What changed in this filing

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Item 1. Financial Statements

2024-05-08 compared with 2023-11-09 · 164 added, 220 removed, 389 unchanged (50% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

September 30, December 31,

2024 (unaudited)

20 unchanged sentences

$ 3,991 $ 2,860

License and media rights payable - current

Accrued and other current liabilities

Lease obligations – current

License and media rights payable - current

Total current liabilities

5 unchanged sentences

License and media rights payable 13,899 11,338

11,222 20,383

Derivatives and other long-term liabilities

Derivative and other long-term liabilities 3,780 3,823

Total liabilities

4 unchanged sentences

unlimited shares authorized;

153,779,856 and 152,135,026 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

157,227,855 and 154,332,366 shares issued and outstanding as of March 31, 2024 and December 31, 2023

Additional paid-in capital

9 unchanged sentences

(in thousands, except share and per share amounts)

Three Months Ended September 30, (unaudited)

Nine Months Ended September 30, (unaudited)

2023 2022 2023 2022

Three Months Ended March 31, (unaudited)

Revenue $ 12,124 $ 17,010

2 unchanged sentences

Selling, general, and administrative expenses 15,280 17,513

Asset Impairment — 1,822 — 1,822

Operating loss

( 8,369 ) ( 7,596 )

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

Change in fair value of financial instruments

1 unchanged sentence

Other income (expense), net

841 321 ( 1,234 ) 304

Loss before provision for income taxes

16 unchanged sentences

Share-based compensation — — 842 — 842

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

Net loss — ( 9,634 ) ( 9,634 )

Balance—March 31, 2024

157,227,855 $ 1 $ 328,024 $ ( 281,357 ) $ 46,668

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

Share-based compensation — — 624 — 624

Net income (loss) — — — 2,844 2,844

Balance— June 30, 2023

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

Common shares issued upon vesting of restricted share units, net of withholding 954,738 — ( 127 ) — ( 127 )

Share-based compensation — — 647 — 647

Net income (loss) — — — ( 15,143 ) ( 15,143 )

Balance— September 30, 2023

153,779,856 $ 1 $ 326,875 $ ( 263,138 ) $ 63,738

Balance—December 31, 2022

1 unchanged sentence

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

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

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

Share-based compensation — — 375 — 375

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

Net loss — — — ( 2,912 ) ( 2,912 )

Balance—March 31, 2023

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

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

Share-based compensation — — 643 — 643

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

Balance—June 30, 2022

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

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

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

Share-based compensation — — 664 — 664

Net income (loss) — — — ( 7,588 ) ( 7,588 )

Balance—September 30, 2022

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

See Notes to Unaudited Condensed Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31, (unaudited)

Cash flows from operating activities:

4 unchanged sentences

1,860 ( 5,351 )

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

Convertible debenture and other accrued interest 1,015 697

Asset impairment — 1,822

Share-based compensation

Changes in right-of-use assets 443 493

Allowance for credit losses 1,187 ( 89 )

Inventory provision

Other 1,594 ( 679 )

Changes in operating assets and liabilities:

Accounts receivable, net

( 1,151 ) 2,928

Inventories, net

Prepaid expenses and other current assets

( 1,026 ) 1,187

Accounts payable, accrued and other liabilities

Prepaid expenses and other current assets

License and media rights

( 2,500 ) ( 2,000 )

1 unchanged sentence

( 551 ) ( 925 )

License and media rights payable

Income taxes and other receivable

Accounts payable, accrued and other liabilities

663 ( 1,098 )

Other operating assets and liabilities, net

18 unchanged sentences

Non-cash activities:

Non-cash purchase of property and equipment and intangible asset ( 81 ) —

Non-cash issuance of note receivable ( 142 ) —

Non-cash purchase of property and equipment and intangible assets

$ ( 374 ) $ —

See Notes to Unaudited Condensed Consolidated Financial Statements

5 unchanged sentences

Charlotte's Web Holdings, Inc.

together with its subsidiaries (collectively "Charlotte's Web" or the "Company") is a 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.

6 unchanged sentences

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

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

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 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 in the United States.

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.

6 unchanged sentences

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

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

cash flows for the nine months ended September 30, 2023 and 2022, and stockholders’ equity for the three and nine months ended September 30, 2023 and 2022.

Operating results for the three and nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023.

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company's financial position as of March 31, 2024 and its results of operations for the three months ended March 31, 2024 and 2023, cash flows for the three months ended March 31, 2024 and 2023, and stockholders’ equity for the three months ended March 31, 2024 and 2023.

Operating results for the three months ended March 31, 2024, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024.

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

1 unchanged sentence

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes as of and for the year ended December 31, 2023, included in the Company's Annual Report on Form 10-K filed with the SEC on March 21, 2024.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Inventories are stated at the lower of cost or net realizable value.

4 unchanged sentences

Revenue Recognition

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

The majority of the Company's revenue is derived from sales of branded products to consumers via the Company's direct-to-consumer e-commerce website, as well as distributors, retail and wholesale business-to-business customers.

Additionally, on February 12, 2024, the Company and DeFloria LLC ("DeFloria") entered into a Master Services Agreement ("Services Agreement") pursuant to which the Company is compensated for the provision of certain services to DeFloria.

Refer to Note 3 for additional disclosure on the DeFloria Service Agreement.

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

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

Direct-to-consumer $ 7,772 $ 11,268

Business-to-business 4,041 5,742

Service revenue 311 —

Total revenue

$ 12,124 $ 17,010

1 unchanged sentence

Recently Adopted Accounting Pronouncements

There are no new accounting pronouncements adopted or issued by the FASB that had or may have a material impact on the accompanying unaudited interim condensed consolidated financial statements.

There are no new accounting pronouncements adopted by the FASB that had or may have a material impact on the accompanying unaudited interim condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

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

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 Company's consolidated financial statements and related disclosures.

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 Company's consolidated financial statements and related disclosures

CHARLOTTE’S WEB HOLDINGS, INC.

2 unchanged sentences

FAIR VALUE MEASUREMENT

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

September 30, 2023

The following table sets forth the Company's financial instruments that were measured at fair value on a recurring basis at March 31, 2024 and December 31, 2023, by level within the fair value hierarchy:

March 31, 2024

Level 1 Level 2 Level 3 Total

13 unchanged sentences

Total financial assets $ — $ — $ 2,602 $ 2,602

Investment in unconsolidated entity:

$ — $ — $ 11,000 $ 11,000

Financial liabilities:

Debt conversion option $ — $ 3,213 $ — $ 3,213

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

There were no transfers between levels of the hierarchy during the three months ended March 31, 2024, and the year ended December 31, 2023.

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:

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

BATS and NYSE:

4 unchanged sentences

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.

Effective February 12, 2024, BAT invested an additional $ 3 million into DeFloria in exchange for a convertible debenture.

The Company and AJNA each hold 400,000 or 50 %, respectively, of DeFloria's voting common units.

2 unchanged sentences

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

DeFloria is expected to

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.

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

use the initial $ 10 million cash investment for the clinical development of a hemp botanical Investigational New Drug application and 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 operations.

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

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

The Company determined the fair value of the AJNA warrants to be de minimis and as such no value was recorded as of March 31, 2024.

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

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

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

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

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

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

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

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

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

For the three and nine months ended September 30, 2023, a gain of $ 400 , 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 September 30, 2023, the DeFloria investment represents an investment of $ 11,100 within the condensed consolidated balance sheets.

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 condensed consolidated statements of operations as changes in fair value of financial instruments for the period.

For the three months ended March 31, 2024, a loss of $ 800 , respectively, related to the investment in DeFloria was recognized as a change in fair value of financial instruments in the condensed consolidated statements of operations.

As of March 31, 2024 and December 31, 2023, the DeFloria investment represents an investment of $ 10,200 and $ 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.

3 unchanged sentences

The following additional assumptions are used in the model:

September 30,

March 31, December 31,

Expected term (years)

7 unchanged sentences

BATS and NYSE:

BTI) (the "Lender"),

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

providing for the issuance of a $ 56.8 million (C$ 75.3 million) convertible debenture (the "debenture").

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 TSX.

1 unchanged sentence

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

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

(The term "federal regulation" is defined as the date that federal laws in the United States permit, authorize or do not prohibit the use of CBD as an ingredient

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

in food products and dietary supplements).

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

1 unchanged sentence

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 for the period.

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 condensed consolidated statements of operations as changes in fair value of financial instruments 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 three and nine months ended September 30, 2023, a loss of $ 38 and $ 544 , respectively, related to the debt interest rate conversion feature was recognized as a change in fair value of financial instruments in the statements of operations.

As of September 30, 2023 and December 31, 2022, the debt interest rate conversion feature represents a financial asset of $ 778 and $ 1,320 , respectively, within SBH purchase option and other derivative assets in the condensed consolidated balance sheets.

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

For the three months ended March 31, 2024 and March 31, 2023, a loss of $ 54 and $ 605 , respectively, related to the debt interest rate conversion feature was recognized as a change in fair value of financial instruments in the condensed consolidated statements of operations.

As of March 31, 2024 and December 31, 2023, the debt interest rate conversion feature represents a financial asset of $ 800 and $ 872 , respectively, within SBH purchase option and other derivative assets in the condensed consolidated balance sheets.

To determine the value of the debt interest rate conversion feature, the Company utilizes a probability weighted income approach.

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

1 unchanged sentence

The following additional assumptions are used in the model:

September 30,

March 31, December 31,

Stated interest rate 5.0 % 5.0 %

1 unchanged sentence

Implied debt yield 12.8 % 11.0 %

Federal regulation probability various 15.0 %

Year of event various 2025

Federal regulation probability Various Various

Year of event Various Various

Debt Conversion Option

4 unchanged sentences

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

The expected life is based on the remaining

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

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

For the three months ended March 31, 2024 and March 31, 2023, a loss of $ 56 and a gain of $ 6,257 , respectively, related to the debt conversion option was recognized as a change in fair value of financial instruments in the condensed consolidated statements of operations.

As of March 31, 2024 and December 31, 2023, the debt conversion option represents a financial liability of $ 3,200 and $ 3,213 , respectively, within derivative and other long-term liabilities in the condensed consolidated balance sheets.

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

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

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

For the three and nine months ended September 30, 2023, a $ 4,661 loss and $ 5,700 gain, respectively, related to the debt conversion option was recognized as a change in fair value of financial instruments in the statements of operations.

As of September 30, 2023 and December 31, 2022, the debt conversion option represents a financial liability of $ 7,407 and $ 12,995 , respectively, within derivative and other long-term liabilities in the condensed consolidated balance sheets.

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

September 30,

March 31, December 31,

Expected volatility

7 unchanged sentences

Stanley Brothers USA Holdings Purchase Option

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.

In 2021, the Company entered into an option purchase agreement (the "SBH Purchase Option") with Stanley Brothers USA Holdings, Inc ("Stanley Brothers USA") .

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).

4 unchanged sentences

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

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

estimation uncertainty.

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 condensed consolidated statements of operations for the period.

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 three months ended September 30, 2023 and 2022, a gain of $ 275 and a loss of $ 4,000 , respectively, related to the SBH Purchase Option was recognized as change in fair value of financial instruments in the statements of operations.

For the nine months ended September 30, 2023 and 2022, a gain of $ 32 and a loss of $ 3,900 , respectively, related to the SBH Purchase Option was recognized as change in fair value of financial instruments in the statements of operations.

As of September 30, 2023 and December 31, 2022, the SBH Purchase Option represents a financial asset of $ 2,332 and $ 2,300 , respectively, within SBH purchase option and other derivative assets in the condensed consolidated balance sheets.

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

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

For the three months ended March 31, 2024 and 2023, a loss of $ 951 and $ 300 , respectively, related to the SBH Purchase Option was recognized as change in fair value of financial instruments in the condensed consolidated statements of operations.

As of March 31, 2024 and December 31, 2023, the SBH Purchase Option represents a financial asset of $ 779 and $ 1,730 , respectively, within SBH purchase option and other derivative assets in the condensed 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 of the SBH Purchase Option:

September 30,

March 31, December 31,

Expected volatility

4 unchanged sentences

50.9 % 50.6 %

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Inventories consist of the following:

September 30,

Harvested Hemp and seeds

5 unchanged sentences

( 3,554 ) ( 3,808 )

Total inventory

$ 22,487 $ 21,538

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 September 30, 2023.

LICENSE AND MEDIA RIGHTS

MLB Promotion Rights Agreement

On October 11, 2022, the Company entered into a Promotional Rights Agreement (the "MLB Promotional Rights Agreement") with MLB Advanced Media L.P., on its own behalf and on behalf of Major League Baseball Properties, Inc., the Office of the Commissioner of Baseball, The MLB Network, LLC and the Major League Baseball Clubs (collectively, the "MLB"), pursuant to which the Company entered into 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.

As of March 31, 2024 and December 31, 2023, the carrying value of the licensed properties was $ 14,614 and $ 14,589 , respectively, recorded as a license and media rights asset within the condensed consolidated balance sheets.

As of March 31, 2024 and December 31, 2023, the carrying value of the media rights was $ 4,000 and $ 4,982 recorded as a prepaid asset and a license and media rights asset within the condensed consolidated balance sheets.

For the three months ended March 31, 2024 and March 31, 2023, the Company paid the MLB $ 2,500 and $ 2,000 , respectively, as part of the committed cash payments, and recognized $ 974 and $ 1,824 , respectively, in amortization expense related to the license and media right assets.

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

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

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

As of September 30, 2023 and December 31, 2022, the carrying value of the licensed properties was $ 16,412 and $ 23,399 , respectively, recorded as a license and media rights asset within the condensed consolidated balance sheets.

As of September 30, 2023 and December 31, 2022, the carrying value of the media rights was $ 6,107 and $ 7,482 recorded as a prepaid asset and a license and media rights asset within the condensed consolidated balance sheets.

For the three and nine months ended September 30, 2023, the Company paid MLB $ 2,000 and $ 6,000 , respectively, as part of the committed cash payments, and recognized $ 2,949 and $ 6,846 , respectively, in amortization expense related to the license and media right assets.

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

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

Year Ending December 31:

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

Maturities of the MLB license and media rights payable as of March 31, 2024 are as follows:

2024 (9 months remaining) $ 2,500

4 unchanged sentences

Total non-current license and media rights payable

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

Year Ending December 31:

As of March 31, 2024, expected amortization of licensed properties are as follows:

2024 (9 months remaining) $ 2,923

5 unchanged sentences

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

As of September 30, 2023

The following is a summary of the Company's convertible debenture as of March 31, 2024 :

As of March 31, 2024

Principal Amount Unamortized Debt Discount and Costs Net Carrying Amount

1 unchanged sentence

Convertible debenture due November 2029 $ 59,544 $ ( 16,808 ) $ 42,736

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

4 unchanged sentences

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

For the three and nine months ended September 30, 2023 , the Company recognized a foreign currency gain of $ 994 and $ 174 , respectively, related to the net carrying value of the debenture within the statement of operations .

For the three months ended March 31, 2024 and March 31, 2023 , the Company recognized a foreign currency gain of $ 925 and $ 12 , respectively, related to the net carrying value of the debenture within the condensed consolidated statements 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 September 30, 2023 , the principal amount of the debenture includes $ 2,479 of accrued interest expense.

The following is a summary of the interest expense and amortization expense, recorded within the statement of operation, of the Company's convertible debenture for the three and nine months ended September 30, 2023 :

Three Months Ended Nine Months Ended

September 30,

Interest and Amortization Expense 2023 2023

As of March 31, 2024 and December 31, 2023 , the principal amount of the debenture includes $ 3,915 and $ 3,182 , respectively, of accrued interest expense.

The following is a summary of the interest expense and amortization expense, recorded within the condensed consolidated statements of operation, of the Company's convertible debenture for the three months ended March 31, 2024:

Three Months Ended March 31,

Interest expense $ 733 $ 697

Amortization of debt discounts and costs 401 319

Total $ 1,080 $ 3,146

Total interest and amortization expense

$ 1,134 $ 1,016

COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

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

Although the ultimate aggregate amount of monetary liability or financial impact with respect to these matters is subject to many uncertainties and is therefore not predictable with assurance, management believes that as of September 30, 2023 there is no litigation pending that could have, individually and in the aggregate, a material adverse effect on the Company’s financial position, results of operations or cash flows.

Although the ultimate aggregate amount of monetary liability or financial impact with respect to these matters is subject to many uncertainties and is therefore not predictable with assurance, management believes that as of March 31, 2024 there is no litigation pending that could have, individually and in the aggregate, a material adverse effect on the Company’s financial position, results of operations or cash flows.

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

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

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

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

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

The leases have remaining lease terms of less than 3 months to 11.42 years, some of which include options to extend the leases for up to 5 years.

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

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

Maturities of operating lease liabilities as of March 31, 2024 are as follows:

Operating Leases

Year Ending December 31:

2024 (9 months remaining)

4 unchanged sentences

Total non-current lease liabilities

For the three and nine months ended September 30, 2022, the Company recorded an impairment charge of $ 1,822 related to the decision to cease utilizing the Denver office space recorded within asset impairment in the consolidated statements of operations.

There were no such impairments for the three and nine months ended September 30, 2023.

SHAREHOLDERS’ EQUITY

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

As of March 31, 2024 and December 31, 2023, the Company's share capital consists of one class of issued and outstanding shares:

common shares.

2 unchanged sentences

Common Shares

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

As of March 31, 2024 and December 31, 2023, the Company was authorized to issue an unlimited number of common shares, which have no par value.

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 CONDENSED 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:

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

Net loss $ ( 9,634 ) $ ( 2,912 )

Weighted-average number of common shares - basic 156,036,670 152,314,150

Dilutive effect of securities — — — —

Dilutive effect of stock options and awards — —

Weighted-average number of common shares - diluted

156,036,670 152,314,150

Loss per common share – basic $ ( 0.10 ) $ ( 0.05 ) $ ( 0.10 ) $ ( 0.17 )

Loss per common share – diluted $ ( 0.10 ) $ ( 0.05 ) $ ( 0.10 ) $ ( 0.17 )

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

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

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

As of March 31, 2024 and March 31, 2023, potentially dilutive securities include stock options, restricted share units, common share warrants, and convertible debenture conversion.

When the Company recognizes a net loss from continuing operations, all potentially

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

dilutive shares are anti-dilutive and are consequently excluded from the calculation of diluted net loss per share.

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

September 30,

Outstanding options 5,522,942 4,386,215

4 unchanged sentences

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

For the three and nine months ended September 30, 2023, 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.

On October 12, 2023, the Company granted 4.5 million restricted shares to William Morachnick, the new chief executive officer, as part of his employment agreement.

For the three months ended March 31, 2024, 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.

SHARE-BASED COMPENSATION

1 unchanged sentence

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

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

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

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Nine Months Ended September 30,

There were no options granted for the three months ended March 31, 2024.

The fair values of options granted for the three months ended March 31, 2023 were determined using a Black-Scholes model.

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

Three Months Ended March 31,

Expected volatility

88.8 % 85.8 %

Expected term (years)

2 unchanged sentences

Value of underlying share

$ 0.36 $ 0.43

Detail of the number of stock options outstanding for the nine months ended September 30, 2023 under the Company's 2015 legacy option plan and the Company's amended 2018 long term incentive plan (collectively, the "Plans") is as follows:

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Detail of the number of stock options outstanding for the three months ended March 31, 2024 under the Company's 2015 legacy option plan and the Company's amended 2018 long term incentive plan (collectively, the "Plans") is as follows:

Number of Options

3 unchanged sentences

5,780,134 $ 0.75 8.56 $ —

3,748,671 0.38

Forfeited (and expired)

( 257,192 ) 0.53

Outstanding as of September 30, 2023

Outstanding as of March 31, 2024

5,522,942 $ 0.77 8.31 $ —

Exercisable/vested as of September 30, 2023

Exercisable/vested as of March 31, 2024

2,761,000 $ 1.06 7.39 $ —

The weighted average grant-date fair value of options granted during the nine months ended September 30, 2023 and 2022 was $ 0.38 and $ 1.11 , respectively.

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

There were no options granted during the three months ended March 31, 2024.

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

There were no options exercised during the three months ended March 31, 2024 and 2023.

Restricted share units

The Company has issued time-based restricted share units to certain employees as permitted under the Company's amended 2018 long term incentive plan (the "2018 Plan").

The Company has issued time-based restricted share units to certain employees as permitted under the amended 2018 long term incentive plan ("the 2018 Plan").

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

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

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

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

The fair value of shares vested during the nine months ended September 30, 2023 and 2022 was $ 1,150 and $ 881 , respectively.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The fair value of shares vested during the three months ended March 31, 2024 and 2023 was $ 869 and $ 740 , respectively.

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

5 unchanged sentences

( 2,895,489 ) $ 0.30

( 1,644,830 ) $ 0.70

Shares withheld upon vesting

( 519,546 ) $ 0.53

Outstanding as of September 30, 2023

Outstanding as of March 31, 2024

3,750,000 $ 0.29

Share-based Compensation Expense

Share-based compensation expense for all equity arrangements for the three months ended September 30, 2023 and 2022 was $ 647 and $ 664 , respectively, included in Selling, general and administrative expense in the condensed consolidated statements of operations.

Share-based compensation expense for all equity arrangements for the nine months ended September 30, 2023 and 2022 was $ 1,646 and $ 2,686 , respectively, included in Selling, general and administrative expense in the condensed consolidated statements of operations.

As of September 30, 2023, $ 3,347 of total unrecognized share-based compensation expense related to unvested options and restricted stock units granted to employees is expected to be recognized over a weighted-average period of 2.70 years.

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

Share-based compensation expense for all equity arrangements for the three months ended March 31, 2024 and 2023 was $ 842 and $ 375 , respectively, included in selling, general and administrative expense in the condensed consolidated statements of operations.

As of March 31, 2024, $ 1,783 of total unrecognized share-based compensation expense related to unvested options granted to employees is expected to be recognized over a weighted-average period of 2.25 years.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The Company reported income tax expense of $ 16 and $ 0 for the three months ended March 31, 2024 and 2023, respectively.

The Company's effective tax rate in the three months ended March 31, 2024 and 2023 was ( 0.2 )% and 0 %, respectively.

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

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

The effective tax rate for the three and nine months ended September 30, 2023 is consistent with the three and nine months ended September 30, 2022 , as the Company has been in a full valuation allowance for both periods.

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

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

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

federal statutory rate of 21.0 % for the three months end March 31, 2024 and 2023 , respectively, primarily due to the valuation allowance.

The effective tax rate for the three months ended March 31, 2024 is consistent with the three months ended March 31, 2023, as the Company has been in a full valuation allowance for both periods.

RELATED PARTY TRANSACTIONS

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

The note receivable was secured by equity instruments held by 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.

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.

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 September 30, 2022 , the note receivable of $ 1,037 consisted of principal and interest.

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

The note has been fully reserved for as of December 31, 2023 .

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

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

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

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

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

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

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

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

5 unchanged sentences

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

As of September 30, 2023, the remaining note receivable of $ 142 is presented in other assets in the condensed consolidated balance sheets.

Pursuant to an amendment to the Name and Likeness and License Agreement between the Company and Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, the agreement was extended to December 31, 2023.

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

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

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

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

As of March 31, 2024 , the remaining note receivable of $ 113 is presented in other assets in the condensed consolidated balance sheets.

On February 12, 2024, BAT invested an additional $ 3 million in DeFloria in the form of convertible debt (refer to Note 3).

Additionally on February 12, 2024, the Company and DeFloria entered into a separate master services agreement pursuant to which the Company will be compensated for the provision of certain services to DeFloria.

For the three months ended March 31, 2024, the Company recognized $ 311 in revenue and cost of goods sold, respectively, related to the service agreement with DeFloria.

Additionally, the Company has an accounts receivable balance due from DeFloria of $ 74 for the three months ended March 31, 2024.

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

What changed 10-Q

Item 1. Financial Statements