Charlotte’s Web Holdings, Inc. Reports Q2-2021 Results

DENVER, (TSX: CWEB) (OTCQX: CWBHF), Charlotte’s Web Holdings, Inc. the market share leader in full spectrum hemp extract wellness products, today reported financial results for the second quarter ended June 30, 2021. All amounts are expressed in United States’ dollars, unless otherwise noted. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures.

Q2-2021 Financial Highlights   

• Revenue increased 11.4% to $24.2 million vs. $21.7 million in Q2-2020
• DTC eCommerce revenue increased 1.0% to $15.7M, contributing 64.9% of Q2 revenue and holding onto the pandemic online shopping boost
• B2B revenue increased 37.7% year-over-year
• Gross profit increased to $15.8 million, or 65.5% of consolidated revenue
• Operating expense reduced by 15.2% year-over-year
• Adjusted EBITDA of ($3.9 million), an improvement vs prior year ($5.7 million) and prior quarter ($4.7 million)
• $27.1 million cash (plus $10.9 million pending IRS tax receivable) and $90.1 million working capital at June 30, 2021
• $10 million unused line of credit with JPMorgan; opportunity to extend to $20 million

Business Highlights

• Grew #1 market share across core retail channels including total US Food/Drug/Mass retail (“F/D/M”) and US natural specialty retail
• Secured future optionality to enter the US cannabis wellness category through a purchase option agreement to acquire Stanley Brothers cannabis business pending US federal legalization of cannabis
• Planted first crop of (proprietary) patented hemp cultivars approved by Health Canada in the Okanagan Valley in British Columbia, Canada
• CW Labs announced a scientific collaboration, researching hemp CBD efficacy with Harvard Medical School’s Dr. Staci Gruber, Ph.D.
• Invested $1.6 million capex primarily related to substantially completing phase III expansion of new 137,000 sq. ft. facility with extraction infrastructure and R&D expansion
• Supported federal and state legislative actions to help develop a comprehensive regulatory framework with Federal Bill H.R. 841 and proposed regulations in CA and NY
• Wes Booysen appointed as Chief Financial Officer, bringing international operating, finance and regulatory experience as former Molson Coors executive
• Tim Saunders, former CFO of Canopy Growth appointed to board of directors, adding Canadian cannabis and hemp sector governance and finance expertise

“The ongoing economic recovery from the pandemic that began in Q1 strengthened through the second quarter, driving a 38% increase in our retail revenue as many consumers transitioned from online shopping back to brick and mortar retail. This was especially evident within our largest and most established medical and healthcare practitioner channels,” said Deanie Elsner, CEO of Charlotte’s Web. “We believe we are best positioned to take advantage of the return to brick and mortar retail as we hold the number one share position in the food/drug/mass and natural specialty retail channels in the US.  Internationally, we recently planted our first hemp crop in Canada and anticipate initial product sales by early 2022.”

Q2-2021 Financial Review

The following table sets forth selected financial information for the periods indicated.

The following information sets forth selected quarterly revenue information for the Company’s recent fiscal quarters.

Consolidated revenue for the three months ended June 30, 2021 increased 11.4% year-over-year to $24.2 million.

Consolidated business-to-business (“B2B”) revenue increased 37.7% year-over-year reflecting consumers returning to brick & mortar retail shopping following the economic reopening from pandemic lockdowns. Similarly, B2B healthcare practitioner (“HCP”) and medical channels experienced increased activity and revenue, additionally supported by the Company’s acquisition of Abacus Health in June 2020.

Direct-to-consumer (“DTC”)  ecommerce net sales grew by 1.0% year-over-year, reflecting some consumer transition back to retail shopping. Year-over-year new subscriptions increased 43% and conversion rates increased 27%. DTC accounted for  64.9% of total revenue in the second quarter of 2021 versus 71.6% for the same period in 2020.

Increased retail volumes have resulted in ongoing incremental quarterly gains in retail market share. Charlotte’s Web grew its number one market share across its core retail channels, including total US Food/Drug/Mass retail, total US natural specialty retail.

Gross profit of $15.8 million strengthened to 65.5% of revenue compared to $11.5 million, or 52.9% of revenue in Q2-2020, which included inventory provisions of $2.5 million taken in the quarter for expiring product (gross profit before inventory provisions was 64.6%).   The Company anticipates gross profit improvements as its new production and fulfillment facility becomes fully operational.

Operating expenses were $25.0 million, a 15.2% year-over-year improvement from $29.5 million. In response to lower B2B retail sales during the pandemic, in Q4-2020 management took actions to better align operating expenses through an expense optimization program targeting reductions of more than 10% of the Q3-2020 consolidated expense run rate. Operating expenses reductions for the first half of 2021 were ahead of plan and were achieved despite incurring the additional operating expenses from the CW Labs R&D division as well as the acquisition of Abacus Health, which were not present for the full first six months of 2020.

Adjusted EBITDA for the quarter was negative $3.9 million, or (16.3)% of consolidated revenue, a 31.1% improvement from negative Adjusted EBITDA of $5.7 million, or (26.6)% of consolidated revenue, for the second quarter of 2020.

Balance Sheet and Cash Flow

The Company used $6.5 million of cash in operations during the second quarter of 2021 compared to $7.1 million of cash used in operations during the second quarter of 2020. The Company’s cash and working capital at June 30, 2021 were $27.1 million and $90.1 million, respectively, compared to $52.8 million and $113.6 million at December 31, 2020. Charlotte’s Web has a near-term IRS tax receivable of $10.9 million and maintains a unused $10 million line of credit with JPMorgan, with opportunity to extend to $20 million.

Consolidated Financial Statements and Management’s Discussion and Analysis

The Company’s unaudited financial statements and accompanying notes for the periods ended June 30, 2021 and 2020 and related management’s discussion and analysis of financial condition and results of operations (“MD&A”) are available under the Company’s profile on SEDAR at www.sedar.com and 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 second quarter 2021 results at 8:30a.m. ET on August 12, 2021. To participate in the call, please dial 1-416-764-8659 or 1-888-664-6392 approximately 10 minutes before the conference call. A recording of the call will be available through August 19, 2021. To listen to the rebroadcast please dial 1-416-764-8677 and provide   conference ID 506847. A webcast of the call can be accessed through the investor relations section of the Charlotte’s Web website.

About Charlotte’s Web Holdings, Inc.

Charlotte’s Web Holdings, Inc., a Certified B Corporation headquartered in Denver, Colorado, is the market leader in innovative hemp extract wellness products under a family of brands which includes Charlotte’s Web™, CBD Medic™, CBD Clinic™, and Harmony Hemp™. Charlotte’s Web branded premium quality products start with proprietary hemp genetics that are 100-percent American farm grown and manufactured into hemp extracts containing naturally occurring phytocannabinoids including cannabidiol (“CBD”), CBC, CBG, terpenes, flavonoids and other beneficial hemp compounds. The Company’s CW Labs R&D science division is located at the University at Buffalo in New York which is part of the State University of New York (SUNY) system of 64 universities. Charlotte’s Web product categories include full spectrum hemp extract oil  tinctures (liquid products), gummies (sleep, stress, inflammation recovery), capsules, CBD topical creams and lotions, as well as products for dogs. Charlotte’s Web products are distributed to more than 14,000 retail doors and  8,000 health care practitioners, 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 August 10, 2021, Charlotte’s Web had 123,165,213 Common Shares outstanding and 42,931.5675 Proportionate Voting Shares convertible at 400:1 into Common Shares, for an effective equivalent of 140,337,840 Common Shares outstanding.

Forward-Looking Information

In the interest of providing the shareholders and potential investors of Charlotte’s Web Holdings, Inc. with information about the Company,  certain information provided herein constitutes forward-looking statements or information (collectively, “forward-looking statements”). 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. Although these forward-looking statements are based on assumptions the Company considers to be reasonable based on the information available on the date such statements are made, such 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 (“Management”) in light of its experience and perception of historical trends, current conditions and expected future development and other factors that it believes are appropriate.

Specifically, this press release contains forward-looking statements relating to, but not limited to: future optionality to enter the US cannabis wellness category; pending US federal legalization of cannabis; potential capacity expansion for production, extraction, R&D and distribution; international expansion activities and strategy; timing of initial product sales in Canada; capacity expansion and transition to a CPG operating company capable of supporting mass retail channel growth; future availability of line of credit and expansion of same; the impact of certain activities on the Company’s business and financial condition; suggested regulatory developments; possible equity and debt financing; the Company’s anticipated trajectory, long-term growth expectations and shareholder value creation; and product expansion, including into cannabis wellness where federally permissible.

The material factors and assumptions used to develop the forward-looking statements herein include, but are not limited to, the following: (i) the impact of the COVID-19 pandemic; (ii) the regulatory climate in which the Company currently operates and may in the future operate; (iii) the continued sales success of the Company’s products; (iv) the continued success of sales and marketing activities; (v) the Company’s ability to complete the conversion or buildout of its facilities on time and on budget; (vi) there will be no significant delays in the development and commercialization of the Company’s products; (vii) the Company will continue to maintain sufficient and effective production and research and development capabilities to compete on the attributes and cost of its products; (viii) the Company’s ability to deal with adverse growing conditions (due to pests, disease, fungus, climate or other factors) in a timely and cost-effective manner; (ix) there will be no significant reduction in the availability of qualified and cost-effective human resources; * new products will continue to be added to the Company’s portfolio; (xi) demand for the Company’s  products will grow in the foreseeable future; (xii) there will be no significant barriers to the acceptance of the Company’s products in the market; (xiii) the Company will be able to maintain compliance with applicable contractual and regulatory obligations and requirements; (xiv) there will be adequate liquidity available to the Company to carry out its operations; (xv) products do not develop that would render the Company’s current and future product offerings undesirable and the Company is otherwise able to minimize the impact of competition and keep pace with changing consumer preferences; and (xvi) the Company will be able to successfully manage and integrate acquisitions and take advantage of synergies from acquisitions.

The Company’s forward-looking statements are subject to risks and uncertainties pertaining to, among other things, the adverse impact of the COVID-19 pandemic to the Company’s operations, supply chain, distribution chain, and to the broader market for the Company’s products, revenue fluctuations, nature of government regulations (both domestic and foreign), economic conditions, loss of key customers, retention and availability of executive talent, competing products, common share price volatility, loss of proprietary information, product acceptance, internet and system infrastructure functionality, information technology security, cash available to fund operations, crop risk, availability of capital, international and political considerations, the successful integration of acquired businesses, regulatory changes, and including but not limited to those risks and uncertainties discussed under the heading “Risks and Uncertainties” in MD&A, the Company’s most recently filed annual information form, and the Company’s other filings with securities regulators available on SEDAR. 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. Except to the extent required by law, the Company assumes no obligation to publicly update or revise any forward-looking statements made, 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.