What changed in this filing

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Item 1. Financial Statements

2023-08-10 compared with 2023-05-12 · 245 added, 154 removed, 354 unchanged (53% of the section changed)

10 unchanged sentences

23,755 26,953

Employee retention credit receivable

Prepaid expenses and other current assets

4 unchanged sentences

Operating lease right-of-use assets, net 15,543 16,519

Investment in unconsolidated entity 10,700 —

SBH purchase option and other derivative assets 2,893 3,620

13 unchanged sentences

40,307 37,421

Lease obligations – noncurrent

Lease obligations

16,529 17,905

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

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

License and media rights payable

15,869 20,383

Derivatives and other long-term liabilities

Total liabilities

3 unchanged sentences

Common shares, nil par value;

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

unlimited shares authorized as of June 30, 2023 and December 31, 2022, respectively;

152,825,118 and 152,135,026 shares issued and outstanding as of June 30, 2023 and December 31, 2022

Additional paid-in capital

7 unchanged sentences

CHARLOTTE’S WEB HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

Three Months Ended March 31, (unaudited)

Three Months Ended June 30, (unaudited)

Six Months Ended June 30, (unaudited)

2023 2022 2023 2022

Revenue $ 16,006 $ 18,877 $ 33,016 $ 38,234

4 unchanged sentences

( 10,709 ) ( 7,938 ) ( 18,305 ) ( 16,579 )

Other (expense) income, net

( 698 ) ( 84 )

Gain on investment in unconsolidated entity 10,700 — 10,700 —

Change in fair value of financial instruments and other

Loss before provision for income taxes

4,229 — 9,612 100

Income tax expense

Other income (expense), net

( 1,376 ) 68 ( 2,074 ) ( 17 )

Net loss per common share, basic and diluted

Income (loss) before provision for income taxes

2,844 ( 7,870 ) ( 67 ) ( 16,496 )

Weighted-average shares used in computing net loss per share, basic and diluted

Income tax benefit (expense)

Net income (loss)

$ 2,844 $ ( 7,870 ) $ ( 67 ) $ ( 16,496 )

Per common share amounts (note 10)

Net income (loss) per common share, basic

$ 0.02 $ ( 0.05 ) $ — $ ( 0.11 )

Net income (loss) per common share, diluted

$ 0.02 $ ( 0.05 ) $ — $ ( 0.11 )

See Notes to Unaudited Condensed Consolidated Financial Statements

9 unchanged sentences

Share-based compensation — — 375 — 375

Net loss — ( 2,912 ) ( 2,912 )

Net income (loss) — ( 2,912 ) ( 2,912 )

Balance— March 31, 2023

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

Common shares issued upon vesting of restricted share units, net of withholding 392,204 — ( 6 ) — ( 6 )

Share-based compensation — — 624 — 624

Net income (loss) — — — 2,844 2,844

Balance—June 30, 2023

152,825,118 $ 1 $ 326,355 $ ( 247,995 ) $ 78,361

See Notes to Unaudited Condensed Consolidated Financial Statements

CHARLOTTE’S WEB HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share amounts)

Common Shares

Accumulated Deficit

Shareholders’

Balance—December 31, 2021

4 unchanged sentences

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

Net loss — — — ( 8,626 ) ( 8,626 )

Net income (loss) — — — ( 8,626 ) ( 8,626 )

Balance—March 31, 2022

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

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

Share-based compensation — — 643 — 643

Net income (loss) — — — ( 7,870 ) ( 7,870 )

Balance—June 30, 2022

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

See Notes to Unaudited Condensed Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Three Months Ended March 31, (unaudited)

Six Months Ended June 30, (unaudited)

Cash flows from operating activities:

2 unchanged sentences

Depreciation and amortization

Change in fair value of financial instruments

Change in fair value of financial instruments and other

( 9,612 ) ( 100 )

Convertible debenture interest

Changes in right-of-use assets 493 636

Gain on investment in unconsolidated entity ( 10,700 ) —

Convertible debenture accrued interest 1,954 —

Share-based compensation

Allowance for credit losses

Loss on foreign currency translation

Changes in right-of-use assets 976 1,236

Inventory provision

Other 957 ( 434 )

Changes in operating assets and liabilities:

4 unchanged sentences

Prepaid expenses and other current assets

License and media rights

Operating lease obligations

( 925 ) ( 644 )

Accounts payable, accrued and other liabilities

183 ( 2,194 )

Operating lease obligations

( 1,436 ) ( 896 )

License and media rights

Income taxes receivable

Other operating assets and liabilities, net

( 130 ) ( 129 )

Net cash used in operating activities

1 unchanged sentence

Cash flows from investing activities:

Other investing activities ( 40 ) ( 271 )

Purchases of property and equipment and intangible assets ( 187 ) ( 333 )

Proceeds from sale of assets 36 —

Net cash used in investing activities

11 unchanged sentences

Non-cash activities:

Non-cash purchases of property and equipment

Non-cash purchase of intangible asset ( 163 ) —

Non-cash issuance of note receivable ( 156 ) —

See Notes to Unaudited Condensed Consolidated Financial Statements

12 unchanged sentences

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

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

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

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

1 unchanged sentence

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 pursuant to which the Company has the option to acquire Stanley Brothers USA Holdings, Inc.

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

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 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 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.

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

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

4 unchanged sentences

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

Any reference in these notes to applicable guidance is

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

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of June 30, 2023 and its results of operations for the three and six months ended June 30, 2023 and 2022, cash flows for the six months ended June 30, 2023 and 2022, and stockholders’ equity for the three and six months ended

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

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

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of 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.

June 30, 2023 and 2022.

Operating results for the three and six months ended June 30, 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.

4 unchanged sentences

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

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

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

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

2 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

2023 2022 2023 2022

Direct-to-consumer $ 10,734 $ 13,277 $ 22,002 $ 26,415

3 unchanged sentences

Recently Adopted Accounting Pronouncements

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.

As of June 30, 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 March 31, 2023 and December 31, 2022, by level within the fair value hierarchy:

March 31, 2023

The following table sets forth the Company’s financial instruments and other that were measured at fair value on a recurring basis at June 30, 2023 and December 31, 2022, by level within the fair value hierarchy:

June 30, 2023

Level 1 Level 2 Level 3 Total

3 unchanged sentences

Total Financial Assets $ — $ — $ 2,893 $ 2,893

Investment in unconsolidated entity:

$ — $ — $ 10,700 $ 10,700

Financial liabilities:

8 unchanged sentences

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.

There were no transfers between levels of the hierarchy during the three and six month periods ended June 30, 2023 and the year ended December 31, 2022.

Investment in Unconsolidated Entity

On April 6, 2023, the Company jointly formed an entity, DeFloria LLC ("DeFloria"), with AJNA BioSciences PBC (“AJNA”), and a subsidiary of British American Tobacco PLC (LSE:

BATS and NYSE:

BTI) (“BAT”).

AJNA is a botanical drug development company.

AJNA is partially owned and was co-founded by a co-founder of Charlotte's Web.

The entity was established to pursue FDA-approval for a botanical drug to target a neurological condition.

BAT holds an equity interest in the entity in the form of 200,000 or 100 % 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 or 50 %, respectively, of the entity’s voting common units.

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

Additionally, the Company has a Supply Agreement with DeFloria, under which the Company supplies the oils at cost used to produce and develop the new drug.

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

DeFloria is expected to

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

use the initial $ 10 million cash investment for the clinical development of a hemp botanical Investigational New Drug application and to commence Phase I clinical development in 2024.

Concurrently with the formation of the DeFloria entity, the Company entered into a warrant agreement with AJNA to purchase 865,052 of Class A Common Stock of AJNA for an exercise price of $ 2.89 per share.

Management determined the warrant should be accounted for in accordance with ASC 321, which requires the warrant to be measured at fair value at issuance and subsequently remeasured at fair value each reporting period.

All changes from the remeasurement of the warrant will be recorded as a change in fair value of financial instruments and other in the statements of operations.

The Company determined the fair value of the AJNA warrants to be de minimis and as such no value was recorded as of June 30, 2023.

The Company determined that it has a variable interest in the investment in DeFloria.

However, the Company is not the primary beneficiary of DeFloria as it lacks the power to direct DeFloria's key activities.

Therefore, the Company concluded that the investment in DeFloria should not be consolidated.

The maximum exposure to loss in the investment in DeFloria is limited to the Company's investment, which is represented by the financial statement carrying amount of its retained interest.

In accordance with ASC 825-10, equity method investments are eligible for the fair value option as they represent recognized financial assets.

As the Company is not required to consolidate the investment and does not meet any of the other scope exceptions, the Company has the ability to adopt the fair value option for the investment at inception.

The Company elected the fair value option because it allows the investment to be valued based on current market conditions.

As such the investment 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.

For the three and six months ended June 30, 2023, a gain of $ — , respectively, related to the investment in DeFloria was recognized as a change in fair value of financial instruments and other in the statements of operations.

As of June 30, 2023, the DeFloria investment represents an investment of $ 10,700 within the condensed consolidated balance sheets.

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.

To determine the value of the investment, the Company utilizes an Option Pricing Model (OPM).

The OPM considers the various terms of the stockholder agreements, including the level of seniority among the securities, dividend policy, conversion ratios, and cash allocations upon liquidation of the entity.

The OPM is appropriate when the range of potential future outcomes is difficult to predict with any certainty.

The following additional assumptions are used in the model:

Expected term (years)

Volatility 66.0 %

Risk-free interest rate 4.0 %

Expected dividend yield — %

Discount for lack of marketability 20.0 %

Convertible Debt Derivatives

2 unchanged sentences

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).

BTI) (the "Lender"),

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

providing for the issuance of a $ 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 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.

4 unchanged sentences

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.

1 unchanged sentence

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.

For the three and six months ended June 30, 2023, a gain of $ 106 and a loss $ 506 , respectively, 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 June 30, 2023 and December 31, 2022, the debt interest rate conversion feature represents a financial asset of $ 836 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.

2 unchanged sentences

The following additional assumptions are used in the model:

March 31, December 31,

June 30, December 31,

Stated interest rate 5.0 % 5.0 %

9 unchanged sentences

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:

The expected life is based on the remaining

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

March 31, December 31,

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 and six months ended June 30, 2023, a $ 4,066 and $ 10,361 gain, respectively, 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 June 30, 2023 and December 31, 2022, the debt conversion option represents a financial liability of $ 2,815 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:

June 30, December 31,

Expected volatility

7 unchanged sentences

Stanley Brothers USA Holdings Purchase Option

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

On March 2, 2021, the Company 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 Stanley Brothers USA Holdings Purchase Option ("SBH Purchase Option") is exercised, both the Company 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 Cannabis products in the near future.

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).

7 unchanged sentences

The SBH Purchase Option is classified as a financial asset and is remeasured at fair value at each reporting date, with changes to fair value recognized in the statements of operations 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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

estimation uncertainty.

Changes in assumptions that reasonably could have been different at the reporting date may result in a higher or lower determination of fair value.

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

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.

For the three months ended June 30, 2023 and 2022, a gain of $ 57 and $ 0 , 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 six months ended June 30, 2023 and 2022, a loss of $ 243 and a gain $ 100 , 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 June 30, 2023 and December 31, 2022, the SBH Purchase Option represents a financial asset of $ 2,057 and $ 2,300 , respectively, within SBH purchase option and other derivative assets 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:

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,

June 30, December 31,

Expected volatility

14 unchanged sentences

( 17,747 ) ( 32,007 )

Total inventory

$ 23,755 $ 26,953

In May 2023, the Company sold harvested hemp that had a full inventory provision as of December 31, 2022.

The sale of hemp resulted in a $ 12,899 reduction to the inventory provision as of June 30, 2023.

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)

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

Baseball Clubs (collectively, the “MLB”), pursuant to which the Company entered into a strategic partnership with MLB to promote the Company’s new NSF-Certified for Sport® product line.

As of June 30, 2023 and December 31, 2022, the carrying value of the licensed properties was $ 18,235 and $ 23,399 , respectively, recorded as a license and media rights asset within the condensed consolidated balance sheets.

As of June 30, 2023 and December 31, 2022, the carrying value of the media rights was $ 7,232 and $ 7,482 recorded as a prepaid asset and a license and media rights asset within the condensed consolidated balance sheets.

For the three and six months ended June 30, 2023, the Company paid MLB $ 2,000 and $ 4,000 , respectively, as part of the committed cash payments, and recognized $ 2,074 and $ 3,897 , respectively, in amortization expense related to the license and media right assets.

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

Maturities of the MLB license and media rights payable as of June 30, 2023 are as follows:

Year Ending December 31:

5 unchanged sentences

Total non-current license and media rights payable

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

As of June 30, 2023, expected amortization of licensed properties are as follows:

Year Ending December 31:

2 unchanged sentences

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.

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

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

1 unchanged sentence

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.

Following federal regulation of

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

( 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

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

The maturity date for the debenture is November 14, 2029.

The following is a summary of the Company's convertible debenture as of June 30, 2023 :

As of June 30, 2023

Principal Amount Unamortized Debt Discount and Costs Net Carrying Amount

7 unchanged sentences

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 .

For the three and six months ended June 30, 2023 , the Company recognized a foreign currency loss of $ 831 and $ 820 , respectively, 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

As of June 30, 2023 , the principal amount of the debenture includes $ 1,777 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 and six months ended June 30, 2023 :

Three Months Ended Six Months Ended

June 30, June 30,

Interest and Amortization Expense 2023 2023

5 unchanged sentences

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

Although the ultimate aggregate amount of monetary liability or financial impact with respect to these matters is subject to many uncertainties and is therefore not predictable with assurance, management believes that as of March 31, 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 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.

Although the ultimate aggregate amount of monetary liability or financial impact with respect to these matters is subject to many uncertainties and is therefore not predictable with assurance, management believes that as of June 30, 2023 there is 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.

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

( 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:

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 5 months to 11.67 years, some of which include options to extend the leases for up to 5 years.

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

Maturities of operating lease liabilities as of June 30, 2023 are as follows:

Operating Leases

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SHAREHOLDERS’ EQUITY

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

As of June 30, 2023 and December 31, 2022, the Company’s share capital consists of one class of issued and outstanding shares:

common shares.

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Common Shares

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

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.

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.

As of June 30, 2023 and December 31, 2022, the Company was authorized to issue an unlimited number of common shares, which have no par value.

INCOME (LOSS) PER SHARE

The Company computes income (loss) per share of common shares.

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

Diluted income (loss) per common share is computed by dividing the net income (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.

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

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 )

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

Three Months Ended June 30,

Six Months Ended June 30,

2023 2022 2023 2022

Net income (loss) $ 2,844 $ ( 7,870 ) $ ( 67 ) $ ( 16,496 )

Weighted-average number of common shares - basic 152,481,470 145,168,510 152,398,273 145,079,859

Dilutive effect of stock options and awards — —

Dilutive effect of securities 278,618 — — —

Weighted-average number of common shares - diluted

152,760,088 145,168,510 152,398,273 145,079,859

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

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:

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

Outstanding restricted share units 2,216,022 2,569,689

Outstanding common share warrants — 6,983,140

Convertible debenture conversion 37,870,349 —

44,472,586 14,420,293

Income (loss) per common share – basic $ 0.02 $ ( 0.05 ) $ — $ ( 0.11 )

Income (loss) per common share – diluted $ 0.02 $ ( 0.05 ) $ — $ ( 0.11 )

As of June 30, 2023 and 2022, potentially dilutive securities include stock options, restricted share units, and convertible debenture conversion.

The Company computes the effect of dilutive securities using the treasury stock method and average market prices during the period.

The number of shares issuable upon the exercise of share-based awards excluded from the calculation of diluted EPS because the effect of their inclusion would have been anti-dilutive totaled 9,411,551 for the three months ended June 30, 2023.

The Company's 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 Company can settle the convertible debenture in shares.

If the convertible debenture in diluted EPS is anti-dilutive, or if the conversion value of the debenture does not exceed their conversion price for a reporting period, then the shares underlying the notes will not be reflected in the Company’s calculation of diluted EPS.

For the three months ended June 30, 2023, the price of the Company’s Shares did not exceed the conversion price and therefore there was no impact to diluted EPS during those periods.

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.

SHARE-BASED COMPENSATION

Stock options

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

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

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

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

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Three Months Ended March 31,

The following principal inputs were used in the valuation of awards issued for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

Expected volatility

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$ 0.36 $ 0.31

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:

Detail of the number of stock options outstanding for the six months ended June 30, 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

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Outstanding as of December 31, 2022

3,957,027 $ 1.52 8.37 $ 46,800

3,748,671 0.38

Forfeited (and expired)

( 692,991 ) 2.28

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.

Outstanding as of June 30, 2023

7,012,707 $ 0.83 8.99 $ —

Exercisable/vested as of June 30, 2023

2,554,000 $ 1.21 7.53 $ —

The weighted average grant-date fair value of options granted during the six months ended June 30, 2023 and 2022 was $ 0.38 and $ 1.14 , respectively.

The weighted average share price at the date of exercise of options exercised during the six months ended June 30, 2023 and 2022 was $ 0 , respectively.

Restricted share units

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

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

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

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 three months ended March 31, 2023 and March 31, 2022 was $ 740 and $ 295 , respectively.

The fair value of shares vested during the six months ended June 30, 2023 and 2022 was $ 872 and $ 625 , respectively.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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( 299,370 ) $ 1.42

( 690,092 ) $ 1.26

Shares withheld upon vesting

( 152,198 ) $ 0.85

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)

Outstanding as of June 30, 2023

2,677,462 $ 0.67

Share-based Compensation Expense

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 in the three months ended March 31, 2023 and 2022 was 0 %.

Share-based compensation expense for all equity arrangements for the three months ended June 30, 2023 and 2022 was $ 624 and $ 643 , respectively, included in selling, general and administrative expense in the condensed consolidated statements of operations.

Share-based compensation expense for all equity arrangements for the six months ended June 30, 2023 and 2022 was $ 999 and $ 2,022 , respectively, included in selling, general and administrative expense in the condensed consolidated statements of operations.

As of June 30, 2023, $ 4,074 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 2.49 years.

The Company’s effective tax rate in the three and six months ended June 30, 2023 and 2022 was 0 %.

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

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.

federal statutory rate of 21.0% for the three and six months end June 30, 2023 and 2022 , respectively, primarily due to the valuation allowance.

The effective tax rate for the three and six months ended June 30, 2023 is consistent with the three and six months ended June 30, 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.

During the three months ending June 30, 2023, the company received $ 4,261 , which includes $ 155 of interest income, related to the ERC.

RELATED PARTY TRANSACTIONS

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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, 2021.

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

On March 22, 2022, 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.

As of June 30, 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 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.

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

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.

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 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.

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 April 6, 2023, the Company jointly formed an entity, DeFloria, with AJNA and BAT.

AJNA is a botanical drug development company.

AJNA is partially owned and was co-founded by a co-founder of Charlotte's Web.

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 (Note 3).

Effective May 1, 2023, the Company entered into an 8 % interest bearing note receivable with DeFloria for the bill of sale of lab equipment in the amount of $ 170 .

The principal and interest of the note receivable will be paid in 36 monthly installments.

As of June 30, 2023, the remaining note receivable of $ 156 is presented in other assets in the condensed consolidated balance sheets.

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 December 31, 2023.

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

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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) (“BAT”).

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.

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

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