What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-09 compared with 2022-05-16 · 152 added, 106 removed, 346 unchanged (43% of the section changed)

13 unchanged sentences

Income taxes receivable

10,218 10,764

Total current assets

25 unchanged sentences

Common shares, nil par value;

unlimited shares authorized as of March 31, 2022 and December 31, 2021, respectively;

145,145,702 and 144,659,964 shares issued and outstanding as of March 31, 2022 and December 31, 2021

unlimited shares authorized as of June 30, 2022 and December 31, 2021, respectively;

145,278,165 and 144,659,964 shares issued and outstanding as of June 30, 2022 and December 31, 2021

Proportionate voting shares, nil par value;

nil shares authorized as of March 31, 2022 and December 31, 2021, respectively;

nil shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

nil shares authorized as of June 30, 2022 and December 31, 2021, respectively;

nil shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital

7 unchanged sentences

CHARLOTTE’S WEB HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

Three Months Ended March 31, (unaudited)

Three Months Ended June 30, (unaudited)

Six Months Ended June 30, (unaudited)

2022 2021 2022 2021

Revenue $ 18,877 $ 24,152 $ 38,234 $ 47,559

5 unchanged sentences

Other (expense) income, net

68 105 ( 17 ) 210

Change in fair value of financial instruments and other

2 unchanged sentences

( 7,870 ) ( 5,927 ) ( 16,496 ) ( 18,667 )

Income tax expense

Net loss and comprehensive loss

Income tax (expense) benefit

$ ( 7,870 ) $ ( 5,923 ) $ ( 16,496 ) $ ( 18,697 )

17 unchanged sentences

Share-based compensation — — — 1,214 — 1,214

Net loss and comprehensive loss — — — — ( 8,626 ) ( 8,626 )

Net 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 loss — — — — ( 7,870 ) ( 7,870 )

Balance—June 30, 2022

— 145,278,165 $ 1 $ 321,021 $ ( 205,110 ) $ 115,912

See Notes to Unaudited Condensed Consolidated Financial Statements

CHARLOTTE’S WEB HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share amounts)

Proportionate Voting Shares Common Shares

Accumulated Deficit

Shareholders’

Shares Shares

Balance—December 31, 2020

6 unchanged sentences

Harmony Hemp contingent equity compensation — 169,046 — 360 — 360

Net loss and comprehensive loss — — — — ( 12,774 ) ( 12,774 )

Net loss — — — — ( 12,774 ) ( 12,774 )

Balance—March 31, 2021

77,216 108,982,290 $ 1 $ 306,684 $ ( 63,666 ) $ 243,019

Conversion to common shares ( 1,327 ) 530,900 — — — —

Withholding of common stock upon vesting of restricted share awards — 16,559 — ( 26 ) — ( 26 )

Harmony Hemp contingent equity compensation — — — 363 — 363

ATM Offering, net of share issuance costs — 278,200 — 839 — 839

Share-based compensation — — — 994 — 994

Net loss — — — — ( 5,923 ) ( 5,923 )

Balance—June 30, 2021

75,889 109,807,949 $ 1 $ 308,854 $ ( 69,589 ) $ 239,266

See Notes to Unaudited Condensed Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Three Months Ended March 31, (unaudited)

Six Months Ended June 30, (unaudited)

Cash flows from operating activities:

Net loss and comprehensive loss

$ ( 16,496 ) $ ( 18,697 )

Adjustments to reconcile net loss and comprehensive loss to net cash used in operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

5 unchanged sentences

Loss on disposal of assets

Cultivation settlement reduction ( 582 ) —

Changes in right-of-use assets 1,236 1,309

Changes in operating assets and liabilities:

3 unchanged sentences

Prepaid expenses and other current assets

Operating lease right-of-use assets and lease obligations

Operating lease obligations

( 896 ) ( 1,288 )

Accounts payable, accrued and other liabilities

2 unchanged sentences

Cultivation liabilities

( 323 ) ( 5,243 )

Other operating assets and liabilities, net

10 unchanged sentences

Cash flows from financing activities:

Proceeds from sale of public offering, net of issuance costs — 978

Proceeds from stock option exercises — 30

Other financing activities ( 60 ) ( 159 )

Net cash used in financing activities

Net cash (used) provided in financing activities

Net decrease in cash and cash equivalents

29 unchanged sentences

The Company does not currently have any plans to expand into high-THC products in the near future.

The Company holds the number one market share position across major retail channels including total US food/drug/mass retail, total US natural specialty retail, and e-commerce, based on market share data from leading third-party analysts such as The Nielsen Company, SPINS, LLC, and Brightfield Group, respectively.

The Company grows its proprietary Hemp domestically in the United States on farms leased in northeastern Colorado and sources high quality Hemp through contract farming operations in Kentucky and Oregon.

In furtherance of the Company’s research and development ("R&D") efforts, the Company established CW Labs, an internal division for R&D, to substantially expand the Company’s efforts around the science of Hemp derived compounds.

CW Labs is currently engaged in double-blind, placebo-controlled human clinical trials addressing Hemp-based solutions for several need states.

CW Labs is located in Louisville, Colorado at the Company’s LOFT production and distribution facility and the Hauptmann Woodward Research Institute on the campus of the University at Buffalo’s Jacobs School of Medicine and The Center for Integrated Global Biomedical Sciences through which it fosters collaborations throughout the State University of New York network of 64 national and international research and medical institutions.

In furtherance of the Company’s research and development ("R&D") efforts, the Company established CW Labs, an internal division for R&D, to expand the Company’s efforts around the science of Hemp derived compounds.

CW Labs is currently engaged in clinical trials addressing Hemp-based solutions for several need states.

CW Labs is located in Louisville, Colorado at the Company’s current good manufacturing practice ("cGMP") production and distribution facility.

In November 2019, the Company announced a collaboration between CW Labs and the University at Buffalo’s Center for Integrated Global Biomedical Sciences to advance hemp cannabinoid science through a research program that provides a better understanding of the therapeutic uses and safety of cannabinoids.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share, per share, per unit, and number of years)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES

2 unchanged sentences

generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification ("ASC") and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of March 31, 2022 and its results of operations for the three months ended March 31, 2022 and 2021, cash flows for the three months ended March 31, 2022 and 2021, and stockholders’ equity for the three months ended March 31, 2022 and 2021.

Operating results for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022.

Any reference in these notes to applicable guidance is

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( In thousands, except share, per share, per unit, and number of years)

meant to refer to GAAP as found in the Accounting Standards Codification ("ASC") and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of June 30, 2022 and its results of operations for the three and six months ended June 30, 2022 and 2021, cash flows for the six months ended June 30, 2022 and 2021, and stockholders’ equity for the three and six months ended June 30, 2022 and 2021.

Operating results for the three and six months ended June 30, 2022, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022.

The unaudited interim condensed consolidated financial statements presented herein do not contain the required disclosures under GAAP for annual consolidated financial statements.

Certain amounts presented in prior periods have been reclassified to conform with the current period presentation.

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes as of and for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2022.

Inventories are stated at the lower of cost or net realizable value.

The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions.

The Company's inventory production process for cannabinoid products includes the cultivation of botanical raw material.

Because of the duration of the cultivation process, a portion of the inventory will not be sold within one year.

Consistent with the practice in other industries that cultivate botanical raw materials, all inventory is classified as a current asset.

Revenue Recognition

The majority of the Company’s revenue is derived from sales of branded products to consumers via the Company's direct-to-consumer ecommerce website, and distributors, retail and wholesale business-to-business customers.

The majority of the Company’s revenue is derived from sales of branded products to consumers via the Company's direct-to-consumer e-commerce website, and distributors, retail and wholesale business-to-business customers.

The following table sets forth the disaggregation of the Company’s revenue:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

2022 2021 2022 2021

Direct-to-consumer $ 13,277 $ 15,683 $ 26,415 $ 31,813

9 unchanged sentences

ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

For all other entities, the standard is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

Early adoption is permitted.

There was an immaterial impact upon adoption on the condensed consolidated financial statements.

For all other entities, the standard is effective for fiscal years beginning after December 15, 2021, and

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

( In thousands, except share, per share, per unit, and number of years)

interim periods within fiscal years beginning after December 15, 2022.

Early adoption is permitted.

There was an immaterial impact upon adoption on the condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

6 unchanged sentences

FAIR VALUE MEASUREMENT

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis at March 31, 2022 and December 31, 2021, by level within the fair value hierarchy:

March 31, 2022

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021, by level within the fair value hierarchy:

June 30, 2022

Level 1 Level 2 Level 3 Total

1 unchanged sentence

Stanley Brothers USA Holdings Purchase Option $ — $ — $ 13,100 $ 13,100

Financial liabilities:

Warrant liabilities $ — $ — $ — $ —

December 31, 2021

2 unchanged sentences

Stanley Brothers USA Holdings Purchase Option $ — $ — $ 13,000 $ 13,000

Financial liabilities:

Warrant liabilities $ — $ — $ — $ —

There were no transfers between levels of the hierarchy during the three month period ended March 31, 2022 and the year ended December 31, 2021.

There were no transfers between levels of the hierarchy during the three and six month periods ended June 30, 2022 and the year ended December 31, 2021.

Stanley Brothers USA Holdings Purchase Option

The Monte Carlo valuation model considers multiple revenue and Earning Before Interest Taxes Depreciation and Amortization ("EBITDA") outcomes for Stanley Brothers USA and other probabilities in assigning a fair value.

The Monte Carlo valuation model considers multiple revenue and Earnings Before Interest Taxes Depreciation and Amortization ("EBITDA") outcomes for Stanley Brothers USA and other probabilities in assigning a fair value.

Primary assumptions utilized include financial projections of Stanley Brothers USA and the probability and timing of exercise.

3 unchanged sentences

( In thousands, except share, per share, per unit, and number of years)

March 31, December 31,

June 30, December 31,

Expected volatility

3 unchanged sentences

Weighted average cost of capital

40.0 % 40.0 %

Warrant Liabilities

The warrants offered during 2019 and 2020 (collectively, the "2019 Share Offering Warrants" and the "2020 Share Offering Warrants") do not meet all of the criteria for equity classification as the warrants are denominated in Canadian dollars, which differs from the Company's functional currency.

As a result, the 2019 Share Offering Warrants and the 2020 Share Offering Warrants are initially measured at fair value and are revalued at each reporting period using the Black-Scholes option pricing model based on Level 2 observable inputs.

The warrants offered during 2020 (the "2020 Share Offering Warrants") do not meet all of the criteria for equity classification as the warrants are denominated in Canadian dollars, which differs from the Company's functional currency.

As a result, the 2020 Share Offering Warrants are initially measured at fair value and are revalued at each reporting period using the Black-Scholes option pricing model based on Level 2 observable inputs.

The assumptions used by the Company are the quoted price of the Company’s common shares in an active market, risk-free interest rate, volatility and expected life, and assumes no dividends.

2 unchanged sentences

Treasury Securities with a maturity equivalent to the expected life of the warrants.

For the three months ended March 31, 2022 and 2021, a $ — and $ 2,656 loss related the warrant liabilities was recognized as change in fair value of financial instruments and other in the condensed consolidated statements of operations and comprehensive loss, respectively.

On June 18, 2022, the 2020 Share Offering Warrants expired, totaling 5,750,000 common shares, with a weighted average exercise price per warrant of $ 6.27 .

For the three and six months ended June 30, 2022 and 2021, a $ 0 and $ 4,099 and $ 0 and $ 1,443 , respectively, gain related to the warrant liabilities was recognized as change in fair value of financial instruments and other in the condensed consolidated statements of operations and net loss, respectively.

Inventories consist of the following:

8 unchanged sentences

( 14,825 ) ( 15,335 )

Total inventory

$ 52,631 $ 52,077

1 unchanged sentence

The Company has an asset backed line of credit ("ABL") with J.P.

Morgan for $ 10,000 with an option under certain circumstances to increase the line of credit to $ 20,000 .

Morgan for $ 10,000 with an option under certain circumstances to increase the line of credit.

Borrowings under the ABL bear interest at a variable rate based on (A) CB Floating Rate defined as Prime Rate plus 1.0 % or (B) monthly LIBOR rate plus 2.50 %.

2 unchanged sentences

The line of credit agreement requires compliance by the Company with certain debt covenants.

As of June 30, 2022 and December 31, 2021, the Company was not in compliance with the

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

( In thousands, except share, per share, per unit, and number of years)

Financial Covenants

The Company is subject to a number of customary covenants under the ABL, including limitation on additional borrowings, acquisitions, dividend payments and requirements to maintain certain financial ratios including a consolidated fixed charge coverage ratio, minimum Earning Before Interest Depreciation and Amortization ("EBITDA") and minimum liquidity, as defined by the line of credit agreement as measured on the last day of each quarter.

As of March 31, 2022 and December 31, 2021, the Company was not in compliance with the debt covenants and as of May 16, 2022, the line of credit was on hold.

As of March 31, 2022 , there are no amounts drawn on the line of credit.

debt covenants and had not drawn on the line of credit.

The ABL was voluntarily terminated by the Company on July 27, 2022 .

COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business.

Although the ultimate aggregate amount of monetary liability or financial impact with respect to these matters is subject to many uncertainties and is therefore not predictable with assurance, management believes that as of March 31, 2022 there are no litigations pending that could have, individually and in the aggregate, a material adverse effect on the Company’s financial position, results of operations or cash flows.

Although the ultimate aggregate amount of monetary liability or financial impact with respect to these matters is subject to many uncertainties and is therefore not predictable with assurance, management believes that as of June 30, 2022 there are no litigation pending that could have, individually and in the aggregate, a material adverse effect on the Company’s financial position, results of operations or cash flows.

The Company has lease arrangements related to office space, warehouse and production space, and land to facilitate agricultural operations.

1 unchanged sentence

Generally, the lease agreements do not include options to terminate the lease.

Maturities of operating lease liabilities as of March 31, 2022 are as follows:

Maturities of operating lease liabilities as of June 30, 2022 are as follows:

Operating Leases

18 unchanged sentences

Conversion to short-term borrowings 385 ( 385 ) —

March 31, 2022 $ 3,946 $ — $ 3,946

June 30, 2022 $ 2,957 $ — $ 2,957

SHAREHOLDERS’ EQUITY

As of March 31, 2022 and December 31, 2021, the Company’s share capital consists of one class of issued and outstanding shares:

As of June 30, 2022 and December 31, 2021, the Company’s share capital consists of one class of issued and outstanding shares:

common shares.

2 unchanged sentences

On November 3, 2021, all outstanding proportionate voting shares ("PVS") of the Company were converted by way of mandatory conversion in accordance with the Company’s articles and at the discretion of the Company, into common shares.

Following this conversion, and as of the close of business on November 3, 2021, 142,335,464 common shares were issued and outstanding, nil proportionate voting shares were issued and outstanding and nil preferred shares were issued and outstanding.

Pursuant to the Company’s Articles, the Company is no longer authorized to issue additional proportionate voting shares.

As of March 31, 2022 and December 31, 2021, the Company had no PVS issued and outstanding.

Following this conversion, and as of the close of business on November 3, 2021, 142,335,464 common shares were issued and outstanding, nil PVS were issued and outstanding and nil preferred shares were issued and outstanding.

Pursuant to the Company’s Articles, the Company is no longer authorized to issue additional PVS.

As of June 30, 2022 and December 31, 2021, the Company had no PVS issued and outstanding.

Common Shares

As of March 31, 2022 and December 31, 2021, the Company was authorized to issue an unlimited number of common shares, which have no par value.

As of June 30, 2022 and December 31, 2021, the Company was authorized to issue an unlimited number of common shares, which have no par value.

Share Offering Warrants – Liability Classified

The following summarizes the number of warrants outstanding as of March 31, 2022:

The following summarizes the number of warrants outstanding as of June 30, 2022:

Number of Warrants Weighted-Average Exercise Price per Warrant

Outstanding as of December 31, 2021 6,983,140 $ 7.86

Outstanding as of March 31, 2022 6,983,140 $ 7.86

( 6,983,140 ) $ 7.86

Outstanding as of June 30, 2022 — —

As of June 30, 2022, there are no outstanding warrants.

On May 8, 2022, warrants issued pursuant to the Abacus acquisition expired, totaling 1,233,140 , with a weighted average exercise price per warrant of $ 15.29 .

In addition, on

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

( In thousands, except share, per share, per unit, and number of years)

For the balance of outstanding warrants at March 31, 2022, the weighted average remaining contractual life is 0.38 years.

On May 8, 2022, warrants issued pursuant to the Abacus acquisition expired, totaling 1,232,225 , with a weighted average exercise price per warrant of $ 15.29 .

June 18, 2022, the 2020 Share Offering Warrants expired, totaling 5,750,000 common shares, with a weighted average exercise price per warrant of $ 6.27 .

LOSS PER SHARE

2 unchanged sentences

Accordingly, the loss per share attributable to common shareholders will be the same for common shares and PVS, on either an individual or combined basis.

Basic net loss per common share and PVS is computed by dividing the allocated net loss and comprehensive loss by the weighted-average number of common shares outstanding and weighted average number of PVS outstanding during the period.

Diluted loss per common share is computed by dividing the allocated net loss and comprehensive loss by the weighted-average number of common shares together with the number of additional common shares that would have been outstanding if all potentially dilutive common shares had been issued, unless anti-dilutive.

Diluted loss per PVS is computed by dividing the allocated net loss and comprehensive loss by the weighted-average number of PVS outstanding during the period.

Basic net loss per common share and PVS is computed by dividing the allocated net loss by the weighted-average number of common shares outstanding and weighted average number of PVS outstanding during the period.

Diluted loss per common share is computed by dividing the allocated net loss by the weighted-average number of common shares together with the number of additional common shares that would have been outstanding if all potentially dilutive common shares had been issued, unless anti-dilutive.

Diluted loss per PVS is computed by dividing the allocated net loss by the weighted-average number of PVS outstanding during the period.

The following table sets forth the computation of basic and dilutive net loss per share attributable to common shareholders:

Three Months Ended March 31,

Net loss and comprehensive loss $ ( 8,626 ) $ ( 12,774 )

Three Months Ended June 30,

Six Months Ended June 30,

2022 2021 2022 2021

Net loss $ ( 7,870 ) $ ( 5,923 ) $ ( 16,496 ) $ ( 18,697 )

Weighted-average number of common shares - basic 145,168,510 109,435,643 145,079,859 108,833,622

6 unchanged sentences

Loss per proportionate voting share – basic and diluted $ — $ ( 16.93 ) $ — $ ( 53.49 )

As of March 31, 2022 and March 31, 2021, potentially dilutive securities include stock options, restricted share units, broker warrants, and common share warrants.

When the Company recognizes a net loss and comprehensive loss from continuing operations, all potentially dilutive shares are anti-dilutive and are consequently excluded from the calculation of diluted net loss per share.

As of June 30, 2022 and 2021, potentially dilutive securities include stock options, restricted share units, broker warrants, and common share warrants.

When the Company recognizes a net loss, all potentially dilutive shares are anti-dilutive and are consequently excluded from the calculation of diluted net loss per share.

The potentially dilutive awards outstanding for each year are presented in the table below:

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( In thousands, except share, per share, per unit, and number of years)

Outstanding options 5,207,959 3,895,512

2 unchanged sentences

7,716,555 14,353,465

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share, per share, per unit, and number of years)

SHARE-BASED COMPENSATION

Stock options

Stock options vest over a prescribed service period and are approved by the board of directors on an award-by-award basis.

Options have a prescribed service period generally lasting up to four years , with certain options vesting immediately upon issuance.

Stock options vest over a prescribed service period and are approved by the Company's board of directors on an award-by-award basis.

Options have a prescribed service period generally lasting up to four years , with certain options having a shorter vesting period or vesting immediately upon issuance.

Upon the exercise of any stock options, the Company issues shares to the award holder from the pool of authorized but unissued common shares.

The fair values of options granted during the period were determined using a Black-Scholes model.

The following principal inputs were used in the valuation of awards issued for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The following principal inputs were used in the valuation of awards issued for the six months ended June 30, 2022 and 2021:

Six Months Ended June 30,

Expected volatility

5 unchanged sentences

$ 0.31 $ 3.10

Detail of the number of stock options outstanding for the three months ended March 31, 2022 under the Company's 2015 legacy option plan and the Company's amended 2018 long term incentive plan (collectively, the "Plans") is as follows:

Detail of the number of stock options outstanding for the three months ended June 30, 2022 under the Company's 2015 legacy option plan and the Company's amended 2018 long term incentive plan (collectively, the "Plans") is as follows:

Number of Options

5 unchanged sentences

( 1,691,112 ) 4.30

Outstanding as of March 31, 2022 4,867,464 $ 2.04 8.60 $ 687,476

Exercisable/vested as of March 31, 2022 2,093,641 $ 2.13 5.87 $ 673,414

The weighted average grant-date fair value of options granted during the three months ended March 31, 2022 was $ 1.56 .

The weighted average grant-date fair value of options granted during the three months ended March 31, 2021 was $ 4.70 .

The weighted average share price at the date of exercise of options exercised during the three months ended March 31, 2022 and 2021 was $ — and $ 4.85 , respectively.

Restricted share units

The Company has issued time-based restricted share units to certain employees as permitted under the 2018 Plan.

The restricted share units granted vest in accordance with the board-approved agreement, typically over equal

Outstanding as of June 30, 2022 5,207,959 $ 1.42 8.85 $ 928,368

Exercisable/vested as of June 30, 2022 1,829,404 $ 1.49 5.83 $ 409,939

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

( In thousands, except share, per share, per unit, and number of years)

installments over up to four years .

Upon vesting, one share of the Company’s common shares is issued for each restricted share unit awarded.

The weighted average grant-date fair value of options granted during the six months ended June 30, 2022 was $ 1.14 .

The weighted average grant-date fair value of options granted during the six months ended June 30, 2021 was $ 4.66 .

The weighted average share price at the date of exercise of options exercised during the six months ended June 30, 2022 and 2021 was $ 0 and $ 4.85 , respectively.

Restricted share units

The Company has issued time-based restricted share units to certain employees as permitted under the 2018 Plan.

The restricted share units granted vest in accordance with the board-approved agreement, typically over equal installments over up to four years .

Upon vesting, one of the Company’s common shares is issued for each restricted share unit awarded.

The fair value of each restricted share unit granted is equal to the market price of the Company’s shares at the date of the grant.

The fair value of shares vested during the three months ended March 31, 2022 and March 31, 2021 was $ 295 and $ 317 , respectively.

The fair value of shares vested during the six months ended June 30, 2022 and June 30, 2021 was $ 625 and $ 628 , respectively.

Details of the number of restricted share units outstanding under the 2018 Plan is as follows:

7 unchanged sentences

( 65,617 ) $ 2.29

Outstanding as of March 31, 2022 2,569,689 $ 1.69

Outstanding as of June 30, 2022 2,508,596 $ 1.22

Share-based Compensation Expense

Share-based compensation expense for all equity arrangements for the three months ended March 31, 2022 and March 31, 2021 was $ 1,214 and $ 832 , respectively, included in selling, general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

As of March 31, 2022, $ 7,204 of total unrecognized share-based compensation expense related to unvested options granted to employees is expected to be recognized over a weighted-average period of 2.43 years.

The Company’s effective tax rate in the three months ended March 30, 2022 and 2021 was 0 % and ( 0.25 )%, respectively.

Share-based compensation expense for all equity arrangements for the three and six months ended June 30, 2022 and June 30, 2021 was $ 643 and $ 1,357 and $ 2,022 and $ 2,549 , respectively, included in selling, general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

As of June 30, 2022, $ 5,219 of total unrecognized share-based compensation expense related to unvested options and restricted stock units granted to employees is expected to be recognized over a weighted-average period of 2.19 years.

The Company’s effective tax rate in the six months ended June 30, 2022 and 2021 was 0 % and 0.16 %, respectively.

The Company’s effective tax rates differ from the U.S.

federal statutory rate of 21% for the three months end March 30, 2022 and 2021, respectively, primarily due to the valuation allowance.

The effective tax rate for the first three months of 2022 was lower than the same period in 2021 primarily due to state income taxes.

federal statutory rate of 21% for the six months end June 30, 2022 and 2021, respectively, primarily due to the valuation allowance.

The effective tax rate for the six months of 2022 was lower than the same periods in 2021 primarily due to state income taxes.

RELATED PARTY TRANSACTIONS

3 unchanged sentences

("Abacus"), and a former officer of the Company, also serves on Aidance’s Board of Directors.

For the three months ended March 31, 2022 and 2021, the Company made purchases of $ 673 and $ 1,537 , respectively from Aidance.

For the three and six months ended June 30, 2022 and 2021, the Company made

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( In thousands, except share, per share, per unit, and number of years)

purchases of $ 1,016 and $ 649 and $ 1,688 and $ 2,186 , respectively from Aidance.

Payment terms on purchases are due 30 days after receipt.

As of March 31, 2022, the Company had a liability of $ 294 due to Aidance presented in accounts payable in the condensed consolidated balance sheets.

As of June 30, 2022, the Company had a liability of $ 182 due to Aidance presented in accounts payable in the condensed consolidated balance sheets.

As of December 31, 2021, the Company had a liability of $ 119 due to Aidance presented in accounts payable in the condensed consolidated balance sheets.

1 unchanged sentence

This agreement included a secured promissory note, where $ 1,000 was loaned to one of the founders.

The note receivable is secured by equity instruments with certain founders of the Company, is carried at amortized cost, bears interest at 3.25 % per year, and required the

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share, per share, per unit, and number of years)

unpaid principal and unpaid interest balances to be paid on or before the maturity date of November 13, 2021.

The note receivable is secured by equity instruments with certain founders of the Company, is carried at amortized cost, bears interest at 3.25 % per year, and required the unpaid principal and unpaid interest balances to be paid on or before the maturity date of November 13, 2021.

The founders requested an extension of the maturity date, as allowed under the terms of the promissory note, resulting in an extension of the maturity date to November 13, 2023.

2 unchanged sentences

Interest income is recognized based upon the contractual interest rate and unpaid principal balance of the promissory note.

As of March 31, 2022 and December 31, 2021, the founders owed the Company $ 1,037 consisting of principal and interest.

As of June 30, 2022 and December 31, 2021, the founders owed the Company $ 1,037 consisting of principal and interest.

On March 22, 2022, the Company and the founders amended the agreement to increase the equity instruments securing the promissory note and to extend the maturity date to November 13, 2023.

As a result of this amendment and the liquid and quantifiable value of the shares pledged, the Company does not believe there is an estimated credit loss on the note receivable as of March 31, 2022 and December 31, 2021.

As a result of this amendment, the Company does not believe there is an estimated credit loss on the note receivable as of June 30, 2022 and December 31, 2021.

The Company will continue to evaluate the note receivable for changes to credit loss estimates through the extended maturity date.

2 unchanged sentences

Certain founders of the Company, who are or were employees at the time, are the majority shareholders of Stanley Brothers USA.

On April 16, 2021, pursuant to an amendment to the agreement, the name and likeness and license agreement between the Company and Leeland & Sig LLC d/b/a Stanley Brothers Brand Company was extended for a period of one year , expiring July 31, 2022.

On April 16, 2021, pursuant to an amendment to the Name and Likeness and License Agreement between the Company and Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, agreement was extended for a period of one year , originally expiring July 31, 2022 and was subsequently extended to August 31, 2022.

In addition, the Company executed a consulting agreement which extended the service arrangements of the seven Stanley brothers for a period of one year , expiring July 31, 2022.

Upon execution of the consulting agreement, the Company paid $ 2,081 to Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, on behalf of the seven Stanley brothers, as consideration for the consulting services to be provided to the Company over the term of the agreement and certain restrictive covenants.

For the three months ended March 31, 2022, the Company recognized $ 420 of sales and marketing expenses in the condensed consolidated statements of operations and comprehensive loss related to this agreement.

For the three and six months ended June 30, 2022, the Company recognized $ 454 and $ 875 , respectively in sales and marketing expenses in the condensed consolidated statements of operations and net loss related to this agreement.

For the three and six months ended June 30, 2021, the Company recognized $ 167 selling, general and administrative expenses in the condensed consolidated statements of operations and net loss related to this agreement.

The remaining $ 150 is presented in prepaid expenses in the condensed consolidated balance sheets.

SUBSEQUENT EVENTS

On May 8, 2022, warrants issued pursuant to the Abacus acquisition expired, totaling 1,232,225 , with a weighted average exercise price per warrant of $ 15.29 .

During July 2022, the Company received approximately $ 7,600 from the Internal Revenue Service ("IRS") which was the remaining amount of the income taxes receivable.

On July 27, 2022, the Company entered into a payoff letter with J.P.

Morgan to voluntarily terminate all commitments and obligations under the ABL.

In connection with the execution of the payoff letter, the Company paid J.P.

Morgan approximately $ 20 in fees and expenses.

There were no outstanding borrowings under the ABL at the time of termination.

On July 28, 2022, pursuant to an amendment to the agreement, the name and likeness and license agreement between the Company and Leeland & Sig LLC d/b/a Stanley Brothers Brand Company was extended for a period of one month, expiring August 31, 2022.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( In thousands, except share, per share, per unit, and number of years)

On August 2, 2022, the Company entered into an amendment to the offer of employment, dated December 16, 2021, with Jacques Tortoroli, President and Chief Executive Officer of the Company.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements