What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-12 compared with 2022-11-14 · 228 added, 315 removed, 280 unchanged (66% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

September 30, December 31,

2023 (unaudited) 2022

3 unchanged sentences

Accounts receivable, net

Notes receivable - current

Inventories, net

25,573 26,953

Employee retention credit receivable

Prepaid expenses and other current assets

Income taxes receivable

Total current assets

1 unchanged sentence

Property and equipment, net 27,962 29,330

License and media rights 25,041 26,871

Operating lease right-of-use assets, net 16,025 16,519

SBH purchase option and other derivative assets 2,715 3,620

Intangible assets, net 1,559 1,771

Stanley Brothers USA Holdings purchase option 9,100 13,000

Notes receivable - noncurrent 1,037 1,037

Other long-term assets 1,532 5,770

4 unchanged sentences

$ 3,707 $ 4,018

License and media rights payable - current

Accrued and other current liabilities

Cultivation liabilities – current

Lease obligations – current

1 unchanged sentence

22,623 21,427

Cultivation liabilities – noncurrent

Convertible debenture

38,426 37,421

Lease obligations – noncurrent

17,364 17,905

Other long-term liabilities

License and media rights payable - noncurrent 15,921 20,383

Derivative and other long-term liabilities 6,738 13,001

Total liabilities

3 unchanged sentences

Common shares, nil par value;

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

145,509,372 and 144,659,964 shares issued and outstanding as of September 30, 2022 and December 31, 2021

Proportionate voting shares, nil par value;

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

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

unlimited shares authorized as of March 31, 2023 and December 31, 2022, respectively;

152,432,914 and 152,135,026 shares issued and outstanding as of March 31, 2023 and December 31, 2022

Additional paid-in capital

7 unchanged sentences

CHARLOTTE’S WEB HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)

Three Months Ended September 30,

(unaudited) Nine months ended September 30,

2022 2021 2022 2021

Three Months Ended March 31, (unaudited)

Revenue $ 17,010 $ 19,356

2 unchanged sentences

Selling, general, and administrative expenses 17,513 20,355

Asset impairment 1,822 — 1,822 —

Operating loss

( 7,596 ) ( 8,642 )

Other income, net

Other (expense) income, net

( 698 ) ( 84 )

Change in fair value of financial instruments and other

( 4,000 ) 8,459 ( 3,900 ) 9,082

Loss before provision for income taxes

( 2,912 ) ( 8,626 )

Income tax benefit

Income tax expense

$ ( 2,912 ) $ ( 8,626 )

7 unchanged sentences

(in thousands, except share amounts)

Proportionate Voting Shares Common Shares

Common Shares

Accumulated Deficit

Shareholders’

Shares Shares

Balance—December 31, 2022

1 unchanged sentence

Common shares issued upon vesting of restricted share units, net of withholding 297,888 — ( 69 ) ( 69 )

Harmony Hemp contingent equity compensation — 169,045 — 165 — 165

ATM program issuance costs — 239,500 — ( 2 ) — ( 2 )

Share-based compensation — — 375 — 375

2 unchanged sentences

152,432,914 $ 1 $ 325,737 $ ( 250,839 ) $ 74,899

Common shares issued upon vesting of restricted share units, net of withholding — 132,463 — ( 13 ) — ( 13 )

Share-based compensation — — — 643 — 643

Net loss — — — — ( 7,870 ) ( 7,870 )

Balance—June 30, 2022

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

Common shares issued upon vesting of restricted share units, net of withholding — 231,207 — ( 67 ) — ( 67 )

ATM program issuance costs — — — ( 59 ) — ( 59 )

Share-based compensation — — — 664 — 664

Net loss — — — — ( 7,588 ) ( 7,588 )

Balance—September 30, 2022

— 145,509,372 $ 1 $ 321,559 $ ( 212,698 ) $ 108,862

See Notes to Unaudited Condensed Consolidated Financial Statements

CHARLOTTE’S WEB HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share amounts)

Proportionate Voting Shares Common Shares

Accumulated Deficit

Shareholders’

Shares Shares

Balance—December 31, 2021

144,659,964 $ 1 $ 319,059 $ ( 188,614 ) $ 130,446

Exercise of stock options — 8,261 — 30 — 30

Conversion to common shares ( 3,961 ) 1,584,410 — — — —

Common shares issued upon vesting of restricted share units, net of withholding 77,193 — ( 45 ) — ( 45 )

Exercise of common stock warrants — 98,788 — 441 — 441

Share-based compensation — — — 832 — 832

Harmony Hemp contingent equity compensation 169,045 — 165 — 165

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

Balance—March 31, 2021

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

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

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

Harmony Hemp contingent equity compensation — — — 363 — 363

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

Share-based compensation — — — 994 — 994

Net loss — — — — ( 5,923 ) ( 5,923 )

Balance—June 30, 2021

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

Conversion to common shares ( 38,675 ) 15,469,990 — — — —

Withholding of common stock upon vesting of restricted share awards — 103,074 — ( 5 ) — ( 5 )

Harmony Hemp contingent equity compensation — 169,045 — 196 — 196

ATM Offering, net of share issuance costs — 740,000 — 1,918 — 1,918

ATM program issuance costs 239,500 — ( 2 ) — ( 2 )

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

Net loss — — — ( 8,626 ) ( 8,626 )

Balance—September 30, 2021

Balance—March 31, 2022

145,145,702 $ 1 $ 320,391 $ ( 197,240 ) $ 123,152

3 unchanged sentences

(in thousands)

Nine months ended September 30,

Three Months Ended March 31, (unaudited)

Cash flows from operating activities:

2 unchanged sentences

Depreciation and amortization

Asset impairment 1,822 —

Change in fair value of financial instruments

( 5,351 ) ( 100 )

Allowance for credit losses

Inventory provision

Share-based compensation

(Gain)/Loss on disposal of assets

Cultivation settlement reduction ( 582 ) —

Convertible debenture interest

Changes in right-of-use assets 493 636

Share-based compensation

Allowance for credit losses

Changes in operating assets and liabilities:

2 unchanged sentences

Inventories, net

1,187 ( 979 )

Prepaid expenses and other current assets

License and media rights

Operating lease obligations

2 unchanged sentences

( 1,098 ) ( 2,797 )

Income taxes receivable

Cultivation liabilities

( 2,471 ) ( 7,166 )

Other operating assets and liabilities, net

( 4,167 ) ( 6 )

Net cash used in operating activities

1 unchanged sentence

Cash flows from investing activities:

Purchases of property and equipment and intangible assets ( 411 ) ( 4,088 )

Proceeds from sale of assets 354 9

Issuance of notes receivable, net of collections — 468

Investment in Stanley Brothers USA Holdings purchase option — ( 8,000 )

Other investing activities ( 40 ) ( 271 )

2 unchanged sentences

Cash flows from financing activities:

Proceeds from sale of public offering, net of issuance costs ( 61 ) 2,896

Proceeds from stock option exercises — 30

Other financing activities ( 69 ) ( 47 )

Net cash (used) provided in financing activities

Net cash used in financing activities

( 69 ) ( 47 )

7 unchanged sentences

Non-cash purchases of property and equipment

$ — $ ( 2,490 )

See Notes to Unaudited Condensed Consolidated Financial Statements

5 unchanged sentences

Charlotte’s Web Holdings, Inc.

together with its subsidiaries (collectively "Charlotte's Web" or the “Company”) is a publicly traded company incorporated pursuant to the laws of the Province of British Columbia and a Certified B Corp.

together with its subsidiaries (collectively "Charlotte's Web" or the “Company”) is a public company incorporated pursuant to the laws of the Province of British Columbia and a Certified B Corp.

The Company’s common shares are publicly listed on the Toronto Stock Exchange (“TSX”) under the symbol “CWEB” and quoted on the OTCQX under the symbol "CWBHF." The Company’s corporate headquarters is located in Louisville, Colorado in the United States of America.

5 unchanged sentences

The Company’s current product categories include human ingestible products:

tinctures (liquid product), capsules, gummies, sprays, topicals, and pet products.

tinctures (liquid product), capsules, gummies, topicals, and pet products.

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

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

On March 2, 2021, Charlotte’s Web executed an Option Purchase Agreement (the "SBH Purchase Option") pursuant to which the Company has the option to acquire Stanley Brothers USA Holdings, Inc.

On March 2, 2021, Charlotte’s Web executed an Option Purchase Agreement pursuant to which the Company has the option to acquire Stanley Brothers USA Holdings, Inc.

(“Stanley Brothers USA”), a Cannabis wellness incubator.

Until the SBH Purchase Option is exercised, both Charlotte’s Web and Stanley Brothers USA will continue to operate as standalone entities in the US.

Until the Stanley Brothers USA Holdings Purchase Option ("SBH Purchase Option") is exercised, both Charlotte’s Web and Stanley Brothers USA will continue to operate as standalone entities in the US.

Internationally, the companies are able to explore opportunities where Cannabis is federally permissible.

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

The Company grows its proprietary Hemp domestically in the United States on farms leased in northeastern Colorado.

Additionally, Hemp is sourced through contract farming operations in Kentucky, Oregon, and Canada.

The Company grows its proprietary hemp domestically in the United States on farms leased in northeastern Colorado and sources hemp through contract farming operations in Arizona, Kentucky, Oregon, and Canada.

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

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

CW Labs is currently engaged in clinical trials addressing safe Hemp-based health solutions.

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 is currently engaged in clinical trials addressing Hemp-based health solutions.

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

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES

7 unchanged sentences

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

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

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

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of March 31, 2023 and its results of operations for the three months ended March 31, 2023 and 2022, cash flows for the three months ended March 31, 2023 and 2022, and stockholders’ equity for the three months ended March 31, 2023 and 2022.

Operating results for the three months ended March 31, 2023, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023.

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

9 unchanged sentences

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Direct-to-consumer $ 11,268 $ 13,138

3 unchanged sentences

Recently Adopted Accounting Pronouncements

Other than described below, no new accounting pronouncements adopted or issued by the FASB had or may have a material impact on the Company’s condensed consolidated financial statements.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which aims to reduce complexity in accounting standards by improving certain areas of U.S.

GAAP without compromising information provided to users of financial statements.

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

fiscal years.

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

Early adoption is permitted.

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

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance , which addresses that Current GAAP has no specific authoritative guidance on the accounting for, or the disclosure of, government assistance received by business entities.

The pronouncement and subsequent amendments require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy:

1) Information about the nature of the transactions and the related accounting policy used to account for the transactions;

2) The line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item, 3) Significant terms and conditions of the transactions, including commitments and contingencies.

ASU 2021-10 is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

The Company evaluated the impact of the pronouncement, see further discussion within the Notes to Condensed Consolidated Financial Statements section "Income and Other Taxes".

Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.

2020-04, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This standard provides optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The amendments in this standard apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022.

The Company is currently evaluating the impact, if any, that the updated standard will have on the condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for convertible instruments by removing the separation 8 models for convertible debt instruments and convertible preferred stock with (1) cash conversion features, and (2) beneficial conversion features.

In addition, ASU 2020-06 enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.

ASU 2020-06 is effective for emerging growth companies for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The Company will evaluate the impact of the pronouncement and determined if there is any impact to the condensed consolidated financial statements if preferred shares are issued in future periods.

As of March 31, 2023, there are no new accounting pronouncements adopted or issued by the FASB that had or may have a material impact on the Company’s condensed consolidated financial statements.

CHARLOTTE’S WEB HOLDINGS, INC.

2 unchanged sentences

FAIR VALUE MEASUREMENT

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

September 30, 2022

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis at March 31, 2023 and December 31, 2022, by level within the fair value hierarchy:

March 31, 2023

Level 1 Level 2 Level 3 Total

Financial assets:

Stanley Brothers USA Purchase Option $ — $ — $ 9,100 $ 9,100

Stanley Brothers USA Holdings purchase option $ — $ — $ 2,000 $ 2,000

Debt interest rate conversion feature — — 715 715

Total Financial Assets $ — $ — $ 2,715 $ 2,715

Financial Liabilities:

Debt conversion option $ — $ 6,738 $ — $ 6,738

December 31, 2022

1 unchanged sentence

Financial assets:

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

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

Stanley Brothers USA Purchase Option

Stanley Brothers USA Holdings purchase option $ — $ — $ 2,300 $ 2,300

Debt interest rate conversion feature — — 1,320 1,320

Total Financial Assets $ — $ — $ 3,620 $ 3,620

Financial Liabilities:

Debt conversion option $ — $ 12,995 $ — $ 12,995

There were no transfers between levels of the hierarchy during the three months ended March 31, 2023 and the year ended December 31, 2022.

Convertible Debt Derivatives

On 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) (the "Lender"), providing for the issuance of $ 56.8 million (C$ 75.3 million) convertible debenture (the “debenture”).

The debenture is 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.

(The term “federal regulation" is defined as the date that federal laws in the United States permit, authorize or do not prohibit the use of CBD as an ingredient in food products and dietary supplements).

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

The maturity date for the debenture is November 14, 2029 (the “Maturity Date”).

Debt Interest Rate Conversion Feature

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The debt interest rate conversion feature is classified as a financial asset and is remeasured at fair value at each reporting date, with changes recognized in consolidated statements of operations as changes in fair value of financial instruments and other for the period.

The use of assumptions for the fair value determination includes a high degree of subjectivity and judgment using unobservable inputs (level 3 on the fair value hierarchy), which results in estimation uncertainty.

The debt interest rate conversion feature, if triggered, reduces the stated interest rate of the debenture to 1.5% upon federal regulation of CBD in the United States.

For the three months ended March 31, 2023, a $ 605 loss related to the debt interest rate conversion feature was recognized as a change in fair value of financial instruments and other in the statements of operations.

As of March 31, 2023 and December 31, 2022, the debt interest rate conversion feature represents a financial asset of $ 715 and $ 1,320 , respectively, within SBH purchase option and other derivative assets in the condensed consolidated balance sheets.

To determine the value of the option, the Company utilizes a probability weighted income approach.

This method calculates the present value of the reduced interest accrued on the debenture assuming the feature is triggered at a certain time, after accounting for the probability of federal regulation of CBD.

This approach is useful when ultimate valuation is based on an unverifiable outcome, such as an event outside of the Company’s influence.

The following additional assumptions are used in the model:

March 31, December 31,

Stated interest rate 5.0 % 5.0 %

Adjusted interest rate 1.5 % 1.5 %

Implied debt yield 12.7 % 8.6 %

Federal regulation probability Various 15.0 %

Year of event Various 2025

Debt Conversion Option

Per the debenture, the Lender has the option, at any time before the Maturity Date at no additional consideration, for all or any part of the principal amount to be converted into fully paid and non-assessable common shares.

The Company assessed this conversion feature and determined that the debt conversion option is an embedded derivative that requires bifurcation and is classified as a financial liability.

The debt conversion option is initially measured at fair value and is revalued at each reporting period using the Black-Scholes option pricing model based on Level 2 observable inputs.

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

Volatility is based on the actual historical market activity of the Company’s shares.

The expected life is based on the remaining contractual term of the debenture and the risk-free interest rate is based on the implied yield available on U.S.

Treasury Securities with a maturity equivalent to the expected maturity of the debenture.

For the three months ended March 31, 2023, a $ 6,257 gain related to the debt conversion option was recognized as a change in fair value of financial instruments and other in the statements of operations.

As of March 31, 2023 and December 31, 2022, the debt conversion option represents a financial liability of $ 6,738 and $ 12,995 , respectively, within derivative and other long-term liabilities in the condensed consolidated balance sheets.

The following table provides the assumption regarding Level 2 fair value measurements inputs at their measurement dates:

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

March 31, December 31,

Expected volatility

87.4 % 86.7 %

Expected term (years)

Risk-free interest rate

Expected dividend yield

Value of underlying share

C$ 0.44 C$ 0.73

Exercise price C$ 2.00 C$ 2.00

Stanley Brothers USA Holdings Purchase Option

In 2021, the Company entered into an option purchase agreement with Stanley Brothers USA.

The SBH Purchase Option was purchased for total consideration of $ 8,000 and has a five year term (extendable for an additional two years upon payment of additional consideration).

The SBH Purchase Option was purchased for total consideration of $ 8,000 and has a term of five years (extendable for an additional two years upon payment of additional consideration).

The SBH Purchase Option provides the Company the option to acquire all or substantially all the shares of Stanley Brothers USA on the earlier of February 26, 2025 and federal legalization of cannabis in the United States, or such earlier time as Stanley Brothers USA and the Company agree, at a purchase price to be determined at the time of exercise of the SBH Purchase Option.

9 unchanged sentences

Changes in fair value measurements, if significant, may affect performance of cash flows.

For the three and nine months ended September 30, 2022, a $ 4,000 and $ 3,900 loss, respectively, related to the SBH Purchase Option was recognized as change in fair value of financial instruments and other in the statements of operations.

For the three and nine months ended September 30, 2021, a $ 5,730 and $ 4,900 gain, respectively, related to the SBH Purchase Option was recognized as change in fair value of financial instruments and other in the statements of operations.

As of September 30, 2022 and December 31, 2021, the SBH

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Purchase Option represents a financial asset of $ 9,100 and $ 13,000 , respectively, in the condensed consolidated balance sheets.

For the three months ended March 31, 2023 and 2022, a $ 300 loss and $ 100 gain, respectively, related to the SBH Purchase Option was recognized as change in fair value of financial instruments and other in the statements of operations.

As of March 31, 2023 and December 31, 2022, the SBH Purchase Option represents a financial asset of $ 2,000 and $ 2,300 , respectively, in the condensed consolidated balance sheets.

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

1 unchanged sentence

The following additional assumptions are used in the model of the SBH Purchase Option:

September 30, December 31,

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

March 31, December 31,

Expected volatility

3 unchanged sentences

Weighted average cost of capital

Warrant Liabilities

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

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

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

Volatility was based on the actual historical market activity of the Company’s shares.

The expected life was based on the remaining contractual term of the warrants and the risk-free interest rate was based on the implied yield available on U.S.

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

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

For the three months ended September 30, 2022 no gain or loss was recognized, and for the three months ended September 30, 2021, a $ 2,638 gain related to the warrant liabilities was recognized as change in fair value of financial instruments and other in the condensed consolidated statements of operations and net loss.

For the nine months ended September 30, 2022 no gain or loss was recognized, and for the nine months ended September30, 2021, a $ 4,081 gain related to the warrant liabilities was recognized as change in fair value of financial instruments and other in the condensed consolidated statements of operations and net loss.

42.5 % 40.0 %

Inventories consist of the following:

September 30, December 31,

Harvested Hemp and seeds

7 unchanged sentences

( 30,832 ) ( 32,007 )

Total inventory

$ 25,573 $ 26,953

LICENSE AND MEDIA RIGHTS

MLB Promotion Rights Agreement

On October 11, 2022, 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 strategic partnership with MLB to promote the Company’s new NSF-Certified for Sport® product line.

As consideration under the MLB promotional rights agreement, the Company has paid and is committed to pay a combination of cash over the license period, along with upfront non-cash consideration in the form of equity, as well as contingent consideration in the form of contingent payments based on revenue.

As of March 31, 2023 and December 31, 2022, the carrying value of the licensed properties was $ 20,059 and $ 23,399 , respectively, recorded as a license and media rights asset within the condensed consolidated balance sheets.

As of March 31, 2023 and December 31, 2022, the carrying value of the media rights was $ 7,482 recorded as a $ 2,500 prepaid asset and a $ 4,982 license and media rights asset within the condensed consolidated balance sheets.

For the three months ended March 31, 2023, the Company paid the MLB $ 2,000 as part of the committed cash payments, and recognized $ 1,824 in amortization expense related to the license and media right assets.

Licensed properties are amortized straight line and media rights are amortized as incurred.

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

Line of Credit

The Company terminated the asset backed line of credit ("ABL") for $ 10,000 with J.P.

Morgan on July 27, 2022.

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

Borrowings under the ABL were secured by all of the assets of the Company and guaranteed by other subsidiaries of the Company.

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

As of the termination date and December 31, 2021, the Company was not in compliance with the debt covenants and had not drawn on the line of credit.

Maturities of the MLB license and media rights payable as of March 31, 2023 are as follows:

Year Ending December 31:

2023 (9 months remaining) $ 6,000

Total payments

Imputed interest

Total license and media rights payable

Current license liabilities

Total non-current license and media rights payable

As of March 31, 2023, expected amortization of licensed properties are as follows:

Year Ending December 31:

2023 (9 months remaining) $ 5,471

Total future amortization

Convertible Debenture

Effective as of November 14, 2022, the Company entered into the Subscription Agreement with BT DE Investments, Inc., providing for the issuance of $ 56.8 million (C$ 75.3 million) convertible debenture.

The debenture was denominated in Canadian Dollars ("CAD" or "C$").

The debenture is 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.

The debenture will accrue interest at a stated annualized rate of 5 % until such time that there is federal regulation permitting the use of 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 14, 2029.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The following is a summary of the Company's convertible debenture as of March 31, 2023 :

As of March 31, 2023

Principal Amount Unamortized Debt Discount and Costs Net Carrying Amount

Convertible Debenture

Convertible debenture due November 2029 $ 56,760 $ ( 18,334 ) $ 38,426

The following is a summary of the Company's convertible debenture as of December 31, 2022:

As of December 31, 2022

Principal Amount Unamortized Debt Discount and Costs Net Carrying Amount

Convertible Debenture

Convertible debenture due November 2029 $ 56,080 $ ( 18,659 ) $ 37,421

The debenture was C$ 75.3 million per the subscription agreement and translated to USD on the transaction date.

For the three months ended March 31, 2023 , the Company recognized a foreign currency gain of $ 12 related to the net carrying value of the debenture within the statement of operations .

Interest is accrued annually and payable on the maturity date or date of earlier conversion.

On conversion, accrued interest will either be converted into common shares equal to the amount of accrued interest or will be paid in cash if agreed with the Lender.

As of March 31, 2023 , the principal amount of the debenture includes $ 1,075 of accrued interest expense.

The following is a summary of the interest expense and amortization expense, recorded within the statement of operation, of the Company's convertible debenture for the three months ended March 31, 2023:

Three Months Ended

Interest and Amortization Expense 2023

Interest expense $ 697

Amortization of debt discounts and costs 319

Total $ 1,016

COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

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

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

Although the ultimate aggregate amount of monetary liability or financial impact with respect to these matters is subject to many uncertainties and is therefore not predictable with assurance, management believes that as of March 31, 2023 there are no litigation pending that could have, individually and in the aggregate, a material adverse effect on the Company’s financial position, results of operations or cash flows.

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

The leases have remaining lease terms of less than a year to 12 years, some of which include options to extend the leases for up to 5 years.

The leases have remaining lease terms of less than one to twelve years , some of which include options to extend the leases for up to five years .

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

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Maturities of operating lease liabilities as of March 31, 2023 are as follows:

Operating Leases

6 unchanged sentences

Total non-current lease liabilities

During the quarter, the Company made the decision to cease utilizing the Denver office space and plans to sublease the office space at current market rents.

Based on an analysis of the estimated undiscounted cash flows relative to a

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

potential sublease arrangement, the Company evaluated the recoverability of the assets associated with the subleased space, including, the right-of-use asset and concluded the asset was impaired.

The Company recorded an impairment charge of $ 1,822 in the consolidated statements of operations for the three and nine months ended September 30, 2022.

There were no such impairments for the three and nine months ended September 30, 2021.

CULTIVATION LIABILITIES

Future payments due under cultivation contract obligations are as follows:

Short-term Long-term Total

December 31, 2021 $ 3,448 $ 385 $ 3,833

Crop costs incurred 169 — 169

Payments ( 2,640 ) — ( 2,640 )

Settlement reductions ( 582 ) — ( 582 )

Interest 32 — 32

Conversion to short-term borrowings 385 ( 385 ) —

September 30, 2022 $ 812 $ — $ 812

SHAREHOLDERS’ EQUITY

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

As of March 31, 2023 and December 31, 2022, the Company’s share capital consists of one class of issued and outstanding shares:

common shares.

1 unchanged sentence

To date, no shares of preferred shares have been issued or are outstanding.

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

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

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

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

Common Shares

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

Preferred Shares

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

As of March 31, 2023 and December 31, 2022, the Company was authorized to issue an unlimited number of common shares, which have no par value.

Share Offering Warrants – Liability Classified

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Number of Warrants Weighted-Average Exercise Price per Warrant

Outstanding as of December 31, 2021

6,983,140 $ 7.86

( 6,983,140 ) $ 7.86

Outstanding as of September 30, 2022

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

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

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

As of March 31, 2023, there are no outstanding warrants.

As of March 31, 2022, there were 6,983,140 outstanding warrants with a weighted average exercise price per warrant of $ 7.86 .

LOSS PER SHARE

The Company computes loss per share of common shares and PVS under the two-class method required for multiple classes of common shares and participating securities.

The rights, including the liquidation and dividend rights, of the two classes of shares are similar except for the 400 :1 conversion ratio between the common shares and PVS shares.

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

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

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

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

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

The Company computes loss per share of common shares.

Basic net loss per common share is computed by dividing the net loss by the weighted-average number of common shares outstanding.

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

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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

Three Months Ended March 31,

Net loss $ ( 2,912 ) $ ( 8,626 )

1 unchanged sentence

Dilutive effect of stock options and awards — —

Weighted-average number of proportionate voting shares - basic — 50,627 — 68,416

Weighted-average number of common shares - diluted

152,314,150 144,990,224

Weighted-average number of proportionate voting shares - diluted — 50,627 — 68,416

Loss per common share – basic and diluted $ ( 0.02 ) $ ( 0.06 )

Loss per proportionate voting share – basic and diluted $ — $ ( 2.21 ) $ — $ ( 55.62 )

On October 12, 2022, the Company issued 6,119,121 common shares as part of the MLB Subscription Agreement.

Additionally, on November 14, 2022, as part of the BAT Subscription Agreement, the Company issued 37,670,540 shares.

Refer to additional disclosure within the Subsequent Events section of the Notes to Condensed Consolidated Financial Statements.

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

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

As of March 31, 2023 and March 31, 2022, potentially dilutive securities include stock options, restricted share units, common share warrants, and convertible debenture conversion.

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

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

September 30,

Outstanding options 4,386,215 4,867,464

1 unchanged sentence

Outstanding common share warrants — 6,983,140

Convertible debenture conversion 37,870,349 —

44,472,586 14,420,293

1 unchanged sentence

Stock options

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

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

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

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

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

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

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Nine Months Ended September 30,

The following principal inputs were used in the valuation of awards issued for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

Expected volatility

5 unchanged sentences

$ 0.56 $ 1.11

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Detail of the number of stock options outstanding for the three months ended March 31, 2023 under the Company's 2015 legacy option plan and the Company's amended 2018 long term incentive plan (collectively, the "Plans") is as follows:

Number of Options

2 unchanged sentences

Outstanding as of December 31, 2022 3,957,027 $ 1.52 8.37 $ 47

3,813,579 1.11

Forfeited (and expired)

( 482,866 ) 3.08

Outstanding as of September 30, 2022 4,625,261 $ 1.41 8.78 $ 170,184

Exercisable/vested as of September 30, 2022

1,579,296 $ 1.59 6.16 $ 14,184

The weighted average grant-date fair value of options granted during the nine months ended September 30, 2022 was $ 1.11 .

The weighted average grant-date fair value of options granted during the nine months ended September 30, 2021 was $ 4.63 .

The weighted average share price at the date of exercise of options exercised during the nine months ended September 30, 2022 and 2021 was $ 0 and $ 3.64 , respectively.

Outstanding as of March 31, 2023 4,386,215 $ 1.15 8.59 $ —

Exercisable/vested as of March 31, 2023 1,950,323 $ 1.44 6.87 $ —

The weighted average grant-date fair value of options granted during the three months ended March 31, 2023 was $ 0.56 .

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

The weighted average share price at the date of exercise of options exercised during the three months ended March 31, 2023 and 2022 was $ 0 , respectively.

Restricted share units

1 unchanged sentence

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

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

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

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

The fair value of shares vested during the nine months ended September 30, 2022 and September 30, 2021 was $ 881 and $ 354 , respectively.

The fair value of shares vested during the three months ended March 31, 2023 and March 31, 2022 was $ 740 and $ 295 , respectively.

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Number of Shares

6 unchanged sentences

( 129,377 ) $ 2.51

Outstanding as of September 30, 2022 2,843,470 $ 0.99

Outstanding as of March 31, 2023 2,216,022 $ 0.78

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Share-based Compensation Expense

Share-based compensation expense for all equity arrangements for the three months ended September 30, 2022 and September 30, 2021 was $ 664 and $ 1,579 , respectively, included in selling, general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

Share-based compensation expense for all equity arrangements for the nine months ended September 30, 2022 and September 30, 2021 was $ 2,686 and $ 4,128 , respectively, included in selling, general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

As of September 30, 2022, $ 6,114 of total unrecognized share-based compensation expense related to unvested options and restricted stock units granted to employees is expected to be recognized over a weighted-average period of 2.50 years.

Share-based compensation expense for all equity arrangements for the three months ended March 31, 2023 and March 31, 2022 was $ 375 and $ 1,214 , respectively, included in selling, general and administrative expense in the condensed consolidated statements of operations.

As of March 31, 2023, $ 3,739 of total unrecognized share-based compensation expense related to unvested options granted to employees is expected to be recognized over a weighted-average period of 2.76 years.

INCOME AND OTHER TAXES

The Company’s effective tax rate during the nine months ended September 30, 2022 and 2021 was 0 %, respectively.

The Company’s effective tax rate in the three months ended March 31, 2023 and 2022 was 0 %.

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

federal statutory rate of 21% for the nine months ended September 30, 2022 and 2021, respectively, primarily due to the Company being in a full valuation allowance.

As of September 30, 2022 , the Company has received $ 10,841 from the Internal Revenue Service ("IRS") which was the remaining amount of the income taxes receivable and interest.

The Company qualified for federal government assistance through employee retention credit (“ERC”) provisions of the Consolidated Appropriations Act of 2021.

As there is no authoritative guidance under U.S.

GAAP on accounting for government assistance to for-profit business entities, we account for grants provided by the government, including accounting for certain refundable tax credits, by analogy to International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance.

In accordance with IAS 20, management determined it has reasonable assurance for receipt of the ERC and recorded the ERC benefit of $ 4,106 for the period ended September 30, 2022 as an offset to Selling, general and administrative expenses expense.

Due to the expected timing of receipt of the ERC, a corresponding receivable was recognized within other long-term assets as of September 30, 2022 .

federal statutory rate of 21.0 % for the three months end March 31, 2023 and 2022 , respectively, primarily due to the valuation allowance.

The effective tax rate for the three months ended March 31, 2023 is consistent with the three months ended March 31, 2022, as the Company has been in a full valuation allowance for both periods.

As of December 31, 2022, the Company qualified for federal government assistance through employee retention credit (“ERC”) provisions of the Consolidated Appropriations Act of 2021.

Management recorded the ERC benefit of $ 4,106 for the year ended December 31, 2022 as an offset to Selling, general and administrative expense.

As of March 31, 2023, the ERC is a current asset in the condensed consolidated balance sheet of $ 4,261 , which includes $ 156 of interest income.

The receipt of the ERC proceeds is expected during Q2 2023.

RELATED PARTY TRANSACTIONS

Aidance Scientific, Inc.

(“Aidance”) is the manufacturer of nearly all Abacus Health products.

The former Chief Executive Officer of Abacus Products, Inc.

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

For the three and nine months ended September 30, 2022 and 2021, the Company made purchases of $ 1,254 and $ 947 and $ 2,943 and $ 3,133 , respectively from Aidance.

Payment terms on purchases are due 30 days after receipt.

As of September 30, 2022, the Company had a liability of $ 258 due to Aidance

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

presented in accounts payable in the condensed consolidated balance sheets.

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

Effective November 2020, the Company entered into a note receivable with certain founders of the Company ("founders") to negotiate a future binding transaction in good faith.

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

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

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

According to the terms of the agreement, no additional interest will accrue through the payment date.

The founders' equity instruments securing the promissory note remained in place.

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

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

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

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

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

Effective November 2020, the Company entered into a secured promissory note, where $ 1,000 was loaned to one of the founders.

The note receivable was secured by equity instruments with certain founders of the Company, and bore interest at 3.25 % per annum, and required the unpaid principal and unpaid interest balances to be paid on or before the maturity date of November 13, 2023.

As of March 31, 2022, the note receivable of $ 1,037 consisted of principal and interest.

As of December 31, 2022 , the Company established a reserve against the note receivable due to decline in collateral and risk associated with collectability and therefore, expensed the outstanding balance of $ 1,037 .

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

Pursuant to the terms of the agreement, the Company has the option to purchase the intellectual property rights for $ 2,000 .

On March 2, 2021, the Company entered into the SBH Purchase Option with Stanley Brothers USA as discussed above (Note 3).

The SBH Purchase Option was purchased for total consideration of $ 8,000 .

The SBH Purchase Option was purchased for a total consideration of $ 8,000 .

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

On September 30, 2022, pursuant to an amendment to the Name and Likeness and License Agreement between the Company and Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, agreement was extended to December 31, 2022.

The Name and Likeness Agreement was amended to provide the payment of a nominal per diem fee for each Stanley brother that participates in certain events.

In addition, on April 16, 2021, the Company executed a separate consulting agreement which extended the services agreements of the seven Stanley brothers for a period of one year , expiring July 31, 2022.

Upon execution of the consulting agreement in 2021, the Company paid $ 2,081 to Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, on behalf of the seven Stanley brothers, as consideration for the consulting services to be provided to the Company over the term of the agreement and certain restrictive covenants.

For the three and nine months ended September 30, 2022, the Company recognized $ 150 and $ 1,025 , respectively in sales and marketing expenses in the condensed consolidated statements of operations and net loss related to this agreement.

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

As September 30, 2022 there is no remaining balance.

SUBSEQUENT EVENTS

MLB Promotion Rights Agreement

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 consideration for the MLB Promotional Rights Agreement, which expires on December 31, 2025, the Company shall pay the 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 the MLB branded products of the Company sold after sales of all such branded products exceed $ 18.0 million.

The Company has also entered into a subscription

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

agreement (the “Subscription Agreement”) pursuant to which the Company agreed to issue to the MLB, subject to customary closing conditions, common shares equal to 4 % of the Company’s fully diluted outstanding common shares as of the day prior to the date of issue.

The total number of shares issued to the MLB was 6,119,121 common shares of the Company, which were 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 shares.

Tilray Agreement

On November 1, 2022, the Company entered into a Manufacturing and Sales License Agreement (the “Agreement”) with Aphria, Inc., an Ontario corporation, an affiliate of Tilray Brands, Inc.

(“Tilray”), pursuant to which the parties entered into a strategic alliance by which Tilray will have the rights to licensing, manufacturing, quality, marketing and distribution of extract products in Canada.

In consideration for the Agreement, Tilray has agreed to spend in each calendar year during the term of the Agreement (other than 2022) a minimum of 5 % of net sales per year on advertising, retail marketing, direct to consumer advertising, and similar third-party marketing expenditures for the Company’s products.

In addition, Tilray will spend an additional C$ 250 (Canadian Dollars) on marketing in the first contract year following 2022 to launch the Company’s brand into the Canadian market.

Tilray will also pay the Company a monthly royalty of 10 % of all net sales revenue received by Tilray from sales to third-party entities during the prior month.

The Agreement expires on October 31, 2026, unless earlier terminated by either party in accordance with the terms of the Agreement.

The Agreement is also subject to termination for convenience by either party upon 6 months’ notice given on or after October 31, 2024.

BAT Subscription Agreement

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:

Pursuant to an amendment to the Name and Likeness and License Agreement between the Company and Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, the agreement was extended to June 30, 2023.

The agreement includes the payment of a nominal per diem fee for specifically requested activities as brand ambassadors for the Company.

In addition, on April 16, 2021, the Company executed a separate consulting agreement which extended the services agreements of the Stanley Brothers for a period of one year , expiring July 31, 2022.

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

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

SUBSEQUENT EVENTS

On April 6, 2023, the Company announced the formation of an entity with AJNA BioSciences PBC (“AJNA”), and a subsidiary of British American Tobacco PLC (LSE:

BATS and NYSE:

BTI), providing for the issuance of an approximately $ 56.8 million (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 an 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 annualized rate of interest shall reduce to 1.5 %.

The maturity date for the Debenture shall be November 2029.

The Subscription Agreement contains customary representations and warranties and covenants.

The funds from this Debenture can be used for operating purposes to fund the Company, as approved by the board of directors or in accordance with the Company’s board-approved budget.

BTI) (“BAT”).

BAT holds an equity interest in the entity in the form of 200,000 preferred units following its $ 10 million investment and has the right to participate in future equity issuances to maintain its pro rata equity position.

The Company and AJNA each hold 400,000 of the entity’s voting common units.

The Company’s contribution to the entity is a license permitting the use of certain proprietary hemp intellectual property, including clinical and consumer data.

AJNA's contribution to the entity is laboratory and regulatory services, clinical expertise and the provision of clinical services.

The entity is expected to use the initial $ 10 million cash investment for the clinical development of a novel hemp botanical Investigational New Drug application and to commence Phase I clinical development in 2023.

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

What changed 10-Q

Item 1. Financial Statements