What changed in this filing

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Item 1A. Risk Factors

2023-03-23 compared with 2022-03-24 · 111 added, 128 removed, 794 unchanged (23% of the section changed)

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• enforcement activities by state and/or local law enforcement and regulatory authorities under the auspice of individual state law, regardless of any potential conflict thereby with federal law.

If the Company’s operations are found to be in violation of any of such laws or any other governmental regulations, or if applicable laws or regulations change or the enforcement of applicable laws or regulations changes, the Company may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of the Company’s operations or asset seizures, any of which could adversely affect the Company’s business and financial results.

Company may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of the Company’s operations or asset seizures, any of which could adversely affect the Company’s business and financial results.

The future of Hemp regulation at the Federal level is unclear.

Federal regulations under the 2018 Farm Bill were promulgated in the USDA FR on January 19, 2021.

The USDA FR governs the domestic production of Hemp under the 2018 Farm Bill and also specifies the provisions that a state

or tribal Hemp plan must contain to be in compliance with the 2018 Farm Bill.

The USDA FR governs the domestic production of Hemp under the 2018 Farm Bill and also specifies the provisions that a state or tribal Hemp plan must contain to be in compliance with the 2018 Farm Bill.

DEA’s interpretation of the 2018 Farm Bill has been promulgated in the DEA IFR, published on August 21, 2020.

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In addition, the FDA is expected to make determinations as to how certain CBD products will be regulated and is expected to, in the long term, consider modernization in its regulation of dietary supplements generally.

The FDA and/or Congress may also develop a new regulatory pathway or pursue legislation that imposes requirements beyond those currently applicable to dietary supplements.

There can no assurance that any such new or additional regulations would not have a material adverse effect on the Company's business, financial condition and results of operations.

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The Company’s advertising is subject to regulation by the Federal Trade Commission (“FTC”) under the Federal Trade Commission Act (“FTC Act”) as well as subject to regulation by the FDA under the DSHEA.

In recent years, the FTC has initiated numerous investigations of dietary and nutritional supplement products and companies based on allegedly deceptive or misleading claims.

In recent years, the FTC has initiated numerous investigations of dietary and nutritional supplement products and companies based on allegedly deceptive or misleading claims, and also released new guidance aimed at strengthening its substantiation requirements for health-related claims.

At any point, enforcement strategies of a given agency can change as a result of other litigation in the space or changes in political landscapes, and could result in increased enforcement efforts, which could materially impact the Company’s business.

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There is currently no uniform regulation applicable to natural health products worldwide.

There can be no assurance that the Company is in compliance with all of these laws,

regulations and other constraints, and changes to such laws, regulations and other constraints may have a material adverse effect on the Company’s operations.

There is substantial uncertainty and different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses as to the importation of derivatives from exempted portions of the Cannabis plant and the scope of 2014 and 2018 Farm Bill-compliant hemp programs relative to the 2014 Farm Bill and the 2018 Farm Bill and the emerging regulation of cannabinoids.

There can be no assurance that the Company is in compliance with all of these laws, regulations and other constraints, and changes to such laws, regulations and other constraints may have a material adverse effect on the Company’s operations.

These different opinions include, but are not limited to, the regulation of cannabinoids by the FDA and the extent to which manufacturers of products containing imported raw materials and/or 2018 Farm Bill compliant cultivators and processors may engage in interstate commerce.

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Furthermore, its experience with selling products in its current international markets may not be relevant or may not necessarily translate into favorable results if the Company sells in other international markets.

If and when the Company enters into new markets in the future, it may experience different competitive conditions, less familiarity with the Company’s brands and/or different consumer tastes and discretionary spending patterns.

If and when the Company enters into new markets in the future, it may experience different competitive conditions, less familiarity with the Company’s brands

and/or different consumer tastes and discretionary spending patterns.

As a result, the Company may be less successful than expected in expanding its sales in its current and targeted international markets.

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To build brand awareness in new markets, the Company may need to make greater investments in advertising and promotional activity than originally planned, which could negatively impact the profitability of its sales in those markets.

These, or one or more of the factors listed above,

may harm the Company’s business, results of operations or financial condition.

These, or one or more of the factors listed above, may harm the Company’s business, results of operations or financial condition.

Any material decrease in the Company’s international sales or profitability could also adversely impact the Company’s business, results of operations or financial condition.

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The designation of cannabinoids as a New Dietary Ingredient (NDI) or as an impermissible adulterant are uncertain.

The FD&C Act requires that manufacturers who wish to market dietary supplements that contain "new dietary ingredients" ("NDI") to 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.

There is substantial uncertainty and different interpretations among state and federal regulatory agencies, legislators, academics and businesses as to whether cannabinoids were present in the food supply and marketed prior to October 15, 1994, or whether such inclusion of cannabinoids are permissable dietary ingredients under the FD&C Act.

The FD&C Act requires that manufacturers who wish to market dietary supplements that contain "new dietary ingredients" ("NDI") to notify the FDA with their basis for concluding that a dietary supplement containing such dietary ingredient will reasonably be expected to be safe.

The uncertainties cannot be resolved without further federal legislation, regulation, or a definitive judicial interpretation of existing legislation, regulation and rules.

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Over the past several years, the FDA has issued warning letters to companies marketing and selling unapproved hemp derived CBD products.

The letters reiterate the agency’s

position that CBD cannot be added to food and dietary supplements and targeted companies whose products violated the FD&C Act’s prohibition against:

The letters reiterate the agency’s position that CBD cannot be added to food and dietary supplements and 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;

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and iv) selling products that are misbranded due to their failure to include “adequate directions for use by a layperson”.

The FDA also issued a consumer update reaffirming its position that CBD cannot lawfully be added to a food or marketed as a dietary supplement due to existing provisions of the FD&C Act, and outlines the data and potential safety issues it is considering as part of its ongoing evaluation of potential regulatory frameworks for CBD.

The FDA also issued a consumer update reaffirming its position that CBD cannot lawfully be added to a food or marketed as a dietary supplement due to existing provisions of the FD&C Act, and outlining the data and potential safety issues it is considering as part of its ongoing evaluation of potential regulatory frameworks for CBD.

Notably, the FDA states that it could not conclude based on available data that CBD is “generally recognized as safe” for use in human or animal food.

While this is broad and may not be applicable in all instances, it nevertheless could materially and adversely impact the Company’s business and financial condition.

Further, the FDA has recently stated that it will continue to police the market and enforce against CBD products, and on March 22, 2021, the agency issued warning letters to two companies for selling OTC products labeled as containing CBD, alleging the products were illegally marketed unapproved drugs and misbranded due to prominent featuring of CBD on the labeling, followed by a third such warning letter to a third company on July 22, 2021.

The FDA’s enforcement against the unlawful sale and marketing of CBD products has to date been limited to the issuance of warning letters, but other enforcement means are available to the FDA, including civil and criminal penalties.

The FDA’s current prohibition on certain hemp-derived products and the unknowns and associated risks of potential future regulations governing hemp-derived CBD products create risk for the Company’s business.

Although the Company believes that the departures of former Commissioners Gottlieb and Hahn will not have a significant long-term impact on the development of a regulatory regime permitting Hemp-derived compounds in foods or dietary supplements, there can be no certainty Commissioner Califf will continue on that same path.

If Commissioner Califf were to halt current initiatives of the FDA regarding CBD, such as a potential rulemaking or enforcement policy guidance, this could delay the development of a regulatory regime for CBD and have an adverse effect on the business of the Company.

On January 26, 2023, the FDA announced its conclusion that existing regulatory pathways are not appropriate for CBD and that a new regulatory pathway would benefit consumers by providing safeguards and oversight to manage and minimize risks related to CBD products.

The agency also stated it is prepared to work with Congress on this matter and 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” by “monitoring the marketplace, identifying products that pose risks and acting within our authorities.” If the FDA does not work expeditiously with Congress to develop a new pathway, or if Congress does not proceed with its own legislative initiatives to advance a regulatory framework for CBD products, this could delay the development of a regulatory regime for CBD and have an adverse effect on the business of the Company.

In addition, it is possible a new framework could impose additional regulatory requirements for the marketing of CBD products, which may have an adverse effect on the business of the Company.

The FTC may take enforcement actions against companies selling CBD products, including the Company.

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FTC entered into settlement agreements with these companies, which required, among other things, that the companies stop making such unsupported health claims and pay a monetary judgment to the FTC.

The FTC’s enforcement was publicized by the agency as part of its ongoing effort to protect consumers from false, deceptive, and misleading health claims made in advertisements on websites and through social media companies such as Twitter.

The FTC’s enforcement was publicized by the agency as part of its ongoing effort to protect consumers from false, deceptive, and misleading health claims made in advertisements on

websites and through social media companies such as Twitter.

An additional enforcement action against a CBD company was announced in May 2021.

Further, on December 20, 2022 the FTC released a new Health Products Compliance Guidance that covers all health-related product advertising and to substantiate health-related claims that emphasizes the need to support health-related claims with high quality randomized, placebo-controlled human clinical trials, which may signal the FTC is preparing to more closely scrutinize such claims compared to previous years.

The unknowns and associated risks of potential future FTC enforcement actions create risk for the Company’s business.

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The DEA IFR may create risk for the Company’s business.

Enforcement of the DEA IFR, or any

Final Rule that carries forward the rulemaking in the DEA Rule, may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines, and criminal prosecutions.

Enforcement of the DEA IFR, or any Final Rule that carries forward the rulemaking in the DEA Rule, may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines, and criminal prosecutions.

Additionally, enforcement of the DEA IFR could jeopardize the legality of the Company’s intermediate Hemp products, such as in-process Hemp extract that is incorporated in the Company’s finished products.

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In addition, the Company may discover new facts or conditions that may change its expectations or be faced with changes in environmental laws or their enforcement that would increase its liabilities.

The Company’s costs of complying with current and future environmental and health and safety laws, liabilities arising from past or future releases of, or exposure to, regulated materials, or more vigorous enforcement of environmental and employee health and safety laws, may have a material adverse effect on the Company’s business, financial condition and results of operations.

environmental and employee health and safety laws, may have a material adverse effect on the Company’s business, financial condition and results of operations.

Regulatory uncertainty with respect to anti-money laundering laws and regulations impact on the CBD and marijuana-related businesses, if revised or resolved unfavorably to the Company’s interests, may have an adverse effect on the Company’s business.

The Company is subject to a variety of laws and regulations in Canada and the United States that involve money laundering, financial recordkeeping and proceeds of crime, including the U.S.

Currency and Foreign Transactions Reporting Act of 1970 (commonly known as the “Bank Secrecy Act”), as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA Patriot Act”), the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), the Criminal Code ("Canada"), as amended and the rules and regulations thereunder, and any related or similar rules,

regulations or guidelines, issued, administered or enforced by governmental authorities in the United States and Canada.

The Company is subject to a variety of laws and regulations in Canada and the United States and elsewhere that involve money laundering, financial recordkeeping and proceeds of crime, including the U.S.

In February 2014, the Financial Crimes Enforcement Network (“FinCEN”) of the U.S.

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Foreign Corrupt Practices Act (“FCPA”) and other similar laws which generally prohibit companies and employees from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business.

In addition, we are or will be subject to the anti-bribery laws of any other countries in which we conduct business now or in the future.

In addition, we are or will be subject to the anti-bribery laws of any other countries in which we conduct business now

or in the future.

Our employees or other agents may, without our knowledge and despite our efforts, engage in conduct prohibited under our policies and procedures and under anti-bribery laws, for which we may be held responsible.

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The Company anticipates that funding sources may be available pursuant to private and public offerings of equity and/or debt and bank lending.

However, if equity and/or debt financing was not available in the public capital markets, then the Company expects that it would have access to raise equity and/or debt financing privately.

However, if equity and/or debt financing was not available in the public capital markets, then the Company expects that it would have access to raise equity and/or debt financing through private placement including possible strategic partnerships.

Commercial banks, private equity firms and venture capital firms have approached the Cannabis industry cautiously to date.

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It is not always possible for the Company to identify and deter misconduct by its employees and other third parties, and the precautions taken by the Company to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting the Company from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.

If any such actions are instituted against the Company, and it is not successful in defending itself or asserting its rights, those actions could have a significant impact on its business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, contractual damages, reputational harm, diminished profits and future earnings, the curtailment of the Company’s operations or asset seizures, any of which could have a material adverse effect on the Company’s business, financial condition and results of operations.

damages, reputational harm, diminished profits and future earnings, the curtailment of the Company’s operations or asset seizures, any of which could have a material adverse effect on the Company’s business, financial condition and results of operations.

Risks Relating to the Company’s Business and Industry

The Company faces security risks related to its physical facilities.

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Any criminal activities could have a negative impact on the Company and its businesses, and the inability or failure to obtain adequate insurance coverage would worsen the impact.

Risks Relating to the Company’s Business and Industry

The consequences of COVID-19 and the governmental response to contain the pandemic could negatively impact the Company’s business and results of operations, financial condition, and share price.

Management has continued to closely monitor the impact of the COVID-19 global pandemic, with a focus on the health and safety of the Company’s employees, business continuity and supporting its communities.

In response to, or as a result of, the current COVID-19 pandemic and emergence of variants, the Company may experience, among other things, voluntary or mandated temporary closures of one or more of the Company’s facilities;

temporary or long-term labor shortages;

temporary or long-term adverse impacts on the Company’s supply chain and distribution channels;

the potential of increased network vulnerability and risk of data loss resulting from increased use of remote access and removal of data from the Company’s facilities;

difficulty in complying with covenants under its current or future debt agreements;

required reallocation or adjustment of resources, which may impact the Company’s business plans and product offerings.

In addition, the direct or indirect impacts of COVID-19 may extend to disrupt the Company’s suppliers, partners, manufacturers, farmers, customers and other stakeholders, which in turn could materially adversely affect the Company’s business, results of operations or financial condition.

Any change or disruption in operations could impact and have a material adverse effect on the Company's operations and/or results from operations.

In addition, the re-introduction of voluntary or mandated efforts to slow the spread of COVID-19 could impact the Company’s operations and sales.

If portions or all of the Company’s, or its retail-partners’, operations are further disrupted or suspended as a result of preventative or reactionary measures in response to the ongoing spread of COVID-19, it could have a material adverse impact on the Company’s profitability, results of operations, financial condition and share price.

Further, there continue to be significant economic and social impacts of the COVID-19 pandemic, including rising inflation rates, among other impacts;

any of which may have an impact on consumer behavior, including use of the Company's products, as well as a reduction in retail purchases, which may have a material adverse impact on the Company’s profitability, results of operations, financial condition and share price.

Among others, the Company has identified the following as potential continuing direct or indirect impacts and risks to its business and operations due to the COVID-19 pandemic:

• COVID-19 Variants:

Notwithstanding widespread vaccine availability within the United States, the emergence of COVID-19 variants and slowing vaccination rates in certain localities has resulted in increased infection rates and several jurisdictions resuming certain COVID-19 restrictions.

Additional waves of increased COVID-19 infection rates could negatively impact traffic and sales volume for retailers offering the Company's products, which in turn could have a negative impact on the Company's sales volume in the business-to-business segment.

• Operations and Return to Work:

Since the outbreak of the pandemic, the Company has taken various steps to mitigate the impact of COVID-19, including implementing precautionary measures at its facilities to ensure the safety of its staff and product consumers.

The Company has continued to operate under preventative measures and has experienced minimal disruption to its operations and supply chain.

As the Company reintegrates its personnel to its workplace, it may incur additional costs to adapt the workplace to meet applicable health and safety requirements.

The occurrence of additional waves of the virus or its variants, or insufficient vaccination levels may require the Company to revise or delay such integration plans.

To the extent that it is unable to effectively protect its workforce against the transmission of the virus, the Company may be forced to slow or reverse its reintegration efforts and could face allegations of liability.

• Disruption in Supply Chain:

Compliance with public health and governmental orders has impacted both our upstream supply chain activities as well as our downstream sales activities.

We, along with our suppliers and co-manufacturers, experienced significant increases in lead times of various raw materials, and, in some instances, a temporary lack of access to some raw materials.

Additionally, we have faced challenges within some of our sales channels, including our medical practitioner channel B2B sales.

Many of the medical practitioner businesses are small businesses, and some of them had to shutter their doors, limit hours, or limit capacity due to the above-stated impacts of COVID-19.

• IT Infrastructure, Privacy and Cyber Security:

Increased volume and sophistication of targeted cyber-attacks have been seen since the declaration of the global pandemic.

Pandemic-adjusted operations, such as work from home arrangements and remote access to the Company's systems, may pose heightened risk of cyber security and privacy breaches and may put additional stress on the Company's IT infrastructure.

A failure of such infrastructure could severely limit the Company's ability to conduct ordinary operations or expose the Company to liability.

To date, the Company's systems have functioned capably, and it has not experienced a material impact to its operations as a result of an IT infrastructure issue.

• Counterparty and Supplier Risk:

Given the continued presence of COVID-19, the Company is subject to increased exposure that contract counterparties and suppliers could fail to meet their obligations to the Company.

Non-performance or default of third party contracts by a significant counterparty could adversely affect the Company's operations and financial results.

Given the uncertainties associated with the ongoing COVID-19 pandemic, including the uncertainty surrounding the remaining duration and outcome, COVID-19 variants and vaccine efficacy, and frequent changes in regulations addressing the COVID-19 pandemic, the Company is unable to estimate the full impact of the COVID-19 pandemic on its business, financial condition, results of operations, and/or cash flows;

however, the impact could be material.

During the year ending December 31, 2021, the Company’s business-to-business sales continued to be negatively impacted as a result of the COVID-19 pandemic.

The uncertain nature of the impacts of the COVID-19 pandemic may impact the Company’s future sales, product costs and provisions of inventory going forward.

The continued uncertainty surrounding COVID-19 and the impacts COVID-19 variants may have on the Company and its stakeholders may result in, among other things, disruptions to operations (including the Company's supply chain and sales channels), reductions in business activity, increased funding costs and funding pressures (as applicable), a decrease in the market price of the Company's Shares, a decrease in asset values, additional write- downs and impairment charges, lower profitability, and a reduction in demand for the Company's products, any of which could have a material adverse impact on the Company's financial results, position, and prospects.

The Company depends on the success of the Company’s products, and the Company’s products may not achieve market acceptance.

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There is little long-term data with respect to potential therapeutic use or safety in humans or animals.

As a result, the

Company’s products could have certain side effects if not taken as directed or if taken by an end user that has certain known or unknown medical conditions.

There is no assurance that the Company’s cash flows, and debt or other financing will be sufficient to fund the Company’s operations for the next twelve months or thereafter .

As a result, the Company’s products could have certain side effects if not taken as directed or if taken by an end user that has certain known or unknown medical conditions.

There is no assurance that the Company’s cash flows, and debt or other financing will be sufficient to fund the Company’s operations.

As of December 31, 2022 and 2021, the Company had total current liabilities of $21,427,000 and $20,170,000 respectively, and cash and cash equivalents of $66,963,000 and $19,494,000, respectively, to meet its current obligations.

The Company’s ability to fund operating expenses and capital expenditures will depend on its future operating performance and there are no assurances that the Company will be able to access its available debt financing or access additional debt or other financing.

If the Company is unable to achieve targeted operating performance or are unable to access our existing debt financing or raise additional capital or debt financing on favorable terms, if at all, during the next twelve months, we may be forced to decelerate or curtail certain of our operations until such time as additional debt or capital financing becomes available.

If the Company is unable to achieve targeted operating performance or are unable to access existing debt financing or raise additional capital or debt financing on favorable terms, if at all, the Company may be forced to decelerate or curtail certain of our operations until such time as additional debt or capital financing becomes available.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity

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Reliance on the Stanley Brothers brand could have negative consequences.

The Company’s brand (and those brands associated with the Company, such as Charlotte’s Web) is closely associated with the Stanley Brothers.

The Company’s brands, particularly Charlotte’s Web, is closely associated with the Stanley Brothers.

Any act, omission or occurrence which negatively effects the reputation of or goodwill associated with the Stanley Brothers may have a commensurate impact on the Company.

The Company has limited influence upon any of the Stanley Brothers and may lack effective means of mitigating such risks.

The Company has limited influence upon the Stanley Brothers and may lack effective means of mitigating such risks.

In addition, and pursuant to the Name and Likeness Agreement, as amended, the Stanley Brothers may cause the Company to cease using the Stanley Brothers brand and certain design marks, in certain circumstances.

Moreover, the license pursuant to which Charlotte's Web is permitted to use the Stanley Brothers name and associated logos expires on July 31, 2022.

Moreover, the license pursuant to which Charlotte's Web is permitted to use the Stanley Brothers name and associated logos expires on June 30, 2023.

The Company depends on various third parties for the supply, manufacture, and testing of the Company’s products.

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The Company intends to maintain a full supply chain for the material portions of the production and distribution process of its products.

The Company’s suppliers, service providers and distributors may elect, at any time, to breach or otherwise cease to participate in supply, service or distribution agreements, or other relationships, on

which the Company’s operations rely.

Loss of its suppliers, service providers or distributors would have a material adverse effect on the Company’s business and operational results.

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Any significant increase in the price of raw materials that cannot be passed on to the Company’s customers could have a material adverse effect on the Company’s results of operations or financial condition.

While potential alternative suppliers of raw materials may be identified, they must first pass intensive validation tests to ensure their compliance with product specifications.

While potential alternative suppliers of raw materials may be identified, they must first pass intensive

validation tests to ensure their compliance with product specifications.

No assurance can be given regarding the successful outcomes of such tests or the Company’s ability to secure alternate sources of supply at competitive pricing and upon fair and reasonable contractual terms and conditions.

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Consumer perception can be significantly influenced by scientific research or findings, regulatory proceedings, litigation, media attention and other publicity regarding the consumption of CBD or Cannabis products.

There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the CBD or Cannabis markets or any particular product, or

consistent with currently held views.

Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the Cannabis industry and demand for its products and services, which could affect the Company’s business, financial condition and results of operations and cash flows.

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In addition, severe weather, including drought, fire, hail and freezing temperatures, can destroy a crop, which could result in the Company having no or limited Hemp to process.

If the Company is unable to harvest Hemp through its proprietary operations or contract farming arrangements, its ability to meet customer demand, generate sales, and maintain operations could be impacted.

If the Company is unable to harvest Hemp through its proprietary

operations or contract farming arrangements, its ability to meet customer demand, generate sales, and maintain operations could be impacted.

Given the proprietary nature of the Company’s crops, it may not be practicable for the Company to source adequate, or any, replacement Hemp to produce its downstream products.

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Farm consolidation in the United States and other developed markets has been ongoing for decades and is expected to continue as grower demographics shift and advancements in innovative technology and equipment enables farmers to manage larger operations to create economies of scale in a lower-margin, more capital-intensive environment.

Increased consolidation in the crop nutrient industry has resulted in greater resources dedicated to expansion, R&D opportunities, leading to increased competition in advanced product offerings and innovative technologies.

Increased consolidation in the crop nutrient industry has resulted in greater resources dedicated to expansion, R&D opportunities, leading to increased

competition in advanced product offerings and innovative technologies.

Some of these competitors have greater total resources or are state-supported, which make them less vulnerable to industry downturns and better positioned to pursue new expansion and development opportunities.

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Climate change could result in increasing frequency and severity of weather-related events, fires, resource shortages, changes in rainfall and storm patterns and intensities, water shortages and changing temperatures, any of which can damage or destroy crops, resulting in the Company having no or limited hemp to process.

If the Company is unable

to harvest hemp through its proprietary operations or contract farming arrangements, its ability to meet customer demand, generate sales, and maintain operations will be impacted.

If the Company is unable to harvest hemp through its proprietary operations or contract farming arrangements, its ability to meet customer demand, generate sales, and maintain operations will be impacted.

Furthermore, severe weather-related events may result in substantial costs to the Company, including costs to respond during the event, to recover from the event, and to possibly modify existing or future infrastructure requirements to prevent recurrence.

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Any such breach could impact the Company’s operations and financial performance.

The Company faces intense competition in a new industry.

The number of competitors in the Company’s market segment may continue to increase, both nationally and internationally, which could negatively impact the Company’s market share and demand for products.

The Company faces intense competition.

The number of competitors in the Company’s market segment has expanded and may continue to increase, which could negatively impact the Company’s market share and demand for products.

The markets for businesses in the CBD and hemp extracts industries are competitive and evolving.

In particular, the Company

faces strong competition from both existing and emerging companies that offer similar products.

In particular, the Company faces strong competition from both existing and emerging companies that offer similar but not full spectrum products.

Some of the Company’s current and potential competitors may have longer operating histories, greater financial, marketing and other resources and larger customer bases.

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As a result of changing consumer preferences, many dietary supplements and other innovative products attain financial success for a limited period of time.

Even if the Company’s products find retail success, there can be no

assurance that any of its products will continue to see extended financial success.

Even if the Company’s products find retail success, there can be no assurance that any of its products will continue to see extended financial success.

The Company’s success will be dependent upon its ability to price, develop new, and improve product lines.

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The Company’s sales depend, in part, on retailers effectively displaying its products, including providing attractive space in their stores, including online e-commerce platforms, and, in certain channels, having knowledgeable employees that can explain the Company’s products and their benefits.

If the Company loses any of its key retailers, or if any key retailer reduces their purchases of the Company’s existing or new products, reduces their number of stores or operations, promotes products of competitors over the Company, or suffers financial difficulty or insolvency, the Company may experience reduced sales of its products, resulting in lower revenue and gross profit margin, which would harm the Company’s profitability and financial condition.

If the Company loses any of its key retailers, or if any key

retailer reduces their purchases of the Company’s existing or new products, reduces their number of stores or operations, promotes products of competitors over the Company, or suffers financial difficulty or insolvency, the Company may experience reduced sales of its products, resulting in lower revenue and gross profit margin, which would harm the Company’s profitability and financial condition.

The Company depends on the popularity and acceptance of its brand portfolio.

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Maintaining and enhancing the Company’s brands may require it to make substantial investments, and these investments may not achieve the desired goals.

If the Company fails to successfully promote and maintain its brand or if there are

excessive expenses in this effort, its business and financial results from operations could be materially adversely affected.

If the Company fails to successfully promote and maintain its brand or if there are excessive expenses in this effort, its business and financial results from operations could be materially adversely affected.

Supply chain issues, including significant price fluctuations or shortages of materials, and distribution challenges may increase the Company’s cost of goods sold and cause its results of operations and financial condition to suffer.

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The Company may not be able to successfully implement its growth strategy on a timely basis or at all.

The Company’s future success depends, in part, on its ability to implement its growth strategy, including (i) product innovations within existing categories and growth into adjacent categories and continued growth of existing products in existing categories;

The Company’s future success depends, in part, on its ability to implement its growth strategy, including (i) brand product innovations within existing categories and growth into adjacent categories and continued growth of existing products in existing categories;

(ii) further penetration into new products and channels;

(iii) expansion into international markets;

(iii) expansion into select international markets;

and (iv) in support of its profitability targets, improvements in the Company’s operating income, gross profit and Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) margins.

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Any of the foregoing risks or actions could disrupt the Company’s operations and have a materials adverse effect on the Company’s results from operations and financial condition.

The Company has experienced significant changes in its management team in 2022, particularly in Finance.

Executive and other management transitions can be inherently difficult to manage, may cause significant and costly disruption to our business, might lead to additional departures of existing personnel, and could have a material adverse effect on our business, operating results, financial condition and internal controls over financial reporting.

From time to time, the Company may rely on debt financing for some of its business activities and there can be no assurance the Company will be able to continue to access such credit, or that it will be able to comply with the terms of such credit.

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Further, any inability of the Company to obtain new financing may limit its ability to support future growth.

On March 23, 2020, the Company announced that it had entered into a new asset backed line of credit with J.P.

Morgan for $10 million with an

accordion feature to extend the line to $20 million with a three year maturity, see “ History and Development of the Company.

” The Company received a waiver for certain financial covenants for each of the three months ended September 30, 2020 and December 31, 2020.

The Company also received a waiver for the trailing four quarters ended September 30, 2021.

As of December 31, 2021, the Company was not in compliance with certain debt covenants.

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.

The Company may have difficulty obtaining insurance to cover its operational risks.

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The Company may not be able to successfully integrate and combine the operations, personnel and technology infrastructure of any such acquired company with its existing operations.

As a result of integration efforts, the Company may experience interruptions in its business activities, deterioration in its employee and customer relationships, increased costs of integration and harm to its reputation, all of which could have a material adverse effect on the Company’s business, financial condition and results of operations.

As a result of integration efforts, the Company may experience interruptions in its business activities, deterioration in its employee and customer relationships, increased costs of integration and

harm to its reputation, all of which could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company may experience difficulties in combining corporate cultures, maintaining employee morale and retaining key employees.

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There is no assurance that these acquisitions will be successfully integrated in a timely manner or without additional expenses incurred.

In addition, the Company may be responsible for any legacy liabilities of businesses its acquire or be subject to additional liability in

connection with other strategic transactions.

In addition, the Company may be responsible for any legacy liabilities of businesses its acquire or be subject to additional liability in connection with other strategic transactions.

The existence or amount of these liabilities may not be known at the time of acquisition, or other strategic transaction, and may have a material adverse effect on our business.

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This could harm its image, brand or competitive position and cause the Company to incur significant penalties and costs.

On April 20, 2018, the USPTO issued a Final Office Action refusing registration of two trademark applications submitted by the Company based on the Trademark Examiner’s interpretation that the marks were not in lawful use in commerce under Sections 1 and 45 of the United States Trademark Act and because the goods identified in the application were not in compliance with either the CSA or the FD&C Act.

The Company filed a Request for Reconsideration of the refusals in March 2019.

Despite USPTO’s aforementioned position and refusal for registration, the Company may rely on common law theories of trademark protection and enforcement in cases of actual or suspected trademark infringement of the trademarks it wishes to protect.

The United States has enacted and implemented wide-ranging patent reform legislation.

Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations.

In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.

Depending on actions by the U.S.

Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might obtain in the future.

Similarly, changes in patent law and regulations in other countries or jurisdictions or changes in the governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain in the future.

For example, the complexity and uncertainty of European patent laws have also increased in recent years.

In Europe, a new unitary patent system will likely be introduced by the end of 2023, which would significantly impact European patents, including those granted before the introduction of such a system.

Under the unitary patent system, European applications will soon have the option, upon grant of a patent, of becoming a Unitary Patent which will be subject to the jurisdiction of the Unitary Patent Court (UPC).

As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation.

Patents granted before the implementation of the UPC will have the option of opting out of the jurisdiction of the UPC and remaining as national patents in the UPC countries.

Patents that remain under the jurisdiction of the UPC will be potentially vulnerable to a single UPC-based revocation challenge that, if successful, could invalidate the patent in all countries who are signatories to the UPC.

We cannot predict with certainty the long-term effects of any potential changes .

Companies in the retail and wholesale consumer packaged goods industries frequently own trademarks and trade secrets and often enter into litigation based on allegations of infringement or other violations of intangible property rights.

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Any of these results could harm the Company’s brand and prevent it from generating sufficient revenue or achieving profitability.

The Company is involved in litigation, including class action litigation matters, and there may be additional litigation in the future in which it will be involved.

The Company is involved in litigation, including a class action litigation matters, and there may be additional litigation in the future in which it will be involved.

The Company is currently involved in litigation.

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There is no guarantee that the Company will be recertified.

The Company’s reputation could be harmed if it loses its status as a Certified B Corp, whether by its choice or by its failure to continue to meet the certification requirements.

The Company’s reputation could be harmed if it loses its status as a Certified B Corp, whether by its choice or by its

failure to continue to meet the certification requirements.

Likewise, the Company’s reputation could be harmed if its publicly reported Certified B Corp score declines.

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As a benefit company, the Company is required to balance the financial interests of its Shareholders with the best interests of those stakeholders materially affected by its conduct, including particularly those affected by the specific benefit purposes set forth in the Company’s Articles.

Accordingly, being a benefit company and complying with the

related obligations could negatively impact the Company’s ability to provide the highest possible return to its Shareholders.

Accordingly, being a benefit company and complying with the related obligations could negatively impact the Company’s ability to provide the highest possible return to its Shareholders.

As a benefit company under British Columbia law, the Company’s directors and officers are required to act honestly and in good faith with a view to conducting business in a responsible and sustainable manner and promoting the company’s public benefits, which must be balanced with their duty under the BCBCA to act honestly and in good faith with a view to the best interests of the Company.

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In the event of a conflict or dispute regarding the Company’s Board of Directors’ balancing of interests and the duty to act in a responsible and sustainable manner, there is uncertainty as to how such a conflict may be resolved as British Columbia courts have not yet developed as substantive a body of law on this topic as with traditional director duties.

As a benefit company, the Company may be subject to increased legal proceedings concerning its duty to balance Shareholder and public benefit interests, the occurrence of which may have an adverse impact on the Company’s financial condition and results of operations.

As a public benefit company, the Company may be subject to increased legal proceedings concerning its duty to balance Shareholder and public benefit interests, the occurrence of which may have an adverse impact on the Company’s financial condition and results of operations.

As a British Columbia benefit company, the Company’s Shareholders (if they, individually or collectively, own at least 2% of the Company’s outstanding capital stock or shares having at least C$2 million in market value (whichever is less)) are entitled to commence a legal proceeding claiming that the Company’s directors failed to balance Shareholder and public benefit interests, although the BCBCA clarifies that despite any rule of law to the contrary, a court may not order monetary damages in relation to any breach by the Company’s directors of these additional duties.

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As a new class of corporate entity, there is uncertainty over how British Columbia courts would view a board’s balancing of interests as little jurisprudence exists to offer insights or guidance.

Therefore, the Company may be subject to the possibility of increased legal proceedings, which would require the attention of management and, as a result, may adversely

impact management’s ability to effectively execute the Company’s strategy.

Therefore, the Company may be subject to the possibility of increased legal proceedings, which would require the attention of management and, as a result, may adversely impact management’s ability to effectively execute the Company’s strategy.

Any such derivative litigation may be costly and have an adverse impact on the Company’s financial condition and results of operations.

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If the Company cannot achieve profitability, it may be forced to cease operations and you may suffer a total loss of your investment.

The Company anticipates requiring substantial additional financing to operate its business and it may face difficulties acquiring additional financing on terms acceptable to the Company or at all.

Given its lack of profitability, the Company expects to require substantial additional capital in the near future to continue operations at its cultivation and production facilities, dispensaries, expansion of its product lines, development of its intellectual property base, increasing production capabilities and expanding its operations in states where it currently operates and states where it currently does not have operations.

Debt and Convertible Debenture Agreement that the Company has in Place may limit other future potential strategic investor interests.

Effective as of November 14, 2022, the Company entered into 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 (C$75.3 million) 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 an annualized rate of 5% until such time that there is federal regulation permitting the use of cannabidiol, a phytocannabinoid derived from CBD as an ingredient in food products and dietary supplements in the United States.

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

The maturity date for the debenture is November 2029.

The material investment by BT DE Investments, Inc.

and the resulting significant ownership interest in the Company may have the effect of delaying or preventing change of control transactions, including transactions that some or all of our shareholders might consider to be desirable.

The Company has required, and in the future may require additional financing to operate its business and it may face difficulties acquiring additional financing on terms acceptable to the Company or at all.

Given its lack of profitability, the Company has required, and in the future may require, additional capital to continue operations at its cultivation and production facilities, expansion of its product lines, development of its intellectual property base, increasing production capabilities and expanding its operations in states where it currently operates and states where it currently does not have operations.

The Company may not be able to obtain additional financing on terms acceptable to it, or at all.

If the Company fails to raise additional capital, as needed, its ability to implement its business model and strategy could be compromised.

Even if the Company obtains financing for its near-term operations, it expects that it will require additional capital thereafter.

The capital needs of the Company will depend on numerous factors including:

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Generally, when the Company issues securities, management of the Company will have broad discretion with respect to the application of net proceeds received by the Company from the sale of the securities and may spend such proceeds in ways that do not improve the Company’s results of operations or enhance the value of the securities issued and outstanding from time to time.

Any failure by management to apply these funds effectively could result in financial losses that could have a material adverse effect on the Company’s business or cause the price of the securities of the Company issued and outstanding from time to time to decline.

Any failure by management to apply these funds effectively

could result in financial losses that could have a material adverse effect on the Company’s business or cause the price of the securities of the Company issued and outstanding from time to time to decline.

There is a limited market for the Company’s Common Shares and warrants.

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The Company is a holding company and substantially all of its assets consist of shares of Charlotte’s Web, Inc.

and Abacus (including the Abacus Subsidiaries).

and Abacus (including the subsidiaries of Abacus).

As a result, investors are subject to the risks attributable to Charlotte’s Web, Inc.

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The Company has a small number of Shareholders who own, in the aggregate, approximately a 2.3% equity interest in the Company.

In addition, a portion of the consideration under the MLB promotional rights agreement, the Company issued 4% of its fully diluted outstanding Common Shares.

As a result, although such Shareholders may not have an agreement to act in concert, such Shareholders have the ability to exercise significant influence over matters submitted to Shareholders for approval, whether subject to approval by a majority of the Shareholders or special resolution.

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Debt financing may be convertible into other securities of the Company which may result in immediate or resulting dilution.

In either case, additional financing may not be available to the Company on acceptable terms or at all.

In either case, additional financing

may not be available to the Company on acceptable terms or at all.

If the Company is unable to raise additional funds as needed, the scope of its operations or growth may be reduced and, as a result, the Company may be unable to fulfil its long-term goals.

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If outstanding options and warrants to purchase Common Shares are exercised or securities convertible into Common Shares are converted, additional dilution will occur.

The Company has disclosed the dilutive effect of the BAT convertible debenture within the notes of the financial statements.

The Company may sell additional Common Shares or other securities that are convertible or exchangeable into Common Shares in future offerings or may issue additional Common Shares or other securities to finance future acquisitions.

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There can be no assurance that the Company’s estimates and assumptions made for purposes of the impairment will prove to be accurate predictions of the future.

on the Company's business, financial condition and results of operations and could result in impairment of the Company's intangible and long-lived assets.

Adverse market conditions, including a decrease in the Company’s market capitalization, adverse impacts of the COVID-19 pandemic, temporary or permanent loss of key customers and distribution channels, among other factors, could have a material adverse effect on the Company's business, financial condition and results of operations and could result in impairment of the Company's intangible and long-lived assets.

Certain employees or directors of the Company may have interests that conflict with those of the Company.

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Reporting obligations as a public company and the Company’s anticipated growth may place a strain on the Company’s financial and management systems, processes and controls, as well as on personnel.

The Company’s internal controls over financial reporting may not be effective, and the Company’s independent auditors may not be able to certify as to their effectiveness, which could have a material and adverse effect on the Company’s business.

The Company’s internal controls over financial reporting may not be effective, and the Company’s independent auditors may may be unwilling or unable to provide us, when required, with an attestation report on the effectiveness of internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act.

The Company is subject to reporting and other obligations under applicable Canadian securities laws and rules of any stock exchange on which the Common Shares are listed, including National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings of the Canadian Securities Administrators, and upon effectiveness of this Registration Statement, will be subject to U.S.

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Any or all of these events could harm the business and financial performance of the Company.

Recent macroeconomic trends, including inflation, a recession or slowed economic growth, may adversely affect our business, financial condition and results of operations.

During 2002, inflation in the United States has accelerated and is currently expected to continue at an elevated level for the near-term.

Rising inflation could have an adverse impact on expenses, as these costs could increase at a higher rate than revenues.

Our costs are subject to fluctuations, particularly due to changes in the prices of raw product and packaging materials and the costs of labor, transportation and energy.

Inflation pressures could also result in increases in these input costs.

Therefore, our business results depend, in part, on our continued ability to manage these fluctuations through pricing actions, cost saving projects and sourcing decisions, while maintaining and improving margins and market share.

Failure to manage these fluctuations could adversely impact our results of operations or cash flows.

In addition, unfavorable macroeconomic conditions, such as a recession or continued slowed economic growth, could negatively affect consumer demand for cannabis products, which consequently, may negatively affect the results of operations.

Under difficult economic conditions, consumers may seek to reduce discretionary spending by forgoing purchases of cannabis products, negatively impacting our net sales and margins.

Softer consumer demand for cannabis products could reduce our profitability and could negatively affect our overall financial performance.

Unresolved Staff Comments

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 1A. Risk Factors