What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-21 compared with 2023-03-23 · 299 added, 412 removed, 744 unchanged (49% of the section changed)

45 unchanged sentences

Prepaid expenses and other current assets

Income taxes receivable

Total current assets

3 unchanged sentences

Operating lease right-of-use assets, net 14,601 16,519

Intangible assets, net 1,771 2,843

Investment in unconsolidated entity 11,000 —

SBH purchase option and other derivative assets 2,602 3,620

Notes receivable - noncurrent — 1,037

Intangible assets, net 887 1,771

Other long-term assets 703 5,770

5 unchanged sentences

Accrued and other current liabilities

Cultivation liabilities – current

Lease obligations – current

2 unchanged sentences

23,646 21,427

Cultivation liabilities – noncurrent

Lease obligations – noncurrent

Convertible debenture 42,528 37,421

Lease obligations

15,655 17,905

License and media rights payable 11,338 20,383

Derivative and other long-term liabilities

License and media rights payable - noncurrent 20,383 —

Convertible debenture 37,421 —

Total liabilities

3 unchanged sentences

Common shares, nil par value;

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

152,135,026 and 144,659,964 shares issued and outstanding as of December 31, 2022 and 2021

unlimited shares authorized;

154,332,366 and 152,135,026 shares issued and outstanding as of December 31, 2023 and 2022, respectively

Additional paid-in capital

14 unchanged sentences

Selling, general and administrative expenses 75,630 70,060

Goodwill and asset impairments 1,837 98,003

Asset impairment

Operating loss

( 40,612 ) ( 52,486 )

Other income, net

Change in fair value of financial instruments and other

Gain on initial investment in unconsolidated entity 10,700 —

Change in fair value of financial instruments

9,339 ( 7,480 )

Other income (expense), net

( 2,694 ) 744

Loss before provision for income taxes

3 unchanged sentences

$ ( 23,796 ) $ ( 59,313 )

Per common share amounts (Note 12)

Net loss per common share, basic and diluted

$ ( 0.16 ) $ ( 0.40 )

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

146,631,767 140,769,247

See Notes to Consolidated Financial Statements

2 unchanged sentences

(in thousands, except share amounts)

Proportionate Voting Shares Common 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 ( 81,177 ) 32,471,060 — — — —

Exercise of warrants — 98,788 — 441 — 441

Withholding of common shares upon vesting of restricted share units — 182,727 — ( 146 ) — ( 146 )

Common shares issued upon vesting of restricted share units, net of withholdings 947,396 — ( 190 ) — ( 190 )

Harmony Hemp contingent equity compensation 169,045 — 164 — 164

Common share issuance license and media agreement 6,119,121 — 3,060 — 3,060

ATM Program, net of share issuance costs 239,500 — ( 65 ) — ( 65 )

3 unchanged sentences

152,135,026 $ 1 $ 325,431 $ ( 247,927 ) $ 77,505

Common shares issued upon vesting of restricted share units, net of withholdings — 947,396 — ( 190 ) — ( 190 )

Harmony Hemp contingent equity compensation — 169,045 — 164 — 164

Common share issuance license and media agreement 6,119,121 — 3,060 — 3,060

ATM Program, net of share issuance costs — 239,500 — ( 65 ) — ( 65 )

Common shares issued upon vesting of restricted share units, net of withholding 2,197,340 — ( 251 ) — ( 251 )

Share-based compensation — — 2,100 — 2,100

Net loss — — — — ( 59,313 ) ( 59,313 )

— — — ( 23,796 ) ( 23,796 )

Balance—December 31, 2023

9 unchanged sentences

Depreciation and amortization

Goodwill and asset impairments 1,837 98,003

Change in fair value of financial instruments

( 9,339 ) 7,480

Allowance for credit losses

Inventory provision

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

Convertible debenture and other accrued interest 3,857 —

Share-based compensation

Changes in right-of-use assets 1,918 2,146

Loss (gain) on disposal of assets

Allowance for credit losses

Inventory provision

Asset impairment 548 1,837

Other 4,456 774

Changes in operating assets and liabilities:

7 unchanged sentences

151 ( 3,577 )

License and media rights ( 500 ) —

Income tax receivable

License and media rights payable

( 8,000 ) ( 500 )

Income tax and other receivable

Cultivation liabilities

7 unchanged sentences

Proceeds from sale of assets 185 660

Issuance of notes receivable, net of collections — 510

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

Other investing activities — 606

Net cash provided by (used in) investing activities

1 unchanged sentence

Cash flows from financing activities:

Proceeds from public offerings, net of issuance costs ( 64 ) 8,257

Proceeds from stock option exercises — 30

Proceeds from convertible debenture 52,761 —

Other financing activities ( 251 ) 52,389

Net cash provided by financing activities

( 251 ) 52,389

Net increase (decrease) in cash and cash equivalents

7 unchanged sentences

Non-cash share issuance for license and media rights agreement — ( 3,060 )

Non-cash purchases of property and equipment

Reduction to cultivation liabilities for inventory provision

Non-cash issuance of note receivable ( 170 )

Non-cash purchases of property and equipment and intangibles

See Notes to Consolidated Financial Statements

5 unchanged sentences

Charlotte’s Web Holdings, Inc.

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.

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 is also 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.

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

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

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

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 product categories include full spectrum hemp extract oil tinctures (liquid product), gummies, capsules, CBD topical creams and lotions, 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 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 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, in 2020, the Company established CW Labs, an internal division for R&D, to substantially expand the Company’s efforts around the science of hemp derived compounds.

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 markets or for research purposes and not in products sold within 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 Hemp-based health solutions.

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The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of an offering or such earlier time that it is no longer an EGC.

Smaller Reporting Company Status

The Company is a "smaller reporting company" as defined in the Exchange Act of 1934, as amended ("Exchange Act") Rule 12b-2.

As a result, the Company is eligible to take advantage of certain reduced disclosure and other requirements that are otherwise applicable to public companies including;

however, not limited to, not being subject to the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.

The Company will remain a smaller reporting company until the last day of the fiscal year in which (1) the aggregate worldwide market value of its common shares held by non-affiliates equaled or exceeded $250 million as of the prior June 30th, or (2) its annual revenues equaled or exceeded $100 million during such completed fiscal year and the aggregate worldwide market value of its common shares held by non-affiliates equaled or exceeded $700 million as of the prior June 30th.

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

Smaller Reporting Company Status

The Company is a “smaller reporting company” as defined in Exchange Act of 1934, as amended ("Exchange Act") Rule 12b-2.

As a result, the Company is eligible to take advantage of certain reduced disclosure and other requirements that are otherwise applicable to public companies including, but not limited to, not being subject to the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES

8 unchanged sentences

On an ongoing basis, management evaluates such estimates and assumptions for continued reasonableness.

In particular, management makes estimates with respect to any (i) inventory provision, (ii) underlying assumptions that affect the potential impairment of goodwill and long-lived assets, (iii) ability to realize income tax benefits associated with deferred tax assets , and, (iv) underlying assumptions that affect the fair value of the SBH purchase option and other derivative instruments.

In particular, management makes estimates with respect to any (i) inventory provision, (ii) underlying assumptions that affect the potential impairment of goodwill and long-lived assets, (iii) ability to realize income tax benefits associated with deferred tax assets, (iv) underlying assumptions that affect the fair value of the SBH purchase option, other derivative instruments, and investments in unconsolidated entities.

Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation.

4 unchanged sentences

Basic and Diluted Net Loss per Share

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

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

Since the Company was in a loss position for the periods presented, basic net loss per share is the same as diluted net loss per share since the effects of potentially dilutive securities are antidilutive.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker ("CODM") in deciding how to allocate resources and in assessing performance.

5 unchanged sentences

The Company has not experienced any losses in such accounts.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Concentration of Credit Risk

1 unchanged sentence

The cash amounts in deposit accounts held in excess of federally-insured limits were $ 47,570 and $ 66,713 as of December 31, 2023 and 2022, respectively.

The Company provides credit to its customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk, but has limited risk, as the majority of its sales are transacted with cash.

To date, the Company has not experienced any losses on its cash deposits.

The Company provides credit to its customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk;

however, has limited risk, as the majority of its sales are transacted with cash.

Accounts receivable are unsecured, and the Company does not require collateral from its customers.

As of December 31, 2023 and 2022, no single customer accounted for more than 10% of the Company’s consolidated revenue.

The Company had one customer whose accounts receivable balance individually represented 21 % and 34 % of accounts receivable as of December 31, 2022 and 2021, respectively.

Accounts Receivable and Allowance for Credit Losses

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

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

Consistent with

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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.

Refer to Note 4 "Inventories" for further discussion.

7 unchanged sentences

$ 6,864 $ 7,998

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Property and Equipment, Net

17 unchanged sentences

15 - 20 years

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Capitalized Software Development Costs

3 unchanged sentences

These costs are included in intangible assets, net on the consolidated balance sheets.

Goodwill represents the excess of acquisition costs over the fair value of tangible assets and identifiable intangible assets of the businesses acquired.

Goodwill is not amortized.

Goodwill is subject to impairment testing annually as of October 1, or any time changes in circumstances indicate that the carrying amount may not be fully recoverable.

The Company performs its annual impairment test to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill.

If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required.

If it is determined that there are impairment indicators, the Company will compare the fair value of its reporting units to its carrying value, including goodwill.

If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss.

The Company also monitors the indicators for goodwill impairment testing between annual tests.

See note "Goodwill and intangible assets", for further discussion.

Impairment of Long-Lived Assets

4 unchanged sentences

If the useful life is shorter than originally estimated, the Company amortizes the remaining carrying value over the new shorter useful life.

See note "Goodwill and Intangible Assets", and note "Property and Equipment, net", for further discussion.

Cultivation Liabilities

Cultivation liabilities consist of amounts owed to third-party farming operators for the hemp harvests cultivated between 2022 and 2019.

There were no cultivation liabilities incurred for the hemp harvest cultivated in 2021 or 2020 as there was minimal hemp grown with third-party farming operators due to sufficient quantities on hand of harvested hemp inventories and the resulting minimal crops did not trigger additional liabilities per the terms of the agreements.

The terms of the agreements with third-party farming operators are fixed and determined based on the potency and yield of the hemp crops after harvests are completed.

As stated in the agreements with the third-party farming operators, amounts are paid over four or eight quarters depending on the quantity of acres planted.

The Company can reduce the settlement amount of cultivation liabilities for harvested hemp outside of quality specifications, as stated in the agreements.

The cultivation liabilities are initially measured at the present value of

See Note 5 "Property and Equipment, net", for further discussion.

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

future payments, discounted using a risk free interest rate.

Refer to note "Cultivation Liabilities" for detail of the cultivation liabilities for the years ended December 31, 2022 and 2021.

The Company elected to early adopt ASU 2016-02, Leases (Topic 842) as of January 1, 2019, as permitted by the standard.

After the adoption of this standard, the Company determined if an arrangement contains a lease at inception based on whether there is an identified asset and whether the Company controls the use of the identified asset throughout the period of use.

The Company classifies leases as either finance or operating.

Investment in Unconsolidated Entities

The Company 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.

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

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

The investment was remeasured at fair value after each reporting date, with changes recognized in consolidated statements of operations, as changes in fair value of financial instruments for the period.

The Company determines if an arrangement contains a lease at inception based on whether there is an identified asset and whether the Company controls the use of the identified asset throughout the period of use.

Arrangements containing leases are classified as either finance or operating.

The Company does not have any finance leases.

Right-of-use (“ROU”) assets are recognized at the lease commencement date and represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

For operating leases, right-of-use ("ROU") assets are recognized at the lease commencement date and represent the Company’s right to use an underlying asset for the lease term.

Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the remaining lease term.

Present value of lease payments are discounted based on the more readily determinable of (i) the rate implicit in the lease or (ii) the Company’s incremental borrowing rate.

Because the Company’s operating leases generally do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at lease commencement date for collateralized borrowings with a similar term, an amount equal to the lease payments and in a similar economic environment where the leased asset is located.

Present value of lease payments are discounted based on the Company’s incremental borrowing rate, as the Company’s operating leases generally do not provide an implicit rate.

The estimated incremental borrowing rate is based on the information available at the lease commencement date for collateralized borrowings with a similar term, an amount equal to the lease payments and in a similar economic environment where the leased asset is located.

The collateralized borrowings were based on the Company’s credit rating corroborated with market credit metrics like debt level and interest coverage.

The Company’s operating lease ROU assets are measured based on the corresponding operating lease liability adjusted for (i) payments made to the lessor at or before the commencement date, (ii) initial direct costs incurred and (iii) lease incentives under the lease.

Options to renew or terminate the lease are recognized as part of the Company’s ROU assets and lease liabilities when it is reasonably certain the options will be exercised.

ROU assets are also assessed for impairments consistent with the Company’s long-lived asset policy.

See note "Leases" for further discussion.

Operating lease expense for fixed lease payments is recognized on a straight-line basis over the lease term.

1 unchanged sentence

Operating leases are presented separately as operating lease right-of-use assets, net and lease obligations, current and non-current, in the accompanying consolidated balance sheets.

We have elected the short-term lease recognition exemption for all applicable classes of underlying assets.

Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on the balance sheet.

3 unchanged sentences

The Company reviewed the terms of the debenture and identified two material embedded features which required bifurcation and separate accounting pursuant to the provisions of ASC 815:

1) the interest rate conversion feature based on changes in federal regulations, and 2) the debt conversion option to common shares.

i) the interest rate conversion feature based on changes in federal regulations, and ii) the debt conversion option to common shares.

The debt interest rate conversion feature is classified as a derivative asset and measured at fair value using a probability weighted income approach.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

conversion option is classified as a derivative liability and measured at fair value using a Black-Scholes option pricing model.

The debt conversion option is classified as a derivative liability and measured at fair value using a Black-Scholes option pricing model.

The Company allocated proceeds first to the derivatives measured at fair value and the residual amount is allocated to the debenture.

2 unchanged sentences

Refer to Note 3 "Fair Value Measurement" and Note 8 "Debt" for additional discussion regarding the convertible debenture and derivative instruments.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customer (“ASC 606”).

The Company elected to early adopt ASC 606 as of January 1, 2018, as permitted by the standard.

The Company performs the following five steps:

(i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company applies the five-step model to arrangements that meet the definition of a contract under the standard, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

At contract inception, once the contract is determined to be within the scope of revenue accounting, the Company evaluates the goods or services promised within each contract related performance obligation and assesses whether each promised good or service is distinct.

The Company recognizes as revenue, the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The Company recognizes revenue from customers when control of the goods or services are transferred to the customer, generally when products are shipped, at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services.

The Company recognizes revenue from customers when control of the goods or services are transferred to the customer.

This generally occurs when products are shipped, at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services.

Freight revenue is included in revenue on the consolidated statements of operations, and is generally exempt from state sales taxes.

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The Company defers recognition of revenue for unredeemed awards until the following occurs:

(1) rewards are redeemed by the consumer, (2) points or certificates expire, or (3) an estimate of the expected unused portion of points or certificates is applied, which is based on historical redemption patterns.

i) rewards are redeemed by the consumer, ii) points or certificates expire, or iii) an estimate of the expected unused portion of points or certificates is applied, which is based on historical redemption patterns.

Any product that doesn't meet the customer’s expectations can be returned within the first 30 days of delivery in exchange for another product or for a full refund.

Any product sold through a distributor or retailer must be returned to the original purchase location for any return or exchange.

The Company accounts for customer returns utilizing the “expected value method.” Expected amounts are excluded from revenue and recorded as a “refund liability” that represents the Company’s obligation to return the customer’s consideration.

Any product sold through a distributor or retailer must be returned in the original purchase location for any return or exchange.

The Company accounts for customer returns utilizing the "expected value method".

Expected amounts are excluded from revenue and recorded as a "refund liability" that represents the Company’s obligation to return the customer’s consideration.

Estimates are based on actual historical and current specific data.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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Selling, General and Administrative

Selling, general and administrative expense primarily consists of compensation and other personnel-related costs, including share-based compensation, marketing and advertising expenses, professional services fees, rent and related costs, property and casualty and directors and officers insurance premiums and bank and merchant fees.

Selling, general and administrative expense primarily consists of compensation and other personnel-related costs, including amortization and depreciation, share-based compensation, marketing and advertising expenses, professional services fees, rent and related costs, insurance premiums, as well as bank and merchant fees.

Advertising expenses are expensed as incurred and primarily includes the cost of marketing activities such as online advertising, search engine optimization, promotional activities, and market research.

For the years ended December 31, 2023 and 2022, the Company recognized $ 13,782 and $ 12,211 of advertising expense, respectively.

Selling, general and administrative expense also includes research and development expenses, which are expensed as incurred.

Selling, general

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

and administrative expense also includes research and development expenses, which are expensed as incurred.

For the years ended December 31, 2023 and 2022, the Company recognized $ 2,964 and $ 3,435 , respectively, of research and development expenses.

Defined Contribution Plan

The Company has defined contribution plans, under which the Company contributes based on a percentage of the employees’ elected contributions.

The Company has a defined contribution plan, under which the Company contributes based on a percentage of the employees’ elected contributions.

Defined contribution expense of $ 565 and $ 540 was recorded during the years ended December 31, 2023 and December 31, 2022, respectively.

1 unchanged sentence

The Company accounts for compensation expense for share-based option awards to employees, non-employee directors, and other non-employees based on the estimated grant date fair value of the options on a straight-line basis over the requisite service period, which is the vesting period for stock options.

The fair value of stock options are estimated using the Black-Scholes-Merton (“Black-Scholes”) valuation model, which requires assumptions and judgments regarding stock price, volatility, risk-free interest rates, dividend yields and expected option terms.

The fair value of stock options are estimated using the Black-Scholes option pricing model, which requires assumptions and judgments regarding stock price, volatility, risk-free interest rates, dividend yields, and expected option terms.

The Company uses the historical volatility and grant date closing price of its publicly traded shares to estimate the grant-date fair value of its stock options.

Due to the lack of historical exercise history, the expected term of the Company’s stock options for employees has been determined utilizing the “simplified” method for awards.

The risk-free interest rate is determined by reference to the U.S.

Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.

Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Share-based compensation is recognized net of actual forfeitures when they occur.

All share-based compensation costs are recorded in the consolidated statements of operations in selling, general and administrative expense.

The Company measures nonemployee awards at their fair value consistent with the accounting for employee share-based compensation as described above.

For the years ended December 31, 2022 and December 31, 2021, the Company did not have any material expense for nonemployee awards.

The Company utilizes the asset and liability method of accounting for income taxes.

11 unchanged sentences

The Company may be subject to examination by tax authorities where the Company conducts operations.

The earliest income tax year that may be subject to examination is 2018.

The Company has recorded an uncertain tax position of $ 221 and $ 179 as of December 31, 2022 and December 31, 2021, respectively.

T he Company’s tax years prior to 2019 are closed for federal income tax purposes.

The Company’s 2019 tax year was opened for examination by the IRS during the second half of 2023.

The statute of limitations on assessment with respect to the Company’s 2019 Form 1120 remains open until December 31, 2025, pursuant to an agreed-upon extension to the applicable statute of limitations.

The Company’s 2020 through 2022 tax years remain open until the general statute of limitations lapses for each respective tax year.

Refer to Note 14 "Income Taxes" for disclosures on uncertain tax position.

The Company’s policy is to recognize interest and penalties on taxes, if any, as income tax expense.

Recently Issued Accounting Pronouncements

Other than described below, no new accounting pronouncements adopted or issued by the Financial Accounting Standards Board (“FASB”) had or may have a material impact on the Company’s consolidated financial statements.

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 standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after

Other than described below, no new accounting pronouncements issued by the Financial Accounting Standards Board ("FASB") had or may have a material impact on the Company’s consolidated financial statements.

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

December 15, 2023.

Early adoption is permitted.

On December 14, 2023 the FASB issued a final standard on improvements to income tax disclosures, ASU 2023-09, Improvements to Income Tax Disclosures .

The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid.

The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions.

For public business entities, the new requirements will be effective for annual periods beginning after December 15, 2024.

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

Recently Adopted Accounting Pronouncements

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 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, and the Company elected to adopt for the fiscal year beginning January 1, 2022.

There was an immaterial impact upon adoption 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 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.

Early adoption is permitted, and the Company elected to adopt for the fiscal year beginning January 1, 2022.

The Company evaluated the impact of the pronouncement and accounted for the convertible debenture in accordance with ASU 2020-06.

See further discussion within the note "Debt".

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 adopted for the fiscal year beginning January 1, 2022.

The Company evaluated the impact of the pronouncement, see further discussion within the note "Income and Other Taxes".

On November 27, 2023 the FASB issued ASU 2023-07—Segment Reporting .

The new guidance was issued primarily to provide financial statement users with more disaggregated expense information about a public entity’s reportable segments.

The guidance is effective for calendar year public entities in 2024 year-end financial statements, and should be adopted retrospectively unless impracticable.

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

FAIR VALUE MEASUREMENT

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Level 1 —Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Level 2 —Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities;

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The categorization of a financial instrument within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The Company’s financial instruments include cash and cash equivalents, accounts receivable and other receivables, notes receivable and payable, SBH purchase option and asset derivatives, accounts payable and accrued liabilities, cultivation liabilities, convertible debenture, liability derivatives, and other current assets and liabilities.

At December 31, 2022 and 2021, the carrying amounts of cash and cash equivalents, accounts receivable and other receivables, accounts payable and other current assets and liabilities approximated at their fair values because of their short-term nature.

At December 31, 2023 and 2022, the carrying amounts of cash and cash equivalents, accounts receivable and other receivables, accounts payable and other current assets and liabilities approximated fair values because of their short-term nature.

The carrying value of the notes receivable and cultivation liability approximates the fair value as the stated interest rate approximates market rates currently available to the Company.

The carrying value of the convertible debenture approximates the fair value after adjustments for the bifurcated embedded derivatives and other discounts, refer to the "Debt" note for fair value discussion.

The carrying value of the convertible debenture approximates the fair value after adjustments for the bifurcated embedded derivatives and other discounts, refer to Note 8 "Debt" note for additional fair value disclosures.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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Total Financial Assets $ — $ — $ 2,602 $ 2,602

Investment in unconsolidated entity:

$ — $ — $ 11,000 $ 11,000

Financial Liabilities:

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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:

Warrants $ — $ — $ — $ —

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

There were no transfers between levels of the hierarchy during the years ended December 31, 2023 and 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 DeFloria 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 DeFloria’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 use the investments for the clinical development of a hemp botanical Investigational New Drug application and has commenced Phase I clinical development.

Concurrently with the formation of DeFloria, the Company was issued a warrant to purchase 865,052 shares 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 in the statements of

CHARLOTTE’S WEB HOLDINGS, INC.

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

The Company determined the fair value of the AJNA warrants to be de minimis and as such no value was recorded as of December 31, 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.

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 had the ability to adopt the fair value option for the investment at inception.

Upon formation of the entity, the Company elected the fair value option because it allowed the investment to be valued based on current market conditions.

As such, the investment has been remeasured at fair value at each reporting date, with changes recognized in consolidated statements of operations as changes in fair value of financial instruments for the period.

For the year ended December 31, 2023, a gain of $ 300 , respectively, related to the investment in DeFloria was recognized as a change in fair value of financial instruments in the statements of operations.

As of December 31, 2023, the DeFloria investment represents an investment of $ 11,000 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 70.0 %

Risk-free interest rate 3.9 %

Expected dividend yield — %

Discount for lack of marketability 20.0 %

Convertible Debt Derivatives

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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 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.

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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").

The Company determined that the debenture did not meet the definition of a freestanding derivative under ASC 815 "Fair Value Measurement for financial statement", and required the bifurcation of two embedded derivatives, the debt interest rate conversion feature and the debt conversion option.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Debt Interest Rate Conversion Feature

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 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 year ended December 31, 2022, a $ 138 gain related to the debt interest rate conversion feature was recognized as change in fair value of financial instruments and other in the statements of operations.

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

For the years ended December 31, 2023 and December 31, 2022, a loss of $ 471 and a gain of $ 138 , respectively, related to the debt interest rate conversion feature was recognized as change in fair value of financial instruments in the statements of operations.

As of December 31, 2023 and December 31, 2022, the debt interest rate conversion feature represents a financial asset of $ 872 and $ 1,320 , respectively, within SBH purchase option and other derivative assets in the consolidated balance sheets.

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

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Implied debt yield 11.0 % 8.6 %

Federal regulation probability 15.0 %

Year of event 2025

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.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 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.

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

For the year ended December 31, 2022, a $ 3,082 gain related to the debt conversion option was recognized as change in fair value of financial instruments and other in the statements of operations.

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

For the years ended December 31, 2023 and December 31, 2022, a gain of $ 10,080 and $ 3,082 , respectively, related to the debt conversion option was recognized as change in fair value of financial instruments and other in the statements of operations.

As of December 31, 2023 and December 31, 2022, the debt conversion option represents a financial liability of $ 3,213 and $ 12,995 , respectively, within derivative and other long-term liabilities in the consolidated balance sheets.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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Expected volatility

87.4 % 86.7 %

Expected term (years)

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Value of underlying share

Exercise price $ 2.00

C$ 0.27 C$ 0.73

Exercise price C$ 2.00 C$ 2.00

Stanley Brothers USA Holdings Purchase Option

On March 2, 2021, the Company entered into an option purchase agreement with Stanley Brothers USA, a privately held Delaware company, and the shareholders of 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).

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 United States.

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).

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, 2024 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.

Upon exercise of the SBH Purchase Option, the purchase price will be determined based on application of predetermined multiples of Stanley Brothers USA revenue and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) measures.

Upon exercise of the SBH Purchase Option, the purchase price will be determined based on application of predetermined multiples of Stanley Brothers USA revenue and EBITDA measures.

The Company is not obligated to exercise the SBH Purchase Option.

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The warrant is exercisable at the Company's election for a nominal exercise price in the event the Company elects not to acquire all or substantially all shares of Stanley Brothers USA and expires 60 days after the expiration of the option.

The Company has elected the fair value option in accordance with ASC 825-10 guidance to record its SBH Purchase Option.

Under ASC 825-10, a business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.

The Company elected the fair value option in accordance with ASC 825-10 guidance to record its SBH Purchase Option.

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 consolidated 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),

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 the performance of cash flows.

For the year ended December 31, 2023 and December 31, 2022 , a loss of $ 570 and $ 10,700 , 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 December 31, 2023 and December 31, 2022 , the SBH Purchase Option represents a financial asset of $ 1,730 and $ 2,300 within SBH purchase option and other derivative assets in the 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.

Primary assumptions utilized include

CHARLOTTE’S WEB HOLDINGS, INC.

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

which results in 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 (Stanley Brothers USA financial results or projections of future financial results).

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

For the year ended December 31, 2022 and December 31, 2021 , a $ 10,700 loss and a $ 5,000 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 December 31, 2022 and December 31, 2021 , the SBH Purchase Option represents a financial asset of $ 2,300 and $ 13,000 within SBH purchase option and other derivative assets in the consolidated balance sheets.

The Monte Carlo valuation model considers multiple revenue and EBITDA outcomes for Stanley Brothers USA and other probabilities in assigning a fair value.

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

The following additional assumptions are used in the model:

financial projections of Stanley Brothers USA and the probability and timing of exercise.

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

Year Ended December 31,

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50.6 % 40.0 %

Warrant Liabilities

In 2020, the Company closed its underwritten public share offering (“2020 Share Offering”) of 10,000,000 units ("Offered Units").

Each Offered Unit consisted of one common share of the Company and one-half of one common share purchase warrant of the Company (each whole common share purchase warrant, a "2020 Share Offering Warrant").

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

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

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

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 warrants 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 life of the warrants.

For the years ended December 31, 2022 and December 31, 2021, no gain and $ 4,304 gain, respectively, was recognized related the warrant liabilities as change in fair value of financial instruments and other in the consolidated statements of operations.

As of December 31, 2021, the Company's warrant liabilities' fair value is zero due to some warrants expiring in December 2021, a shorter expected term for the remaining outstanding warrants, and a significant decline in the Company's stock price.

As of December 31, 2022, there are no outstanding warrants.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Year Ended December 31,

Expected volatility

Expected term (years)

Risk-free interest rate

Expected dividend yield

Value of underlying share

Inventories consist of the following:

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Raw materials

10,960 15,189

Finished goods

25,346 58,960

58,960 67,412

inventory provision

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Inventory Provision

For the year ended December 31, 2023, inventory provisions of $ 1,039 were expensed through cost of goods sold in the consolidated statements of operations.

For the year ended December 31, 2023, write-offs of inventory previously reserved for of $ 29,238 were recognized.

During the current year, the Company sold harvested hemp that had a full inventory provision as of December 31, 2022.

The sale of hemp resulted in a $ 12,854 reduction to the inventory provision as of December 31, 2023.

For the year ended December 31, 2022, inventory provisions of $ 23,394 were expensed through cost of goods sold.

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For the year ended December 31, 2022, write-offs of inventory previously reserved for of $ 6,722 were recognized.

For the year ended December 31, 2021, inventory provisions of $ 9,729 were expensed through cost of goods sold in the consolidated statements of operations, and $ 543 were recognized as settlement reductions of cultivation liabilities due to third-party farming operators related to harvested hemp outside of quality specifications.

For the year ended December 31, 2021, write-offs of inventory previously reserved for of $ 12,129 were recognized.

CHARLOTTE’S WEB HOLDINGS, INC.

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For the years ended December 31, 2023 and December 31, 2022, depreciation expense of $ 3,179 and $ 3,032 , respectively, was recorded in Cost of goods sold in the consolidated statements of operations.

During the year ended December 31, 2021, an impairment loss of $ 1,921 was recorded related to property and equipment.

The impairment resulted from the Company's decision to exit a third-party farming operator relationship.

GOODWILL AND I NTANGIBLE ASSETS

As of December 31, 2022 and December 31, 2021, the Company has no goodwill.

The Company determined the sustained decrease in share price in the fourth quarter of 2021, along with a significant decline to the equity value of the Company's peers, represented a goodwill impairment triggering event.

The Company performed a quantitative analysis as of December 31, 2021 to determine if impairment to the Company's goodwill existed for the one reporting unit.

A blended approach in calculating fair value of the one reporting unit included the income approach and market approach.

This analysis resulted in full impairment of the Company's goodwill balance totaling $ 76,039 included in goodwill and asset impairments charges on the consolidated statements of operations for the year ended

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

December 31, 2021.

The goodwill impairment was measured as the amount by which the carrying value of the reporting unit, including goodwill, exceeded its fair value.

Intangible Assets

During the year ended December 31, 2023, an impairment loss to building assets of $ 548 was recorded within Asset Impairment in the consolidated statement of operations.

The impairment resulted from a decline in market conditions at the Company's hemp farm that indicated a fair value less than the carrying value.

I NTANGIBLE ASSETS

Details of the Company’s intangible assets subject to amortization and indefinite-lived intangible assets and their respective carrying amounts are as follows:

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Total $ 3,664 $ ( 1,893 ) $ 1,771

(1) The factors listed above representing a goodwill triggering event also indicated a triggering event for the Company's customer relationships and trade name intangible assets acquired with the acquisition of Abacus.

The Company performed a quantitative analysis as of December 31, 2021 to determine if impairment existed by comparing the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over their remaining lives.

This analysis resulted in full impairment of the customer relationships and trade name intangible assets acquired and total an impairment loss of $ 19,750 was recorded in goodwill and asset impairments charges on the consolidated statements of operations for the year ended December 31, 2021.

For the years ended December 31, 2022 and December 31, 2021, amortization expense of intangible assets of $ 1,228 and $ 3,544 , respectively, was recorded in Selling, general, and administrative expense in the consolidated statements of operations.

CHARLOTTE’S WEB HOLDINGS, INC.

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

For the years ended December 31, 2023 and December 31, 2022, amortization expense of intangible assets of $ 849 and $ 1,228 , respectively, was recorded in Selling, general, and administrative expense in the consolidated statements of operations.

As of December 31, 2023 , expected amortization of intangible assets is as follows:

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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.

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 a strategic partnership with MLB to promote the Company’s new NSF-Certified for Sport® product line.

On January 29, 2024, the Company and MLB entered into the First Amendment to the Promotional Rights Agreement ("First Amendment").

The First Amendment extended the agreement through December 31, 2027, with an aggregate rights fee of $ 23 million for the remainder of the term.

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.

The consideration is as follows:

The consideration was as follows:

4 % of the Company’s fully diluted outstanding common shares;

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10 % royalty on the Company’s gross revenue from the sale of MLB branded products, after cumulative gross sales of all such branded products exceed $ 18.0 million.

As of October 11, 2022, the Company measured the assets acquired under the MLB promotional rights agreement based on the pro-rated fair value of i) the equity grant, ii) the committed cash payments, and iii) the revenue royalty payment for the acquired assets of 1) licensed properties and 2) prepaid media rights.

The Company issued the MLB 6,119,121 common shares, the fair value of equity grant was $ 3,060 .

The fair value of the $ 30.5 million committed cash consideration was $ 28,339 , based on the discounted future payments through the term of the agreement using a risk free interest rate of 4.31 %.

The fair value of the contingent 10 % revenue royalty payment was $ 0 as the payment of the royalty fee is not considered probable.

As of December 31, 2022, the fair value of the total licensed properties was $ 23,399 recorded as a license and media rights asset, and the fair 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 consolidated balance sheets.

For the year ended December 31, 2022, the Company paid the MLB $ 500 as part of the committed cash payments, and recognized $ 1,516 in amortization expense related to the licensed properties, and $ 518 in media expense related to the media rights.

As of December 31, 2023 and December 31, 2022 , the carrying value of licensed properties was $ 14,589 and $ 21,883 , respectively, recorded as a license and media rights asset within the consolidated balance sheets.

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

For the year ended December 31, 2023 and December 31, 2022 , the Company paid MLB $ 8,000 and $ 500 as part of the committed cash payments, and recognized $ 9,794 and $ 2,034 , respectively, in amortization expense related to the license and media rights assets.

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

CHARLOTTE’S WEB HOLDINGS, INC.

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Total non-current license and media rights payable

The MLB First Amendment agreement extended the maturities of the future payment by an additional 2 years.

For the years ending 2024-2027, the respective future payments will be an average of $ 5.7 million per year.

As of December 31, 2023 , expected amortization of licensed properties is as follows:

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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.

On 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$").

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 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 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 %.

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

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

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

4 unchanged sentences

Convertible debenture due November 2029 $ 60,116 $ ( 17,588 ) $ 42,528

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

The Company remeasures the debenture at each balance sheet date using the CAD to USD exchange rate as of that balance sheet date.

The Company recognizes the resulting foreign currency gain or loss within the statement of

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

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

operations during the period.

For the year ended December 31, 2022, the Company recognized a foreign currency gain of $ 727 related to the net carrying value of the debenture.

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

The Company remeasures the debenture at each balance sheet date using the CAD to USD exchange rate as of that balance sheet date.

The Company recognizes the resulting foreign currency gain or loss within the statement of operations during the period.

For the year ended December 31, 2023 and December 31, 2022, the Company recognized a foreign currency loss of $ 866 and a gain of $ 727 , respectively, related to the net carrying value of the debenture within o ther income (expense), net in 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 December 31, 2022, the principal amount of the debenture includes $ 163 of accrued interest expense.

As of December 31, 2023 and December 31, 2022, the principal amount of the debenture includes $ 3,182 and $ 379 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 as of December 31, 2023:

3 unchanged sentences

Amortization of debt discounts and costs $ 1,437 $ 163

Line of Credit

The Company terminated the asset backed line of credit ("ABL") of $ 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.

Total $ 4,240 $ 542

COMMITMENTS AND CONTINGENCIES

2 unchanged sentences

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.

As of December 31, 2022 there are no pending litigation that could have, individually and in the aggregate, a material adverse effect on the Company’s financial position, results of operations or cash flows.

As of December 31, 2023 there are no pending litigation that could have, individually and in 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.

3 unchanged sentences

The weighted average discount rate was 5.6 % for operating leases as of December 31, 2023.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The components of lease cost, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, for the years ended December 31, 2023 and 2022 are as follows:

7 unchanged sentences

Sublease income

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Other information related to leases was as follows:

4 unchanged sentences

$ 3,411 $ 3,471

Right-of-use assets obtained in exchange of lease obligations:

Right-of-use assets obtained in exchange for new operating lease liabilities

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

6 unchanged sentences

Total non-current lease liabilities

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

During the year ended December 31, 2022, 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 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 $ 1,837 within goodwill and asset impairments in the consolidated statements of operations as of December 31, 2022.

The Company recorded an impairment charge of $ 1,837 within asset impairments in the consolidated statements of operations.

There were no such impairments for the year ended December 31, 2023.

CULTIVATION LIABILITIES

In conjunction with the contract terms, the Company can reduce the settlement amount for harvested hemp outside of quality specifications.

For the years ended December 31, 2022 and 2021, the Company recognized $ 582 and $ 855 , respectively, of settlement reductions.

Future payments due under contract obligations are as follows:

Short-term Long-term Total

December 31, 2020 $ 9,304 $ 2,513 $ 11,817

Payments ( 7,166 ) — ( 7,166 )

Settlement reductions ( 855 ) — ( 855 )

Interest 37 — 37

Conversion to short-term borrowings 2,128 ( 2,128 ) —

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

Payments ( 3,049 ) ( 3,049 )

Settlement reductions ( 582 ) ( 582 )

2022 Crop 206 6 212

Interest 37 37

Conversion to short-term borrowings 385 ( 385 ) —

December 31, 2022 $ 445 $ 6 $ 451

Scheduled maturities of amounts owed as of December 31, 2022 are as follows:

Year Ending December 31:

Total future payments

Imputed interest

Total cultivation liabilities

Current portion of cultivation liabilities

Total non-current cultivation liabilities

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

SHAREHOLDERS’ EQUITY

9 unchanged sentences

Each common share shall entitle the holder thereof to one vote at each such meeting.

Liquidation Rights – Holders of common shares will be entitled to receive all of the Company's assets remaining after payment of all debts and other liabilities, subject to any preferential rights of the holders of any outstanding preferred shares.

Proportionate Voting Shares

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

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

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

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

Share Offering Warrants – Liability Classified

The Company accounted for warrants as liability-classified instruments as they did not meet all the criteria for equity classification.

The warrants were required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter.

Any change in fair value of the warrants is recognized in change in fair value of financial instruments and other within the statements of operations.

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

As of December 31, 2022, there are no outstanding warrants.

On May 8, 2022, warrants related to prior 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.

The following summarizes the number of warrants outstanding as of December 31, 2022 and December 31, 2021:

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 December 31, 2022 — $ —

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

The Company may distribute up to C$ 60,000,000 of Common Shares of the Company (the “Offered Shares”) under the ATM Program.

Distributions of the Offered Shares through the ATM Program are made pursuant to the terms of an equity distribution agreement with Canaccord Genuity Corp.

and BMO Nesbitt Burns Inc.

(together, the “Agents”).

The Offered Shares may be issued by the Company to the public from time to time, through the Agents, at the Company’s discretion.

The Offered Shares sold under the ATM Program are sold at the prevailing market price at the time of sale under the ATM Program, and for the year ended December 31, 2021, the Company issued 4,740,300 Offered Shares at an average price of $ 1.85 per share for gross proceeds of $ 8,714 .

For the year ended December 31, 2021, share issuance costs were $ 596 for net proceeds to the Company of $ 8,118 .

For the year ended December 31, 2022, share issuance costs were $ 64 recognized in the consolidated statements of shareholders’ equity.

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

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

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

LOSS PER SHARE

2 unchanged sentences

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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:

6 unchanged sentences

Loss per common share – basic and diluted $ ( 0.16 ) $ ( 0.40 )

As of December 31, 2022 and December 31, 2021, potentially dilutive securities include stock options, restricted share units, broker warrants, common share warrants, and conversion of the convertible debenture.

As of December 31, 2023 and December 31, 2022, potentially dilutive securities include stock options, restricted share units, 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.

3 unchanged sentences

Outstanding restricted share units 7,250,766 2,569,574

Outstanding common share warrants — 6,983,140

Convertible debenture conversion 28,587,830 —

13,030,900 6,526,601

On February 1, 2024, the Company accelerated the vesting of outstanding RSUs for all board of directors and several employees.

The accelerated vesting resulted in 3,038,919 RSUs being issued at a fair value $ 0.18 .

Convertible debenture conversion

For the year ended December 31, 2022, t he debenture has no impact on the weighted-average number of common shares outstanding for the Basic EPS calculation prior to conversion as there are no shares issued and outstanding on issuance of the debenture.

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 years ended December 31, 2023 and December 31, 2022, the price of the Company’s shares did not exceed the conversion price and therefore there was no impact to potential common share diluted EPS during those periods.

Conversely, income available to common stockholders will be impacted by interest expense of $ 3,182 and amortization of debt issuance costs of $ 1,599 related to the debenture.

3 unchanged sentences

The Company evaluated that the potential adjustments to the income available to common stockholders will include the after-tax amount of interest and other consequential changes in income or expense that would result from the assumed conversion, if any.

The potential adjustment to the weighted-average number of common shares outstanding is based on the additional common shares resulting from the assumed conversion.

The Company will consider the conversion feature only if it will have dilutive impact, not anti-dilutive.

See reconciliation of basic and diluted EPS computations within note "Loss Per Share".

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

The potential adjustment to the weighted-average number of common shares outstanding is based on the additional common shares resulting from the assumed conversion.

The Company will consider the conversion feature only if it will have dilutive impact, not anti-dilutive.

SHARE-BASED COMPENSATION

2 unchanged sentences

2015 Stock Option Plan (the "2015 Plan"), which provides for grants of incentive stock options and nonqualified stock options to employees (including officers), consultants, and directors.

The 2015 Plan, and grants made under the 2015 Plan, are designed to align shareholder and participant interests.

The Company’s board of directors establishes the terms and conditions of any grants under the 2015 Plan.

Incentive stock options may be granted only to employees.

The 2015 Plan, and grants made under the 2015 Plan, were designed to align shareholder and participant interests.

The Company’s board of directors established the terms and conditions of the grants under the 2015 Plan.

No further grants are authorized to be made under the 2015 Plan.

On August 31, 2018, the Company adopted the Charlotte’s Web Holdings, Inc.

10 unchanged sentences

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 fair values of options granted during the period were determined using a Black-Scholes valuation model, which requires assumptions and judgments regarding stock price, volatility, risk-free interest rates, dividend yields and expected option terms.

The Company uses the historical volatility and grant date closing price of its publicly traded shares to estimate the grant date fair value of its stock options.

Due to the lack of historical exercise history, the expected term of the Company’s stock options for employees has been determined utilizing the "simplified" method for awards.

The risk-free interest rate is determined by reference to the U.S.

Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.

Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

Share-based compensation is recognized net of actual forfeitures when they occur.

All share-based compensation costs are recorded in the consolidated statements of operations in selling, general and administrative expense.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

11 unchanged sentences

$ 0.44 - $ 1.56

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO 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 years ended December 31, 2023 and 2022 under the 2015 and 2018 plans is as follows:

4 unchanged sentences

3,957,027 $ 1.52 8.37 $ 47

3,748,671 0.38

Forfeited (and expired)

1 unchanged sentence

Outstanding as of December 31, 2023

5,780,134 $ 0.75 8.56 $ —

Exercisable/vested as of December 31, 2023

2,208,568 $ 1.05 7.11 $ —

For the options outstanding at December 31, 2023, the weighted average remaining contractual life is 8.56 years.

2 unchanged sentences

The weighted average grant-date fair value of options granted during the year ended December 31, 2022 was $ 1.11 .

The weighted average share price at the date of exercise of options exercised during the years ending December 31, 2022 and 2021 was $ — and $ 4.85 , respectively.

For the years ending December 31, 2023 and 2022 there were no exercise of options, respectively.

Vesting of awards under these plans were generally time based over a period of one to four years .

1 unchanged sentence

For the 458,102 option awards vested during the year ended December 31, 2022, the weighted average grant date fair value was $ 1.60 .

Of the 3,957,027 options outstanding at December 31, 2022, 985,012 options have an exercise price of $ 0.56 , and the remaining 2,972,015 options have an exercise price ranging between $ 0.44 and $ 21.10 .

Of the 5,780,134 options outstanding at December 31, 2023, the 2015 Plan has 985,012 options outstanding with an exercise price of $ 0.56 , and the remaining 4,795,122 options per the 2018 Plan have an exercise price ranging between $ 0.32 and $ 18.47 .

Restricted share units

2 unchanged sentences

Upon vesting, one share of the Company’s common shares is issued for each restricted share 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 year ended December 31, 2022 and 2021was $ 1,462 and $ 751 , respectively.

The fair value of each restricted share unit granted is

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

equal to the market price of the Company’s shares at the date of the grant.

The fair value of shares vested during the year ended December 31, 2023 and 2022 was $ 1,450 and $ 1,462 , respectively.

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

5 unchanged sentences

( 509,461 ) 1.05

( 2,957,423 ) 0.67

Outstanding as of December 31, 2023

7,250,766 $ 0.31

Share-based Compensation Expense

10 unchanged sentences

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

The major components of income tax (expense) benefit attributable to loss from operations consists of:

The major components of income tax expense attributable to loss from operations consists of:

Year Ended December 31,

( 87 ) ( 33 )

( 4 ) ( 160 )

Total current $ 9 $ ( 91 )

Total deferred ( 538 ) —

Total income tax expense

Total income tax (expense) benefit

$ ( 529 ) $ ( 91 )

Income tax (expense) benefit attributable to loss from continuing operations for the years ended December 31, 2022 and 2021 differed from the amounts computed by applying the U.S.

Income tax expense attributable to loss from continuing operations for the years ended December 31, 2023 and 2022 differed from the amounts computed by applying the U.S.

federal income tax rates of 21.0 %, as a result of the following:

4 unchanged sentences

Change in fair value of financial instruments and other 8.2 % ( 2.7 )%

Goodwill impairment (1)

— % ( 11.4 )%

Disallowed convertible debt expense ( 4.9 )% 0.2 %

Change in valuation allowance (1)

1 unchanged sentence

R&D credit 2.1 % 0.7 %

Rate change 3.4 % ( 0.3 )%

Prior year true up — % 5.2 %

2 unchanged sentences

( 2.3 )% ( 0.2 )%

(1) During the year ended December 31, 2021, the Company impaired its goodwill associated with the acquisition of Abacus.

A portion of this impairment charge is permanently disallowed for tax purposes.

(1) During the year ended December 31, 2023 and 2022, the Company maintained a full valuation allowance on its deferred tax assets.

The Coronavirus Aid, Relief and Economic Security ("CARES") Act and miscellaneous other income taxes receivable result in total income taxes receivable as of December 31, 2021 of $ 10,764 .

During the year ended December 31, 2022, the Company received $ 10,841 from the Internal Revenue Service ("IRS") which was the remaining amount of the income taxes receivable and interest.

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

The Coronavirus Aid, Relief and Economic Security ("CARES") Act and miscellaneous other income taxes receivable result in total income taxes receivable as of December 31, 2021 of $ 10,764 .

During the year ended December 31, 2022, the Company received $ 10,841 from the Internal Revenue Service ("IRS") which was the remaining amount of the income taxes receivable and interest.

The components of deferred tax assets and liabilities are as follows:

14 unchanged sentences

Right of use assets ( 3,716 ) ( 4,063 )

Investment in unconsolidated entity ( 2,800 ) —

Warrants ( 134 ) ( 173 )

10 unchanged sentences

For the year ended December 31, 2023 and 2022, the Company also has a research and development credit carryforward of $ 2,791 and $ 2,205 , respectively , which begin to expire in 2040 .

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Tax laws impose restrictions on the utilization of net operating loss carryforwards and research and development credit carryforwards in the event of a change in ownership of the Company as defined by Internal Revenue Code Section 382 and 383.

1 unchanged sentence

Should there be additional ownership changes in the future, the Company's ability to utilize existing carryforwards could be substantially restricted.

Uncertain tax position

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Uncertain tax positions

A reconciliation of the beginning and ending amount of uncertain tax positions as of December 31, 2023 and 2022 is as follows:

22 unchanged sentences

In the normal course of business, it is subject to examination by taxing authorities throughout the world.

The Company is no longer subject to U.S.

federal, state and local, or non-U.S.

income tax examinations by tax authorities in years before 2019.

As of December 31, 2023, the Company’s tax years prior to 2019 are closed for federal income tax purposes.

The Company’s 2019 tax year was opened for examination by the IRS during the second half of 2023.

The Company’s 2020 through 2022 tax years remain open until the general statute of limitations lapses for each respective tax year.

Employee Retention Credit

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.

During the year ended December 31, 2023 , the company received $ 4,261 , which includes $ 155 of interest income, related to the ERC.

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

The Inflation Reduction Act (“IRA”) was enacted on August 16, 2022.

The IRA introduced new provisions including a 15% corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period and a 1% excise tax surcharge on stock repurchases.

The IRA is applicable for tax years beginning after December 31, 2022 and had no benefit to our consolidated financial statements for any of the periods presented, and we do not expect it to have a direct material impact on our future results of operations, financial condition, or cash flows.

Employee Retention Credit

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 year ended December 31, 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 December 31, 2022.

RELATED PARTY TRANSACTIONS

Aidance Scientific, Inc.

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

The former Chief Executive Officer of Abacus Health ("Abacus"), and a former officer of the Company through June 2022, also serves on Aidance’s Board of Directors.

For the years ended December 31, 2022 and 2021, the Company made purchases of $ 3,293 and $ 3,570 , respectively from Aidance.

Payment terms on purchases are due 30 days after receipt.

As of December 31, 2022 and 2021, the Company had a liability of $ 36 and $ 119 , respectively, 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 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 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.

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.

Effective November 2020, the Company issued 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, 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.

Effective December 28, 2023, the Company entered into a second amendment of the promissory note to extend the maturity date until November 13, 2024.

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

As of December 31, 2021, 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, 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 .

For the year ended 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 .

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

1 unchanged sentence

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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.

Effective January 5, 2023, the Company entered into a Brand License and Option Agreement with JMS Brands LLC, 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 .

As of January 5, 2024 , the Brand License and Option Agreement has expired.

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 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 December 31, 2023, the remaining note receivable of $ 128 is presented in other assets in the consolidated balance sheets.

On February 12, 2024, the Company and DeFloria entered into a Master Services Agreement ("Services Agreement") in which the Company will be compensated for the provision of certain services to DeFloria.

As of December 31, 2023, the Name and Likeness and License Agreement has reached its conclusion.

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 year ended December 31, 2022 and 2021, the Company recognized $ 1,025 and $ 1,056 , respectively, of sales and marketing expenses in the condensed consolidated statements of operations related to this agreement.

As of December 31, 2022 , there is no remaining balance.

For the year ended December 31, 2022 , the Company recognized $ 1,025 of sales and marketing expenses in the consolidated statements of operations related to this agreement.

SUBSEQUENT EVENTS

Effective January 5, 2023, the Company entered into a Brand License and Option Agreement with JMS Brands LLC, 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 .

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

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

On February 1, 2024, the Company accelerated the vesting of outstanding RSUs for several employees and all board of directors.

On January 29, 2024, the Company and MLB entered into the First Amendment to the Promotional Rights Agreement ("First Amendment").

The First Amendment extended the agreement through December 31, 2027, with an aggregate rights fee of $ 23 million for the remainder of the term.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data