What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-03-23 compared with 2022-03-24 · 406 added, 524 removed, 834 unchanged (53% of the section changed)

Charlotte’s Web Holdings, Inc., (“Charlotte’s Web”, the “Company” or “we”), a benefit company under the Business Corporations Act (British Columbia) ("BCBCA"), S.B.C.

57, as amended, including the regulations promulgated thereunder, and a Certified B Corp headquartered in Denver, Colorado, was incorporated under the BCBCA on May 18, 2018 under the name Stanley Brothers Holdings Inc.

57, as amended, including the regulations promulgated thereunder, and a Certified B Corp headquartered in Louisville, Colorado, was incorporated under the BCBCA on May 18, 2018 under the name Stanley Brothers Holdings Inc.

On July 12, 2018, the Company changed its name to Charlotte’s Web Holdings, Inc.

3 unchanged sentences

The Company’s Common Shares are listed on the Toronto Stock Exchange ("TSX") under the symbol, “CWEB.” The Company’s Common Shares are also quoted on the over-the-counter stock market, the OTCQX, in the United States under the symbol, “CWBHF."

The Company is a 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™.

The Company is a market leader in the United States 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% North American farm grown and manufactured into hemp extracts containing naturally occurring phytocannabinoids including cannabidiol ("CBD"), cannabichromene ("CBC"), cannabigerol ("CBG"), cannabinol ("CBN"), terpenes, flavonoids and other beneficial hemp compounds.

The Company moved into its new current good manufacturing practices ("cGMP") facility in Louisville, Colorado, (the "LOFT"), during the second quarter of 2020 at which the Company conducts its production, distribution, and quality control activities, and has expanded its research and development ("R&D").

Charlotte’s Web product categories include full spectrum hemp extract oil tinctures (liquid products), gummies (sleep, stress, immunity, exercise recovery), capsules, CBD topical creams and lotions, as well as products for pets.

Charlotte’s Web products are distributed to more than 15,000 retail outlets and 8,000 health care practitioners, and online through the Company’s website at www.CharlottesWeb.com.

The information provided on the Charlotte’s Web website is not part of this report or any other report we file with or furnish to the SEC.

The business of the Company consists of the farming, manufacturing, sales, and marketing of products of hemp-derived CBD wellness products.

The Company moved into its new current good manufacturing practices ("cGMP") compliant facility in Louisville, Colorado, (the "LOFT"), during the second quarter of 2020 at which the Company conducts its production, distribution, and quality control activities, and has expanded its research and development ("R&D").

Charlotte’s Web product categories include full spectrum hemp extract oil tinctures (liquid products), gummies (sleep, calm, immunity, exercise recovery, daily wellness, THC-free), capsules, topical creams and lotions, as well as products for pets.

Charlotte’s Web products are distributed to retail outlets and health care practitioners, as well as online through the Company’s website at www.Charlottesweb.com.

The information provided on the Company's website is not part of this report or any other report we file with or furnish to the SEC.

The business of the Company consists of the farming, manufacturing, sales, and marketing of hemp-derived CBD wellness products.

As of December 31, 2022, the Company operated in a single operating and reportable segment, hemp-derived CBD wellness products, as its executive officers reviewed overall operating results in order to assess financial performance and to make resource allocation decisions, rather than to assess a lower-level unit of operations in isolation.

2 unchanged sentences

The Company is engaged in research involving a broad variety of compounds derived from Hemp.

Where such research indicates that a product with a greater than 0.3% THC level may have a potential therapeutic use, the Company may consider pursuing development of that use in jurisdictions where it is legal to do so in accordance with applicable regulations and if consistent with the Company’s founding principles.

Where such research indicates that a product may have a potential therapeutic use, the Company may consider pursuing development of that use in jurisdictions where it is legal to do so in accordance with applicable regulations and if consistent with the Company’s founding principles.

The Company does not currently produce or sell medicinal or recreational marijuana or products derived from high-THC Cannabis plants.

5 unchanged sentences

At this time, however, the Company does not 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 Nielsen Company (US), LLC (“Nielsen”), SPINS, LLC (“Spins”) and Brightfield Group (“Brightfield”), 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 the US, the Company holds the number one market share position in the CBD market relative to retail dollars, this is based on market share data from leading third-party analysts such as Nielsen Company (US), LLC (“Nielsen”), SPINS, LLC (“Spins”) and Brightfield Group (“Brightfield”), respectively.

The Hemp grown in Canada is utilized exclusively for the Canadian market and not in products sold in the United States.

The Company continues to invest in R&D efforts to identify new product opportunities.

Management is working to expand the Company’s production capacity, sales and marketing infrastructure, and to find opportunities for continuous improvement in the supply chain and proactively define the competitive landscape.

Management is working to expand the Company’s production capacity, and to find opportunities for continuous improvement in the supply chain including insourcing production to reduce its dependence on third party contract manufacturers.

The Company is working to capitalize on the rapidly emerging botanical wellness products industry by driving customer acquisition and retention, as well as accelerating national and international retail expansion.

In addition, the Company may consider expanding its product line beyond Hemp-based products should the science and the Company’s founding principles support such expansion.

In furtherance of the Company’s 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 aims to support the Company’s product portfolio with studies and science-based innovation.

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 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 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 potential therapeutic uses of cannabinoids.

In furtherance of the Company’s R&D efforts, in February 2020, 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 clinical trials addressing Hemp-based solutions.

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

On October 11, 2022, Charlotte’s Web Holdings, Inc.

(the “Company”) entered into a Promotional Rights Agreement (the “MLB Promotional Rights Agreement”) with MLB Advanced Media L.P., on its own behalf and on behalf of Major League Baseball Properties, Inc., the Office of the Commissioner of Baseball, The MLB Network, LLC and the Major League Baseball Clubs (collectively, the “MLB”), pursuant to which the Company entered into an exclusive strategic partnership with MLB to promote the Company’s new NSF-Certified for Sport® product line.

In October, 2022, the Company launched a product line catering to the sports vertical (the “SPORT Line”), which is designed specifically for athletes.

The products in the SPORT Line have undergone the NSF for Sport® certification process with NSF, a third-party organization that manufacturers, regulators, and consumers look to for the development of public health standards and certification marks that help protect the world's food, water, consumer products, and environment.

Effective as of November 1, 2022, the Company entered into a Manufacturing and Sales License Agreement with Aphria, Inc., an Ontario corporation, an affiliate of Tilray Brands, Inc.

(“Tilray”), in which the parties entered into a strategic alliance by which Tilray will have the rights to licensing, manufacturing, quality, marketing and distribution of Charlotte’s Web TM CBD hemp extract products in Canada.

Effective as of November 14, 2022, the Company entered into a subscription agreement (the “Subscription Agreement”) with BT DE Investments, Inc.

a wholly-owned subsidiary of BAT Group (LSE:

BATS and NYSE:

BTI), providing for the issuance of an approximately $56.8 million ("Canadian Dollar" C$75.3 million) convertible debenture (the “debenture”) convertible into 19.9% ownership of the Company’s Common Shares at a conversion price of C$2.00 per Common Share of the Company on the Toronto Stock Exchange (TSX).

The debenture will accrue interest at a stated annualized rate of 5% until such time that there is federal regulation permitting the use of cannabidiol, a phytocannabinoid derived from the plant Cannabis sativa L.

(“CBD”) as an ingredient in food products and dietary supplements in the United States.

Following federal regulation of CBD, the stated annualized rate of interest shall reduce to 1.5%.

The maturity date for the debenture is November 2029.

Public Benefit Company Status

6 unchanged sentences

See “ Risk Factors – As a public benefit company, the Company has a duty to balance a variety of interests that may result in actions that do not maximize Shareholder value.

In practice, the Board of Directors of the Company takes an expanded view of decision making to balance their fiduciary duties and their duty to act honestly and in good faith with a view to conducting business in a responsible and sustainable manner and to promote the Company’s public benefits, including weighing potential conflicts of

interest and ultimately making decisions that the Board believes most appropriately address all of the Board’s duties.

British Columbia courts have generally been deferential to the business decisions of directors, as directors are in the best position to take into account the diverse interests of a company and its stakeholders (including what weight to give to shareholder interests), as long as the business decision lies within the range of reasonable alternatives.

9 unchanged sentences

The B Impact Assessment is an assessment of a company’s governance and its impact on its workers, customers, community, and environment.

The B Impact Assessment of the Company is posted on the B Lab website and was included in the Company’s inaugural benefit report in respect of the year ended December 31, 2020.

The B Impact Assessment of the Company is posted on the B Lab website and was included in the Company’s proxy statement in respect of the year ended December 31, 2021.

The Company’s public benefit, as provided in its Articles, is “ to pioneer the way to healthier lives, stronger communities, and a more bountiful planet by making it easier for everyone to access the natural restorative power of plants.

” Accordingly, this social focus includes contributing to non-profit organizations and charities, which are made on an ad hoc basis, concentrating first on those entities that have historically supported the business through education of existing and potential customers.

The Company also supports non-profits that it believes can utilize the wellness aspects of its products (i.e., military veterans, adaptive athletes, educational organizations, etc.).

The Company also supports non-profits that it believes can utilize the

wellness aspects of its products (i.e., military veterans, adaptive athletes, educational organizations, etc.).

By doing so, the Company believes that socially oriented actions will ultimately have a positive impact on the Company, its employees, and its Shareholders.

In addition to being a benefit company, the Company is a “Certified B Corp”, as certified by B Lab, the US non-profit organization which administers this certification.

Certified B Corps (also referred to as B Corps) are for-profit companies that use the power of business to build a more inclusive and sustainable economy.

Certified B Corps (also referred to as "B Corps" or "B Corporations") are for-profit companies that use the power of business to build a more inclusive and sustainable economy.

Certified B Corps are required to consider the impact of their decisions on all stakeholders:

3 unchanged sentences

Though the Company has chosen to use B Lab’s criteria for its required annual impact assessment under the BCBCA, the Company is not required to do so and could select another criteria if it desired.

As a Certified B Corp, the Company is a socially conscious company, and is committed to using business as a force for good and a catalyst for innovation.

The Company weighs sound business decisions with consideration for how its efforts affect its employees, customers, the environment, and the communities where its employees live and where it does business.

This social awareness includes contributions to non-profits, which are made on an ad hoc basis, concentrating first on those entities that have historically supported the business through education of existing and potential customers.

The Company has historically donated and plans to continue to donate to charitable organizations.

The Company also supports non-profit organizations that it believes can utilize the wellness aspects of its products (i.e., military veterans, adaptive athletes, educational organizations, etc.).

History and Development of the Company

5 unchanged sentences

On December 30, 2015, it converted from a limited liability company to a corporation pursuant to Colorado law and changed its name to CWB Holdings, Inc.

August 30, 2018, CWB Holdings, Inc.

On August 30, 2018, CWB Holdings, Inc.

merged into Stanley Brothers, Inc.

2 unchanged sentences

Charlotte’s Web sold 13,312,150 Common Shares under the initial public offering ("IPO"), for total gross proceeds to the Company of C$93,185,050, while certain selling shareholders under the IPO sold an aggregate of 3,132,850 Common Shares, for total gross proceeds to the selling shareholders of C$21,929,950.

Under the IPO, the Common Shares were offered for sale by Canaccord Genuity Corp., as lead underwriter, together with GMP Securities L.P., PI Financial Corporation, and Cormark Securities Inc.

(collectively, the “IPO Underwriters”) pursuant to an underwriting agreement (the “IPO Underwriting Agreement”) dated August 23, 2018 entered into among the IPO Underwriters, Charlotte’s Web Holdings, Inc., CWB Holdings, Inc.

and the following individuals and entities:

Aiko Trust, CK&J Irrevocable Trust, Master and A Hound Irrevocable Trust, Paulina Irrevocable Trust, Tristan 2 Arlo Irrevocable Trust, Blue Water Irrevocable Trust, J.

Austin Stanley, Arvesa Corp., Kristi Fontenot, Little Sis Trust, Lynn Kehler, Proverbs 31 Woman Irrevocable Trust, M, C and C Special Needs Trust, Graham Carlson and Old Faithful Trust (collectively, the “IPO Selling Shareholders”).

Pursuant to the terms of the IPO Underwriting Agreement, in consideration for their services in connection with the IPO, Charlotte’s Web Holdings, Inc.

and the IPO Selling Shareholders paid the IPO Underwriters a fee equal to 6.0% of the aggregate gross proceeds of the IPO (C$0.42 per Common Share), for an aggregate cash commission of C$6,006,000 and broker warrants exercisable for two years from the closing date to purchase Common Shares equal to 3.0% of the number of Common Shares sold under the IPO at an exercise price equal to C$7.00.

Under the terms of the IPO Underwriting Agreement, the Company indemnified the IPO Underwriters for certain customary matters in connection with the IPO.

On August 30, 2018, the Common Shares commenced trading on the Canadian Stock Exchange ("CSE") under the symbol “CWEB.”

Between 2016 and 2017, the Stanley Brothers made the decision to expand cultivation activities into Kentucky and Oregon to diversify CWB Holdings, Inc.’s Hemp farming operations for the purpose of (i) hedging production against weather-related events, and (ii) accessing services of experienced hemp farming operations with a view to maintain access to an additional supply of Hemp.

In June 2020, the Company acquired all of the issued and outstanding shares of Abacus Products, Inc.

("Abacus") (formerly known as Abacus Health Products, Inc.) pursuant to the terms of an arrangement agreement (the "Arrangement Agreement").

Abacus Health Products, Inc.

("Abacus U.S.") was formed in September 2014 as a subsidiary of Aidance Scientific, Inc.

("Aidance"), a developer and manufacturer of topical dermatology products founded in 2004.

Leveraging the resources and know-how of Aidance under licensing rights and manufacturing and services agreements, Abacus U.S.

pursued in 2015 the development of a line of topical pain relief medications.

The commercialization of products under the CBD CLINIC™ line started in the third quarter of 2016 to healthcare practitioners throughout the United States that specialize in pain management, particularly in the chiropractic industry.

By January 2017, Abacus U.S.

was selling CBD CLINIC™ products directly to approximately 100 practitioners.

During the year, Abacus U.S.

also began selling its CBD CLINIC™ products through national distributors that sell to practitioners, mainly chiropractors and massage therapists.

By December 2018, an estimated 10,000 practitioners had become customers and resellers of CBD CLINIC™ products.

In 2017, Abacus U.S.

introduced three analgesic massage oils under the CBD CLINIC™ line and, later in 2017, Abacus U.S.

developed a pain stick that allowed the user to apply the medication without needing to touch the ointment with one’s hands.

Sales for the pain stick grew quickly following its launch in the fourth quarter of 2017.

Also in 2017, Abacus U.S.

began developing its CBDMEDIC™ line of products, to be sold to retailers and directly to consumers.

launched the commercialization of these products in the third quarter of 2018.

then began selling its CBDMEDIC™ products to retail pharmacy chains and directly through its e-commerce platform.

On December 21, 2018, Abacus, Abacus U.S.

and World Wide Subco Inc.

(“MergerSub”), a wholly owned subsidiary of Abacus, entered into an agreement and plan of merger pursuant to which Abacus U.S.

and MergerSub agreed that MergerSub would merge with and into Abacus U.S.

under the Delaware General Corporation Law, with Abacus U.S.

being the surviving corporation.

As a result of the merger, upon closing on January 29, 2019, the securityholders of Abacus U.S.

became securityholders of Abacus and Abacus U.S., as the surviving corporation under the merger, became the operating subsidiary of Abacus.

Financial year ended December 31, 2020

On January 3, 2019, the Company announced that a Chief Executive Officer transition was planned in 2019 to support the Company’s continued evolution.

The Company announced that the Board began the search process to find a successor Chief Executive Officer, and that the Company’s current Chief Executive Officer, Hesaam Moallem, would continue in the role until his successor has been appointed.

Hesaam Moallem resigned as a director to support the transition.

Effective January 15, 2019, Eugenio Mendez joined the Company in the newly formed role of Chief Growth Officer.

Effective January 28, 2019, Stephen Lermer joined the Company in the newly formed role of Chief Operating Officer.

On January 15, 2019, the Company reported its 2018 harvested hemp results, announcing a 10 times growth in harvested hemp as compared to its 2017 grow season.

In addition, the Company announced that it had received certification from the U.S.

Hemp Authority™, which requires meeting or exceeding stringent self-regulatory standards for cGMP and passing an annual third-party audit.

On April 9, 2019, the Company filed a (final) short form base shelf prospectus with the securities regulatory authorities in each of the Provinces of Canada, except Quebec, which would allow the Company to qualify the distribution by way of prospectus in Canada of up to C$500,000,000 of Common Shares, preferred shares, warrants, subscription receipts, units, or any combination thereof, during the 25-month period that the base shelf prospectus is effective.

The specific terms of any offering under the base shelf prospectus would be established in a prospectus supplement, which will be filed with the applicable Canadian securities regulatory authorities in connection with any such offering.

On April 10, 2019, the Company received a receipt for the (final) short form base shelf prospectus from the Ontario Securities Commission on behalf of all applicable regulatory authorities.

Adrienne “Deanie” Elsner joined the Company as President and Chief Executive Officer effective May 15, 2019.

Elsner was also appointed to the Board effective May 15, 2019.

On May 7, 2019, the Company announced an expansion of its canine-focused pet products, launching 12 new SKUs comprised of hemp-extract infused chews, flavored and unflavored oils and a topical balm.

On May 8, 2019, the Company announced that it had surpassed 6,000 retail locations across the United States and that it was shipping to four national brand grocery and drugstore retailers.

On May 15, 2019, the Company closed an underwritten public offering of 7,000,000 Common Shares of the Company sold by certain Shareholders of the Company at a price of C$20.00 per Common Share for total gross proceeds of C$140,000,000.

The offering was conducted pursuant to the terms of an amended and restated underwriting agreement among the Company, a syndicate of underwriters led by Canaccord Genuity Corp.

and including Cormark Securities Inc., Eight Capital and PI Financial Corp., and the selling Shareholders dated May 13, 2019.

The Company did not receive any proceeds from the sale of Common Shares by the selling Shareholders under the offering.

In connection with this offering, the Company filed a prospectus supplement dated May 13, 2019 to the final base shelf prospectus of the Company dated April 8, 2019.

On May 24, 2019, the underwriters exercised their over-allotment option in full to purchase an additional 1,050,000 Common Shares from the selling

Shareholders at a price of C$20.00 for aggregate gross proceeds to the selling Shareholders under the exercise of the over-allotment of C$21,000,000.

On May 30, 2019, the Company’s Common Shares were voluntarily delisted from the CSE and as of market open on May 31, 2019, the Common Shares commenced trading on the TSX under the symbol “CWEB.”

On June 3, 2019, the Company announced a new product line of hemp extract-infused CBD gummies, made with whole plant extract and featuring synergistic functional ingredients to support specific health-related functions including everyday stress, sleep and recovery from exercise or active lifestyles.

The Company announced on June 19, 2019 that it had planted 862 acres for 2019, a 187% increase from 300 acres planted in 2018, to meeting growing demand.

On July 16, 2019, the Company announced that Tony True joined the Company as Chief Customer Officer, to lead sales strategy and forecasting, customer development and relationships, and retail execution.

On July 18, 2019, the Company announced that it had entered into a research initiative with Rodale Institute and Natural Care to pioneer regenerative organic hemp farming, with research to be conducted at Pocono Organics, a start-up regenerative organic farm in Long Pond, Pennsylvania.

The Company announced on July 29, 2019 that The Kroger Co., America’s largest grocery retailer, began carrying Charlotte’s Web products in multiple states, with a plan to roll out to a total of 1,350 store locations in 22 states (Arizona, Arkansas, Colorado, Georgia, Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, Montana, Nevada, Oregon, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, Washington, Wisconsin, and Wyoming).

As of July 29, 2019, Charlotte’s Web was shipping to 5 mass retailers covering 22 states.

Combined with specialty retailers, Charlotte’s Web retail distribution in the United States surpassed 8,000 locations.

On July 30, 2019, Charlotte’s Web announced the extension of its research initiative with the Centre for Discovery in New York State to further develop hemp genetics for optimal growing in the region.

The project allowed for expansion within the Eastern Appalachian Region and determination of hemp varieties for growth in regional microclimates and local terrain.

On August 8, 2019, the Company announced expansion plans, including the lease of a newly constructed 136,610-square-foot industrial building located at 700 Tech Court in the Colorado Technology Center in Louisville, Colorado.

The new cGMP facility (previously defined as the “LOFT”) would enable the Company to prepare for production, distribution, quality control and R&D expansion to meet increasing demand from the consumer and national retailer channels.

In addition, Charlotte’s Web announced a staged build-out of the facility during the third quarter of 2019 and continuing over a two-year period, to allow for production and distribution capacities to align with product demand growth.

On August 15, 2019, Richard Mohr resigned as Chief Financial Officer of the Company and was succeeded by Russell Hammer.

On August 21, 2019, the Company announced that its Shareholders approved an amendment to the Company’s Articles to convert to a benefit company under the BCBCA to reflect the Company’s commitment to using business as a force for good and a catalyst for innovation.

On August 27, 2019, Abacus announced that it entered into a spokesperson and licensing agreement (the “Gronkowski Agreement”) with Rob Gronkowski, a sports celebrity.

The Gronkowski Agreement includes a commitment by Gronkowski to support Abacus’ existing products.

Consideration for the Gronkowski Agreement and related agreements included payment of an upfront fee, potential future royalties, and an issuance of 302,835 subordinate voting shares of Abacus (the "Abacus Shares") and warrants to acquire 35,666 Abacus Shares at a price

of $15.00 per share (converted to warrants to purchase Common Shares per the terms of the Arrangement Agreement), exercisable on or before August 29, 2024.

Additional warrants are issuable on an annual basis during the term of the Gronkowski Agreement.

On September 24, 2019, the Company announced that The Vitamin Shoppe, Inc.

VSI), an omnichannel specialty retailer of nutritional products, commenced selling the new line of Charlotte’s Web gummies in 738 stores across 45 states, expanding Charlotte’s Web’s product offerings carried by The Vitamin Shoppe to include oil tinctures, liquid capsules and gummies.

On October 9, 2019, Charlotte’s Web announced a relationship with Nielsen Holdings PLC (NYSE:

NSLN), a market intelligence company, to provide greater visibility and insights into market-leading trends in the CBD market.

On October 25, 2019, Abacus announced an agreement with Gillette Stadium and Patriot Place (the “Gillette Stadium and Patriot Place Agreement”) to promote awareness of its CBDMEDIC™ brand.

The three-tiered partnership includes elements of branding, activation and hospitality for the 2019 and 2020 seasons.

Jacques Tortoroli was appointed to the Board of Directors of the Company effective November 14, 2019 and was appointed to the Audit Committee and Compensation Committee.

On December 3, 2019, the Company closed an underwritten public offering of 5,000,000 units (“2019 Units”) at a price of C$13.25 per 2019 Unit for gross proceeds to the Company of C$66,250,000.

Each 2019 Unit was comprised of one Common Share and one half of one Common Share purchase warrant (the “2019 Warrants”), exercisable for a period of two years following the closing date at an exercise price of C$16.50.

The 2019 Warrants are listed on the TSX under the symbol “CWEB.WT.” The 2019 Warrants were issued pursuant to a Warrant Indenture between the Company and Odyssey Trust Company, as warrant agent, dated December 3, 2019.

The offering was conducted pursuant to the terms of an amended and restated underwriting agreement among the Company, Canaccord Genuity Corp., Cormark Securities Inc., Eight Capital and PI Financial Corp.

dated November 25,2019 (the “November Underwriting Agreement”).

In connection with this offering, the Company filed a prospectus supplement dated November 27, 2019 to the final base shelf prospectus of the Company dated April 8, 2019.

Pursuant to the terms of the November Underwriting Agreement, in consideration for their services in connection with the offering, the Company paid the underwriters a cash fee equal to 5.0% of the aggregate gross proceeds of the offering (C$0.66 per Common Share), for an aggregate cash commission of C$3,212,500.

During 2019, Abacus secured distribution of its products in several key retailers with CVS Pharmacy, Inc.

being the first in February.

Weis Markets, Inc., Pharmacare, Inc., Kinney Drugs, SuperValu, Inc., Topps Friendly Markets, Harmon Stores, Inc., Bed Bath & Beyond Inc., Giant Eagle, URM Stores, Inc., Road Runner Sports, Inc., Fruth Pharmacy, Inc., Hartig Drug Stores, Diebergs Markets, Inc., Valu Merchandisers Company, and Walgreen Company, d/b/a Walgreens were added throughout the year.

Financial year ended December 31, 2020

Eugenio Mendez resigned as Chief Growth Officer on January 1, 2020.

On January 30, 2020, the Company announced that Jared Stanley, Company Co-Founder and Vice President of Cultivation Operations, was promoted to Chief Cultivation Officer.

Stephen Lermer resigned as Chief Operating Officer of the Company on January 31, 2020.

On February 14, 2020, the Company announced the manufacturing facility in Boulder, CO obtained NSF International’s certification (“NSF certification”) as a dietary supplements manufacturer that follows all cGMPs as outlined by the U.S.

Food and Drug Administration ("FDA") regulations in Title 21 of the Code of Federal

Regulation, Part 111 (21 CFR § 111).

Food and Drug Administration ("FDA") regulations in Title 21 of the Code of Federal Regulation, Part 111 (21 CFR § 111).

NSF certification verifies that the facility has the proper methods, equipment, facilities and controls in place to produce dietary supplement products in a cGMP compliant manner.

5 unchanged sentences

In addition, the Company announced that Charlotte’s Web pet products would also feature labels confirming Non-GMO, grain-free and USA grown hemp as part of the Company’s commitment to corporate responsibility, health and wellness, and sustainable farming practices.

On March 4, 2020, the Company announced the results of its 2019 hemp harvest as compared to its 2018 harvest.

The Company advised of a 245% increase in total dried biomass to 2.34 million pounds, a 22% increase in CBD potency, and a 10% increase in yield per acre.

The Company estimated that it harvested 36 thousand kilograms of CBD, with a 33% reduction per milligram of cost.

On March 13, 2020, the Company announced the establishment of CW Labs, an internal division for R&D, substantially expanding on the Company’s efforts around the science of hemp derived phytocannabinoids, terpenes and flavonoid compounds.

The Company announced on March 17, 2020 that an expert panel unanimously concluded that the Company’s full spectrum hemp extract is Generally Recognized as Safe (“GRAS”) for use in certain foods in accordance with stringent regulatory safety guidelines and safety data available using well accepted toxicological principles.

On March 23, 2020, the Company announced it had entered into the Arrangement Agreement with Abacus, pursuant to which the Company proposed to acquire all of the Abacus Shares.

On March 23, 2020, the Company announced it had entered into an arrangement (the "Arrangement Agreement") with Abacus Health Products ("Abacus"), pursuant to which the Company proposed to acquire all of the issued and outstanding subordinate voting shares of Abacus (the "Abacus Shares").

Under the terms of the Arrangement Agreement, shareholders of Abacus would receive 0.85 of a Common Share for each Abacus Share held (the “Exchange Ratio”).

5 unchanged sentences

As of December 31, 2021, the Company was not in compliance with certain debt covenants and as of March 9, 2022 the line of credit was on hold.

As of December 31, 2021 , there are no amounts drawn on the line of credit.

On March 30, 2020, David Panter joined the Company as Chief Operating Officer.

On May 20, 2020, the Company announced that it had been issued U.S.

utility patent U.S.

10,653,085, its second U.S.

patent for hemp genetics.

The patent is for ‘CW1AS1’, a new hemp variety created by the Company’s co-founder Joel Stanley and Senior Director of Cultivation R&D, Bear Reel.

On June 9, 2020, the Company announced its sponsorship and participation in ValidCare’s scientific study to address some of the FDA’s prior public questions about the potential impacts of CBD on humans.

ValidCare conducted a human trial to ascertain if daily use of full spectrum hemp-derived CBD or CBD isolate has any impact on the human liver.

In its report to Congress dated March 5, 2020, the FDA requested additional science-based data from the CBD industry.

The ValidCare study was intended to provide third-party scientific data to directly address some of the FDA-specific questions.

On July 27, 2022, this asset backed line of credit was terminated by the Company.

No amounts were ever drawn on line of credit.

Effective as of June 11, 2020, the Company and Abacus completed an arrangement (the "Arrangement") pursuant to the Arrangement Agreement and the Company acquired all of the issued and outstanding Abacus Shares.

1 unchanged sentence

Under the terms of the Arrangement, each option and common share purchase warrant of Abacus was exchanged for an option and common share purchase warrant (the “Replacement Warrants”) of the Company, respectively, that entitle the holder to acquire Common Shares of the Company in lieu of Abacus Shares, subject to adjustment in number and exercise price to give effect to the Exchange Ratio.

Certain of the Replacement Warrants were listed on the TSX under the symbol “CWEB.WS” and are governed by a Supplemental Warrant Indenture between the Company, Abacus and Odyssey Trust Company, as warrant agent, dated June 11, 2020.

Certain of the Replacement Warrants were listed on the TSX under the symbol “CWEB.WS” and were governed by a Supplemental Warrant Indenture between the Company, Abacus and Odyssey Trust Company, as warrant agent, dated June 11, 2020.

Prior to the Arrangement, Abacus, through an indirect wholly-owned subsidiary, Abacus Wellness, Inc., acquired the principal assets of Benefits US, LLC, a Colorado limited liability company, and Harmony Products, LLC, a Utah limited liability company, which are the companies owning the Harmony Hemp™ brand.

4 unchanged sentences

The 2020 Warrants were issued pursuant to a warrant indenture between the Company and Odyssey Trust Company, as warrant agent, dated June 18, 2020.

The offering was conducted pursuant to the terms of an underwriting agreement among the Company, Canaccord Genuity Corp., as lead underwriter, Cormark Securities Inc., Eight Capital and PI Financial Corp.

The offering was conducted pursuant to the terms of an underwriting

agreement among the Company, Canaccord Genuity Corp., as lead underwriter, Cormark Securities Inc., Eight Capital and PI Financial Corp.

dated June 16, 2020 (the “2020 Underwriting Agreement”).

1 unchanged sentence

Pursuant to the terms of the 2020 Underwriting Agreement, in consideration for their services in connection with the offering, the Company paid the underwriters a cash fee equal to 5.0% of the aggregate gross proceeds of the offering (C$0.34 per Common Share), for an aggregate cash commission of C$3,881,250.

Jean Birch was appointed to the Board of Directors of the Company effective July 10, 2020 and was appointed to the Compensation Committee and Audit Committee.

On August 26, 2020, Abacus and Rob Gronkowski amended the Gronkowski Agreement to allow for a hiatus of the obligations of the parties under the Gronkowski Agreement, such obligations to be resumed in the future.

On August 28, 2020, the Company announced it had earned a designation as a Certified B Corp from B Labs, an independent nonprofit organization, that establishes standards of social and environmental performance, accountability and transparency.

1 unchanged sentence

Certified B Corporations (also referred to as Certified B Corps) are for- profit companies that use the power of business to build a more inclusive and sustainable economy.

Certified B Corps are required to consider the impact of their decisions on all stakeholders:

customers, workers, communities, and the environment.

These requirements are aligned with Charlotte’s Web’s socially conscious founding principles, and formalizes its commitment to environmental, social, and governance issues for stakeholders.

In connection with the certification process, and as approved by the Shareholders of the Company at the August 2019 annual general and special meeting, the Company converted to a “benefit company” in accordance with the BCBCA effective July 24, 2020.

Shane Hoyne resigned as a member of the Board of Directors of the Company effective August 31, 2020.

On September 3, 2020, William West’s term as a director ended and Mr.

West ceased to be a director of the Company.

On September 3, 2020, John Held was appointed Board Chair, replacing Joel Stanley, who remained as a director.

Susan Vogt was appointed to the Board of Directors of the Company at the Company annual meeting of Shareholders on September 3, 2020 and was appointed to the Governance and Nominating Committee and the Audit Committee.

On November 19, 2020, the Company announced collaboration between its CW Labs science division 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 of cannabinoids.

On December 9, 2020, the Company announced that CW signed an exclusive distribution agreement in Israel with Israel-based InterCure Ltd., which owns one of Israel’s largest and most established medical Cannabis producers, Canndoc Ltd.

See “ Business of the Company — International Expansion.

Financial year ended December 31, 2021

15 unchanged sentences

The warrant is exercisable for a nominal exercise price of $0.001 per share in the event the Company elects not to exercise the SBH Purchase Option.

Effective March 2, 2021, Charlotte’s Web co-founders Joel Stanley and Jared Stanley resigned as members of the Charlotte’s Web Board of Directors in order to transition to board positions with Stanley Brothers USA.

Effective March 2, 2021, Charlotte’s Web co-founders Joel Stanley and Jared Stanley resigned as members of the Charlotte’s Web Board of Directors.

Effective March 8, 2021, the Company announced the launch of new Charlotte’s Web THC-Free 25mg CBD Oil Tinctures in 10 or 30 milliliter sizes.

The Company is expanding its product offerings for consumers seeking a THC-Free option.

Effective March 23, 2021, the Company reported the clinical results of the Validcare study.

Effective March 23, 2021, the Company reported the clinical results of a joint study with Validcare.

The study’s preliminary results showed no evidence of liver disease, and no increase in the prevalence of elevated liver function was found among users of Charlotte’s Web™ hemp derived CBD extracts and the other CBD products studied.

23 unchanged sentences

All CBDMedic™ products are THC-free.

The Company's relationship with Lloyd expired in February 2023.

On June 3, 2021, the Company announced the collaboration of its CW Labs division on a preclinical sleep and anxiety study with the University of Colorado-Boulder’s REACH (Research and Education Addressing Cannabis and Health) Center.

The scientific investigation uses the Company’s full spectrum hemp formulations with CBN and CBD and levels of THC below 0.3% to examine the potential impact on anxiety and sleep quality.

The Company is the only hemp CBD brand supporting the University of Colorado REACH Center’s milestone study.

On June 4, 2021, the Company filed a prospectus supplement to establish an at-the-market equity program (the “ATM Program”).

7 unchanged sentences

The Company became an SEC reporting entity beginning on January 4, 2022.

As of that date, the ATM Program ceased to be available to the Company.

date, the ATM Program ceased to be available to the Company.

Thereafter, the manner in which the Company raises capital will likely require that the Company file registration statements with the SEC related to such activities, which will likely increase the time and expense associated with such activities.

Following the Company’s annual general Shareholders’ meeting on June 9, 2021, the elected Board of Directors are Adrienne Elsner (Chief Executive Officer), John Held, Jacques Tortoroli, Jean Birch, and Susan Vogt.

On June 15, 2021, the Company announced that Wessel Booysen joined the Company as Chief Financial Officer.

On June 18, 2021, Tim Saunders was appointed to the Board of Directors and was appointed to the Board’s Audit and Corporate Governance and Nominating Committees.

Following the Company’s annual general Shareholders’ meeting on June 9, 2021, the elected Board of Directors were Adrienne Elsner (Chief Executive Officer), John Held, Jacques Tortoroli, Jean Birch, and Susan Vogt.

On June 29, 2021, the Company and Life Time Group Holdings, Inc.

9 unchanged sentences

Long term, the study data discovered as a result of this academic research is anticipated to provide a deeper understanding of the range of constituents in full spectrum hemp extract, and an understanding of what factors can affect that profile.

The information is intended to guide optimizing phytochemical fingerprints and will

help to improve agricultural and extraction methods, and further standardize the process, procedures, test methods and controls for consistency and reproducibility.

The information is intended to guide optimizing phytochemical fingerprints and will help to improve agricultural and extraction methods, and further standardize the process, procedures, test methods and controls for consistency and reproducibility.

On September 21, 2021, the Company announced the addition of three new gummy products:

10 unchanged sentences

Following this conversion, the Company had 142,335,464 Common Shares outstanding and nil Proportionate Voting Shares outstanding on November 3, 2021.

On November 10, 2021, the Company announced the addition of two new oral spray products, Charlotte’s Web Calm Spray and Sleep Spray with CBG and CBN.

On November 11, 2021, the Company announced the completion of the harvest of its first ever international crop, in Canada.

4 unchanged sentences

Elsner stepped down from the Board of Directors and the Board appointed Jacques Tortoroli as CEO of the Company, expanded Wessel Booysen’s role to Chief Financial and Operating Officer and expanded Jared Stanley’s role to Chief Cultivation and Innovation Officer.

In conjunction with these changes, David Panter ceased to serve as the Company’s Chief Operating Officer.

With respect to his roles on the Board, Jacques Tortoroli resigned from his committee positions, but continues to serve on the Board.

7 unchanged sentences

The Company was one of 12 companies who provided product and certificate of product authenticity to support the study.

January 1, 2022 to March 24, 2022

Financial year ended December 31, 2022

On January 4, 2022, the Company’s Board designated Jared Stanley, the Company’s Chief Cultivation and Innovation Officer, as an executive officer of the Company.

On January 5, 2022, the Chief Customer Officer position was eliminated, effective January 31, 2022.

At such time, Mr.

True’s, the Company’s Chief Customer Officer, employment with the Company ceased.

On January 12, 2022, the Company announced the completion of a reorganization of the corporate structure and a movement to a horizontal organizational structure to empower employees with increased decision making and accountability.

8 unchanged sentences

On March 21, 2022, the Company announced that it signed an exclusive product distribution agreement in the United Kingdom with Savage Cabbage Ltd.

On April 25, 2022, the Company announced the departure of Wes Booysen as its Chief Financial & Operating Officer and the appointments of Lindsey Jensen as the Chief Financial officer and Jared Stanley as the Chief Operating officer.

On June 2, 2022, the Company and Jared Stanley, Chief Operating Officer of the Company, entered into an offer letter memorializing the terms of Mr.

Stanley’s service as Chief Operating Officer on an at-will basis.

On June 20, 2022, the Company announced the appointment of Gregory A.

Gould, as the Company’s Executive Vice President – Chief Financial Officer, Chief Administration Officer, and principal accounting officer, replacing former Chief Financial Officer, Lindsey Jensen, who notified the Company of her intended resignation from the Company, effective July 8, 2022.

Following the Company's annual general Shareholders' meeting on June 22, 2022, the elected Board of Directors were Jacques Tortoroli (Chief Executive Officer), John Held, Jean Birch, Tim Saunders, and Susan Vogt.

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

Morgan to voluntarily terminate all commitments and obligations under the Company's credit agreement with J.P.

Morgan (the "Credit Agreement"), with termination effective as of July 27, 2022.

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

Morgan approximately $20,000 in commitment fees and legal fees and expenses.

There were no outstanding borrowings under the Credit Agreement at the time the Company entered into the payoff letter or at the time of termination.

Effective as of July 31, 2022, the Company entered into an Extension and Second Amending Agreement to Name and Likeness and License Agreement (the “First Extension Agreement”) with Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, a Colorado limited liability company (“Licensor”).

Pursuant to the First Extension Agreement, the term of the Name and Likeness and License Agreement dated August 1, 2018 between the Company and Licensor, as amended by the Amending Agreement to Name and Likeness Agreement effective April 16, 2021, was extended from July 31, 2022 to August 31, 2022.

Effective August 2, 2022, the Company entered into an amendment (the “Amendment”) to the offer of employment, dated December 16, 2021, with Jacques Tortoroli, President, Chief Executive Officer, and Director of the Company.

Pursuant to the Amendment, Mr.

Tortoroli’s annual base salary and grants under the Company’s 2018 Long-Term Incentive Plan were adjusted to better align with those of the shareholders of the Company.

Effective August 10, 2022, the board of directors of the Company, appointed Tom Lardieri to the Company’s board of directors.

Lardieri’s appointment to the Company’s board of directors was effective immediately.

Effective as of August 31, 2022, the Company entered into an Extension and Third Amending Agreement to Name and Likeness and License Agreement (the “Second Extension Agreement”) with Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, a Colorado limited liability company (“Licensor”).

Pursuant to the Second Extension Agreement, the term of the Name and Likeness and License Agreement dated August 1, 2018 between the Company and Licensor, as amended by the Amending Agreement to Name and Likeness Agreement effective April 16, 2021, was extended from August 31, 2022 to September 30, 2022.

On September 1, 2022, the Company moved its corporate headquarters from 1801 California Street, Suite 4800, Denver, Colorado 80202 to its existing office space located at 700 Tech Court, Louisville, Colorado 80027.

Effective as of September 30, 2022, the Company entered into an Extension and Fourth Amending Agreement to Name and Likeness and License Agreement (the “Third Extension Agreement”) with Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, a Colorado limited liability company (“Licensor”).

Pursuant to the Third Extension Agreement, the term of the Name and Likeness and License Agreement dated August 1, 2018 between the

Company and Licensor, as amended by the Amending Agreement to Name and Likeness Agreement effective April 16, 2021 (as amended, the “Name and Likeness Agreement”), was extended from September 30, 2022 to December 31, 2022.

Additionally, the Name and Likeness Agreement was also amended to provide the payment of a Company event fee of $1,500 per diem for each Stanley brother that, at the request of the Company’s chief executive officer, participates in any of the following events:

(i) customer meetings;

(ii) strategic partner meetings;

(iii) speaking engagements;

(iv) presentations;

(v) social media postings;

(vi) podcasts;

(vi) public relations events;

(vii) media interviews;

(viii) trade show appearances;

and (ix) events substantively similar to any of the foregoing.

On October 11, 2022, Charlotte’s Web Holdings, Inc.

In consideration for the MLB Promotional Rights Agreement, which expires on December 31, 2025, the Company shall pay MLB over the term of the MLB Promotional Rights Agreement, an aggregate rights fee of $30.5 million and a 10% royalty on the Company’s gross revenue from MLB branded products of the Company sold after prior sales of all such branded products exceed $18.0 million.

The Company also entered into a subscription agreement (the “Subscription Agreement”) pursuant to which the Company issued to MLB Common Shares equal to four percent (4%) of the Company’s fully diluted outstanding Common Shares (such Common Shares, the “MLB Shares”).

The total number of MLB Shares issued to MLB was 6,119,121 common shares of the Company, issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D promulgated under the Securities Act.

The Company did not receive any proceeds in respect of the MLB Shares.

Effective as of November 1, 2022, the Company entered into a Manufacturing and Sales License Agreement with Aphria, Inc., an Ontario corporation and an affiliate of Tilray Brands, Inc.

(“Tilray”), providing for a strategic alliance between the Company and Tilray, pursuant to which Tilray has the rights to licensing, manufacturing, quality, marketing and distribution of Charlotte’s Web TM CBD hemp extract products in Canada.

Effective as of November 14, 2022, the Company entered into a subscription agreement with BT DE Investments, Inc.

a wholly-owned subsidiary of BAT Group (LSE:

BATS and NYSE:

BTI), providing for the issuance of an approximately US$56.8 million (C$75.3 million) convertible debenture that is convertible into 19.9% ownership of Common Shares at a conversion price of C$2.00 per Common Share of the Company on the Toronto Stock Exchange (TSX).

Effective December 6, 2022, the board of directors of the Company, appointed Alicia Morga to the Company’s board of directors.

Morga’s appointment to the Company’s board of directors was effective immediately following the departure of Jean Birch, who notified the Company and the board of directors of her retirement from the board of directors, which the Company’s board of directors accepted.

On December 19, 2022, the Company announced the departure of Greg Gould as the Chief Financial Officer and the subsequent appointment of Ms.

Jessica Saxton to the position of Chief Financial Officer and Principal Accounting Officer effective January 1, 2023.

Effective as of February 22, 2023, the Company entered into an Extension and Fifth Amending Agreement to Name and Likeness and License Agreement (the “Fourth Extension Agreement”) with Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, a Colorado limited liability company (“Licensor”).

Pursuant to the Fourth Extension Agreement, the term of the Name and Likeness and License Agreement dated August 1, 2018 between the Company and Licensor, as amended by the Amending Agreement to Name and Likeness Agreement effective April 16, 2021, was extended to June 30, 2023.

Effective March 14, 2023, Jonathan Atwood was appointed as the designee to the board of directors by BT DE Investments Inc., pursuant to the Investor Rights Agreement between the Company and BT DE Investments Inc., dated November 14, 2022.

The Investor Rights Agreement was entered into by the Company and BT DE

Investments Inc.

in connection with the Company’s issuance of the $56.8 million debenture to BT DE Investments Inc.

on the terms of the subscription agreement, dated November 14, 2022 by and among the Company and BT DE Investments Inc.

Business of the Company

26 unchanged sentences

The Company offers a mix of products that have been strategically developed to fit with its objective of delivering a full suite of best-in-class FSHE wellness products that meet its customers’ demands for stringent quality and consistency.

The Company currently markets its products under the “Charlotte’s Web”, “CW”, “CBD CLINIC”, “CBDMEDIC” and “Harmony Hemp” trade names.

The Company’s current product categories include human ingestible products (tinctures, capsules, gummies and sprays), topicals, and pet products.

The Company currently markets its products under the “Charlotte’s Web”, “CBD CLINIC”, “CBDMEDIC” and “Harmony Hemp” trade names.

The Company’s current product categories include human ingestible products (tinctures, capsules, gummies and sprays), topicals, pet products, and NSF Certified for Sports broad spectrum tincture products.

The acquired brands of Abacus include CBD CLINIC, CBDMEDIC, and Harmony Hemp.

The acquisition of these brands substantially expanded the Company’s topical offerings and presence in both the key food and mass and health practitioner markets.

Human Ingestible Products – Tinctures

A human ingestible liquid product is a combination of oil and full spectrum hemp extracts containing naturally occurring CBD.

1 unchanged sentence

Liquid products are meant to be consumed by direct ingestion.

The Company currently has 25 ingestible liquid products.

Human Ingestible Products – Capsules

Ingestible capsule products have standardized amounts of FSHE.

Original capsule products were in the form of a dry powder, inside a hard-capsule shell.

Dry capsule products combine FSHE with common industry raw materials, including rice bran, maltodextrin, microcrystalline cellulose and fractionated coconut oil.

The capsule itself is derived from hydroxypropyl methylcellulose.

In 2019, CW innovated its capsule offering, introducing liquid capsules that deliver the same quality ingredients.

In 2019, CW innovated its capsule offering, introducing liquid capsules.

Ingredients in liquid capsules include carrier oil (extra-virgin organic olive oil) and FSHE.

2 unchanged sentences

Capsule products are meant to be consumed by direct ingestion.

The Company currently has seven capsule products.

Human Ingestible Products – Gummies

The Company’s FSHE gummies are made from whole-plant hemp extract and nutraceutical blends and are flavored with natural juices.

The product is meant to be consumed by direct ingestion.

The Company has 17 gummy products.

Human Ingestible Products – Sprays

The Company’s sprays are made from THC-Free hemp extract minor cannabinoids, and botanical extracts.

The product is meant to be consumed by direct ingestion.

The Company has two spray products.

The Company’s topical products are delivered in cream, balm, gel, roll-on, ointment, other cosmetic type forms.

1 unchanged sentence

Topical products are meant to be applied externally and by topical application.

The Company currently has 102 topical products.

The Company pet products are currently for canine use.

2 unchanged sentences

The pet line was developed in adherence with the strict quality standards of the National Animal Supplement Council (“NASC”), which has a quality seal audit program and the mission of which is to promote the health and well-being of companion animals and horses that are given animal health supplements by their owners, and to protect and enhance the animal health supplement industry.

A review of those companies certified by NASC shows that Charlotte’s Web is one of only a few hemp companies to be certified under the NASC’s quality standards.

Liquid canine products are delivered in coconut-based MCT oil with or without flavor.

The liquid and solid products are meant to be consumed by direct ingestion or added to food.

In addition, the Company has a hemp infused balm for dogs with sensitive skin.

The Company currently has 18 pet products.

The liquid and solid products are meant to be consumed by direct ingestion.

Key Competitive Advantages of Product Offering

Charlotte’s Web’s founders, the Stanley Brothers, have garnered substantial international media and legislative attention over the past several years, strengthening the Company's brand.

In addition to the power of the Charlotte’s Web brand and substantial goodwill generated from the Company’s legislative efforts and media exposure, the Company's believes the following are also competitive advantages of the Company:

In addition to Charlotte’s Web brand and substantial goodwill generated from the Company’s legislative efforts and media exposure, the Company's believes the following are also competitive advantages of the Company:

Cultivation Experience and Capacity — With years of experience in plant cultivation, the Company has selected prime farmland to grow its hemp with access to substantial additional farmland for future capacity.

The Company is also exploring international cultivation and distribution opportunities.

In addition to third-party cultivation in Canada, the Company is exploring additional international cultivation and distribution opportunities.

The Company believes there is no other entity in the world with more experience bringing large-scale, hemp-based operations to the market while maintaining impeccable product quality.

Industry-leading Manufacturing Capability — CW leases a 136,610-square-foot industrial building located at the LOFT at 700 Tech Court in the Colorado Technology Center in Louisville, Colorado, which houses its primary production and R&D divisions.

Industry-leading Manufacturing Capability — CW leases a 136,610-square-foot industrial building located in Louisville, Colorado, which houses its primary production and R&D divisions.

This facility is staffed with professional personnel responsible for production management, quality control/assurance, analytical chemistry, product development and process engineering to ensure product quality.

Control of Supply Chain — The Company is substantially vertically-integrated and maintains control over its proprietary genetics throughout the entire cultivation and extraction processes — from seed/clone to packaged products.

The Company currently uses select contract manufacturers for topicals and capsules who manufacture products according to the Company’s specifications and standards.

The Company currently uses select contract manufacturers for gummies, sprays, topicals and capsules who manufacture products according to the Company’s specifications and standards.

Some companies in the CBD industry produce their products from imported hemp pastes of unknown origin, quality, and purity.

2 unchanged sentences

and Canadian Utility Patents for its hemp genetics.

The Company has earned a total of four U.S.

Utility Patents and one Canadian Utility patent covering hemp varieties as it advances the science of hemp horticulture.

The Company has earned a total of five U.S.

Utility Patents and five Canadian Utility Patent covering hemp varieties as it advances the science of hemp horticulture.

The Company believes that the positive media exposure surrounding its proprietary strains have made Charlotte’s Web one of the most sought-after brands in the emerging hemp and CBD markets.

Furthermore, the Company developed and launched a fully integrated breeding program in 2017 to further the genetic IP portfolio started by the Stanley Brothers.

Furthermore, the Company developed and launched a fully integrated breeding program in 2017 to further its genetic IP portfolio.

Protection of Intangible Assets — The ownership and protection of the Company’s intellectual property is a significant aspect of the Company’s future success.

19 unchanged sentences

The Company cultivated 6 acres of irrigated farmland in Colorado for the 2021 growing season and harvested 26,000 lbs.

In 2018, 2019, and 2020, the Company produced 675,000 lbs., 2,340,000 lbs.

and 157,000 lbs., respectively, of hemp in three states.

Given the large harvest in 2019 the Company anticipates that it has enough hemp inventory to meet its future sales projections and potential for new revenue streams to further monetize parts of its supply chain for two years or more.

In 2021, the Company’s focus in cultivation continued to be on international market entrance through cultivation and in R&D, plant breeding and regional plant variety trials.

The Company is planning on multiple research plots across three growing regions with proven success.

The Company executed on multiple research plots across three growing regions with proven success.

This will allow the Company to create early maturing times for northern latitude variety specific cultivars and innovate cannabinoid developments for expanded product offerings.

8 unchanged sentences

The Company and its third-party farming operators are in compliance with the regulations as outlined by each applicable Department of Agriculture and all hemp produced and sold by the Company constitutes hemp under the 2018 Farm Bill, as well as the laws of the states in which it produces and sells such hemp.

The Company currently leases land upon which it operates multiple farms across northeastern Colorado, allowing for required organic crop rotation among locations and providing flexibility to expand the number of acres farmed.

The Company’s first harvest in 2014 proved a new concept in large-scale hemp cultivation for the proprietary

variety which is used to create the Charlotte’s Web products.

Since 2014, the Company has continuously scaled and innovated its cultivation techniques and technology.

The Colorado farming operations are operated solely by the Company’s personnel to provide the lowest cost of goods sold without compromising high quality standards, while at the same time creating plants, seeds and cultivation practices.

The cultivation division also operates a small number of greenhouses used for seed and clone production in northeastern Colorado.

The Company believes the availability of leased land in northeastern Colorado is sufficient to meet its future growing requirements in the region.

In 2015, the Company began cultivation in Kentucky, the second leading hemp producing state in the United States, behind Colorado.

The Company operates in Kentucky with third-party farming operators at local farmers.

During 2015 and 2016, the crops grown were intended for both seed and the development of mechanizing harvest techniques through the modification of current modern agriculture equipment.

The Company is in constant communication with these farms concerning its seasonal growing requirements.

The estimated acreage and availability is determined during the year prior to planting and the final acreage for the yearly lease is determined early each year and contracted for accordingly.

The Company believes the availability of leased land in Kentucky is more than sufficient to meet its future growing requirements.

The Company established an operating relationship with a third-generation farming family that has been farming in the region since 1950.

The Company extended its contract for the 2019 grow season and minimally extended in 2020.

All farming is done with oversight by the Company to ensure quality standards and specifications are met.

Acreage for future expansion continues to be readily available.

The Company conducted research trials in 2019 and 2020 in its successful attempt to register three varieties under Health Canada’s list of approved cultivars.

At the present, these varieties are being cultivated in the Okanagan Valley in central British Columbia and will be used for the Company’s supply chain to enter the Canadian market through an asset light approach.

The Company does not own inventory in Canada but intends to licenses its brand, processes, products and formulations to licensed Canadian entities.

Cultivation Research & Development

1 unchanged sentence

The Company’s R&D efforts are being driven both by the increasing demand for the Company’s products and its desire to create an expanded portfolio of products that serve the customers’ needs and creating improved varieties for cultivation success in northern latitude regions such as Canada and potentially Europe.

The Company’s baseline varieties, developed by the Stanley Brothers, were not proven to be successful in growing in regions outside of Colorado.

The Company’s baseline varieties, were not proven to be successful in growing in regions outside of Colorado.

For this reason, the Company launched its breeding division in 2017 for the purpose of hybrid development to allow successful expansion to other growing regions and international markets.

Breeding Division

The breeding division supports the Company in a myriad of ways, but its main purpose is to expand the Company’s proprietary hemp variety portfolio.

The breeding division's main purpose is to expand the Company’s proprietary hemp variety portfolio.

This allows for successful cultivation expansion in both US and International markets, as well as creating innovative cannabinoid development for expanded product development.

The breeding program has five variety patents, including two hemp hybrid varieties with proven disease resistance and increased

yield which lowers cultivation costs of production.

The breeding program has five variety patents, including two hemp hybrid varieties with proven disease resistance and increased yield which lowers cultivation costs of production.

In addition to hybrid development, the division oversees the Company’s seed production and supply, import/export requirements, R&D hemp regulatory compliance, assists in State and Federal legislative efforts and supports cultivation operations.

13 unchanged sentences

With this harvesting process, there are limitations applicable to both available infrastructures and labor in agricultural regions.

To mitigate these challenges, the Company has focused its Colorado, Kentucky, and Oregon cultivation teams on the development of new, more scalable processes to mechanize harvesting without sacrificing quality.

With capital investments in 2019 made in each state, the Company has successfully scaled the harvesting and drying process and believes it has enough capacity to meet the Company’s medium-term needs.

To mitigate these challenges, the Company has focused its Colorado, Kentucky, Oregon, and Canada cultivation teams on the development of new, more scalable processes to mechanize harvesting without sacrificing quality.

The Company has successfully scaled the harvesting and drying process and believes it has enough capacity to meet the Company’s medium-term needs.

Manufacturing

4 unchanged sentences

The LOFT has been constructed using state of the art processes and equipment to deliver superior products to the Company’s customers.

The facility is optimized to efficiently execute the Company’s core competencies in R&D, product development, quality control, and product delivery.

The Company believes it has sufficient capabilities to meet its core production requirements in the near-term.

The new facility also has been designed to accommodate incremental manufacturing capacity as business needs require, including the strategic internalization of contract manufactured items.

The facility efficiently executes the Company’s core competencies in R&D, product development, quality control, tincture manufacturing and filling, and product delivery.

The Company believes it has sufficient capabilities to meet its core production requirements over the long term.

The facility also has been designed to accommodate incremental manufacturing capacity as business needs require, including the strategic insourcing of contract manufactured products beyond tinctures.

Arrangements with Suppliers and Manufacturers

The Company currently contracts key parts of supply chain management, including manufacturing, production, and packaging for non-proprietary aspects of its manufacturing process for certain of its products.

These large-scale

manufacturers reduce the reliance on internal manufacturing resources and allow for rapid scaling of production on an as needed basis.

These large-scale manufacturers reduce the reliance on internal manufacturing resources and allow for rapid scaling of production on an as needed basis.

Extraction and Product Formulation

9 unchanged sentences

The Company’s topical, chews, and liquid products are currently blended, flavored, filled, labeled, and packaged into consumer cartons at either its production facility or at contract manufacturer facilities.

The Company is working to qualify additional third-party contract manufacturers to ensure adequate encapsulation, bottling, and packaging capabilities necessary to meet demand for the Company’s products.

The Company is continuously working to qualify additional third-party contract manufacturers to ensure adequate encapsulation, bottling, and packaging capabilities necessary to meet demand for the Company’s products.

Quality Management Systems

In 2020, the Company was the first hemp extract company to receive an NSF certification.

NSF International’s dietary supplements certification is the only national standard that establishes requirements for the ingredients in dietary and nutritional supplements and is considered the gold standard for products in the dietary supplement space.

NSF International’s dietary supplements certification is a globally recognized standard that establishes requirements for the ingredients in dietary and nutritional supplements and is considered the gold standard for products in the dietary supplement space.

In October 2022, Charlotte’s Web SPORT – Daily Edge, became the first broad-spectrum hemp-derived tincture to be Certified for Sport® by NSF.

NSF's Certified for Sport ® program verifies that products do not contain unsafe levels of contaminants, prohibited substances or masking agents, and that what is on the label matches what is in the product.

The Certified for Sport ® certification is the only independent third-party certification program recognized by Major League Baseball.

Additionally in January 2022, the Company was the first hemp extract company to achieve International Organization for Standardization ("ISO") 17025 certification.

6 unchanged sentences

This ensures products manufactured under cGMP meet quality standards.

1 See 21 C.F.R.

The Company’s products meet regulatory guidelines for contaminants and are tested by independent third-party laboratories.

3 unchanged sentences

The control and visibility maintained through the Company’s substantial vertical integration allows for the continual monitoring and refinement of critical processes, resulting in high quality standardized products.

1 See 21 C.F.R.

Sales and Distribution Strategy

The Company’s products are distributed through its e-commerce website (www.charlottesweb.com), third-party e-commerce websites, select distributors, health practitioners, and a variety of brick-and-mortar retailers.

The Company’s products were introduced in late 2014, with 2015 representing the first year of meaningful sales volume, primarily through direct-to-consumer online sales.

After commencing interstate shipping in March 2 015, sales have continued to show a steady growth trend.

The Company’s products are sold in chiropractic and doctors’ offices, gyms, massage therapy offices, salons, animal clinics, and pet stores.

As of December 31, 2021, the Company’s products were sold in over 15,000 retail locations across the United States, including national grocery, drug, mass market, pet, natural, and specialty retailers.

In addition, the Company’s products are sold in over 8,000 health care practitioners’ offices across the United States.

The Company distributes its products within the United States and, on a limited basis, internationally.

Retail distribution has evolved from a strategy focused on gaining broad distribution within the natural channel, to now focusing on gaining distribution in major food and mass market accounts.

The Company targets accounts where the brand is most likely to succeed with retail shoppers.

The Company’s products are sold in chiropractic and doctors’ offices, gyms, massage therapy offices, salons, hotels, direct deliver services, animal clinics, and pet stores.

The Company distributes its products within the United States and, in select international markets through local or regional distribution partners.

Retail distribution strategy is focused on gaining broad distribution within the natural channel and conventional food and mass market ("FDM") retailers.

The Company’s internal sales team has a two-pronged approach to building distribution:

(i) focus on gaining distributors with access to key strategic verticals in the medical and natural channels;

(i) focus on gaining distributors with access to key strategic verticals in the medical, FDM, and natural channels;

and (ii) contracted broker teams that assist in driving brand representation in larger food accounts.

Additionally, the Company’s internal sales team directly nurtures and maintains retail relationships.

The Company believes this model is extremely effective in targeting accounts with the right message to build and capitalize on the Company’s brand momentum.

The Company believes broad brand recognition and increasing market demand in the adaptogenic supplements category (where CBD is typically positioned) results in strong brand sales, which helps promote increased category development and new account acquisition.

As the Company continues to develop increasingly sophisticated supply and production capabilities, it will target strategic retail accounts that contribute to the broader acceptance of the brand and category.

The Company believes these accounts will enable it to achieve broader distribution, opening new consumer segments and driving growth by increasing awareness, consideration, and purchase.

The Company believes it is leading the way in the category by opening mass market channels that have historically been resistant to place CBD items on their shelves.

Key to this success has been the relationships and partnerships with key natural accounts including:

Thrive Market, Inc., Erewhon, Inc., Fresh Thyme Market, New Seasons Market LLC, Lassens Natural Foods & Vitamins, LLC, and Sprouts Farmers Market, Inc.

The Company has also shipped its products to national retail grocery and drug chains including The Kroger Co., Albertsons Companies, Inc., GNC, Vitamin Shoppe, Inc.

Publix Super Markets, Inc., Petco Health and Wellness Company, Inc., and CVS Pharmacy, Inc.

The Company continues to sell its CBD CLINIC products into the practitioner market comprising chiropractors, acupuncturists, physical and massage therapists and continues to grow the total number of health care practitioners in the CBD CLINIC network.

The market for the CBD CLINIC products can be characterized as a business-to-business ("B2B") market and is primarily served through national distributors.

The Company currently works with over 10 national distributors to supply this market.

The Company believes it is leading the way in the category by opening conventional channels that have historically been resistant to place CBD items on their shelves.

Key to this success has been the relationships and partnerships with key natural accounts.

The Company continues to sell its CBD CLINIC products into the practitioner market comprising of naturopathics, chiropractors, acupuncturists, physical and massage therapists, functional practitioners and continues to expand the total number of health care practitioners in the CBD CLINIC network.

The market for the CBD CLINIC products is primarily served through national distributors.

The Company believes that it can continue to capture and increase its market share in this market by increasing its sales and marketing efforts targeted at this market.

Presently the Company holds the number one market share position across major retail channels including Total US Food/Drug/Mass retail aggregate, Total US Natural specialty retail, and e-commerce, based on market share data from Nielsen, SPINS, and Brightfield, respectively.

Nielsen and Spins gather their data by tracking retail checkout systems that employ Universal Product Code (“UPC”) scanners.

Brightfield tracks a variety of online market data specifically focused on the CBD and cannabis industries.

The Company’s sales are executed through customized strategies depending on the channel of sale.

For example, in specialty food accounts, a combination of sales brokers and reps are strategically located within geographical

The Company’s sales are executed through customized strategies depending on the retail verticals.

For example, in specialty food accounts, a combination of sales brokers and distributors are strategically located within geographical markets.

This provides proximity along with hands-on support at the store level to ensure products are correctly labeled and merchandised.

This external sales team is managed by key management personnel within the Company.

Depending on the size of the account, some locations are deemed to be “national accounts” that receive additional support from the Company’s internal national accounts team.

This allows the Company’s brokers and independent sales teams to manage over 1,000 independent specialty food locations, while still achieving the same level of support that is expected in the Company’s larger chain retail customers.

Large retail customers are covered by the Company’s internal national accounts team with experts assigned to the accounts to develop the specific sales strategies necessary for the Company’s products to succeed in this market.

Medical accounts such as doctors, chiropractic, holistic and integrative health groups are supported by distributors directly linked to the industry and managed by the Company’s internal sales team.

Depending on the size of the account, some locations are deemed to be “national accounts” that receive additional support from the Company’s internal retail sales team.

This allows the Company’s brokers and distributors to manage multiple independent specialty food locations, while still achieving the same level of support that is expected in the Company’s larger chain retail customers.

The Company utilizes e-commerce to reach consumers and guide them through the hemp and CBD buying process.

This strategy allows access to consumers in the United States and has been instrumental in the Company’s success in growing the product line.

The Company believes consumers (millennials through baby boomers) rely heavily on digital research.

The Company believes consumers rely heavily on digital research.

Key to this approach is the ability to access consumers organically who are searching the web for “CBD” or “Charlotte’s Web” both on the Company’s website as well as through linking from reliable providers of content and education.

The Company’s website delivers on this through high levels of product purchase and engagement via opting into the Company’s email newsletter subscription.

The Company’s website delivers on this

through high levels of product purchase and engagement via opting into the Company’s email newsletter subscription.

This indicates a higher level of interest in educational resources and product knowledge.

The Company’s e-commerce database at the end of 2021 consisted of over 1,100,000 (up from 1.000,000 at year end 2020) “opting-in” email customers, with new enrollments averaging 20,600 customers per month.

The Company concentrates its activities in the digital space through:

• Search Engine Optimization — A collaborative, integrated effort with content and public relations teams optimizing search engine results in the category for those seeking both general education and availability to purchase

• Email — Growing the current subscriber list, working to develop segmentation processes and delivering relevant and personalized content

• Email — Growing the current subscriber list, building a new customer journey, and working to develop segmentation processes to deliver relevant and personalized content

• Social — Leveraging the passion of the Company and its founders through a dynamic website and branding strategy which will be used to maintain the Company’s relevance among consumers

2 unchanged sentences

• Drive direct to “.com” — Optimizing the customers’ web experience to convert browsers into buyers and driving repeat purchases via the elimination of consumer friction points

Currently, the majority of orders are fulfilled through a Company-operated LOFT fulfillment center located in Louisville, Colorado.

The Company is also using third-party logistics providers to secure a rapidly-scalable fulfillment and business continuity solution.

As public familiarity with hemp-derived CBD wellness products continues to increase, the Company may target several new distribution channels within the U.S.

and certain international markets that have significant future expansion potential.

Management believes there is a significant emerging opportunity to market premium hemp and botanical wellness products to the mainstream consumer marketplace.

Management believes public

recognition of the benefits of hemp products has increased dramatically in recent years, and consumers are seeking natural products for their general wellness benefits.

Target markets include sports and recreation, holistic health and wellness, and healthy aging.

Initial channel opportunities include vitamin and supplement retailers and natural grocers.

Key retail partners will include major food, mass market accounts, general retail accounts, health care practitioners and specialty and natural channels.

Currently, orders are fulfilled through a LOFT fulfillment center located in Louisville, Colorado, and the use of third-party logistics providers.

Marketing and Promotion

2 unchanged sentences

Sanjay Gupta.

Charlotte’s rapid and significant improvement in her wellness ignited a movement for hemp legalization in the United States.

Sadly, Charlotte passed away on April 7, 2020 in the midst of the COVID-19 pandemic.

In response, the State of Colorado issued an executive order proclaiming April 7th Charlotte Figi Day in Colorado.

Market data gathered from UPC-tracking and other indicators by leading third-party analysts such as Nielsen, SPINS, and Brightfield Group, shows that Charlotte’s Web is the market share leader in certain CBD categories and, the Company believes, the most widely recognized hemp extract with naturally occurring CBD in the world.

Subsequently, the value of the Charlotte’s Web brand equity is a significant contributor to the value of the Company because it uniquely represents the founders’ story of establishing a mission-based company of giving back and providing high quality solutions for people to control their wellness journey.

Data collection and customer analysis from e-commerce sales continues to be a significant component of the Company’s marketing strategy.

2 unchanged sentences

Key elements of the segmentation include:

• driving ability to more effectively motivate trial orders, improve overall product trial experience, promote repeat purchasing patterns and ensure retention through targeted messaging;

• driving ability to use targeted messaging to more effectively motivate trial orders, improve overall product trial experience, promote repeat purchasing patterns and ensure retention;

• differentially investing in core segments to attract new users with a high likelihood of repeat conversion;

2 unchanged sentences

Through its subscription program, the Company utilizes a discount structure to encourage enrollment with a similar structure to online “subscribe and save” models.

This is expected to deliver upside demand and repeat purchases from existing customers by enabling scheduled reorders and improved continuity in consumption.

This is expected to

deliver upside demand and repeat purchases from existing customers by enabling scheduled reorders and improved continuity in consumption.

Consumers are able to set their frequency for two-week, six-week or 1-3 monthly reorder patterns across the entire product line.

The Company continues to promote the awareness of its brands through investment in marketing programs, sponsorships and continued participation in events that offer wide exposure to both trade partners and consumer retail markets.

For example, the Company entered into the Gronkowski Agreement and the Gillette Stadium and Patriot Place Agreement which have driven national brand awareness of the CBDMEDIC brand.

In addition, CBDMEDIC is an Arthritis Foundation Impact Sponsor with the goal that the Company might serve as champions and active supporters in the Arthritis Foundation’s dedication to provide encouragement and assistance to the arthritis community.

For example, on October 11, 2022, the Company entered into the MLB Promotional Rights Agreement with MLB pursuant to which the Company entered into an exclusive strategic partnership with MLB to promote the Company’s new NSF-Certified for Sport® product line.

As a Certified B Corp, the Company is a socially conscious company, and is committed to using business as a force for good and a catalyst for innovation.

4 unchanged sentences

The Company has historically donated and plans to continue to donate to charitable organizations.

The Company plans to invest significantly in strengthening the Charlotte’s Web brand in the global marketplace and solidifying the brand as “The World’s Most Trusted Hemp Extract™.” The Company is substantially vertically integrated from seed to packaged product, which helps ensure product quality.

Growth from the Existing Product Portfolio Through Marketing Initiatives

The Company’s marketing mix strives to connect with audiences and the consumer journey through:

• paid, earned, and affiliate media to build awareness of the sector and the unique qualities of the Company’s brand equity and products

• search engine optimization ("SEO") and email marketing to drive consumer purchase and subscriptions on CW.com, the Company’s e-commerce platform

• partnerships and affiliates that reach expanded consumer segments

• public relations campaigns and events to amplify targeted social and media marketing communications

• trade marketing to increase visibility and differentiation of our products in customer stores

• word of mouth and referrals from health care practitioners, their colleagues, patients, and Brand Ambassadors

• event marketing and support of various social responsibility initiatives

The Company is substantially vertically integrated from seed to packaged product, which helps ensure product quality.

Being substantially vertically integrated and focusing on quality and standardization creates an important competitive differentiator for the Company, as the majority of its competitors are not substantially vertically integrated.

The Company’s knowledge of hemp cultivation, combined with its scientific and financial resources, allow it to maintain a leading market position amongst its competitors.

The Company’s principal competitors in the CBD wellness products space include companies such as CV Sciences (PlusCBD), CBD MD, Medterra, Canopy Growth (Martha Stewart CBD) and Garden of Life.

The Company’s principal competitors in the CBD wellness products space include companies such as CV Sciences (PlusCBD), cbdMD, Medterra, and Garden of Life.

Information Systems

3 unchanged sentences

The Company’s intellectual property and proprietary rights are important to its business.

In efforts to secure, maintain, and protect its intellectual and proprietary rights, the Company relies on a combination of patent, trademark, trade secret and other rights in the United States and Canada.

In efforts to secure, maintain, and protect its intellectual and proprietary rights, the Company relies on a combination of patent, trademark, trade secret, trade dress and other rights in the United States and Canada.

The Company also has confidentiality and/or license agreements with certain employees, contractors and other third parties, which limit access to and use of the Company’s proprietary intellectual property.

Pursuant to an agreement (the “Name and Likeness Agreement”) entered into between the Company, CW and Leeland & Sig d/b/a Stanley Brothers Brand Company, a Colorado limited liability company owned by certain founders, including each of the Stanley Brothers (the “Stanley Brand Company”) effective August 1, 2018, and further amended on April 16, 2021, Stanley Brand Company grants the Company a non-exclusive, worldwide right to use the name “Stanley Brothers” and the likeness of the seven Stanley Brothers until July 31, 2022 on a royalty-free basis.

Each party to the Name and Likeness Agreement will have the right to cause the other party to cease use of the name in certain circumstances such as misuse, bad acts, or a corporate acquisition.

Pursuant to the “Name and Likeness Agreement” entered into between the Company and Leeland & Sig d/b/a Stanley Brothers Brand Company, a Colorado limited liability company owned by certain founders, including each of the Stanley Brothers (the “Stanley Brand Company”) effective August 1, 2018, and further amended on April 16, 2021, July 30, 2022, August 31, 2022, September 30, 2022, and February 17, 2023, Stanley Brand Company grants the Company a non-exclusive, worldwide right to use the name “Stanley Brothers” and the likeness of the seven Stanley Brothers until June 30, 2023, on a royalty-free basis.

Each party to the Name and Likeness Agreement has the right to cause the other party to cease use of the name in certain circumstances such as misuse, bad acts, or a corporate acquisition.

The initial term of the Name and Likeness Agreement was for a thirty-six (36) month period, with the Company agreeing to begin activities to cease all use of any intellectual property used under the Name and Likeness Agreement within thirty (30) days of expiration or termination thereof.

In connection with the execution of the Name and Likeness Agreement, the Company executed employment agreements with each of the Stanley Brothers on September 1, 2018 providing for aggregate annual base salaries to the Stanley Brothers of $1,425,000.

On April 16, 2021, pursuant to

an amending agreement, the Name and Likeness and Agreement was extended for a period of one year, expiring July 31, 2022.

On April 16, 2021, pursuant to an amending agreement, the Name and Likeness and Agreement was extended for a period of one year, expiring July 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 $2,081,250 to Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, on behalf of the Stanley Brothers, as consideration for the extended use of the “Stanley Brothers” name and the likeness of the seven Stanley Brothers, as well as consulting services to be provided to the Company over the term of the consulting agreement and certain restrictive covenants.

Effective July 31, 2022, the Company executed an Extension and Second Amending Agreement to Name and Likeness and License Agreement, extending the term from July 31, 2022 to August 31, 2022.

Effective August 31, 2022, the Company executed an Extension and Third Amending Agreement to Name and Likeness and License Agreement, extending the term from August 31, 2022 to September 30, 2022.

Effective September 30, 2022, the Company executed an Extension and Fourth Amending Agreement to Name and Likeness and License Agreement (as amended, the “Name and Likeness Agreement”), extending the term from September 30, 2022 to December 31, 2022.

(i) customer meetings;

(ii) strategic partner meetings;

(iii) speaking engagements;

(iv) presentations;

(v) social media postings;

(vi) podcasts;

(vi) public relations events;

(vii) media interviews;

(viii) trade show appearances;

and (ix) events substantively similar to any of the foregoing.

Effective February 22, 2023, the Company executed an Extension and Fifth Amending Agreement to Name and Likeness and License Agreement (as amended, the “Name and Likeness Agreement”), extending the term to June 30, 2023.

See “ Certain Relationships and Related Transactions, and Director Independence – Company Transactions with Related Parties.

” The Name and Likeness Agreement does not affect the Company’s intellectual property rights in connection with its use of “Charlotte’s Web.” See “ Risk Factors – Risks Relating to the Company’s Business and Industry – Reliance on the Stanley Brothers brand could have negative consequences .”

Effective January 5, 2023, the Company entered into a Brand License and Option Agreement (“License Agreement”) with JMS Brands LLC, an entity owned by Jesse Stanley, one of the Company’s founders.

Pursuant to the Brand License and Option Agreement, the Company licenses certain intellectual property from JMS Brands LLC, for an annual license fee of $500,000.

Pursuant to the terms of the License Agreement, the Company has the option to purchase the intellectual property rights for two million dollars ($2,000,000).

The Company currently has a portfolio of pending U.S.

2 unchanged sentences

and Canadian trademark applications.

On January 12, 2020, the Company announced that CW has been granted U.S.

Utility Patents for its hemp genetics by the USPTO.

The newly issued patents cover two of the Company’s new feminized seed hybrid hemp varieties developed under the Company’s breeding program;

‘Kirsche’ (US Patent No.

10,888,060) and ‘Lindorea’ (US Patent No.

‘Lindorea’ and ‘Kirsche’ are the world’s first two allowed U.S.

Utility Patents reading on feminized hybrid hemp plants.

The Company now has earned a total of four U.S.

The Company now has earned a total of five U.S.

Utility Patents covering hemp varieties as it advances the science of hemp horticulture.

The Company also has a Canadian Utility Patent Covering the 'CW1AS1" hemp variety.

For each of the Company’s material patents, the chart below identifies (i) the patent, (ii) the type of intellectual property (“IP”) subject to the patent, (iii) the jurisdiction where the patent is held, (iv) the title of the patent, (v) the inventor(s) and assignee(s), and (vi) the status and/or term of the patent.

The Company also five Canadian Utility Patents covering the 'CW1AS1',‘Lindorea’, ‘Kirsche’, ‘AF15B15-21', and ‘EM15B2A170’ hemp varieties.

The patents listed below expire between 2039 and 2042, and cover novel hemp strains used or with potential use in Company products, or for other commercialization opportunities.

Patent / Publication Type of IP /

Title / Inventor(s) / Assignee (s)

Status / Patent Term /

Utility - Canada

2 unchanged sentences

CHARLOTTE'S WEB, INC.

Calculated Term Expiration:

Covered Products:

• Protection for internal hemp line used in various products.

Related Technologies:

• Protection for 'CW1AS1' hemp line.

US 10,653,085

3 unchanged sentences

CHARLOTTE'S WEB, INC.

Calculated Term Expiration:

Related Technologies:

• Protection for internal hemp line used in various products.

• Protection for 'CW1AS1' hemp line.

US 10,736,295

3 unchanged sentences

CHARLOTTE'S WEB, INC.

Calculated Term Expiration:

Related Technologies:

• Protection for internal hemp line used in various products.

• Protection for 'CW1AS1' hemp line.

US 10,888,059

Utility- United States

1 unchanged sentence

CHARLOTTE’S WEB, INC.

Calculated Term Expiration:

Related Technologies:

• Protection for hemp line licensed through CW Hemp Supply.

• Also used in various products.

• Protection for 'LINDOREA' hemp line.

US 10,888,060

2 unchanged sentences

CHARLOTTE’S WEB, INC.

Calculated Term Expiration:

Related Technologies:

• Protection for internal hemp line used in various products.

• Protection for 'KIRSCHE' hemp line.

US 11,503,787

Utility- United States

METHODS AND FORMULATIONS FOR EFFICACIOUS PAIN RELIEF BY TRANSDERMAL DELIVERY OF CANNABIDIOL

Antelman, Perry Madhavan, Bharat Lampert, Shalom

HEMP PLANT NAMED ‘EM15B2A170’

Brian Campbell

CHARLOTTE’S WEB, INC.

Calculated Term Expiration:

Related Technologies:

• This patent relates to various CW products

• Protection for 'EM15B2A170' hemp line.

Utility- Canada

HEMP PLANT NAMED 'LINDOREA'

CHARLOTTE’S WEB, INC.

Related Technologies:

• Protection for 'LINDOREA' hemp line.

Utility- Canada

HEMP PLANT NAMED ‘KIRSCHE’

CHARLOTTE’S WEB, INC.

Related Technologies:

• Protection for 'KIRSCHE' hemp line.

Utility- Canada

HEMP PLANT NAMED ‘AF14B15-21’

Brian Campbell

CHARLOTTE’S WEB, INC.

Related Technologies:

• Protection for 'AF14B15-21'' hemp line.

Utility- Canada

HEMP PLANT NAMED ‘EM15B2A170’

Brian Campbell

CHARLOTTE’S WEB, INC.

Related Technologies:

• Protection for 'EM15B2A170' hemp line.

The Company is subject to certain risks related to its intellectual property.

1 unchanged sentence

Employees and Human Capital

As of December 31, 2020, the Company had 306 employees.

Of these employees, 127 were employed in manufacturing operations positions, 86 were employed in sales and marketing positions, 58 were employed in general and administrative positions, 10 were employed in cultivation positions, and the remaining employees were engaged in R&D aspects of the business.

As of December 31, 2021, the Company had 270 employees.

Of these employees, 114 were employed in manufacturing operations positions, 77 were employed in sales and marketing positions, 48 were employed in general and administrative positions, 5 were employed in cultivation positions, and the remaining 26 employees were engaged in R&D aspects of the business.

Of the 270 employees, 257 were full-time employees.

As of December 31, 2022, the Company had 170 full time employees.

Of these employees, 85 were employed in manufacturing operations positions, 34 were employed in sales and marketing positions, 42 were employed in general, quality, and administrative positions, 5 were employed in cultivation positions, and the remaining 4 employees were engaged in R&D aspects of the business.

The Company believes it has an advantage in attracting employees with its purpose-based mission, B-Corp status, and its leadership position in the industry, and prides itself in attracting, retaining and developing individuals with complementary mix of professional experiences and industry knowledge.

The Company values diversity in culture, race, and sexual differences and has established affinity groups led by management to ensure these differences are supported in the workplace, and that employees may realize their professional goals through development programs and mentoring.

The Company values diversity in culture, race, and sexual differences and has established affinity groups led by leadership to ensure these differences are supported in the workplace, and that employees may realize their professional goals through development programs and mentoring.

The Company believes in investing in each of its employees and devotes the necessary resources to ensure all employees are given the proper tools and resources to grow in their respective fields.

The Company also believes in cultivating a collaborative working environment wherein everyone is valued for their contribution to the team and rewarded for their accomplishments.

The Company has assembled a management team with significant professional expertise in distribution, cultivation, sales, technology, finance, customer service, consumer packaged goods ("CPG"), marketing, business development, acquisitions, capital markets and market analysis.

The Company has assembled a management team with significant professional expertise in distribution, cultivation, sales, science, intellectual property, technology, finance, customer service, consumer packaged goods ("CPG"), marketing, business development, acquisitions, capital markets and market analysis.

The Company’s management team includes executives with many years of experience in their respective fields.

13 unchanged sentences

Brand recognition will continue to be driven by several factors including:

(i) media events similar to what has historically occurred with the Company including CNN, Today Show, the New York Times and Forbes;

(ii) email, social media and blogs;

(iii) use of subject matter experts;

(iv) legislative participation;

and (v) public speaking engagements at key industry events.

In addition to these active outlets to build brand awareness, the Company plans to support word-of-mouth endorsements and testimonials from its customers who are advocates for its brands and products.

Growth from the Existing Product Portfolio Through Marketing Initiatives

The Company’s marketing mix strives to connect with audiences and the consumer journey through:

• paid and earned media to build awareness of the sector and the unique qualities of the Company’s brand equity and products

• search engine optimization ("SEO") and email marketing to drive consumer purchase and subscriptions on CW.com, the Company’s e-commerce platform

• public Relations campaigns to amplify targeted social and media marketing communications

• trade marketing to increase visibility and differentiation of our products in customer stores

• word of mouth and referrals from health care practitioners, their colleagues and patients

• event marketing and support of various social responsibility initiatives

• initiatives of the Stanley Brothers, the Company’s founders, under the Name and Likeness Agreement with the Company

(i) earned media events similar to what has historically occurred with the Company with entities such as CNN, Today Show, the New York Times and Forbes;

(ii) paid media and affiliate programming through targeted consumer campaigns on major platforms;

(iii) email, social media and blogs;

(iv) partnerships and influencer marketing such as Major League Baseball, and Angel City

Football Club;

(v) use of subject matter experts;

(vi) legislative participation;

(vii) public speaking engagements at key industry and cultural events;

and (viii) B Corporation certification and social impact partnerships.

In addition to these active outlets to build brand awareness, the Company supports word-of-mouth endorsements and testimonials from its customers who are advocates for its brands and products.

Marketing activations and marketing-driven innovations are developed with the support of industry data through various insight partners.

International Expansion

The Company is exploring increased global distribution, including via e-commerce, in the future, with near-term expansion focused on the United Kingdom, European Union, Israel, and Canada.

To achieve an international reach, the Company is exploring either partnering with distributors, brokers and/or manufacturers in these international locations or the Company may create its own foreign licensed subsidiaries to transact business in these regions.

The Company will be constantly weighing the trade-off of each option against the impact on sales volume opportunities and profitability ratios in its decision-making process.

Expansion into additional jurisdictions will be done in compliance with applicable regulatory requirements in such jurisdictions and the cost and complexity of such compliance will form part of the strategic evaluation process for any proposed expansion.

On December 9, 2020, the Company announced that the Company signed the exclusive distribution agreement in Israel with Israel-based InterCure Ltd., which owns one of Israel’s largest and most established medical Cannabis producers, Canndoc.

International penetration will be done primarily via local and regional sales & distribution partnerships.

On December 9, 2020, the Company announced that it signed the exclusive distribution agreement in Israel with Israel-based InterCure Ltd., which owns one of Israel’s largest and most established medical Cannabis producers, Canndoc.

Its GMP-verified medical Cannabis products are sold in pharmacies in Israel, and it holds international cultivation and distribution agreements in the European Union.

Selected Charlotte’s Web hemp extract wellness products are intended to be available to the Israeli public through AltCure, a subsidiary of InterCure Ltd.

Charlotte’s Web and InterCure Ltd.

also are considering future distribution agreements in certain European countries.

The two companies will also explore opportunities such as clinical trials, product development and manufacturing in Israel.

On January 27, 2022 the Company named Jade Proudman, the Chief Executive Officer ("CEO") of Savage Cabbage, one of the oldest and most trusted CBD companies in the United Kingdom, as a Global Brand Ambassador for

Charlotte's Web.

As the founder and CEO of London-based Savage Cabbage, Jade Proudman has become one of the United Kingdom's leading CBD advocates, serving an established customer base of over 9,000 wellness seekers in over 44 countries around the world, recently expanding further within Europe.

Savage Cabbage is a Member of EIHA ("European Industrial Hemp Association") and has been the official United Kingdom distributor of Charlotte's Web hemp CBD oil since 2016.

Savage Cabbage has been an advocate of whole plant, full spectrum products that contain all the beneficial compounds that exist in the hemp plant as well as CBD.

Effective as of November 1, 2022, the Company entered into a Manufacturing and Sales License Agreement with Aphria, Inc., an Ontario corporation and an affiliate of Tilray Brands, Inc.

Improved Distribution

At the end of 2021, the Company’s products were sold in approximately 15,000 retail locations and over 8,000 health care practitioners across the U.S., as well as over one million addressable consumers on e-commerce.

FDA / regulatory actions will increase distribution within the Food, Drug and Mass retail channels.

However, the Company believes distribution gains in the U.S.

At the end of 2022, the Company’s products were sold in retail locations and health care practitioners across the U.S., as well as over one million addressable consumers on e-commerce.

The Company believes distribution gains in the U.S.

are nevertheless achievable through:

• incremental retailer locations with existing customers

• incremental retail locations with existing customers

• increased consumer purchases in existing retail customer

17 unchanged sentences

Consequently, the Company’s products are not sold pursuant to the rules and regulations governing the cultivation, transportation, and sale of medicinal or recreational marijuana.

The Company cultivates, processes, transports, and sells its products pursuant to the 2014 Farm Bill and currently applicable provisions of the 2018 Farm Bill and in accordance with applicable state and local laws.

All Hemp produced and sold by the Company constitutes Hemp under the 2018 Farm Bill as well as under the laws of the states in which the Company cultivates, manufactures, and

sells such Hemp-based products.

The Company cultivates, processes, transports, and sells its products pursuant to the 2018 Farm Bill and in accordance with applicable state and local laws.

All Hemp produced and sold by the Company constitutes Hemp under the 2018 Farm Bill as well as under the laws of the states in which the Company cultivates, manufactures, and sells such Hemp-based products.

If sold internationally, products are sold in accordance with the laws of the importing and exporting jurisdiction.

13 unchanged sentences

however, states take varying approaches to regulating the production and sale of Hemp and Hemp-derived CBD.

Some states, including recently California, explicitly authorize and regulate the production and sale of Hemp-derived CBD or otherwise provide legal protection for authorized individuals to engage in commercial Hemp activities.

Hemp cultivation is now permitted in all 50 states, 3 but several states, including Missouri and Nebraska, do not expressly allow the sale of Hemp and Hemp-derived CBD.

Some states, including California, Florida, and Texas, explicitly authorize and regulate the production and sale of Hemp-derived CBD or otherwise provide legal protection for authorized individuals to engage in commercial Hemp activities provided the products comply with testing, labeling/packaging, registration, and/or other requirements.

Hemp cultivation is now permitted in all 50 states, 3 but several states, including Missouri and Illinois, do not expressly allow the sale of Hemp and Hemp-derived CBD.

Additionally, a number of states prohibit the sale of ingestible CBD products based on the FDA’s position that, pursuant to the FD&C Act, it is unlawful to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are Hemp-derived.

The Company’s activities related to the production, marketing and sale of its products comply with the 2014 Farm Bill and/or 2018 Farm Bill, as currently applicable to its operations.

Several states are also considering THC limits and age-related sales restrictions for Hemp-derived products that contain THC, such as full spectrum hemp extracts.

2 Agriculture Improvement Act of 2018 (section 10113) (defining hemp under the Agricultural Marketing Act of 1946, 7.

3 The District of Columbia does not currently permit hemp cultivation.

The Company’s activities related to the production, marketing and sale of its products comply with the 2018 Farm Bill, as applicable to its operations.

However, certain government agencies (such as the FDA) and certain federal officials have challenged the scope of permissible commercial activity.

2 unchanged sentences

The Company has not received a response from the FDA and the Warning Letter remains open.

While the FDA’s current position is that CBD cannot be marketed as a dietary supplement and is prohibited from use in food, the FDA is also currently evaluating whether, and how, Hemp-based CBD dietary supplements and food can be lawfully sold in the U.S.

Over the past several years, FDA has issued numerous warning letters to companies marketing CBD products with disease or unlawful drug claims.

5 unchanged sentences

The FDA’s enforcement against the sale and marketing of CBD products has to date been limited to the issuance of warning letters, although enforcement could include civil and criminal penalties.

The legal status of CBD in food and dietary supplements is

2 Agriculture Improvement Act of 2018 (section 10113) (defining hemp under the Agricultural Marketing Act of 1946, 7.

3 The District of Columbia does not currently permit hemp cultivation.

under active consideration by the FDA as of the date of this Form 10-K, as indicated by the FDA’s January 2021 statement whereby the agency reaffirmed that it is actively evaluating the regulatory frameworks that apply to Cannabis-derived products intended for non-drug uses, and whether any new FDA regulations are warranted.

The legal status of CBD in food and dietary supplements remains under active consideration by the FDA as of the date of this Form 10-K, as the agency continues to evaluate the regulatory framework that should apply to Cannabis-derived products intended for non-drug uses.

In January 2023, the FDA issued a statement concluding that existing regulatory frameworks for dietary supplements and foods are not appropriate for CBD due to potential safety risks, and that it will work with Congress to develop an appropriate pathway for the regulation of CBD products.

While the Company disagrees with the position of the FDA, there is risk that this agency could take enforcement or regulatory actions against the Company.

2 unchanged sentences

the FDA’s position that CBD cannot be marketed in a dietary supplement on the basis that substantial clinical trials studying CBD as a new drug were made public prior to the marketing of any food or dietary supplement containing CBD, and therefore food or dietary supplements are precluded from containing this ingredient, referred to as the IND Preclusion.

However, the removal of Hemp and its extracts, including CBD, from the CSA pursuant to the 2018 Farm Bill, and the FDA’s indication that it is considering using its authority to issue a regulation that could specifically allow Hemp-derived ingredients in foods and supplements, are major developments toward resolving these regulatory barriers.

However, the removal of Hemp and its extracts, including CBD, from the CSA pursuant to the 2018 Farm Bill, and the establishment of multiple state regulatory frameworks that permit the sale of Hemp-derived CBD products are positive developments.

Currently it is unclear whether Congress will move forward with legislation to allow CBD in dietary supplements in light of the FDA’s determination that a new regulatory pathway is needed.

Timing for the FDA to develop a new pathway is also uncertain, but is likely to take several years.

Stakeholders take different positions regarding the scope of legal activity in light of the interplay of federal and state law, and in light of recent developments, such as the 2018 Farm Bill, the September 30, 2017 decision of the World Anti-Doping Agency to drop CBD from its list of prohibited substances, and the World Health Organization Expert Committee on Drug Dependence review report finding that CBD is “generally well tolerated with a good safety profile” and low abuse potential.

Furthermore, on May 28, 2020, the FDA submitted draft guidance to the White House Office of Management and Budget relating to research considerations for Cannabis and Cannabis-derived compounds, which reflects the FDA’s continued steps to consider the safety and advancement of Cannabis-derived compounds.

In a trade press article regarding this guidance, FDA confirmed that it is “working toward a goal of providing additional guidance and [has] made substantial progress,” while also reiterating the need to obtain additional data on the safety, effectiveness, and quality of CBD products.

5 In addition, in July 2020 the FDA submitted a Cannabidiol Enforcement Policy Draft Guideline for Industry to the Office of Management and Budget.

However, the FDA withdrew this guidance in January 2021 at the request of the Biden Administration.

It has not yet indicated whether or when a new guidance document will be submitted.

Should the Company determine to sell products containing greater than 0.3% THC, additional regulatory regimes, both in the U.S.

4 unchanged sentences

and international regulatory regimes are set out in greater detail below.

4 World Health Organization Expert Committee on Drug Dependence, Cannabidiol (CBD) Pre-Review Report, November 10, 2017.

United States Federal Regulation of Hemp

1 unchanged sentence

In addition to customary regulations applicable to any commercial business, the Company’s operations are subject to state and federal regulation in respect of the cultivation of Hemp and the production, distribution and sale of products intended for human ingestion or topical application and, with respect to certain products, by animals.

4 World Health Organization Expert Committee on Drug Dependence, Cannabidiol (CBD) Pre-Review Report, November 10, 2017.

5 See https://www.foodnavigator-usa.com/Article/2020/06/05/FDA-says-it-s-made-substantial-progress-on-CBD-regs-CV-Sciences-weighs-in-on-food-vs-pharma-path-man-sues-CBD-firm-after-failing-drugs-test

Hemp is an agricultural commodity cultivated for use in the production of a wide range of products globally.

24 unchanged sentences

In 2014, Congress enacted the 2014 Farm Bill.

The 2014 Farm Bill, the provisions of which expired as of December 31, 2021, authorized institutions of higher education and state departments of agriculture (and their contractual designees) to cultivate hemp, notwithstanding the CSA or any other federal law, provided that certain conditions are met.

5 The scope of the 2014 Farm Bill was limited to cultivation that was:

3 unchanged sentences

Many states that adopted pilot programs under the 2014 Farm Bill have since replaced them with approved programs under the 2018 Farm Bill, described below.

7 The various state Hemp programs had different requirements regarding the registration of cultivators and processors, the involvement of institutions of higher education, and

6 See http://www.ncsl.org/research/health/state-medical-marijuana-laws.aspx.

7 https://www.ams.usda.gov/rules-regulations/hemp/state-and-tribal-plan-review.

permissible commercialization.

6 The various state Hemp programs had different requirements regarding the registration of cultivators and processors, the involvement of institutions of higher education, and permissible commercialization.

7 Activities determined to be compliant with the 2014 Farm Bill were protected from federal interference by successive Consolidated Appropriations Acts enacted during the years 2015 through 2021.

23 unchanged sentences

Accordingly, the DEA no longer has regulatory authority to interfere with the interstate commerce of Hemp products, so long as the THC level of such products is at or below 0.3%.

5 See http://www.ncsl.org/research/health/state-medical-marijuana-laws.aspx.

6 https://www.ams.usda.gov/rules-regulations/hemp/state-and-tribal-plan-review.

Although the DEA no longer regulates Hemp, marijuana continues to be classified as a Schedule I controlled substance under the CSA.

21 unchanged sentences

See “ FDA Regulation ”, below.

On March 5, 2020, former FDA Commissioner Dr.

Hahn issued a statement on the FDA’s work related to CBD products.

The statement makes clear that the FDA will continue its work to educate the public on CBD’s perceived safety risks and that the FDA is taking steps to solicit additional public feedback, data, and research on the science, safety, and quality of CBD products.

These new steps include re-opening the public docket so that FDA can obtain additional scientific data on CBD, which will include a process by which confidential and proprietary information can be shared with the FDA and kept protected.

Additionally, former Commissioner Hahn’s statement reiterates that the FDA will continue to monitor and police the CBD products marketplace and is evaluating the issuance of a risk-based enforcement policy that provides greater transparency and clarity regarding factors the FDA intends to consider in prioritizing enforcement decisions.

Much of former Commissioner’s Hahn statement was also included in the FDA’s congressionally mandated report on CBD, which was also submitted on March 5, 2020.

The report confirms that the FDA is actively considering pathways to allow the marketing of CBD as a dietary supplement, which may include notice and-comment rulemaking and interim risk-based enforcement policies.

The report signals the FDA’s continued interest in certain aspects of CBD, including effects from sustained use, effects from different methods of exposure, and effects on the developing brain and on the unborn child and breastfed newborn.

The report also acknowledges that the FDA is receiving inquiries about whether “full spectrum” and “broad spectrum” Hemp products can currently be marketed and sold pursuant to the Farm Bill.

The FDA’s current position is that products containing CBD cannot be marketed

as a dietary supplement.

The report does not set a timeline for agency action, but it does signal the FDA’s clear interest in a pathway for the use of CBD in dietary supplements, despite its current position on CBD.

Further to this point, former Commissioner Hahn had publicly stated that it would be a “fool’s game” for the FDA to pull CBD products from the market entirely, as their use is already widespread.

In January 2021, the FDA issued an update entitled “Better Data for a Better Understanding of the Use and Safety Profile of Cannabidiol (CBD) Products.” 10 In the statement, the FDA acknowledges the rapid increase and interest in the availability of CBD and other products derived from Cannabis, and calls for “real-world data” on the use and safety of CBD.

Since the passage of the 2018 Farm Bill, FDA released multiple statements concerning its efforts to review the safety of CBD to help determine whether to allow the marketing of CBD as a dietary supplement and food.

For example on March 5, 2020, former FDA Commissioner Dr.

Hahn issued a statement on the FDA’s work to educate the public on CBD’s perceived safety risks and its steps to solicit additional public feedback, data, and research on the science, safety, and quality of CBD products.

8 These new steps include re-opening the public docket so that FDA can obtain additional scientific data on CBD.

A congressional mandated report from FDA on CBD was submitted to Congress on March 5, 2020 and confirmed that the FDA was actively considering pathways to allow the marketing of CBD as a dietary supplement, such as through a notice and-comment rulemaking or interim risk-based enforcement policies.

The report signaled the FDA’s continued interest in certain aspects of CBD, including effects from sustained use, effects from different

8 See https://www.fda.gov/news-events/press-announcements/fda-advances-work-related-cannabidiol-products-focus-protecting-public-health-providing-market.

methods of exposure, and effects on the developing brain and on the unborn child and breastfed newborn, and its interest in developing an appropriate regulatory pathway for CBD products.At this time, former Commissioner Hahn also publicly stated that it would be a “fool’s game” for the FDA to pull CBD products from the market entirely, as their use is already widespread.

In January 2021, the FDA issued an update entitled “Better Data for a Better Understanding of the Use and Safety Profile of Cannabidiol (CBD) Products.” 10 In the statement, the FDA acknowledges the rapid increase and interest in the availability of CBD and other products derived from Cannabis, and called for “real-world data” on the use and safety of CBD.

The call acknowledges the FDA’s current gaps in understanding of the safety profile of CBD, which may be addressed through obtaining real-world data and a robust evidentiary foundation to inform public health decisions regarding CBD.

The FDA further notes that it is continuing to “evaluate the regulatory frameworks that apply to certain Cannabis-derived products that are intended for non-drug uses, including whether any new FDA regulations may be warranted.” However, it is unclear whether the new FDA Commissioner, Dr.

Robert Califf will take the same stance on CBD as former Commissioners Hahn and Gottlieb.

On March 22, 2021, the FDA issued a news release announcing the issuance of warning letters to two companies for selling OTC products labeled as containing CBD, alleging that the products are illegally marketed unapproved drugs and misbranded due to prominent featuring of CBD on the labeling.

A similar warning was issued to another online CBD retailer on July 22, 2021.

Similar warning letters were issued to other online CBD retailer in 2021 and 2022.

On October 16, 2021, the FDA published a “Cannabis-Derived Products Data Acceleration Plan,” a portfolio of pilot initiatives and partnerships designed to leverage novel data sources and advanced data analytics to identify current and emerging safety vulnerabilities in the cannabis-derived products market.

3 unchanged sentences

While the Data Acceleration Plan does not guarantee that the agency will create a pathway for it to approve CBD to be incorporated into food and dietary supplements, it indicates that the FDA is focused on modernizing and enhancing its ability to evaluate the CBD and other cannabinoid markets.

On May 4, 2022, the FDA issued warning letters to five companies for selling products labeled as containing delta-8 tetrahydrocannabinol (delta-8 THC) in ways that violate the Federal Food, Drug, and Cosmetic Act (FD&C Act).

This action was the first time the FDA issued warning letters for products containing delta-8 THC.

In addition to the violations related to FDA-regulated products containing delta-8 THC, several of the warning letters outlined additional violations of the FD&C Act, including marketing CBD products claiming to treat medical conditions in humans and animals, promoting CBD products as dietary supplements, and adding CBD to human and animal foods.

On November 21, 2022, the FDA posted warning letters to five companies selling products containing CBD, stating that these companies were selling CBD containing products that people may confuse for traditional foods or beverages which may result in unintentional consumption or overconsumption of CBD.

The FDA stated that CBD-containing products in forms that are appealing to children, such as gummies, hard candies and cookies, are especially concerning.

9 See https://www.nutraingredients-usa.com/Article/2020/02/28/FDA-chief-Hahn-says-it-would-be-fool-s-game-to-try-to-shut-down-CBD-markets#.

10 See https://www.fda.gov/news-events/fda-voices/better-data-better-understanding-use-and-safety-profile-cannabidiol-cbd-products.

11 FDA, Cannabis Derived Products Data Acceleration Plan , October 2021, available at https://www.fda.gov/media/153183/download.

On January 26, 2023, the FDA issued a statement denying three citizen petitions that had asked the agency to conduct rule making to allow the marketing of CBD products as dietary supplements, and further stated that a new regulatory pathway would benefit consumers by providing safeguards and oversight to manage and minimize risks related to CBD products.

The agency suggested that Congress create a new regulatory pathway that balances individuals' access to CBD products with the necessary oversight to manage risks, adding it is prepared to work with Congress on this matter.

In addition, on December 17, 2020, the Federal Trade Commission ("FTC") announced enforcement proceedings against six companies making deceptive marketing claims related to CBD products.

2 unchanged sentences

On July 6, 2021, the FTC announced the approval of a seventh administrative consent order against a CBD company, also for unsupported health claims.

9 See https://www.nutraingredients-usa.com/Article/2020/02/28/FDA-chief-Hahn-says-it-would-be-fool-s-game-to-try-to-shut-down-CBD-markets#.

10 See https://www.fda.gov/news-events/fda-voices/better-data-better-understanding-use-and-safety-profile-cannabidiol-cbd-products.

11 FDA, Cannabis Derived Products Data Acceleration Plan , October 2021, available at https://www.fda.gov/media/153183/download.

On December 20, 2022 the FTC released a new Health Products Compliance Guidance.

The document replaces and expands upon previous guidance focused on substantiating health-related claims for dietary supplements, clarifying that the scope will cover all health-related product advertising.

12 The guidance describes in detail the amount and type of evidence needed to substantiate health-related claims, with more emphasis on the fact that the FTC, as a general rule, expects high quality randomized, placebo-controlled human clinical trials.

This may signal the FTC is preparing to more closely scrutinize and potentially demand a higher level of substantiation to support health-related claims than in previous years.

On August 21, 2020, the DEA issued an interim final rule (the “DEA IFR”) concerning implementation of the 2018 Farm Bill.

10 unchanged sentences

13 Specifically, the bill would:

(1) raise the allowable THC threshold for hemp and in-process hemp extract to make the rules more workable for growers and processors, while ensuring that final hemp products sold to consumers are not intoxicating through a 0.3% limits of total THCs in products, and (2) remove the requirement that hemp testing occur in DEA-registered laboratories, among other updates to aimed at providing protections for the hemp industry.

12 FTC, Health Product Compliance Guidance, https://www.ftc.gov/system/files/ftc_gov/pdf/Health-Products-Compliance-Guidance.pdf.

13 Se e https://pingree.house.gov/news/documentsingle.aspx?DocumentID=3970.

e requirement that hemp testing occur in DEA-registered laboratories, among other updates to aimed at providing protections for the hemp industry.

The bill is expected to be re-introduced in spring 2023, and may also include language aimed at addressing intoxicating hemp-derived cannabinoids.

117th Congress

On February 4, 2021, Rep.

6 unchanged sentences

agriculture, and fulfill the commitments made to Hemp farmers pursuant to the 2018 Farm Bill.

Prospects for such passage are improved by the fact that the prior version of H.R.

841, introduced during the 116th Congress (2019-2020), won the bipartisan support of 30 co-sponsors and was referred to the House Committee on Energy and Commerce.

However, the bill failed to win passage prior to the congressional session ending.

841 was referred to the House Committee on Energy and Commerce.

However, the bill failed to win passage prior to the congressional session ending (117th Congress convened on January 3, 2021, and concluded on January 3, 2023).

It is expected that H.R.

841 will be reintroduced in the 118 th Congress.

On May 19, 2021, Senators Ron Wyden (D-OR), Rand Paul (R-KY) and Jeff Merkley (D-OR) introduced S.

1 unchanged sentence

The bill would allow the use of CBD and other hemp-derived ingredients in both dietary supplements and food and beverage products.

It also provides FDA with the authority to establish labeling and packaging requirements for supplements and foods that contain hemp, hemp-derived CBD, or other hemp ingredients, and would permit FDA to take additional enforcement action against supplements that do

12 Se e https://pingree.house.gov/news/documentsingle.aspx?DocumentID=3970.

not meet the FD&C Act’s definition of “dietary supplement.” Prospects for the passage of H.R.

1698 are unclear.

In addition, on July 14, 2021, Senators Chuck Schumer (D-NY), Ron Wyden (D-OR), and Cory Booker (D-NJ) released a discussion draft of the “Cannabis Administration and Opportunity Act” (CAOA).

The bill removes marijuana from Schedule I of the Controlled Substances Act and establishes a federal regulatory framework for adult-use Cannabis products.

1698 was referred to the Senate Committee on Health, Education, Labor, and Pensions.

However, the bill failed to win passage prior to the congressional session ending.

This legislation is also expected to be reintroduced in the 118 th Congress.

In addition, on July 21, 2021, Senator Cory Booker (D-NJ) introduced S.4591 the “Cannabis Administration and Opportunity Act” (CAOA).

The bill removes marijuana from Schedule I of the Controlled Substances Act and established a federal regulatory framework for adult-use Cannabis products.

“Hemp” as defined by the 2018 Farm Bill would be excluded from the bill’s definition of “cannabis.” However, the CAOA also contains provisions to regulate hemp-derived CBD as a dietary supplement, provided certain requirements are met.

3 unchanged sentences

The legislation also provides FDA with additional enforcement authority for dietary supplements, which the agency believes is necessary to address issues such as synthetic CBD.

To date, the bill has not been formally introduced, and its prospects are uncertain.

S.4591 was referred to the Senate Committee on Finance;

however, the bill failed to win passage prior to the congressional session ending.

On November 15, 2021, Congresswoman Nancy Mace (R-SC) introduced the H.R.

2 unchanged sentences

Thus, under the States Reform Act, FDA would be prohibited from applying the dietary supplement and food additive preclusions to cannabis and industrial hemp.

As of the date of this Form 10-K, the States Reform Act has four Republican co-sponsors, and the backing of several industry advocacy groups.

5977’s prospects of passage are unclear.

5977 was referred to the House Subcommittee on Crime, Terrorism, and Homeland Security;

however, the bill failed to win passage prior to the congressional session ending.

On December 2, 2021, Representative Kathleen Rice (D-NY), plus cosponsors Representatives Morgan Griffith (R-VA), Angie Craig (D-MN), and Dan Crenshaw (R-TX) introduced H.R.

3 unchanged sentences

and conditions of intended use for the product.

6134’s chances of passage are unclear.

6134’s was referred to the House Subcommittee on Health;

however, the bill failed to win passage prior to the congressional session ending.

Currently, it is unclear whether the CAOA, H.R.

5977, and H.R.

6134 will be reintroduced in the 118 th Congress.

In addition, timing for legislation that may include a new potential regulatory pathway developed by the FDA is uncertain.

While authorizing legislation could be introduced in 2023, the FDA’s development and implementation of a new pathway would likely take several years.

As such, it is possible Congress may move forward to with a legislation similar to H.R.

841 that would authorize a pathway for Hemp-derived CBD in a more efficient manner, and could permit the use of CBD in dietary supplements.

State Regulation of Hemp in the United States

5 unchanged sentences

In addition, states take varying approaches to regulating the production and sale of hemp-derived CBD.

While all states have removed lawfully produced hemp from their controlled substance laws, only certain states explicitly authorize and regulate the sale of hemp-derived CBD products, or otherwise provide legal protection for authorized individuals to engage in commercial hemp activities.

For example, Kentucky, Tennessee, Indiana, Florida, Colorado, and other states have passed laws that explicitly exempt hemp extracts such as CBD from legal prohibitions applicable to controlled substances such as marijuana.

In other states, the sale of CBD, notwithstanding its origin, may be explicitly authorized only under state medical or adult-use marijuana program licensees.

Additionally, a number of states prohibit the sale of ingestible CBD products based on FDA’s position that, pursuant to the FD&C Act, it is unlawful

to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived.

While some states explicitly authorize and regulate the sale of hemp-derived CBD products, or otherwise provide legal protection for authorized individuals to engage in commercial hemp activities, other states maintain outdated drug laws that do not distinguish between marijuana, hemp and/or hemp-derived CBD, resulting in hemp being classified as a controlled substance under state law (Idaho and District of Columbia).

Additionally, a number of states prohibit the sale of ingestible CBD products based on FDA’s position that, pursuant to the FD&C Act, it is unlawful to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived.

Since the Company’s products are specifically excepted from the CSA by the 2018 Farm Bill’s definition of Hemp, it is the Company’s position that such state laws would specifically except them as well.

5 unchanged sentences

Several of these states also place additional requirements on the sale of CBD products such as specific testing, labeling, or registration of products.

Recently, states including Minnesota, Oregon, and Virginia have enacted milligram limits on the amount of THC in Hemp-derived products and have prohibited the sale of products containing THC to those under 21.

Several states are currently considering legislation imposing similar restrictions.

The Company has chosen to sell its products in all fifty states, understanding that there is a risk of state or local law enforcement or regulatory action, and that state-specific requirements may vary significantly.

2 unchanged sentences

The Company has obtained the following licenses issued by the Colorado Department of Agriculture:

(i) Registration issued April 3, 2021 in respect of Indoor Commercial Industrial Hemp Registration — 3,000 sq.

(ii) Registration issued March 22, 2021 in respect of Indoor Commercial Industrial Hemp Registration — 18,600 sq.

(iii) Registration issued February 3, 2021 in respect of Outdoor Commercial Industrial Hemp Registration — 120 acres;

(iv) Registration issued February 12, 2021 in respect of Outdoor Commercial Industrial Hemp Registration — 1 acre and 11,200 sq.

(i) Hemp Registration issued April 1, 2022 for 3,000 sq.

ft.of indoor space;

and (ii) Hemp Registration issued March 23, 2022 for 10 acres of outdoor cultivation.

The foregoing licenses are in respect of cultivation only as a license from the state of Colorado is not required for the subsequent sale of its products.

9 unchanged sentences

providing the CDA with GPS coordinates and a map of the land area where the Hemp will be cultivated;

14 8 CCR 1203-23.

listing the intended use of harvested Hemp materials;

7 unchanged sentences

The Company believes that cultivation registrations for R&D purposes that operate in compliance with CDA rules and regulations comply with the conditions of the 2014 Farm Bill and the 2018 Farm Bill, and cultivation registrations for commercial purposes operating in compliance with CDA rules and regulations comply with the 2014 Farm Bill and the 2018 Farm Bill.

15 8 CCR 1203-23.

20 See C.R.S.

§§35-61-101, et seq.

21 8 CCR §1203-23(1.28).

22 8 CCR §1203-23(1.5).

Finally, on May 30, 2018, the governor of Colorado signed House Bill 18-1295 into law.

5 unchanged sentences

In addition, in February 2021 CDPHE adopted revised regulations concerning Hemp products, effective April 14, 2021, that establish new manufacturing, testing, and labeling requirements for Hemp products.

In 2022, Colorado governor signed into law SB22-05, which authorized the promulgation of rules to prohibit the sale of Hemp-derived products containing chemically modified, converted, or synthetically-derived intoxicating THC isomers, and created a task force to study intoxicating Hemp and make legislative and rule recommendations.

On January 3, 2023, the SB 22-205 Task Force issued a Final Report that includes the following key recommendations:

(1) creating categories of non-intoxicating cannabinoids, potentially intoxicating compounds, and potentially intoxicating cannabinoids;

(2) initial hemp product limits of no more than 2.5 mg THC per serving and a ratio of CBD to THC of 15:1 (no container limits), which do not apply to a products that comply with the proposed definition of “broad spectrum” (under 0.01% THC), and/or exclusively contain one or more non-intoxicating compounds (e.g., CBD, CBG, or CBN isolate);

(3) CBN limit of no more than 25 mg/serving;

(4) an approval process and labeling to identify synthetic or synthesized cannabinoids;

and (5) a manufacturing “safe harbor” for finished hemp products that are prohibited in Colorado but may legally be sold in another state.

23 It is unclear when a bill incorporating these recommendations will be introduced.

To allow time for businesses to comply, the Task Force recommends that any THC limits and approval processes have an effective date of January 1, 2024, and requirements imposed via rulemaking have an effective date of July 1, 2024.

Kentucky established a robust agricultural pilot program in 2013, 24 which it expanded in 2017.

Program participants may grow, cultivate, handle, process or market Hemp and Hemp products.

The Kentucky Department of Agriculture

19 See C.R.S.

§§35-61-101, et seq.

20 8 CCR §1203-23(1.28).

21 8 CCR §1203-23(1.5).

§§ 260.850-.869.

has promulgated regulations 23 and issued a policy guide for the program, both of which have served as models for newer Hemp regimes in other states.

The Kentucky Department of Agriculture has promulgated regulations 25 and issued a policy guide for the program, both of which have served as models for newer Hemp regimes in other states.

Kentucky adopts the definition of “Hemp” 26 set forth under the 2018 Farm Bill.

4 unchanged sentences

The State Plan has been approved by USDA and became effective January 1, 2022.

23 SB22-205 Task Force, https://sbg.colorado.gov/med/205-Task-Force.

§§ 260.850-.869.

§ 218A.010(28)

§ 218A.010(28)(b), (e)-(g).

While the Company itself is not a program participant, it does take steps to ensure that the Kentucky-based suppliers with which it contracts are participants in the Kentucky agricultural pilot program, including requiring suppliers to represent and warrant their compliance with Kentucky law in writing and obtaining a copy of the applicable License issued to such supplier.

12 unchanged sentences

One purpose of the FD&C Act is to forbid the movement in interstate commerce of adulterated and misbranded food, drugs, devices and cosmetics.

§ 218A.010(28)

§ 218A.010(28)(b), (e)-(g).

33 The FDA is responsible for protecting the public health by ensuring the safety, efficacy, and security of human and veterinary drugs, biological products, and medical devices;

and by ensuring the safety of the nation's food supply, cosmetics, and products that emit radiation.

34 The FD&C Act prohibits the use in a food or dietary supplement of an ingredient that has already been approved as a new drug, or an article authorized for investigation as a new drug for which substantial clinical investigations have been instituted and made public.

To date, the FDA has approved one product containing CBD as a drug, and continues to take the position that CBD cannot be marketed as a dietary supplement or added to food because a product containing CBD was approved as a drug and substantial clinical trials studying CBD as a new drug were made public prior to the marketing of any food or dietary supplements containing CBD, and therefore dietary supplements or food are precluded from containing this ingredient.

While the Company disagrees with the FDA's position, this creates additional barriers to selling certain CBD and CBD-based products in the U.S.

Notably, the FDA does not impose the same restrictions on the use of CBD in cosmetic products.

The agency states on its website that “[c]ertain cosmetic ingredients are prohibited or restricted by regulation, but currently that is not

29 See Oregon Revised Statutes § 571.260 et seq.;

4 unchanged sentences

33 https://www.fda.gov/about-fda/fda-basics/how-did-federal-food-drug-and-cosmetic-act-come-about.

is responsible for protecting the public health by ensuring the safety, efficacy, and security of human and veterinary drugs, biological products, and medical devices;

and by ensuring the safety of the nation's food supply, cosmetics, and products that emit radiation.

32 The FD&C Act prohibits the use in a food or dietary supplement of an ingredient that has already been approved as a new drug, or an article authorized for investigation as a new drug for which substantial clinical investigations have been instituted and made public.

While the Company disagrees with the FDA's position, this creates additional barriers to selling certain CBD and CBD-based products in the U.S.

Notably, the FDA does not impose the same restrictions on the use of CBD in cosmetic products.

The agency states on its website that “[c]ertain cosmetic ingredients are prohibited or restricted by regulation, but currently that is not the case for any cannabis or cannabis-derived ingredients.” 33 However the FDA further notes that such products must comply with all applicable legal requirements including the adulteration and misbranding provisions of the FD&C Act specific to cosmetic products.

Food and Drug Administration, Mission Statement:

https://www.fda.gov/about-fda/what-we-do.

the case for any cannabis or cannabis-derived ingredients.” 35 However the FDA further notes that such products must comply with all applicable legal requirements including the adulteration and misbranding provisions of the FD&C Act specific to cosmetic products.

The Dietary Supplement Health and Education Act (the “DSHEA”), an amendment to the federal FD&C Act, established a framework governing the composition, safety, labeling, manufacturing, and marketing of dietary supplements in the United States.

12 unchanged sentences

On July 23, 2021 the Company was advised by the FDA of its objection to a New Dietary Ingredient Notification (“NDIN”) submitted by the Company earlier in 2021.

The FD&C Act requires that manufacturers who wish to market dietary supplements that contain "new dietary ingredients" ("NDI") notify the FDA with their basis for concluding that the NDI is reasonably expected to be safe under the conditions of use recommended or suggested in the labeling.

The Company’s submission was objected to on the basis that its CBD containing a full spectrum hemp

Food and Drug Administration, Mission Statement:

https://www.fda.gov/about-fda/what-we-do.

Food and Drug Administration, “FDA Regulation of Cannabis and Cannabis-Derived Products, Including Cannabidiol (CBD), Questions and Answers,” https://www.fda.gov/news-events/public-health-focus/fda-regulation-cannabis-and-cannabis-derived-products-including-cannabidiol-cbd#qandas.

extract does not meet the definition of a dietary supplement due to the IND Preclusion and insufficient safety data.

The FD&C Act requires that manufacturers who wish to market dietary supplements that contain NDIs notify the FDA with their basis for concluding that a dietary supplement containing the NDI will reasonably be expected to be safe.

The Company’s submission was objected to on the basis that its CBD containing a full spectrum hemp extract does not meet the definition of a dietary supplement due to the IND Preclusion and insufficient safety data.

The Company does not agree with a number of conclusions reached by the FDA, in particular with respect to their analysis of safety data provided.

3 unchanged sentences

Alternatively, an OTC drug product may be marketed without an FDA approved NDA or ANDA if the drug product is manufactured in compliance with an OTC drug regulation, referred to as a monograph, which has been established for that therapeutic class of drug.

The OTC drug monographs identify permissible active ingredients, labeling, and claims.

The OTC drug monographs identify permissible active ingredients, labeling, and

Code § 350b(a)(2).

Code § 321(ff)(3)(B).

OTC monographs generally do not specify inactive ingredients that may be used in the manufacture of OTC drugs.

16 unchanged sentences

The Company cannot predict whether new federal or state regulations or legislation affecting the use of CBD in OTC drug products or any of the activities of the Company will be enacted or what effect any regulation or legislation would have on the Company’s business.

38 Similar warning letters were issued to CBD companies in 2021 and 2022.

The letters explain that, because CBD has known pharmacological effects on humans, with demonstrated risks, it cannot be legally marketed as an inactive ingredient in OTC drug products that are not reviewed and approved by the FDA.

3 unchanged sentences

As such, the Company takes the position that these products are exempt from the requirements for an NDA or ANDA pre-market approval.

Aidance, as the manufacturer, has registered the facility and listed each of the Company’s FDA products with the FDA on the FDA website, whereby a National Drug Code (“NDC”) number was issued for the product.

The Company currently has approximately 40 products that have been issued an FDA NDC number.

Aidance, as the manufacturer, has registered its facility as a drug establishment and Aidance and Company have

Food and Drug Administration, “FDA Warns Companies Illegally Selling Over-the-Counter CBD Products for Pain Relief,” https://www.fda.gov/news-events/press-announcements/fda-warns-companies-illegally-selling-over-counter-cbd-products-pain-relief.

39 See 21 CFR 201.10(c)(4), Drugs;

statement of ingredients.

submitted to FDA for National Drug Code (“NDC”) numbers for the OTC drug products.

There is no assurance that the position taken by the Company that its products are exempt from the requirements for an NDA or ANDA pre-market approval will not, in the future, be challenged by the FDA, which could result in material adverse effects to the Company and its business.

6 unchanged sentences

The Company’s products containing CBD derived from Hemp are not marketed or sold using claims that the products are intended to diagnose, mitigate, treat, cure, or prevent disease in violation of the FD&C Act.

In October 2017, the Company received a warning letter from FDA regarding claims being made for its products and citing to FDA’s position concerning the IND Preclusion (the “Warning Letter”).

The Company responded in two phases:

(1) one letter identifying corrective actions made to its website and marketing related to product claims;

and (2) a separate letter responding to FDA’s comments on IND Preclusion and establishing the Company’s position that CBD is not precluded from being a food or dietary ingredient since it was marketed in a food or dietary supplement prior to substantial clinical investigations being instituted and being made public.

On May 23, 2018, the Company received a response from FDA noting the changes to the Company’s website and marketing, but also indicating the FDA did not agree with the Company’s position that CBD is not precluded from being a food or dietary ingredient since it was marketed in a food or dietary supplement prior to substantial clinical investigations being instituted and being made public.

As stated above, the Company does not agree with the FDA’s position regarding the legality of CBD as ingredients in foods and dietary supplements.

The Company has asked

35 See 21 CFR 201.10(c)(4), Drugs;

statement of ingredients.

For example on March 5, 2020, former FDA Commissioner Dr.

Hahn issued a statement on the FDA’s work related to CBD products.

The statement described the FDA's steps to solicit additional public feedback, data, and research on the science, safety, and quality of CBD products, including opening the public docket so that FDA can obtain additional scientific data on CBD.

Based on FDA’s prior guidance and statements, topical cosmetic products are not currently subject to the same regulatory scrutiny as ingestible products that contain CBD.

For instance, while FDA notes that topical products must comply with all applicable legal requirements including the adulteration and misbranding provisions of the FD&C Act specific to cosmetic products, FDA’s website states that “[c]ertain cosmetic ingredients are prohibited or restricted by regulation, but currently that is not the case for any cannabis or cannabis-derived ingredients.” Additionally, former Commissioner Hahn had positively suggested that the effects of CBD may differ depending on the route of administration.

A congressionally mandated report from FDA on CBD was also submitted to Congress on March 5, 2020.

On the issue of topical products, the report states that “[c]osmetic ingredients do not generally require premarket approval (with the exception that most color additives do require premarket approval)” and that “it is possible that some individual products containing CBD fall outside of FDA’s jurisdiction.” In addition, the report confirmed that the FDA was actively considering pathways to allow the marketing of CBD as a dietary supplement, such as through a notice-and-comment rulemaking or interim risk-based enforcement policies.

The report signaled the FDA’s continued interest in certain aspects of CBD, including effects from sustained use, effects from different methods of exposure, and effects on the developing brain and on the unborn child and breastfed newborn ,

and its interest in developing an appropriate regulatory pathway for CBD products.

The report also acknowledges that the FDA is receiving inquiries about whether “full spectrum” and “broad spectrum” Hemp products can currently be marketed and sold as dietary supplements, but the FDA has not yet answered the question conclusively.

At the time, former Commissioner Hahn had publicly stated that it would be a “fool’s game” for the FDA to pull CBD products from the market entirely, as their use is already widespread.

40 21 USC § 348(a)(3).

3 unchanged sentences

The DEA’s final rule on legal hemp materials and products specifically excludes materials used for human consumption.

FDA to elaborate on the basis for its position in a July 11, 2018 letter to the agency, since FDA’s May 23, 2018 response did not provide any such basis.

To date, the Company has not received a direct response to its July 11, 2018 letter.

On December 20, 2018, the FDA released a statement from former Commissioner Scott Gottlieb, which restated FDA’s current position, opining that products containing CBD ingredients may not be sold as food or dietary supplements.

The statement also contained, for the first time, a clear path toward FDA’s permanent and formal acceptance of hemp-derived CBD as a food or dietary supplement ingredient.

For the first time, the FDA has indicated that it is considering using its authority to issue a regulation that will specifically allow hemp-derived CBD in foods and supplements.

Statements from the FDA issued in July 2019 made clear that the FDA is “[p]aving the way for regulatory clarity[.]” 38 FDA “is committed to evaluating the regulatory frameworks for non-drug uses, including products marketed as foods and dietary supplements[.]” 39 Importantly, FDA “recognize[s] that there is substantial public interest in marketing and accessing CBD in food, including dietary supplements .

[and that] [t]he statutory provisions that currently prohibit marketing CBD in these forms also allow the FDA to issue a regulation creating an exception, and some stakeholders have asked that the FDA consider issuing such a regulation to allow for the marketing of CBD in conventional foods or as a dietary supplement, or both.” 40

As it continues down this path, the FDA is “[l]istening to and learning from stakeholders[.]” 41 The FDA held a public hearing on May 31, 2019 to obtain scientific data and information about the safety, manufacturing, product quality, marketing, labeling, and sale of products containing Hemp or Hemp-derived compounds.

Numerous hemp industry stakeholders and consumers shared their perspectives and have met with the FDA’s CBD Working Group, which is reviewing the use of CBD as a food and dietary supplement ingredient.

On July 16, 2019, the FDA issued a consumer update on its efforts to address “unanswered questions about the science, safety, and quality of products containing CBD” through the feedback from the May 31, 2019 hearing and information and data gathered through a public docket.

42 Specifically, the FDA noted concerns regarding potential liver toxicity, questions about cumulative exposure to CBD over time, the effects of CBD on special populations (e.g., the elderly, children, adolescents, pregnant and lactating women), and the safety of CBD use in animals including pets.

On October 16, 2019, the FDA issued another consumer update cautioning against the use of CBD, THC, and marijuana during pregnancy or while breastfeeding due to the current lack of comprehensive research studying the effects of CBD on the developing fetus, pregnant mother, or breastfed baby.

43 On November 25, 2019, the FDA provided another consumer update stating there is limited available information about CBD, including about its effects on the body.

44 The FDA also sent another round of warning letters to companies marketing CBD products with disease claims.

Some letters were jointly issued by the FTC.

In addition, the agency reiterated its position that CBD cannot be added to food and dietary supplements and stated that it is “not aware of any basis to conclude that CBD is GRAS [Generally Recognized as Safe] among qualified experts for its use in human or animal

38 Amy Abernathy, M.D., Ph.D., et al., “FDA is Committed to Sound, Science-based Policy on CBD,” fda.gov, https://www.fda.gov/news-events/fda-voices-perspectives-fda-leadership-and-experts/fda-committed-sound-science-based-policy-cbd.

Food and Drug Administration, “What You Should Know About Using Cannabis, Including CBD, When Pregnant or Breastfeeding,” https://www.fda.gov/consumers/consumer-updates/what-you-should-know-about-using-cannabis-including-cbd-when-pregnant-or-breastfeeding.

Food and Drug Administration, “FDA warns 15 companies for illegally selling various products containing cannabidiol as agency details safety concerns,”https://www.fda.gov/news-events/press-announcements/fda-warns-15-companies-illegally-selling-various-products-containing-cannabidiol- agency-details.

food.” 45 As stated above, the letters targeted companies whose products violated the FD&C Act’s prohibition against:

i) marketing CBD as or in a dietary supplement, human and animal food, or food additives;

ii) marketing a dietary supplement, human and animal food, or cosmetic with disease or drug claims (i.e., claims suggesting that a product is intended to treat, cure, or prevent disease);

iii) including a substance in human or animal food when that substance is not GRAS;

and iv) selling products that are misbranded due to their failure to include “adequate directions for use by a layperson”.

On March 5, 2020, former FDA Commissioner Dr.

Hahn issued a statement on the FDA’s work related to CBD products.

The statement makes clear that the FDA is taking steps to solicit additional public feedback, data, and research on the science, safety, and quality of CBD products.

The Company believes it is clear from former Commissioner Hahn’s statements, and also from FDA’s prior guidance, that topical cosmetic products are not currently subject to the same regulatory scrutiny as ingestible products that contain CBD.

Much of former Commissioner Hahn’s statement was also included in the FDA’s congressionally mandated report on CBD, which was also submitted on March 5, 2020.

On the issue of topical products, the report states that “[c]osmetic ingredients do not generally require premarket approval (with the exception that most color additives do require premarket approval)” and that “it is possible that some individual products containing CBD fall outside of FDA’s jurisdiction.” The report confirms that the FDA is actively considering pathways to allow the marketing of CBD as a dietary supplement, which may include notice-and-comment rulemaking and interim risk-based enforcement policies.

The report acknowledges that the FDA is receiving inquiries about whether “full spectrum” and “broad spectrum” Hemp products can currently be marketed and sold as dietary supplements, but the FDA has not yet answered the question conclusively.

Largely, the report does little to address the current regulatory ambiguity for hemp derived extracts with naturally occurring CBD and does not set a timeline for agency action, but it does signal the FDA’s interest in a pathway for the use of CBD in dietary supplements.

As noted above, while the FDA has stated that it has made ”substantial progress” toward the goal of providing additional guidance on CBD products, in more recent statements the FDA has noted that it is still in the process of gathering data on the safety profile of CBD to inform public health decisions.

To this end, on October 16, 2021, the FDA published a “Cannabis-Derived Products Data Acceleration Plan,” a portfolio of pilot initiatives and partnerships seeking to gather real time information from novel data sources about potential safety problems or adverse events associated with cannabis-derived products, including CBD products, and information about general patterns of product use and emerging trends.

It is unclear whether the newly appointed Commissioner Dr.

Robert Califf will take the same stance on CBD as former Commissioner Hahn, or continue the progress toward a clear regulatory pathway for CBD products, in particular for dietary supplements and food products.

uncertainty and different interpretations among state and federal regulatory agencies, legislators, academics and businesses as to whether cannabinoids including CBD were present in the food supply and marketed prior to October 15, 1994 or whether such inclusion of cannabinoids is otherwise permitted by the FDA as dietary ingredients.

In January 2021, the FDA issued an update entitled “Better Data for a Better Understanding of the Use and Safety Profile of Cannabidiol (CBD) Products.” In the statement, the FDA acknowledged the rapid increase and interest in the availability of CBD and other products derived from Cannabis, and called for “real-world data” on the use and safety of CBD.

The call acknowledged the FDA’s current gaps in understanding of the safety profile of CBD, which may be addressed through obtaining real-world data and a robust evidentiary foundation to inform public health decisions regarding CBD.

The FDA further noted that it is continuing to “evaluate the regulatory frameworks that apply to certain Cannabis-derived products that are intended for non-drug uses, including whether any new FDA regulations may be warranted.” On October 16, 2021, the FDA published a “Cannabis-Derived Products Data Acceleration Plan,” a portfolio of pilot initiatives and partnerships seeking to gather real time information from novel data sources about potential safety problems or adverse events associated with cannabis-derived products, including CBD products, and information about general patterns of product use and emerging trends.

On January 26, 2023, the FDA issued a statement denying three citizen petitions that had asked the agency to conduct rulemaking to allow the marketing of CBD products as dietary supplements, and further stated that a new regulatory pathway would benefit consumers by providing safeguards and oversight to manage and minimize risks related to CBD products.

FDA also noted that it “will continue to take action against CBD and other cannabis-derived products to protect the public, in coordination with state regulatory partners, when appropriate” and “will remain diligent in monitoring the marketplace, identifying products that pose risks and acting within our authorities.” Based on this statement, a significant shift in the enforcement landscape is not expected.

Despite the position taken by the FDA that there is no evidence of CBD being marketed as a food or dietary supplement prior to drug trials being commenced and made public, the Company believes there is substantial uncertainty and different interpretations among state and federal regulatory agencies, legislators, academics and businesses as to whether cannabinoids including CBD were present in the food supply and marketed prior to October 15, 1994 or whether such inclusion of cannabinoids is otherwise permitted by the FDA as dietary ingredients.

As a result, the Company believes the federal legality regarding the distribution and sale of hemp-based products intended for human consumption must be considered on a case-by-case basis and that the uncertainties cannot be resolved without further federal legislation, regulation or a definitive judicial interpretation of existing legislation and rules.

A final determination by the FDA that Hemp products containing CBD or other cannabinoids are not permissible for use as a dietary ingredient, may have a materially adverse effect upon the Company and its business.

Moreover, if the FDA were to enforce the IND Preclusion based on its interpretation of the legislation, this would have a materially adverse effect upon the Company and its business.

However, if the FDA were to enforce the IND Preclusion based on its interpretation of the legislation, this would have a materially adverse effect upon the Company and its business.

Currently it is unclear whether Congress will move forward with legislation to permit the use of CBD in dietary supplements, given FDA’s January 2023 determination that existing regulatory frameworks are not appropriate for CBD.

Continued delays in the development of a regulatory pathway for CBD may have a materially adverse effect upon the Company and its business.

Future Uncertainty of Legal Status

15 unchanged sentences

• ensuring processing activities performed in Colorado comply with CDPHE Guidance, the Colorado Food and Drug Act, and the Colorado Industrial Hemp Regulatory Program Act.

In January 2019 the Company received U.S.

Hemp Authority Certification.

Hemp Authority is an industry self-regulatory organization.

Hemp Authority Certification program provides education on standards and best practices for the hemp industry and continued certification requires an annual third-party audit.

On March 6, 2020, the Company completed its assessment for self-affirmed GRAS status for its hemp extract.

1 unchanged sentence

42 According to the GRAS definition, 43 experts can generally recognize a substance as safe through either (1) scientific procedures, or (2) experience based on common use before January 1, 1958.

The FDA’s GRAS regulation provides a voluntary notification process under which a company may notify the FDA of a conclusion that a substance is GRAS under the conditions of its intended use, or make an independent conclusion of GRAS (“self-affirmed GRAS”), where the conclusion of GRAS status remains with the firm or

170.30(e)(i).

company rather than being submitted to the Agency for review.

The criteria and eligibility for self-affirmed GRAS must fully satisfy the criteria for eligibility of GRAS as if it were being submitted through the notification process.

10 unchanged sentences

For example, to comply with more restrictive THC content specifications in Europe, products cultivated therein must contain no more than 0.2% THC.

In some cases, there may be a disconnect between a foreign country’s import requirements and the United States’ export requirements with respect to Hemp.

In some cases, there may be a disconnect between a foreign country’s import requirements and the United States’

170.30(e)(i).

export requirements with respect to Hemp.

The Company makes decisions as to international expansion upon completion of a regulatory review and assessment of risk.

4 unchanged sentences

International sales only take place in a country once the applicable review of current regulatory regimes and a risk assessment is complete and appropriate compliance procedures have been implemented or updated.

The Company has sold its products in United Kingdom, Argentina, Brazil, Canada, Italy, Puerto Rico, and Uruguay, and to other jurisdictions through third-party distributors who take delivery in bulk and manage individual orders.

The Company has sold its products in United Kingdom, Canada, and to other jurisdictions through third-party distributors who take delivery in bulk and manage individual orders.

Each of these countries regulates the import of Cannabis-derived products and requires some form of importation license, permit or other documentation for products.

3 unchanged sentences

To the knowledge of the Company, it has not breached any substantive foreign law.

However, were there such a breach, the Company does not believe such non-compliance would have a material adverse effect on the Company given the limited amount of sales, the

fact that all sales were conducted by recognized local distributors for whom the Company’s products typically represented a small portion of total sales of hemp-products in the jurisdiction and the lack of notice of regulatory non-compliance to date.

However, were there such a breach, the Company does not believe such non-compliance would have a material adverse effect on the Company given the limited amount of sales, the fact that all sales were conducted by recognized local distributors for whom the Company’s products typically represented a small portion of total sales of hemp-products in the jurisdiction and the lack of notice of regulatory non-compliance to date.

See “ Risk Factors – Risks Relating to the Regulatory Environment – The Company is subject to regulations that could impact its ability to sell its product internationally .”

6 unchanged sentences

The Company has sought and obtained registration on Health Canada’s List of Approved Cultivars (“LOAC”) for two of its early maturing hemp varieties – named “Duchess” and “Ambassador.” These strains were developed for cultivation in shorter northern climate growing seasons, and are among the first cultivars on the LOAC that are early flowering and early maturing for outdoor cultivation and harvesting within the shorter Canadian growing season.

Charlotte’s Web’s approved cultivars are three of 15 added to the LOAC for the 2021 growing season and has remained on the LOAC for the 2022 growing season.

Once on the LOAC, a license holder may cultivate the approved cultivars for commercial cultivation for that growing season.

1 unchanged sentence

patented genetics, which allows licensors to cultivate Charlotte’s Web’s leading CBD wellness cultivars in Canada.

The Company licenses its intellectual property rights to third party licensed producers in Canada.

Licensed producers may, in turn, process and sell the products grown from the underlying cultivars under the legal framework in place under the Cannabis Act.

Effective as of November 1, 2022, the Company entered into a Manufacturing and Sales License Agreement with Aphria, Inc., an Ontario corporation and an affiliate of Tilray Brands, Inc.

(“Tilray”), providing for a strategic

alliance between the Company and Tilray, pursuant to which Tilray has the rights to licensing, manufacturing, quality, marketing and distribution of Charlotte’s Web TM CBD hemp extract products in Canada.

Additional Information

The Company’s head office is located at 1801 California Street, Suite 4800, Denver, Colorado, United States 80202 and its registered and records office is located at 2800 Park Place, 666 Burrard Street, Vancouver, British Columbia, Canada V6C 2Z7.

The Company’s head office is located at 700 Tech Court, Lousiville, Colorado, United States 80027 and its registered and records office is located at 2800 Park Place, 666 Burrard Street, Vancouver, British Columbia, Canada V6C 2Z7.

The Company’s website address is www.charlottesweb.com.

1 unchanged sentence

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-K

Item 1. Business