
action plan aimed at streamlining the organization to restore growth. We have revamped both our commercial and IT departments and are
in the process of upgrading our operational platforms. Our ultimate goal with these initiatives is to elevate and fully monetize the consumer
e-commerce experience, leading with data as a guidepost.”
Mr. Morachnick has identified three specific
areas of opportunity to simplify, focus and sharpen the corporate strategy for long-term growth. First, rapid improvement of the Company’s
e-commerce platform and performance; second, a holistic integration of the Company’s information technology infrastructure to support
the company’s goals; and third, refreshing the brand and integrated consumer marketing strategies.
Regulatory Update
On September 19, 2023, Charlotte’s Web
announced its founding membership in ONE HEMP, a coalition comprised of top CBD industry stakeholders to support Congress and the U.S.
Food and Drug Administration (FDA) through a science and data-backed approach to arrive at sensible dietary supplement regulation. In
November, ONE HEMP secured a forthcoming December 6th briefing on Capitol Hill.
“It has been five years since the 2018
Farm Bill, and it has been imperative to take a bold industry-leading approach. Together with the united front of CBD leaders behind ONE
HEMP, this approach is proving successful in this milestone moment,” said Jared Stanley, Co-Founder and Chief Commercial Officer
of Charlotte’s Web. “ONE HEMP’s engagement with legislative stakeholders to further regulatory clarity and stability
for the CBD market demands swift and consistent action to designate CBD products as dietary supplements. We’re not taking our foot
off the pedal until we bring this over the finish line.”
ONE HEMP engaged with Congress and the FDA with
an aligned industry voice through an RFI (Request for Information) response to the House and Senate committees of jurisdiction. The submission
included a landmark study determining potential upper oral intake limits for safe CBD usage by consumers. Recommendations were also provided
to help inform legislators and regulators as they determine manufacturing and labeling requirements for supplement products containing
CBD.
Progress has been encouraging surrounding The
Hemp Derived Consumer Protection and Market Stabilization Act of 2023, (bill H.R. 1629) which aims to regulate hemp extract products under
the dietary supplement regulatory framework.
Business Review
In early 2023, Charlotte’s Web initiated
a plan to move the production of topical products in-house. This was followed by a decision to also bring gummy production internally,
and in the third quarter construction began with a modest capital expenditure. On-site manufacturing better utilizes the Company’s
existing Louisville production facility, improving gross margins through increased fixed cost operating leverage. The initiative aligns
with the Company’s ongoing efforts to improve overall operating efficiencies.
“We continuously evaluate opportunities
to strengthen margins through improved operating efficiencies and moved ahead with strategic optimizations in 2023 to bring the production
of our topicals and gummies on-site,” said Jessica Saxton, Chief Financial Officer of Charlotte’s Web. “Gummies represents
the largest sales volumes in our business and insourcing will improve capacity utilization and fixed cost leverage, while also optimizing
production and supporting long-term operating margins. We calculate the payback period to be highly favorable, requiring only a modest
increase in capital expenditure. In addition, internalizing production will also benefit our R&D, accelerating innovations and speed
to market.”
Professional Sports League Leadership
Charlotte’s Web’s partnership with
Major League Baseball© has resulted in millions of impressions. MLB delivered over 174 million digital impressions in Q3 alone
and as a result, for the month of September the Company’s website experienced a 38% lift in total sessions. Charlotte’s Web
activated additional digital media and on-site product placement with MLB during the postseason and World Series. The Company’s
NSF certified for Sport® products have received placement in every MLB© playoff team’s dugout, bullpen, and clubhouse throughout
the postseason.
Following its collaborations with Major League
Baseball and Angel City Football Club in 2022, Charlotte’s Web expanded its leadership in professional sports through a partnership
with the Premier Lacrosse League (PLL). This partnership further cements Charlotte's Web as a CBD first-mover in the professional sports
industry, with its broad-spectrum CBD NSF certified for Sport®. Through these partnerships, Charlotte’s Web has gained significant
exposure through consistent brand presence with national broadcast networks such as ABC, ESPN and MLB Network, brand ambassadors, and
social media.
The Company’s partnership as the official
CBD of the PLL has provided more than 65 million social logo impressions and over 837 million projected broadcast impressions since the
inception of the partnership, representing over $1.1 million in broadcast media value. PLL has over 200,000 viewers per game and 1.5 million
followers on social media. The Company is optimistic about the value the partnership can bring in 2024.
DeFloria Update
Charlotte’s Web expanded into broader Botanical Wellness in
2023 through the formation of DeFloria LLC (see April 6, 2023 press release), with a subsidiary
of British American Tobacco PLC (LSE: BATS and NYSE: BTI), and AJNA BioSciences PBC, a botanical drug development company. DeFloria was
established to pursue a botanical investigational new drug (“IND”) through the FDA drug development pathway for a botanical
drug to target a neurological condition. During the third quarter, DeFloria initiated a Phase 1 clinical trial with Nucleus Networks
in Brisbane, Australia. In 2024, and upon completion of Phase 1, DeFloria expects to file its IND with the FDA and commence Phase 2 clinical
trials.
Financial Review
The following table sets forth selected financial
information for the periods indicated.
|
|
Three Months Ended, September 30, |
U.S. $ millions, except per share data |
|
2023 |
|
2022 |
|
|
|
|
|
Revenue |
|
$14.3 |
|
$17.0 |
Cost of goods sold |
|
6.4 |
|
8.1 |
Gross profit |
|
7.9 |
|
8.9 |
|
|
|
|
|
Selling, general and administrative expenses |
|
19.9 |
|
11.0 |
Asset Impairment |
|
0 |
|
1.8 |
Operating loss |
|
(12.0) |
|
(3.9) |
|
|
|
|
|
|
|
|
|
|
Change in fair value of financial instruments and other |
|
(4.0) |
|
(4.0) |
Other income, net |
|
0.8 |
|
0.3 |
Net loss |
|
$(15.2) |
|
$(7.6) |
Net loss per common share, basic and diluted |
|
$(0.10) |
|
$(0.05) |
Consolidated net revenue for the third quarter
ended September 30, 2023, was $14.3 million, a decrease from $17.0 million in the third quarter of 2022. CBD product sales year-to-date
remain below expectations due to ongoing headwinds in the overall CBD category, including regulatory ambiguities at the federal and state
levels, associated customer and consumer confusion, and competitive crowding and pricing pressures. The Company believes that continued
positive legislative progress in Washington D.C. for the regulation of CBD will increase incremental consumer interest and confidence
as well as unlock opportunities to distribute ingestible products through the mass retailer channel.
Gross profit was $7.9 million, or 55.5% of revenue,
as compared to gross profit of $8.9 million, or 52.5% of revenue, in the third quarter of 2022. The gross margin improvement was primarily
driven by supply chain efficiencies within the quarter.
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
2023 |
|
2022 |
|
Total Revenue - U.S. $ millions |
|
$14.3 |
|
$17.0 |
|
Direct-to-consumer ("DTC”) |
|
$9.4 |
|
$11.8 |
|
Business-to-business ("B2B”) |
|
$4.9 |
|
$5.2 |
|
Direct-to-consumer
(“DTC”) net revenue through the Company’s webstore was $9.4 million, as compared to $11.8 million in Q3 2022.
The lower e-commerce sales were primarily due to lower organic traffic and consumer acquisition. Through a recent corporate reorganization,
management is optimizing the effectiveness in this important channel through a new platform holistically integrated with marketing to
improve the consumer experience. External resources have also been contracted to support improved traffic and conversion.
Business-to-business (“B2B”) retail
net revenue was $4.9 million, as compared to $5.2 million in Q3 2022. The decrease was primarily due to some of the Company’s retail
customers exiting the CBD category or closing retail locations over the past year. Despite some retailers consolidating the size of their
in-store CBD category over the past two years, Charlotte’s Web has increased the number of retail store locations offering its products
in 2023. The Company recently partnered with Presence brokerage to accelerate future distribution and execution within the Natural channel.
Presence is the largest brokerage within the Natural channel and brings experience partnering in the CBD category. For 2023, Charlotte’s
Web had category-leading distribution gains in the Natural Products Retail channel, as measured by All Commodity Volume (ACV), which is
the total sales volume of all products sold in the market.
SG&A Expenses
Total selling, general and administrative (“SG&A”)
expenses in the quarter were $19.9 million, a 31.8% increase from $15.1 million, excluding a $4.1 million employee retention tax credit
(“ERC”) in Q3 2022. The increased SG&A includes the amortization of the MLB license and media rights assets of $2.9 million,
which were not present in the comparable period last year. Excluding these MLB related expenses, SG&A increased $1.9 million, or 12.6%,
year-over-year, driven by timing between quarters. For the nine months ended September 30, 2023, SG&A expenses were approximately
$57.1 million in 2023 and included $6.8 million expenses related to the MLB partnership. This compares to $52.7 million for the first
nine months of 2022, excluding the $4.1 million ERC in Q3 2022, and did not have MLB related expenses.
Net Income and Adjusted EBITDA1
Charlotte’s Web reported a net loss of
$15.2 million, or ($0.10) per share basic and diluted, which included $2.9 million of expenses related to MLB in Q3 2023. This compares
to a net loss of $7.6 million, or ($0.05) per share basic and diluted, in Q3 2022, which included the $4.1 million ERC. Q3 2023 and Q3
2022 both included a non-cash loss in fair market value of the Company’s derivative instruments in the amount of $4.0 million.
Adjusted EBITDA1 loss for the third
quarter of 2023 was $6.4 million, compared to Adjusted EBITDA of $1.2 million in the third quarter of 2022.
Balance Sheet and Cash Flow
Net cash used for operations, for the three
months ended September 30, 2023, was $7.8 million and included cash paid to MLB regarding the license and media rights assets of $2.0
million.
“Of $10.7 million net cash used in the
third quarter, $2.6 million was related to capital expenditures related to production insourcing, $2.0 million for MLB licensing fees,
and $2.4 million in annual insurance payments. Excluding these items, our cash burn was approximately $3.7 million for the quarter,”
said Ms. Saxton. “We continue to take actions to reduce cash burn to ensure that our cash balance of $51.0 million at quarter end
continues to provide sufficient working capital."
Net cash used for operations in the nine months
ended September 30 was $12.8 million and $2.6 million in 2023 and 2022, respectively. The Company’s cash and working capital as
of September 30, 2023, were $51.0 million and $59.0 million respectively, compared to $67.0 million and $82.3 million on December 31,
2022, respectively.
Consolidated Financial Statements and
Management’s Discussion and Analysis
The Company’s audited consolidated financial
statements and accompanying notes for the three and nine month periods ended September 30, 2023, and 2022 and related management’s
discussion and analysis of financial condition and results of operations (“MD&A”), are reported in the Company’s
10-Q filing on the Securities and Exchange Commission website at www.sec.gov and on SEDAR at www.sedarplus.ca and will be available on
the Investor Relations section of the Company’s website at https://investors.charlottesweb.com.
Conference Call
Management will host a conference call to discuss
the Company’s 2023 third quarter at 11:00 A.M. ET on November 9, 2023.
There are three ways to join the call:
| • | Register
and enter your phone number at https://emportal.ink/48Adfis
to receive an instant automated call back, or |
| • | Dial 1-416-764-8659 or 1-888-664-6392 approximately 10 minutes before the conference call and provide conference call ID number 81041541,
or |
| • | Listen
to the live webcast online. |
Earnings Call Replay
A recording of the call will be available through
November 16, 2023. To listen to a replay of the earnings call please dial 1-416-764-8677 or 1-888-390-0541 and provide conference replay
ID 041541#. A webcast of the call will also be accessible through the investor relations section
of the Company’s website for an extended period of time.
Subscribe
to Charlotte's Web investor news.
About Charlotte’s Web Holdings, Inc.
Charlotte's Web
Holdings, Inc., a Certified B Corporation headquartered in Louisville, Colorado, is the market leader in innovative hemp extract wellness
products under a family of brands that includes Charlotte's Web™, ReCreate™, CBD Medic™, and CBD Clinic™. Charlotte’s
Web whole-plant CBD extracts come in full-spectrum and broad-spectrum options, including ReCreate™
by Charlotte’s Web, broad-spectrum CBD certified NSF for Sport®.
ReCreate is the official CBD of Major League Baseball©, Angel City Football Club and the Premier Lacrosse League. Charlotte's Web
branded premium quality products start with proprietary hemp genetics that are North American farm-grown using organic and regenerative
cultivation practices. The Company's hemp extracts have naturally occurring botanical compounds including cannabidiol ("CBD"),
CBC, CBG, terpenes, flavonoids, and other beneficial compounds. Charlotte’s Web product categories include CBD oil tinctures (liquid
products) CBD gummies (sleep, calming, exercise recovery, immunity), CBD capsules, CBD topical creams and lotions, as well as CBD pet
products for dogs. Through its substantially vertically integrated business model, Charlotte’s Web maintains stringent control
over product quality and consistency with analytic testing from soil to shelf for quality assurance. Charlotte’s Web products are
distributed to retailers and health care practitioners throughout the U.S.A, and online through the Company's website at www.charlottesweb.com.
Shares of Charlotte's
Web trade on the Toronto Stock Exchange (TSX) under the symbol “CWEB” and are quoted in U.S. Dollars in the United States
on the OTCQX under the symbol “CWBHF”. As of September 30, 2023, Charlotte's Web had 153,779,856 Common Shares outstanding.
Subscribe
to Charlotte's Web investor news.
© Major League Baseball
trademarks and copyrights are used with permission of Major League Baseball. Visit MLB.com.
Forward-Looking Information
Certain information provided herein constitutes
forward-looking statements or information (collectively, "forward-looking statements") within the meaning of applicable securities
laws. Forward-looking statements are typically identified by words such as "may", "will", "should", "could",
"anticipate", "expect", "project", "estimate", "forecast", "plan", "intend",
"target", "believe" and similar words suggesting future outcomes or statements regarding an outlook. Forward-looking
statements are not guarantees of future performance and readers are cautioned against placing undue reliance on forward-looking statements.
By their nature, these statements involve a variety of assumptions, known and unknown risks and uncertainties, and other factors which
may cause actual results, levels of activity, and achievements to differ materially from those expressed or implied by such statements.
The forward-looking statements contained in this press release are based on certain assumptions and analysis by management of the Company
in light of its experience and perception of historical trends, current conditions and expected future development and other factors that
it believes are appropriate and reasonable.
Specifically, this press release contains
forward-looking statements relating to, but not limited to: organizational changes and operational platform upgrades, and the impact of
these initiatives on revenue and e-commerce monetization; regulatory developments and the impact of developments on both consumer action
and the Company's opportunities and operations; activities relating to, and sponsorship of, legislation to advance regulatory framework;
the impact of insourcing on operating margins, capital expenditures and R&D; DeFloria's anticipated progress and activities in 2024;
anticipated consumer trends and corresponding product innovation; anticipated future financial results; the impact of the Company’s
partnership with the MLB and PLL on the Company's exposure and sales; the impact of the Company’s new distribution partners on sales;
the Company’s ability to increase online traffic and demographic exposure through new products and marketing; and the impact of
certain activities on the Company's business and financial condition and anticipated trajectory.
The material factors and assumptions used
to develop the forward-looking statements herein include, but are not limited to: regulatory regime changes; anticipated product development
and sales; the success of sales and marketing activities; product development and production expectations; outcomes from R&D activities;
the Company's ability to deal with adverse growing conditions in a timely and cost-effective manner; the availability of qualified and
cost-effective human resources; compliance with contractual and regulatory obligations and requirements; availability of adequate liquidity
and capital to support operations and business plans; and expectations around consumer product demand. In addition, the forward-looking
statements are subject to risks and uncertainties pertaining to, among other things: supply and distribution chains; the market for the
Company's products; revenue fluctuations; regulatory changes; loss of customers and retail partners; retention and availability of talent;
competing products; share price volatility; loss of proprietary information; product acceptance; internet and system infrastructure functionality;
information technology security; available capital to fund operations and business plans; crop risk; economic and political considerations;
and including but not limited to those risks and uncertainties discussed under the heading "Risk Factors" in the Company’s
Annual Report on Form 10-K for the year ending December 31, 2022 and other risk factors contained in other filings with the Securities
and Exchange Commission available on www.sec.gov and filings with Canadian securities regulatory
authorities available on www.sedarplus.ca. The impact of any one risk, uncertainty, or factor
on a particular forward-looking statement is not determinable with certainty as these are interdependent, and the Company's future course
of action depends on management's assessment of all information available at the relevant time.
Any forward-looking statement in this press
release is based only on information currently available to the Company and speaks only as of the date on which it is made. Except as
required by applicable law, the Company assumes no obligation to publicly update any forward-looking statement, whether as a result of
new information, future events, or otherwise. All forward-looking statements, whether written or oral, attributable to the Company or
persons acting on the Company's behalf, are expressly qualified in their entirety by these cautionary statements.
(1) Non-GAAP Measures: The press release contains
non-GAAP measures, including EBITDA and Adjusted EBITDA. Please refer to the section in the tables captioned “Non-GAAP Measures”
below for additional information and a reconciliation to GAAP for all Non-GAAP metrics.
For further information contact:
Jessica Saxton
Chief Financial Officer
(720) 388-6505
Jessica.Saxton@CharlottesWeb.com
Cory Pala
Director of Investor Relations
(720) 484-8930
Cory.Pala@CharlottesWeb.com
CHARLOTTE’S WEB HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
| |
September 30, | |
December 31, |
| |
2023 (unaudited) | |
2022 |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 51,016 | | |
$ | 66,963 | |
Accounts receivable, net | |
| 2,492 | | |
| 1,847 | |
Inventories, net | |
| 22,631 | | |
| 26,953 | |
Prepaid expenses and other current assets | |
| 7,605 | | |
| 7,998 | |
Total current assets | |
| 83,744 | | |
| 103,761 | |
Property and equipment, net | |
| 28,057 | | |
| 29,330 | |
License and media rights | |
| 20,019 | | |
| 26,871 | |
Operating lease right-of-use assets, net | |
| 15,066 | | |
| 16,519 | |
Investment in unconsolidated entity | |
| 11,100 | | |
| — | |
SBH purchase option and other derivative assets | |
| 3,110 | | |
| 3,620 | |
Intangible assets, net | |
| 1,382 | | |
| 1,771 | |
Other long-term assets | |
| 1,389 | | |
| 5,770 | |
Total assets | |
$ | 163,867 | | |
$ | 187,642 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 3,577 | | |
$ | 4,018 | |
License and media rights payable - current | |
| 11,734 | | |
| 7,759 | |
Accrued and other current liabilities | |
| 7,221 | | |
| 7,344 | |
Lease obligations - current | |
| 2,249 | | |
| 2,306 | |
Total current liabilities | |
| 24,781 | | |
| 21,427 | |
Convertible debenture | |
| 40,394 | | |
| 37,421 | |
Lease obligations | |
| 16,240 | | |
| 17,905 | |
License and media rights payable | |
| 11,222 | | |
| 20,383 | |
Derivatives and other long-term liabilities | |
| 7,492 | | |
| 13,001 | |
Total liabilities | |
| 100,129 | | |
| 110,137 | |
Commitments and contingencies | |
| | | |
| | |
Shareholders’ equity: | |
| | | |
| | |
Common shares, nil par value; unlimited shares authorized as of September 30, 2023, and December 31, 2022, respectively; 153,779,856 and 152,135,026 shares issued and outstanding as of September 30, 2023 and December 31, 2022 | |
| 1 | | |
| 1 | |
Additional paid-in capital | |
| 326,875 | | |
| 325,431 | |
Accumulated deficit | |
| (263,138 | ) | |
| (247,927 | ) |
Total shareholders’ equity | |
| 63,738 | | |
| 77,505 | |
Total liabilities and shareholders’ equity | |
$ | 163,867 | | |
$ | 187,642 | |
CHARLOTTE’S WEB HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share amounts)
| |
Three Months Ended
September 30,
(unaudited) | |
Nine Months Ended
September 30,
(unaudited) |
| |
2023 | |
2022 | |
2023 | |
2022 |
| |
| |
| |
| |
|
Revenue | |
$ | 14,294 | | |
$ | 17,037 | | |
$ | 47,310 | | |
$ | 55,271 | |
Cost of goods sold | |
| 6,365 | | |
| 8,092 | | |
| 20,546 | | |
| 25,291 | |
Gross profit | |
| 7,929 | | |
| 8,945 | | |
| 26,764 | | |
| 29,980 | |
| |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative expenses | |
| 19,889 | | |
| 11,032 | | |
| 57,029 | | |
| 48,646 | |
Asset Impairment | |
| — | | |
| 1,822 | | |
| — | | |
| 1,822 | |
Operating loss | |
| (11,960 | ) | |
| (3,909 | ) | |
| (30,265 | ) | |
| (20,488 | ) |
| |
| | | |
| | | |
| | | |
| | |
Gain on investment in unconsolidated entity | |
| — | | |
| — | | |
| 10,700 | | |
| — | |
Change in fair value of financial instruments and other | |
| (4,024 | ) | |
| (4,000 | ) | |
| 5,588 | | |
| (3,900 | ) |
Other income (expense), net | |
| 841 | | |
| 321 | | |
| (1,234 | ) | |
| 304 | |
Loss before provision for income taxes | |
| (15,143 | ) | |
| (7,588 | ) | |
| (15,211 | ) | |
| (24,084 | ) |
Income tax expense | |
| — | | |
| — | | |
| — | | |
| — | |
Net loss | |
$ | (15,143 | ) | |
$ | (7,588 | ) | |
$ | (15,211 | ) | |
$ | (24,084 | ) |
| |
| | | |
| | | |
| | | |
| | |
Per common share amounts | |
| | | |
| | | |
| | | |
| | |
Net loss per common share, basic and diluted | |
$ | (0.10 | ) | |
$ | (0.05 | ) | |
$ | (0.10 | ) | |
$ | (0.17 | ) |
CHARLOTTE’S WEB HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share amounts)
(unaudited)
| |
Common Shares | |
| |
| |
|
| |
Shares | |
Amount | |
Additional Paid-in Capital | |
Accumulated Deficit | |
Total Shareholders’ Equity |
Balance - December 31, 2022 | |
| 152,135,026 | | |
$ | 1 | | |
$ | 325,431 | | |
$ | (247,927 | ) | |
$ | 77,505 | |
Common shares issued upon vesting of restricted share units, net of withholding | |
| 297,888 | | |
| — | | |
| (69 | ) | |
| — | | |
| (69 | ) |
Share-based compensation | |
| — | | |
| — | | |
| 375 | | |
| — | | |
| 375 | |
Net income (loss) | |
| | | |
| — | | |
| | | |
| (2,912 | ) | |
| (2,912 | ) |
Balance - March 31, 2023 | |
| 152,432,914 | | |
$ | 1 | | |
$ | 325,737 | | |
$ | (250,839 | ) | |
$ | 74,899 | |
Common shares issued upon vesting of restricted share units, net of withholding | |
| 392,204 | | |
| — | | |
| (6 | ) | |
| — | | |
| (6 | ) |
Share-based compensation | |
| — | | |
| — | | |
| 624 | | |
| — | | |
| 624 | |
Net income (loss) | |
| — | | |
| — | | |
| — | | |
| 2,844 | | |
| 2,844 | |
Balance - June 30, 2023 | |
| 152,825,118 | | |
$ | 1 | | |
$ | 326,355 | | |
$ | (247,995 | ) | |
$ | 78,361 | |
Common shares issued upon vesting of restricted share units, net of withholding | |
| 954,738 | | |
| — | | |
| (127 | ) | |
| — | | |
| (127 | ) |
Share-based compensation | |
| — | | |
| — | | |
| 647 | | |
| — | | |
| 647 | |
Net income (loss) | |
| — | | |
| — | | |
| — | | |
| (15,143 | ) | |
| (15,143 | ) |
Balance - September 30, 2023 | |
| 153,779,856 | | |
$ | 1 | | |
$ | 326,875 | | |
$ | (263,138 | ) | |
$ | 63,738 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance - December 31, 2021 | |
| 144,659,964 | | |
$ | 1 | | |
$ | 319,059 | | |
$ | (188,614 | ) | |
$ | 130,446 | |
Common shares issued upon vesting of restricted share units, net of withholding | |
| 77,193 | | |
| — | | |
| (45 | ) | |
| — | | |
| (45 | ) |
Harmony Hemp contingent equity compensation | |
| 169,045 | | |
| — | | |
| 165 | | |
| — | | |
| 165 | |
ATM program issuance costs | |
| 239,500 | | |
| — | | |
| (2 | ) | |
| — | | |
| (2 | ) |
Share-based compensation | |
| — | | |
| — | | |
| 1,214 | | |
| — | | |
| 1,214 | |
Net income (loss) | |
| — | | |
| — | | |
| — | | |
| (8,626 | ) | |
| (8,626 | ) |
Balance - March 31, 2022 | |
| 145,145,702 | | |
$ | 1 | | |
$ | 320,391 | | |
$ | (197,240 | ) | |
$ | 123,152 | |
Common shares issued upon vesting of restricted share units, net of withholding | |
| 132,463 | | |
| — | | |
| (13 | ) | |
| — | | |
| (13 | ) |
Share-based compensation | |
| — | | |
| — | | |
| 643 | | |
| — | | |
| 643 | |
Net income (loss) | |
| — | | |
| — | | |
| — | | |
| (7,870 | ) | |
| (7,870 | ) |
Balance - June 30, 2022 | |
| 145,278,165 | | |
$ | 1 | | |
$ | 321,021 | | |
$ | (205,110 | ) | |
$ | 115,912 | |
Common shares issued upon vesting of restricted share units, net of withholding | |
| 231,207 | | |
| — | | |
| (67 | ) | |
| — | | |
| (67 | ) |
ATM program issuance costs | |
| — | | |
| — | | |
| (59 | ) | |
| — | | |
| (59 | ) |
Share-based compensation | |
| — | | |
| — | | |
| 664 | | |
| — | | |
| 664 | |
Net income (loss) | |
| — | | |
| — | | |
| — | | |
| (7,588 | ) | |
| (7,588 | ) |
Balance - September 30, 2022 | |
| 145,509,372 | | |
$ | 1 | | |
$ | 321,559 | | |
$ | (212,698 | ) | |
$ | 108,862 | |
CHARLOTTE’S WEB HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| |
Nine Months Ended September 30, (unaudited) |
| |
2023 | |
2022 |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (15,211 | ) | |
$ | (24,084 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 11,509 | | |
| 5,762 | |
Change in fair value of financial instruments and other | |
| (5,588 | ) | |
| 3,900 | |
Gain on investment in unconsolidated entity | |
| (10,700 | ) | |
| — | |
Convertible debenture and other accrued interest | |
| 2,916 | | |
| — | |
Asset impairment | |
| — | | |
| 1,822 | |
Share-based compensation | |
| 1,646 | | |
| 2,686 | |
Changes in right-of-use assets | |
| 1,453 | | |
| 1,877 | |
Expected credit loss | |
| 1,187 | | |
| (89 | ) |
Inventory provision | |
| 730 | | |
| 1,857 | |
Other | |
| 1,594 | | |
| (679 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable, net | |
| (1,151 | ) | |
| 2,928 | |
Inventories, net | |
| 3,593 | | |
| 112 | |
Prepaid expenses and other current assets | |
| (589 | ) | |
| 3,086 | |
Accounts payable, accrued and other liabilities | |
| (328 | ) | |
| (4,238 | ) |
Operating lease obligations | |
| (1,722 | ) | |
| (1,665 | ) |
License and media rights payable | |
| (6,000 | ) | |
| — | |
Income taxes and other receivable | |
| 4,261 | | |
| 6,575 | |
Other operating assets and liabilities, net | |
| (449 | ) | |
| (2,449 | ) |
Net cash used in operating activities | |
| (12,849 | ) | |
| (2,599 | ) |
Cash flows from investing activities: | |
| | | |
| | |
Purchases of property and equipment and intangible assets | |
| (3,015 | ) | |
| (411 | ) |
Proceeds from sale of assets | |
| 119 | | |
| 354 | |
Net cash used in investing activities | |
| (2,896 | ) | |
| (57 | ) |
Cash flows from financing activities: | |
| | | |
| | |
Other financing activities | |
| (202 | ) | |
| (325 | ) |
Net cash used in financing activities | |
| (202 | ) | |
| (325 | ) |
Net decrease in cash and cash equivalents | |
| (15,947 | ) | |
| (2,981 | ) |
Cash and cash equivalents - beginning of period | |
| 66,963 | | |
| 19,494 | |
Cash and cash equivalents - end of period | |
$ | 51,016 | | |
$ | 16,513 | |
(1) Non-GAAP Measures - EBITDA and Adjusted EBITDA
Earnings before interest, taxes, depreciation,
and amortization (“EBITDA”) is not a recognized performance measure under U.S. GAAP. The term EBITDA consists of net loss
and excludes interest, taxes, depreciation, and amortization. Adjusted EBITDA also excludes other non-cash items such as changes in fair
value of financial instruments (Mark-to-Market), Share-based compensation, and impairment of assets. These non-GAAP financial measures
should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with GAAP. The non-GAAP
financials measures do not have a standardized meaning prescribed under U.S. GAAP and therefore may not be comparable to similar measures
presented by other issuers. The primary purpose of using non-GAAP financial measures is to provide supplemental information that we believe
may be useful to investors and to enable investors to evaluate our results in the same way we do. We also present the non-GAAP financial
measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis, as well
as comparing our results against the results of other companies, by excluding items that we do not believe are indicative of our core
operating performance. Specifically, we use these non-GAAP measures as measures of operating performance; to prepare our annual operating
budget; to allocate resources to enhance the financial performance of our business; to evaluate the effectiveness of our business strategies;
to provide consistency and comparability with past financial performance; to facilitate a comparison of our results with those of other
companies, many of which use similar non-GAAP financial measures to supplement their GAAP results; and in communications with our board
of directors concerning our financial performance. Investors should be aware, however, that not all companies define these non-GAAP measures
consistently.
Adjusted EBITDA for the three and nine months
ended September 30, 2023, and 2022 is as follows:
| |
Three Months Ended September 30 (Unaudited) | |
Nine Months Ended September 30 (Unaudited) |
U.S. $ Thousands | |
2023 | |
2022 | |
2023 | |
2022 |
| |
| |
| |
| |
|
Net loss | |
$ | (15,143 | ) | |
$ | (7,588 | ) | |
$ | (15,211 | ) | |
$ | (24,084 | ) |
| |
| | | |
| | | |
| | | |
| | |
Depreciation of property and equipment and amortization of intangibles | |
| 3,741 | | |
| 1,822 | | |
| 11,509 | | |
| 5,762 | |
| |
| | | |
| | | |
| | | |
| | |
Interest (income) expense | |
| 289 | | |
| (88 | ) | |
| 1,436 | | |
| (69 | ) |
| |
| | | |
| | | |
| | | |
| | |
EBITDA | |
| (11,113 | ) | |
| (5,854 | ) | |
| (2,266 | ) | |
| (18,391 | ) |
| |
| | | |
| | | |
| | | |
| | |
Stock Comp | |
| 647 | | |
| 664 | | |
| 1,646 | | |
| 2,686 | |
Mark-to-market financial instruments | |
| 4,024 | | |
| 4,000 | | |
| (5,588 | ) | |
| 3,900 | |
Gain
on Initial Investment in DeFloria | |
| - | | |
| - | | |
| (10,700 | ) | |
| - | |
Adjusted EBITDA | |
$ | (6,442 | ) | |
$ | (1,190 | ) | |
$ | (16,908 | ) | |
$ | (11,805 | ) |
| |
| | | |
| | | |
| | | |
| | |
Certain prior year amounts in the table above have
been conformed to the current year presentation in accordance with how the Company is defining the EBITDA and Adjusted EBITDA calculation
on September 30, 2023
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