What changed in this filing

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Item 1. Business

2025-03-19 compared with 2024-03-21 · 174 added, 245 removed, 610 unchanged (41% of the section changed)

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The Company's Common Shares are also quoted on the over-the-counter stock market, the OTCQX, in the United States under the symbol, "CWBHF".

The Company is a market leader in the United States in innovative hemp extract wellness products under a family of brands which includes Charlotte’s Web™, ReCreate(TM), CBD Medic™, and CBD Clinic™.

Charlotte’s Web branded premium quality products start with proprietary hemp genetics that are 100% North American farm grown and manufactured into hemp extracts containing naturally occurring phytocannabinoids including cannabidiol ("CBD"), cannabichromene ("CBC"), cannabigerol ("CBG"), cannabinol ("CBN"), terpenes, flavonoids and other beneficial hemp compounds.

The Company operates from its cGMP (current good manufacturing practices) compliant production facility in Louisville, Colorado ("LOFT") where it produces hemp oil tinctures, maintains distribution and quality control activities, and research and development ("R&D").

Charlotte’s Web product categories include full spectrum hemp extract oil tinctures (liquid products), gummies, capsules, topical creams and lotions, and pet products.

As of October 2022, the Company also began producing NSF Certified for Sports® broad spectrum tincture products.

Charlotte’s Web products are distributed to retail outlets and health care practitioners, as well as online through the Company’s website at www.Charlottesweb.com.

The information provided on the Company's website is not part of this report or any other report we file with or furnish to the SEC.

The business of the Company consists of the farming, manufacturing, sales, and marketing of hemp-derived CBD wellness products.

As of December 31, 2023, the Company operated in a single operating and reportable segment, hemp-derived CBD wellness products, as its executive officers reviewed overall operating results in order to assess financial performance and to make resource allocation decisions, rather than to assess a lower-level unit of operations in isolation.

The Company is a market leader in the United States in innovative hemp extract and other botanical-based wellness products under a family of brands which includes Charlotte’s Web™, CBD Medic™, and CBD Clinic™.

Charlotte's Web branded premium quality full-spectrum CBD products start with proprietary hemp genetics that are 100% North American farm grown and manufactured into hemp extracts containing naturally occurring phytocannabinoids including cannabidiol ("CBD"), cannabichromene ("CBC"), cannabigerol ("CBG"), cannabinol ("CBN"), terpenes, flavonoids and other beneficial hemp compounds.

The Company operates from its cGMP (current good manufacturing practices) compliant production facility in Louisville, Colorado (the "LOFT") where it produces hemp oil tinctures and maintains distribution, quality control and research and development ("R&D") activities.

Charlotte’s Web product categories include functional mushroom gummies, and hemp extract oil tinctures (liquid products), gummies, capsules, topical creams and lotions, and pet products.

The Company also produces NSF Certified for Sport ® broad-spectrum tincture and gummy products.

Charlotte’s Web products are distributed to retail outlets and health care practitioners, as well as online through the Company’s website at www.charlottesweb.com and other third-party e-commerce sites.

The information provided on the Company's website is not part of this report or any other report filed with or furnished to the SEC.

The business of the Company consists of the farming, manufacturing, sales, and marketing of hemp-derived CBD and other botanical-based wellness products, including functional mushroom gummies.

As of December 31, 2024, the Company operated in a single operating and reportable segment, hemp-derived CBD wellness products, making up the majority of the revenue of the Company.

The executive officers reviewed overall operating results in order to assess financial performance and to make resource allocation decisions, rather than assessing any lower-level unit of operations in isolation.

Hemp extracts are produced from the plant Cannabis sativa L.

(" cannabis ") and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol ("THC") concentration of not more than 0.3% on a dry weight basis ("hemp").

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

Where such research indicates that a product may have a potential therapeutic use, the Company may consider pursuing development of that use in jurisdictions where it is legal to do so in accordance with applicable regulations and if consistent with the Company’s founding principles.

The Company is engaged in research involving a broad variety of compounds derived from hemp, as well as other botanical-based wellness products such as functional mushrooms.

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

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At this time, however, the Company does not 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 high quality hemp through contract farming operations in Kentucky, Oregon and Canada.

The hemp grown in Canada is utilized exclusively for the Canadian market and not in the Company's products sold in the United States.

The Company continues to invest in R&D efforts to identify new product opportunities.

Management is working to expand the Company’s production capacity, and to find opportunities for continuous improvement in the supply chain including insourcing production to reduce its dependence on third party contract manufacturers.

The Company is working to capitalize on the rapidly emerging botanical wellness products industry by driving customer acquisition and retention, as well as accelerating national and international retail expansion.

In addition, the Company may consider expanding its product line beyond Hemp-based products should the science and the Company’s founding principles support such expansion.

Management is working to expand the Company’s production capacity, and to find opportunities for continuous improvement in the supply chain including in-sourcing production to reduce its dependence on third party contract manufacturers.

The Company is working to capitalize on the rapidly emerging botanical-based wellness products industry by driving customer acquisition and retention, as well as accelerating national and international retail expansion.

In addition, the Company may consider expanding its product line beyond hemp-based products and functional mushrooms should the science and the Company’s strategic vision support such expansion.

In furtherance of the Company’s R&D efforts, in February 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.

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

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

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 exclusive 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 an amendment to extend the MLB Promotional Rights Agreement through December 31, 2027, with an aggregate rights fee of $23 million for the remainder of the term.

In October, 2022, the Company launched a product line catering to the sports vertical (the "SPORT Line"), which is designed specifically for athletes.

The products in the SPORT Line have undergone the NSF for Sport® certification process with NSF, a third-party organization that manufacturers, regulators, and consumers look to for the development of public health standards and certification marks that help protect the world's food, water, consumer products, and environment.

CW Labs is located at the LOFT in Louisville, Colorado.

Effective as of November 14, 2022, the Company entered into a subscription agreement (the "Subscription Agreement") with BT DE Investments, Inc.

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The maturity date for the debenture is November 2029.

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, Inc.

("DeFloria"), with AJNA BioSciences PBC ("AJNA"), and a subsidiary of British American Tobacco PLC (LSE:

BATS and NYSE:

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

The Company and AJNA each hold 400,000 or 50%, respectively, of the entity’s voting common units and BAT holds an equity interest (a) in the form of 200,000 or 100% preferred units, and (b) a $3 million secured convertible indenture that can be converted upon an additional qualified financing or upon maturity of such indenture.

The Company and AJNA each hold 4,000,000 or approximately 50%, respectively, of the entity’s voting common units.

Additionally, AJNA holds an additional $2 million secured convertible indenture that can be converted upon an additional qualified financing or upon maturity of such indenture.

BAT holds an equity interest (a) in the form of 2,000,000 or 100% preferred units, and (b) a $5 million secured convertible indenture that can be converted upon an additional qualified financing or upon maturity of such indenture.

In October 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 exclusive strategic partnership with MLB to promote the Company’s new NSF Certified for Sport ® product line.

On February 5, 2024, the Company and MLB entered into an amendment to extend the MLB Promotional Rights Agreement through December 31, 2027, with an aggregate rights fee of $23 million for the remainder of the term.

In September 2024, the Company launched its new functional mushroom gummy product line with three formulations:

Focus Support, Stress Support, and Energy Support.

These mushroom products are hemp-free and expand the Company's ongoing commitment to providing science-supported botanical-based solutions to its customers.

Public Benefit Company Status

The Company became a benefit company under the BCBCA on July 24, 2020.

Benefit companies are a relatively new class of corporations in British Columbia that are formally and legally empowered to conduct their business in a responsible and sustainable manner and promote one or more public benefits.

Benefit companies are a class of corporations in British Columbia that are formally and legally empowered to conduct their business in a responsible and sustainable manner and promote one or more public benefits.

Under British Columbia law, benefit companies are required to identify in their Articles the public benefit or benefits they will promote.

Their directors have a duty to act honestly and in good faith with a view to conducting business in a responsible and sustainable manner and to promote the company’s public benefits and must balance this duty with their general fiduciary duties under section 142(1)(a) of the BCBCA to act honestly and in good faith with a view to the best interests of the company.

As a benefit company, the Company must balance a variety of interests that may result in actions that do not maximize shareholder value as the board of directors of the Company (the "Board" or the "Board of Directors") must balance the interests of

shareholders and stakeholders in working to achieve the Company’s public benefits.

As a benefit company, the Company must balance a variety of interests that may result in actions that do not maximize Shareholder value as the board of directors of the Company (the "Board" or the "Board of Directors") must balance the interests of Shareholders and stakeholders in working to

achieve the Company’s public benefits.

See " Risk Factors – As a public benefit company, the Company has a duty to balance a variety of interests that may result in actions that do not maximize Shareholder value."

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British Columbia courts have generally been deferential to the business decisions of directors, as directors are in the best position to take into account the diverse interests of a company and its stakeholders (including what weight to give to Shareholder interests), as long as the business decision lies within the range of reasonable alternatives.

However, as a new type of corporate entity, there is uncertainty as to how British Columbia courts would view the balancing of these interests and the weighing of shareholder and stakeholder concerns.

However, as a benefit company, there is uncertainty as to how British Columbia courts would view the balancing of these interests and the weighing of Shareholder and Stakeholder concerns.

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

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customers, workers, communities, and the environment.

These requirements are aligned with the Company’s socially conscious founding principles, and formalizes its commitment to environmental, social, and governance issues for stakeholders.

These requirements are aligned with the Company’s socially conscious strategic vision.

The Company’s status as a Certified B Corp is distinct from and has no impact on its status as a benefit company under the BCBCA.

As a Certified B Corp, the Company is a socially conscious company, and is committed to using business as a force for good and a catalyst for innovation.

The Company weighs sound business decisions with consideration for how its efforts affect its employees, customers, the environment, and the communities where its employees live and where it does business.

This social awareness includes contributions to non-profits, which are made on an ad hoc basis, concentrating first on those entities that have historically supported the business through education of existing and potential customers.

The Company has historically donated and plans to continue to donate to charitable organizations.

The Company also supports non-profit organizations that it believes can utilize the wellness aspects of its products (i.e., military veterans, adaptive athletes, educational organizations, etc.).

History and Development of the Company

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Charlotte’s Web sold 13,312,150 Common Shares under the initial public offering ("IPO"), for total gross proceeds to the Company of C$93,185,050, while certain selling Shareholders under the IPO sold an aggregate of 3,132,850 Common Shares, for total gross proceeds to the selling Shareholders of C$21,929,950.

On March 23, 2020, the Company announced it had entered into an arrangement (the "Arrangement Agreement") with Abacus Health Products ("Abacus"), pursuant to which the Company proposed to acquire all of the issued and outstanding subordinate voting shares of Abacus (the "Abacus Shares").

Abacus (the "Abacus Shares").

Under the terms of the Arrangement Agreement, Shareholders of Abacus would receive 0.85 of a Common Share for each Abacus Share held.

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Financial year ended December 31, 2022

On January 12, 2021, the Company announced that Charlotte’s Web has been granted U.S.

Utility Patents for its hemp genetics by the U.S.

Patent and Trademark Office ("USPTO").

The newly issued patents cover two of the Company’s new feminized seed hybrid hemp varieties developed under the Company’s breeding program;

'Kirsche' (US Patent No.

10,888,060) and 'Lindorea' (US Patent No.

'Lindorea' and 'Kirsche' are the world’s first two allowed U.S.

Utility Patents reading on feminized hybrid hemp plants.

See " Business of the Company – Intellectual Property."

On March 2, 2021, the Company entered into the SBH Purchase Option 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 $8,000,000 and has a five-year term (extendable for an additional two years upon payment of additional consideration), and it provides Charlotte’s Web the option to acquire all or substantially all 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 Charlotte’s Web may agree, at a purchase price to be determined at the time of exercise of the SBH Purchase Option.

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

On April 16, 2021, pursuant to an amending agreement, the name and likeness and license agreement between the Company and Leeland & Sig LLC d/b/a Stanley Brothers Brand Company was extended for a period of one year, expiring July 31, 2022.

In addition, the Company executed a consulting agreement which extended the service arrangements of the seven Stanley Brothers for a period of one year, expiring July 31, 2022.

Upon execution of the consulting agreement, the Company paid $2,081,250 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.

On April 20, 2021, the Company announced that three of its proprietary hemp cultivars were approved for registration on Health Canada’s List of Approved Cultivars ("LOAC") for outdoor cultivation in Canada.

These are among the first hemp CBD cultivars on the LOAC that are early flowering and early maturing for outdoor cultivation and harvesting within the shorter Canadian growing season.

The approved cultivars include the Company’s original "CW1AS1" U.S.

patented genetics, which clears the way for Charlotte’s Web to cultivate its leading CBD wellness products in Canada in 2021.

Currently, Charlotte’s Web Products are not easily available in Canada because laws do not allow for bulk importing of USA grown hemp CBD or related products into Canada.

In addition to the Company’s CW1AS1 cultivar used for its leading Original Formula and other full-spectrum hemp extract products, Charlotte’s Web is bringing two early maturing hemp varieties to Canada – named "Duchess" and "Ambassador" - developed for cultivation in shorter northern climate growing seasons.

Charlotte’s Web’s approved cultivars are three of 15 added to the 2021 LOAC.

On May 5, 2021, the Company filed a (final) short form base shelf prospectus with securities regulatory authorities in each of the Provinces and Territories of Canada, which will allow the Company to qualify the distribution by way of prospectus in Canada of up to C$350,000,000 of Common Shares, preferred shares, warrants, subscription receipts, units, or any combination thereof, during the 25-month period that the base shelf prospectus is effective.

The specific terms of any offering under the base shelf prospectus will be established in a prospectus supplement, which will be filed with the applicable Canadian securities regulatory authorities in connection with any such offering.

Any such offering must also comply with applicable U.S.

securities laws.

On May 6, 2021, the Company received a receipt for the (final) short form base shelf prospectus from the Ontario Securities Commission on behalf of all applicable regulatory authorities.

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 $8,714,202.

For the year ended December 31, 2021, share issuance costs were $596,403 for net proceeds to the Company of $8,117,799.

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.

The Company entered into an agreement to sublease the office building at 1600 Pearl St, Boulder, Colorado, commencing July 1, 2021.

The Company’s LOFT production and distribution facility in Louisville, CO was added to NSF International GMP registration as of July 6, 2021.

On October 12, 2021, the Company announced that it earned United States Department of Agriculture ("USDA") organic certification, with 12 Charlotte's Web products carrying the USDA organic seal on the label.

In compliance with federal regulations for certified organic practices and with the Company’s own strict quality and safety standards, these products are produced without genetically modified organisms (GMOs) and made from hemp grown on U.S.

hemp farms with no synthetic pesticides or herbicides.

Charlotte’s Web farmers use cover crops and crop rotation to build healthy soils.

The Company maintained USDA certified organic practices on its farm over a three-year transition period with on-farm inspections by a USDA accredited organic certification agency before being formally approved as "USDA Certified Organic".

On November 3, 2021, all outstanding Proportionate Voting Shares 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 13,026,454 Common Shares.

Following this conversion, the Company had 142,335,464 Common Shares outstanding and nil Proportionate Voting Shares outstanding on November 3, 2021.

On December 16, 2021, the Company announced that Adrienne Elsner had resigned from her position as Chief Executive Officer ("CEO").

Also on such date, Ms.

Elsner stepped down from the Board of Directors and the Board appointed Jacques Tortoroli as CEO of the Company, expanded Wessel Booysen’s role to Chief Financial and Operating Officer and expanded Jared Stanley’s role to Chief Cultivation and Innovation Officer.

With respect to his roles on the Board, Jacques Tortoroli resigned from his committee positions, but continues to serve on the Board.

On December 16, 2021, Tim Saunders was appointed Chair of the Audit Committee and Susan Vogt was appointed to serve on the Compensation Committee.

Financial year ended December 31, 2022

On January 4, 2022, the Company’s Board designated Jared Stanley, the Company’s Chief Cultivation and Innovation Officer, as an executive officer of the Company.

On January 5, 2022, the Chief Customer Officer position was eliminated, effective January 31, 2022.

On January 12, 2022, the Company announced the completion of a reorganization of the corporate structure and a movement to a horizontal organizational structure to empower employees with increased decision making and accountability.

On January 18, 2022, the Company announced a national distribution agreement with GNC, a specialty retailer of nutritional products, to distribute varieties of Charlotte’s Web gummies at GNC retail locations across various states.

On February 1, 2022, the Company's Board appointed Andrés de Gortari as Chief Accounting Officer of the Company.

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Financial Year Ended December 31, 2023

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

limited liability company ("Licensor").

Pursuant to the Fourth 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.

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in connection with the Company’s issuance of the $56.8 million debenture to BT DE Investments Inc.

and permits BT DE Investments Inc.

to appoint up to 20% of the members of the Company's Board of Directors.

Effective March 30, 2023, the Company entered into an amendment to the offer of employment, dated December 19, 2022, with Jessica Saxton, Chief Financial Officer of the Company.

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Effective October 11, 2023, the Board of Directors of the Company appointed Angela McElwee to the Company’s Board of Directors.

Effective December 28, 2023, the Company entered into an amendment to extend until November 13, 2024, the maturity date of a secured promissory note, as lender, where the Company loaned $1,000,000 to one of the founders of the Company.

Financial Year Ending December 31, 2024

On January 29, 2024, the Company and MLB entered into an amendment to the MLB Promotional Rights Agreement, whereby the term of the MLB Promotional Rights Agreement was extended through December 31, 2027, with an aggregate rights fee of $23 million for the remainder of the term.

On February 5, 2024, the Company and MLB entered into an amendment to the MLB Promotional Rights Agreement, whereby the term of the MLB Promotional Rights Agreement was extended through December 31, 2027, with an aggregate rights fee of $23 million for the remainder of the term.

Effective as of February 1, 2024, the Company accelerated the vesting and settlement of outstanding restricted stock units ("RSU’s") granted under the Charlotte’s Web Holdings, Inc.

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McCarthy’s appointment to the Company's Board of Directors followed the departure of Susan Vogt, who notified the Company and the Board of Directors of her immediate retirement from the Board of Directors.

Effective February 12, 2024, the Company and DeFloria LLC entered into a Master Services Agreement, pursuant to which the Company will be compensated for the provision of certain services to DeFloria LLC.

Effective February 12, 2024, the Company and DeFloria, Inc.

entered into a Master Services Agreement, pursuant to which the Company will be compensated for the provision of certain services to DeFloria, Inc.

On April 29, 2024, the Company announced that John Held, Thomas Lardieri, and Alicia Morga will not stand for re-election at the Company's 2024 Annual General and Special Meeting.

On June 14, 2024, the Company announced that following the 2024 annual general meeting, the Board of Directors of the Company was comprised of Angela McElwee, Jonathan Atwood, Matthew McCarthy, Bill Morachnick, Jared Stanley, and Maureen Usifer.

On June 18, 2024, the Company announced the departure of Jessica Saxton and the appointment of Erika Lind as Chief Financial Officer of the Company.

On August 21, 2024, the Company announced the appointment of PKF O'Connor Davies, LLP and the dismissal of Ernst & Young as the Company's independent registered accounting firm.

On September 24, 2024, the Company announced emergency regulations enacted in the State of California.

On November 1, 2024, the Company announced that it had entered into a retention agreement with Erika Lind, the Company's Chief Financial Officer.

Financial Year Ending December 31, 2025

On January 17, 2025, the Company announced the departure of Sarah Cambridge as the Company's Principle Accounting Officer and that Erika Lind, the Company's Chief Financial Officer, would also assume the role of Principal Accounting Officer for the Company.

On February 24, 2025, the Company announced that DeFloria, Inc.

received notification from the FDA which allows DeFloria to proceed with Phase 2 human clinical trials.

Business of the Company

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Charlotte’s Web’s mission is to unearth the science of nature to revolutionize wellness.

The Company does this by responsibly growing its proprietary non-GMO hemp genetics on family farms that are made into premium, full-spectrum phytocannabinoid health and wellness products.

Charlotte’s Web is manufactured in a third-party certified FDA-registered facility.

The above statements capture the essence of the Company’s business strategy and pioneering vision of its founders.

The Company does this primarily by growing its proprietary non-GMO hemp genetics on family farms that are made into premium, full-spectrum phytocannabinoid health and wellness products.

Charlotte’s Web products are manufactured both in-house and at third-party certified FDA-registered facilities.

The above statements capture the essence of the Company’s business strategy and the pioneering vision of its founders.

The Company strives to realize significant growth by expanding further into the health and wellness sector, while capitalizing on the Company’s unique differentiators to create sustainable value.

Lastly, in accordance with the Company’s social responsibility goals, Charlotte’s Web supports

several non-profit organizations that utilize its products or that further consumer education, advocacy, and research in the hemp and CBD marketplaces.

In 2024 the Company expanded its product portfolio with the introduction of hemp-free functional mushroom gummies.

In accordance with the Company’s social responsibility goals, Charlotte’s Web supports several non-profit organizations that utilize its products or that further consumer education, advocacy, and research in the hemp, CBD and wellness marketplaces.

Industry Overview

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Hemp extracts contain an assortment of naturally-occurring substances, including phytocannabinoids, terpenes, flavonoids and other hemp compounds.

The Company believes the presence of various phytocannabinoids, terpenes and flavonoids work synergistically to heighten the effects of the products, making them superior and distinctly different to single-compound CBD isolates.

The Company believes the presence of various phytocannabinoids, terpenes and flavonoids work synergistically to heighten the effects of the products, making full-spectrum and broad-spectrum hemp extracts superior and distinctly different to single-compound CBD isolates.

This assortment of hemp compounds is the basis for the theory known as the "entourage effect" as introduced by Israeli chemists, Shimon Ben-Shabat and Raphael Mechoulam, in 1998.

Although research regarding the potential therapeutic uses of CBD and FSHE are still in their infancy, industry reports suggest consumers are using CBD for various applications including assistance with sleep, daily stress, anxiety, pain relief, cognitive function and immune health, among other applications.

Although research regarding the potential therapeutic uses of CBD and FSHE continues to evolve, industry reports suggest consumers are using CBD for various applications including assistance with sleep, daily stress, anxiety, pain relief, cognitive function and immune health, among other applications.

Product Overview

Product Portfolio The Company offers a mix of products that have been strategically developed to fit with its objective of delivering a full suite of best-in-class FSHE wellness products that meet its customers’ demands for stringent quality and consistency.

The Company currently markets its products under the "Charlotte’s Web", "ReCreate", "CBD CLINIC", and "CBDMEDIC" trade names.

The Company’s current product categories include human ingestible products (tinctures, capsules, and gummies), topicals, pet products, and NSF Certified for Sports broad spectrum products.

The Company currently markets its products under the "Charlotte’s Web", "CBD CLINIC", and "CBD MEDIC" trade names.

The Company’s current product categories include human ingestible products (tinctures, capsules, and gummies), topicals, pet products, and NSF Certified for Sport ® broad-spectrum products.

Tinctures A human ingestible liquid product is a combination of oil and full-spectrum hemp extracts containing naturally occurring CBD.

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Original capsule products were in the form of a dry powder, inside a hard-capsule shell.

In 2019, CW innovated its capsule offering, introducing liquid capsules.

In 2019, Charlotte's Web innovated its capsule offering, introducing liquid capsules.

Ingredients in liquid capsules include carrier oil (extra-virgin organic olive oil) and FSHE.

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Capsule products are meant to be consumed by direct ingestion.

Gel Caps In 2024 Charlotte’s Web introduced its new Soft Gel Capsule, offering easy-to-swallow gel caps that provide precise, potent dosing of full-spectrum CBD.

The ingestible gel caps are designed for portability, convenience, and effectiveness.

Gummies The Company’s FSHE gummies are made from whole-plant hemp extract and nutraceutical blends and are flavored with natural juices.

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Topical products are meant to be applied externally and by topical application.

Pet The Company pet products are currently for canine use.

Pet The Company's pet products are currently intended for canine use.

Ingestible pet products are delivered in liquid (drops) and solid (chew) forms.

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The liquid and solid products are meant to be consumed by direct ingestion.

Mushrooms Gummies The Company's new line of adaptogenic mushroom gummies is formulated with high-quality mushrooms and functional botanicals for direct ingestion.

These products are hemp-free and expand the Company's commitment to providing effective science supported plant-based wellness solutions.

Key Competitive Advantages of Product Offering

In addition to Charlotte’s Web brand and substantial goodwill generated from the Company’s legislative efforts and media exposure, the Company's believes the following are also competitive advantages of the Company:

In addition to Charlotte’s Web brand and substantial goodwill generated from the Company’s legislative efforts and media exposure, the Company believes the following are also competitive advantages of the Company:

Cultivation Experience and Capacity — With years of experience in plant cultivation, the Company has selected prime farmland to grow its hemp with access to substantial additional farmland for future capacity.

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The Company believes there is no other entity in the world with more experience bringing large-scale, hemp-based operations to the market while maintaining impeccable product quality.

Industry-leading Manufacturing Capability — CW leases a 136,610-square-foot industrial building located in Louisville, Colorado, which houses its primary production and R&D divisions.

Industry-leading Manufacturing Capability — Charlotte's Web leases a 136,610-square-foot industrial building located in Louisville, Colorado, which houses its primary production and R&D divisions.

This facility is staffed with professional personnel responsible for production management, quality control/assurance, analytical chemistry, product development and process engineering to ensure product quality.

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and Canadian Utility Patents for its hemp genetics.

The Company has earned a total of five U.S.

The Company has earned a total of six U.S.

Utility Patents and five Canadian Utility Patent covering hemp varieties as it advances the science of hemp horticulture.

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The Company has conducted extensive development over the past several years to demonstrate that it can scale its cultivation operations significantly without sacrificing quality and consistency.

The Company has established infrastructure across three states in order to diversify the seed supply and maintain hemp biomass consistency through standardized mechanization.

The Company has established infrastructure across multiple states in order to diversify the seed supply and maintain hemp biomass consistency through standardized mechanization.

If needed, the Company believes it will be able to continue to rapidly scale cultivation by:

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The plants are then typically completely harvested and processed by the end of November of each year.

Cultivation Overview The Company has grown its proprietary hemp plants in Arizona, Colorado, Kentucky, Oregon, and Canada on owned and/or leased farmland operated by the Company or third-party farming operators.

Cultivation Overview The Company has grown its proprietary hemp plants in Arizona, Colorado, Kentucky, and Canada on owned and/or leased farmland operated by the Company or third-party farming operators.

The Company is actively involved in all aspects of genetics development, propagation, seed production, cultivation, and harvesting.

All hemp cultivation activities are done under the oversight of, and licensed by, each state’s Department of Agriculture, or Health Canada, each of which rigorously tests the Company’s crops to ensure compliance with each department’s hemp programs (including THC content of less than 0.3% on a dry weight basis).

The Company and its third-party farming operators are in compliance with the regulations as outlined by each applicable Department of Agriculture and all hemp produced and sold by the Company constitutes hemp under the 2018 Farm Bill, as well as the laws of the states in which it produces and sells such hemp.

The Company and its third-party farming operators are in compliance with the regulations as outlined by Health Canada and each applicable Department of Agriculture and all hemp produced and sold by the Company constitutes hemp under the 2018 Farm Bill, as well as the laws of the states in which it produces and sells such hemp.

Cultivation Research & Development Since its first crop production in 2014, the Company has taken a leadership position in advancing the technology surrounding all aspects of hemp production.

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This allows for successful cultivation expansion in both US and international markets, as well as creating innovative cannabinoid development for expanded product development.

The breeding program has five variety patents, including two hemp hybrid varieties with proven disease resistance and increased yield which lowers cultivation costs of production.

The breeding program has six variety patents, including two hemp hybrid varieties with proven disease resistance and increased yield which lowers cultivation costs of production.

In addition to hybrid development, the division oversees the Company’s seed production and supply, import/export requirements, R&D hemp regulatory compliance, assists in state and federal legislative efforts and supports cultivation operations.

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With this harvesting process, there are limitations applicable to both available infrastructures and labor in agricultural regions.

To mitigate these challenges, the Company has focused its Arizona, Colorado, Kentucky, Oregon, and Canada cultivation teams on the development of new, more scalable processes to mechanize harvesting without sacrificing quality.

The Company has successfully scaled the harvesting and drying process and believes it has enough capacity to meet the Company’s medium-term needs.

To mitigate these challenges, the Company has focused its Arizona, Colorado, Kentucky, and Canada cultivation teams on the development of new, more scalable processes to mechanize harvesting without sacrificing quality.

The Company has successfully scaled the harvesting and drying process and believes it has enough capacity to meet the Company’s needs.

Manufacturing The Company’s manufacturing operations are centered around the quality of its products and the efficiency of their production.

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The Company operates its finished products manufacturing in accordance with cGMP to create high quality products in the market.

In 2020, the Company began operating from a new 136,610-square foot manufacturing and extraction, warehouse, and distribution facility.

In 2020, the Company began operating from the LOFT, its 136,610-square foot manufacturing and extraction, warehouse, and distribution facility.

The LOFT has been constructed using state of the art processes and equipment to deliver superior products to the Company’s customers.

The facility efficiently executes the Company’s core competencies in R&D, product development, quality control, tincture manufacturing and filling, and product delivery.

The Company believes it has sufficient capabilities to meet its core production

requirements over the long term.

The Company also expects to begin manufacturing gummy and topical products at the LOFT in 2025.

The Company believes it has sufficient capabilities to meet its core production requirements over the long term.

The facility also has been designed to accommodate incremental manufacturing capacity as business needs require, including the strategic in-sourcing of contract manufactured products beyond tinctures.

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identity, potency, residual solvents, microbial contaminants, aflatoxin, heavy metals, and pesticides.

1 See 21 C.F.R.

To create the highest quality products, the Company, when applicable, closely controls every step in the production process, including propagation, cultivation, harvesting, drying, manufacturing, and packaging.

The control and visibility maintained through the Company’s substantial vertical integration allows for the continual monitoring and refinement of critical processes, resulting in high quality standardized products.

1 See 21 C.F.R.

Sales and Distribution Strategy The Company’s products are distributed through its e-commerce website (www.charlottesweb.com), third-party e-commerce websites, select distributors, health practitioners, and a variety of brick-and-mortar retailers across multiple channels of business.

The Company’s products are sold in chiropractic and doctors’ offices, gyms, massage therapy offices, salons, hotels, direct delivery services, and pet stores.

The Company’s products are sold in chiropractic and doctors’ offices, gyms, massage therapy offices, salons, direct delivery services, and pet stores.

The Company distributes its products within the United States and in select international markets through local or regional distribution partners.

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Key to this success has been the relationships and partnerships with key natural accounts.

The Company continues to sell its CBD CLINIC products into the practitioner market comprising of naturopathics, chiropractors, acupuncturists, physical and massage therapists, functional practitioners and continues to expand the total number of health care practitioners in the CBD CLINIC network.

The Company continues to sell its CBD CLINIC products into the practitioner market comprised of naturopathies, chiropractors, acupuncturists, physical and massage therapists, and functional practitioners, and continues to expand the total number of health care practitioners in the CBD CLINIC network.

The market for the CBD CLINIC products is primarily served through national distributors.

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For example, in specialty food accounts, a combination of sales brokers and distributors are strategically located within geographical markets.

This provides proximity along with hands-on support at the store level to ensure products are correctly labeled and merchandised.

Depending on the size of the account, some locations are deemed to be "national accounts" that receive additional support from the Company’s internal retail sales team.

This allows the Company’s brokers and distributors to manage multiple independent specialty food locations, while still achieving the same level of support that is expected in the Company’s larger chain retail customers.

Depending on the size of the account, some locations are deemed to be "national accounts" that receive additional support from the Company’s internal sales team.

This allows the Company’s brokers and distributors to manage multiple independent specialty food locations, while still achieving the same level of support that is expected by the Company’s larger chain retail customers.

The Company utilizes e-commerce to reach consumers and guide them through the hemp and CBD buying process.

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The Company continues to promote the awareness of its brands through investment in marketing programs, sponsorships and continued participation in events that offer wide exposure to both trade partners and consumer retail markets.

For example, the Company currently has category exclusive sponsorship arrangements with Major League Baseball and the Premier Lacrosse League.

As a Certified B Corp, the Company is a socially conscious company, and is committed to using business as a force for good and a catalyst for innovation.

The Company also supports non-profits that it believes can utilize the wellness aspects of its products (i.e., military veterans, adaptive athletes, educational organizations, etc.).

Management believes that any socially oriented actions it takes will ultimately have a positive impact on the Company, its employees, and its Shareholders.

The Company has historically donated and plans to continue to donate to charitable organizations.

For example, the Company currently has a category exclusive sponsorship arrangement with Major League Baseball © .

Growth from the Existing Product Portfolio Through Marketing Initiatives

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• Paid, earned, and affiliate media to build awareness of the sector and the unique qualities of the Company’s brand equity and products

• Search engine optimization ("SEO") and email marketing to drive consumer purchase and subscriptions on CW.com, the Company’s e-commerce platform

• Search engine optimization ("SEO") and email marketing to drive consumer purchase and subscriptions on charlottesweb.com, the Company’s e-commerce platform

• Partnerships and affiliates that reach expanded consumer segments

• Public relations campaigns and events to amplify targeted social and media marketing communications

• Trade marketing to increase visibility and differentiation of our products in customer stores

• Trade marketing to increase visibility and differentiation of the Company's products in customer stores

• Word of mouth and referrals from health care practitioners, their colleagues, and patients

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The Company's knowledge of hemp cultivation, combined with its scientific and financial resources, allow it to maintain a strong market position amongst its competitors.

The Company's principal competitors in the CBD wellness products space include companies such as , Medterra, SUNMED, Global Widget, CBD American Shaman and CBDfx.

The Company's principal competitors in the CBD wellness products space include companies such as , Medterra, SUNMED, Global Widget, CBD American Shaman, CBDfx, Wyld and PlusCBD .

Information Systems The Company's primary enterprise resource planning ("ERP") system is a cloud-based system well-known for manufacturing, shipping, and receiving, inventory control, supply chain management, sales, accounting, and finance.

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The Company also has confidentiality and/or license agreements with certain employees, contractors and other third parties, which limit access to and use of the Company's proprietary intellectual property.

Pursuant to the "Name and Likeness Agreement" entered into between the Company and Leeland & Sig d/b/a Stanley Brothers Brand Company, a Colorado limited liability company owned by certain founders, including each of the Stanley Brothers (the "Stanley Brand Company") effective August 1, 2018, and further amended on April 16, 2021, July 30, 2022, August 31, 2022, September 30, 2022, February 17, 2023, and June 30, 2023, Stanley Brand Company granted the Company a non-exclusive, worldwide right to use the name "Stanley Brothers" and the likeness of the seven Stanley Brothers until December 31, 2023, on a royalty-free basis.

Each party to the Name and Likeness Agreement has the right to cause the other party to cease use of the name in certain circumstances such as misuse, bad acts, or a corporate acquisition.

The initial term of the Name and Likeness Agreement was for a thirty-six (36) month period, with the Company

agreeing to begin activities to cease use of any intellectual property used under the Name and Likeness Agreement within thirty (30) days of expiration or termination thereof.

In connection with the execution of the Name and Likeness Agreement, the Company executed employment agreements with each of the Stanley Brothers on September 1, 2018 providing for aggregate annual base salaries to the Stanley Brothers of $1,425,000.

On April 16, 2021, pursuant to an amending agreement, the Name and Likeness and Agreement was extended for a period of one year, expiring July 31, 2022.

In addition, the Company executed a consulting agreement which extended the service arrangements of the seven Stanley Brothers for a period of one year, expiring July 31, 2022.

Upon execution of the consulting agreement, the Company paid $2,081,250 to Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, on behalf of the Stanley Brothers, as consideration for the extended use of the "Stanley Brothers" name and the likeness of the seven Stanley Brothers, as well as consulting services to be provided to the Company over the term of the consulting agreement and certain restrictive covenants.

Effective July 31, 2022, the Company executed an Extension and Second Amending Agreement to Name and Likeness and License Agreement, extending the term from July 31, 2022 to August 31, 2022.

Effective August 31, 2022, the Company executed an Extension and Third Amending Agreement to Name and Likeness and License Agreement, extending the term from August 31, 2022 to September 30, 2022.

Effective September 30, 2022, the Company executed an Extension and Fourth Amending Agreement to Name and Likeness and License Agreement, extending the term from September 30, 2022 to December 31, 2022.

Additionally, the Name and Likeness Agreement was also amended to provide the payment of a Company event fee of $1,500 per diem for each Stanley brother that, at the request of the Company’s chief executive officer, participates in any of the following events:

(i) customer meetings;

(ii) strategic partner meetings;

(iii) speaking engagements;

(iv) presentations;

(v) social media postings;

(vi) podcasts;

(vi) public relations events;

(vii) media interviews;

(viii) trade show appearances;

and (ix) events substantively similar to any of the foregoing.

Effective February 22, 2023, the Company executed an Extension and Fifth Amending Agreement to Name and Likeness and License Agreement, extending the term to June 30, 2023.

Effective June 30, 2023, the Company executed an Extension and Sixth Amending Agreement to the Name and Likeness Agreement, extending the term to December 31, 2023.

The Name and Likeness Agreement expired effective December 31, 2023.

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

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

Pursuant to the Brand License and Option Agreement, the Company licensed certain intellectual property from JMS Brands LLC, for an annual license fee of $500,000.

Pursuant to the terms of the License Agreement, the Company had the option to purchase the intellectual property rights for two million dollars ($2,000,000).

On January 5, 2024, the License Agreement expired.

The Company currently has a portfolio of pending U.S.

plant, utility and design patent applications directed to CW’s most promising plant genetics, proprietary extraction technology, cannabinoid isolation methods and cannabinoid conversion processes and industrial designs.

plant, utility and design patent applications directed to Charlotte's Web’s most promising plant genetics, proprietary extraction technology, cannabinoid isolation methods and cannabinoid conversion processes and industrial designs.

The Company also has pending U.S.

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Related Technologies:

• Protection for 'CW1AS1' hemp line.

Patent / Publication Type of IP /

Title / Inventor(s) / Assignee (s)

• Protection for 'AF14B15-21' hemp line.

US 10,653,085

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HEMP PLANT NAMED 'CW1AS1'

Campbell, Brian

Stanley, Joel

CHARLOTTE'S WEB, INC.

Related Technologies:

• Protection for 'AF14B15-21' hemp line.

• Protection for 'CW1AS1' hemp line.

US 10,736,295

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• Protection for 'EM15B2A170' hemp line.

Patent / Publication Type of IP /

Title / Inventor(s) / Assignee (s)

Utility- Canada

HEMP PLANT NAMED 'CW1AS1'

Stanley, Jared

Stanley, Joel

CHARLOTTE’S WEB, INC.

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• Protection for 'LINDOREA' hemp line.

Patent / Publication Type of IP /

Title / Inventor(s) / Assignee (s)

Utility- Canada

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The Company believes it has an advantage in attracting employees with its purpose-based mission, B-Corp status, and its leadership position in the industry, and prides itself in attracting, retaining and developing individuals with complementary mix of professional experiences and industry knowledge.

The Company values diversity in culture, race, and sexual differences and has established affinity groups led by leadership to ensure these differences are supported in the workplace, and that employees may realize their professional goals through development programs and mentoring.

The Company has assembled a management team with significant professional expertise in distribution, cultivation, sales, science, intellectual property, technology, finance, customer service, consumer packaged goods ("CPG"), marketing, business development, acquisitions, capital markets and market analysis.

The Company values diversity in culture, race, and sexual differences and that employees may realize their professional goals through development programs and mentoring.

acquisitions, capital markets and market analysis.

The Company’s management team includes executives with many years of experience in their respective fields.

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(iii) email, social media and blogs;

(iv) partnerships and influencer marketing such as Major League Baseball, Premier Lacrosse League, and Angel City Football Club;

(iv) partnerships and influencer marketing;

(v) use of subject matter experts;

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Expansion into additional jurisdictions will be done in compliance with applicable regulatory requirements in such jurisdictions and the cost and complexity of such compliance will form part of the strategic evaluation process for any proposed expansion.

International penetration will be done primarily via local and regional sales & distribution partnerships.

Effective as of November 1, 2022, the Company entered into a Manufacturing and Sales License Agreement with Aphria, Inc., an Ontario corporation and an affiliate of Tilray Brands, Inc.

("Tilray"), providing for a strategic alliance between the Company and Tilray, pursuant to which Tilray has the rights to licensing, manufacturing, quality, marketing and distribution of Charlotte’s Web TM CBD hemp extract products in Canada.

International penetration will be done primarily via local and regional sales and distribution partnerships.

Regulatory Framework As a hemp-related business, the Company is subject to extensive regulation.

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Accordingly, the U.S.

Drug Enforcement Agency ("DEA") no longer ha

2 Agriculture Improvement Act of 2018 (section 10113) (defining hemp under the Agricultural Marketing Act of 1946, 7.

s regulatory authority to interfere with the interstate commerce of Hemp products, so long as the THC level is at or below 0.3% on a dry weight basis.

Drug Enforcement Agency ("DEA") no longer has regulatory authority to interfere with the interstate commerce of hemp products, so long as the THC level of such products is at or below 0.3% on a dry weight basis.

The 2018 Farm Bill also provides that state and Native American tribal governments may impose separate restrictions or requirements on hemp growth and the sale of hemp products.

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Hemp cultivation is now permitted in all 50 states.

3 A number of states prohibit the sale of ingestible CBD products based on the FDA's position that, pursuant to the FD&C Act, it is unlawful to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are Hemp-derived.

Several states have also enacted or are considering THC limits and age-related sales restrictions for Hemp-derived products that contain THC, such as full spectrum hemp extracts.

3 A number of states prohibit the sale of ingestible CBD products based on the FDA's position that, pursuant to the Federal Food, Drug and Cosmetic Act (the "FD&C Act"), it is unlawful to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived.

Several states have also enacted or are considering enacting THC limits and age-related sales restrictions for hemp-derived products that contain THC, such as full-spectrum hemp extracts.

The Company's activities related to the production, marketing and sale of its products comply with the 2018 Farm Bill, as applicable to its operations.

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plant, the rapidly changing patchwork of state laws governing hemp and hemp-derived CBD, and the FDA’s position that it is unlawful to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, i.e., the FDA’s position that CBD cannot be marketed in a dietary supplement on the basis that substantial clinical trials studying CBD as a new drug were made public prior to the marketing of any food or dietary supplement containing CBD, and therefore food or dietary supplements are precluded from containing this ingredient, referred to as the IND Preclusion.

However, the removal of Hemp and its extracts, including CBD, from the CSA pursuant to the 2018 Farm Bill, and the establishment of multiple state regulatory frameworks that permit the sale of Hemp-derived CBD products are positive developments.

However, the Company believes that the removal of hemp and its extracts, including CBD, from the CSA pursuant to the 2018 Farm Bill, and the establishment of multiple state regulatory frameworks that permit the sale of hemp-derived CBD products are positive developments.

Currently it is unclear whether Congress will move forward with legislation to allow CBD in dietary supplements in light of the FDA’s determination that a new regulatory pathway is needed.

Timing for the FDA to develop a new pathway is also uncertain, but is likely to take several years.

2 Agriculture Improvement Act of 2018 (section 10113) (defining hemp under the Agricultural Marketing Act of 1946, 7.

3 The District of Columbia does not currently permit hemp cultivation.

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and (c) permitted by state law.

Many states that adopted pilot programs under the 2014 Farm Bill have since replaced them with approved programs under the 2018 Farm Bill, described below.

Many states that adopted pilot programs under the 2014 Farm Bill have since replaced them with approved programs under the 2018 Farm Bill, which is further described below.

FDA Approval of Epidiolex On June 25, 2018, the FDA issued to GW Pharmaceuticals plc its approval for Epidiolex, the first cannabis-derived prescription medicine to be available in the U.S.

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The 2018 Farm Bill amends the Agricultural Marketing Act of 1946 to categorize hemp as an agricultural commodity under the regulatory purview of the USDA in coordination with state departments of agriculture.

Although the USDA will be the primary federal

Although the USDA is the primary federal regulatory agency

4 See http://www.ncsl.org/research/health/state-medical-marijuana-laws.aspx.

5 https://www.ams.usda.gov/rules-regulations/hemp/state-and-tribal-plan-review.

regulatory agency overseeing hemp cultivation in the United States, states, U.S.

overseeing hemp cultivation in the United States, states, U.S.

territories, and Indian tribes desiring to obtain (or retain) primary regulatory authority over hemp activities within their borders are allowed to do so after submitting a plan for regulation to the USDA, and receiving approval from the USDA for the same.

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To date, the USDA has approved over 90 state and tribal hemp production plans.

The status of the USDA's review of plans, is available at https://www.ams.usda.gov/rules-regulations/hemp/state-and-tribal-plan-review.

As introduced above, state and tribal governments may impose separate restrictions or requirements on hemp cultivation and the sale of Hemp products;

As noted above, state and tribal governments may impose separate restrictions or requirements on hemp cultivation and the sale of hemp products;

however, states may not interfere with the interstate transportation or shipment of lawfully produced hemp or hemp products.

This was confirmed in a May 2019 memorandum released by the USDA’s Office of General Counsel.

That memorandum reiterates that, due to enactment of the 2018 Farm Bill, states and Native American tribes may not prohibit the interstate transportation or shipment of hemp lawfully produced under the 2014 or 2018 Farm Bills.

That memorandum reiterateed that, due to enactment of the 2018 Farm Bill, states and Native American tribes may not prohibit the interstate transportation or shipment of hemp lawfully produced under the 2014 or 2018 Farm Bills.

It is important to note that the 2018 Farm Bill preserves the authority and jurisdiction of the FDA, under the FD&C Act, to regulate the manufacture, marketing, and sale of food, drugs, dietary supplements, and cosmetics, including products that contain hemp extracts and derivatives, such as CBD.

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The FDA also stated that CBD-containing products in forms that are appealing to children, such as gummies, hard candies and cookies, are especially concerning.

On January 26, 2023, the FDA issued a statement denying three Citizen Petitions that had asked the agency to conduct rule making to allow the marketing of CBD products as dietary supplements, and further stated that a new regulatory pathway would benefit consumers by providing safeguards and oversight to manage and minimize risks related to CBD products.

On January 26, 2023, the FDA issued a statement denying three Citizen Petitions that had asked the agency to conduct rulemaking to allow the marketing of CBD products as dietary supplements, and further stated that a new regulatory pathway would benefit consumers by providing safeguards and oversight to manage and minimize risks related to CBD products.

The agency suggested that Congress create a new regulatory pathway that balances individuals' access to CBD products with the necessary oversight to manage risks, adding it is prepared to work with Congress on this matter.

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6 The guidance describes in detail the amount and type of evidence needed to substantiate health-related claims, with more emphasis on the fact that the FTC, as a general rule, expects high quality randomized, placebo-controlled human clinical trials.

On April 13, 2023, the FTC sent the Company and over six hundred other companies a Notice of Penalty Offense letter.

7 The letters are intended to put advertisers on notice that they should avoid deceiving consumers with advertisements that make unsubstantiated product claims.

The letters also focus on the competent and reliable scientific evidence standard

On April 13, 2023, the FTC sent the Company and over 600 other companies a Notice of Penalty Offense letter.

7 The Notice letters are intended to put advertisers on notice that they should avoid deceiving consumers with advertisements that make unsubstantiated product claims.

The Notice letters also focus on the competent and reliable scientific evidence standard in the Health Products Compliance Guidance.

Importantly, the letters are not Warning Letters and do not indicate or allege any wrongdo

6 https://www.ftc.gov/system/files/ftc_gov/pdf/Health-Products-Compliance-Guidance.pdf.

7 https://www.ftc.gov/system/files/ftc_gov/pdf/Sample-cover-letter-substantiaton.pdf.

in the Health Products Compliance Guidance.

Importantly, the letters are not Warning Letters and do not indicate or allege any wrongdoing;

rather, the letters are a procedural tool used by the FTC to collect monetary penalties in future actions, whereby the FTC can attempt to argue that a company receiving the letter knowingly violated the law as it was on "notice" of a potential violation.

rather, the Notice letters are a procedural tool used by the FTC to collect monetary penalties in future actions, whereby the FTC can attempt to argue that a company receiving the Notice letter knowingly violated the law as it was on "notice" of a potential violation.

Although this approach is untested and may not be defensible in court, the issuance of the Notice letters may signal the FTC is prepared to more closely scrutinize and potentially demand a higher level of substantiation to support health-related claims than in previous years.

On July 5, 2023, the FDA and FTC jointly issued cease-and-desist letters to six companies for marketing "copycat" food products containing delta-8 THC 8 .

Similar to the FDA Warning Letters issued in November 2022, the letters assert that the products are adulterated foods that can easily be mistaken for traditional foods like chips, cookies, candy, gummies or other snack food items and raised concerns that such products can be accidentally ingested by consumers, including children, or consumed at higher amounts than intended.

On July 16, 2024, the FDA and FTC issued a second set of cease-and-desist letters to five companies marketing delta-8 THC products that resemble popular snacks and treats popular with children.

Like the previous letters, the FTC stated that manufacturers’ online marketing of the products were deemed to be unfair or deceptive practices that put the health of young children at risk.

These letters are part of the FDA and FTC’s ongoing joint effort to take action against companies selling copycat food products containing delta-8 THC 9 .

DEA IFR On August 21, 2020, the DEA issued an interim final rule (the "DEA IFR") concerning implementation of the 2018 Farm Bill.

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Further, in the Consolidated Appropriations Act, 2021, Congress included report language that directed the USDA to develop regulations to protect the transportation, sale, and storage of in-process hemp extract.

To date, the DEA has not enforced the IFR and in the Company's opinion, the DEA IFR is improper and unconstitutional.

To date, the DEA has not enforced the IFR and the Company believes the DEA IFR is improper and unconstitutional.

It is possible that legal protections for in-process hemp extract and issues such as raising the THC limit for hemp in the field and establishing permissible THC levels in finished hemp products may be addressed in the upcoming Farm Bill.

However, given the delayed passage of a new Farm Bill in 2023, non-core issues like Hemp and controversial issues like THC thresholds are unlikely to be included in the final legislation, or its passage may be delayed until have the November 2024 election.

However, given the delayed passage of a new Farm Bill in 2024, non-core issues like hemp and controversial issues like THC thresholds may not be included in the final legislation, or its passage may be further delayed.

The American Relief Act, 2025, signed into law on December 21, 2024, extended the 2018 Farm Bill for one year through September 30, 2025.

Congress Currently, the timing for legislation that may include a new potential regulatory pathway for CBD developed by the FDA is uncertain.

While authorizing legislation could be introduced in 2025, the FDA’s development and implementation of a new pathway would likely take several years.

As such, it is possible Congress may move forward with H.R.

1629, the "Hemp and Hemp-Derived CBD Consumer Protection and Market Stabilization Act of 2023" or similar legislation that would authorize a pathway for Hemp-derived CBD in a more efficient manner, and would permit the use of CBD in dietary supplements and/or food.

State Regulation of Hemp in the United States At present, the Company sources its Hemp only from proprietary operations and contract suppliers located in Arizona, Colorado, Kentucky and Oregon that are in compliance with state and federal regulations.

As such, it is possible Congress may introduce and move forward with legislation that would authorize a pathway for hemp-derived CBD in a more efficient manner, and would permit the use of CBD in dietary supplements and/or food.

State Regulation of Hemp in the United States At present, the Company sources its hemp and hemp-derived ingredients from farming operations and ingredient suppliers that are in compliance with state and federal regulations.

However, the Company is aware of variations in certain states’ definition of hemp as compared with the definition of hemp in the 2018 Farm Bill, although the majority of states have aligned their definition of hemp with the federal definition.

All Hemp produced and sold by the Company constitutes Hemp under the 2018 Farm Bill and under the laws of the states in which it produces and sells such Hemp.

All hemp produced and sold by the Company constitutes hemp under the 2018 Farm Bill as well as under the laws of the states in which the Company cultivates, manufactures and sells such hemp-based products.

Under the 2018 Farm Bill, states retain significant discretion and authority to adopt their own regulatory regimes governing hemp production.

As a result, regulation of Hemp and the products derived therefrom will likely continue to vary on a state-by-state basis even though the 2018 Farm Bill has been fully implemented.

As a result, regulation of hemp and the products derived therefrom will likely continue to vary on a state-by-state basis even

8 https://www.ftc.gov/news-events/news/press-releases/2023/07/ftc-sends-cease-desist-letters-fda-companies-selling-edible-products-containing-delta-8-thc.

9 https://www.ftc.gov/news-events/news/press-releases/2024/07/ftc-fda-send-second-set-cease-desist-letters-companies-selling-products-containing-delta-8-thc.

though the 2018 Farm Bill has been fully implemented.

In addition, states take varying approaches to regulating the production and sale of hemp-derived CBD.

While some states explicitly authorize and regulate the sale of hemp-derived CBD products, or otherwise provide legal protection for authorized individuals to engage in commercial hemp activities, other states maintain outdated drug laws that do not distinguish between marijuana, hemp and/or hemp-derived CBD, resulting in hemp being classified as a controlled substance under state law (District of Columbia).

Additionally, a number of states prohibit the sale of ingestible CBD products based on FDA’s position that, pursuant to the FD&C Act, it is unlawful to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived.

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states remains a gray and evolving area of the law.

An increasing number of states – including California, Hawaii, Florida, Kentucky, Iowa, Texas, Utah, Virginia, and West Virginia – have passed legislation that explicitly permit the sale of CBD.

Several of these states also place additional requirements on the sale of CBD products such as specific testing, labeling, or registration of products.

Recently, states including Colorado, Minnesota, Oregon, Utah, and Virginia have enacted milligram limits on the amount of THC in Hemp-derived products and have prohibited the sale of products containing THC to those under

A number of states have passed legislation that explicitly permits the sale of CBD.

Several states also place additional requirements on the sale of CBD products such as specific testing, labeling, packaging, or registration of products.

Recently, some states have enacted milligram limits on the amount of THC in hemp-derived products and have prohibited the sale of products containing THC to those under 21.

Several states are currently considering legislation imposing similar restrictions.

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The Dietary Supplement Health and Education Act (the "DSHEA"), an amendment to the federal FD&C Act, established a framework governing the composition, safety, labeling, manufacturing, and marketing of dietary supplements in the United States.

Generally, under DSHEA, dietary ingredients marketed in the United States prior to October 15, 1994 may be used in dietary supplements without notifying the FDA.

Generally, under the DSHEA, dietary ingredients marketed in the United States prior to October 15, 1994 may be used in dietary supplements without notifying the FDA.

"New" dietary ingredients (i.e., dietary ingredients "not marketed in the United States before October 15, 1994") must be the subject of a new dietary ingredient notification submitted to the FDA unless the ingredient has been "present in the food supply as an article used for food" and is not "chemically altered".

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Excluded from the DSHEA definition of a dietary supplement is:

"an article authorized for investigation as a new drug, antibiotic, or biological for which substantial clinical investigations have been instituted and for which the existence of such investigations has been made public, which was not before such approval, certification, licensing, or authorization marketed as a dietary supplement or as a food unless the Secretary, in the Secretary’s discretion, has issued a regulation, after notice and comment, finding that the article would be lawful under this Act." 12 It is the FDA’s interpretation of the IND Preclusion that the preclusion date is the date in which it authorized the drug for investigation;

"an article authorized for investigation as a new drug, antibiotic, or biological for which substantial clinical investigations have been instituted and for which the existence of such investigations

10 https://www.fda.gov/about-fda/fda-basics/how-did-federal-food-drug-and-cosmetic-act-come-about.

Food and Drug Administration, Mission Statement:

https://www.fda.gov/about-fda/what-we-do.

Food and Drug Administration, "FDA Regulation of Cannabis and Cannabis-Derived Products, Including Cannabidiol (CBD), Questions and Answers," https://www.fda.gov/news-events/public-health-focus/fda-regulation-cannabis-and-cannabis-derived-products-including-cannabidiol-cbd#qandas.

Code § 350b(a)(2).

has been made public, which was not before such approval, certification, licensing, or authorization marketed as a dietary supplement or as a food unless the Secretary, in the Secretary’s discretion, has issued a regulation, after notice and comment, finding that the article would be lawful under this Act." 14 It is the FDA’s interpretation of the IND Preclusion that the preclusion date is the date in which it authorized the drug for investigation;

however, the Company believes there are significant arguments against this position in that all conditions of the statute must be met before the IND Preclusion applies, including (1) authorization for investigation as a new drug;

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The Company’s submission was objected to on the basis that its CBD-containing a full-spectrum hemp extract does not meet the definition of a dietary supplement due to the IND Preclusion and insufficient safety data.

The Company does not agree with a number of conclusions

8 https://www.fda.gov/about-fda/fda-basics/how-did-federal-food-drug-and-cosmetic-act-come-about.

Food and Drug Administration, Mission Statement:

https://www.fda.gov/about-fda/what-we-do.

Code § 350b(a)(2).

Code § 321(ff)(3)(B).

reached by the FDA, in particular, its analysis of safety data provided.

The Company does not agree with a number of conclusions reached by the FDA, in particular, its analysis of safety data provided.

While the objection has not impacted the Company’s existing business, the Company will continue to engage with the FDA and lawmakers with the objective of securing a favorable ruling and/or facilitating the enactment of definitive legislation establishing an appropriate regulatory environment to protect consumers and to establish guidance for manufacturers and marketers of CBD-containing dietary supplements.

The CBD CLINIC, CBDMEDIC, and HARMONY HEMP brands include products that are OTC drug products regulated by the FDA.

The CBD CLINIC and CBD MEDIC brands include products that are OTC drug products regulated by the FDA.

To legally market an OTC drug product, the FD&C Act and FDA regulations promulgated under its authority require FDA approval of a New Drug Application ("NDA") that includes substantial evidence of effectiveness based on adequate and well-controlled studies, or an Abbreviated New Drug Application ("ANDA").

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OTC drugs marketed in compliance with a final monograph are generally recognized and safe and effective, and are exempt from premarket approval requirements.

The FDA has also issued "tentative final monographs," which are proposed rules or administrative orders that, when finalized, will become final monographs.

The FDA allows drugs that comply with the tentative final monograph to be marketed under its enforcement discretion policy.

Once the monograph is finalized for that therapeutic class of drug, marketing must then conform to the final monograph, or the OTC drug products will be considered adulterated or misbranded under the FD&C Act.

The active ingredients in the Company’s products offered under CBD CLINIC, and CBDMEDIC brands (menthol and camphor) are currently covered by an OTC tentative final monograph for external analgesic drug products, which was published in the Federal Register on February 8, 1983 (48 FR 5852).

The tentative final monograph does not specify what inactive ingredients may be used in the manufacture of such analgesics.

This tentative final monograph is part of the FDA’s ongoing review of OTC drug products.

On May 2, 2023, the FDA issued the final monograph titled "Over-the-Counter (OTC) Monograph M017:

External Analgesic Drug Products for Over-the-Counter Human Use." The FDA allows drugs products that comply with the tentative final monograph to be marketed under its enforcement discretion policy.

Formulation, labeling, and marketing must conform to the final monograph, or the OTC drug products may be considered adulterated or misbranded under the FD&C Act.

The active ingredients in the Company’s products offered under CBD CLINIC and CBD MEDIC brands (menthol and camphor) are currently covered by the Over-the-Counter (OTC) Monograph M017:

External Analgesic Drug Products for Over-the-Counter Human Use.

The final monograph does not specify or otherwise address what inactive ingredients may be used in external analgesic drug products.

Inactive ingredients do not require individual approval by the FDA.

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The letters explain that, because CBD has known pharmacological effects on humans, with demonstrated risks, it cannot be legally marketed as an inactive ingredient in OTC drug products that are not reviewed and approved by the FDA.

In the letters, the FDA also alleged the products are misbranded due to the prominent featuring of CBD on the labeling, which the Agency stated is misleading because it presents the CBD inactive ingredients "in a manner that creates an impression of value greater than their true functional role in the formulation." 14

The CBD CLINIC and CBDMEDIC products are manufactured by a third-party manufacturer, Aidance, in an FDA-registered facility which complies with cGMP requirements.

The CBD CLINIC and CBDMEDIC products are manufactured under the Aidance Manufacturing and Services Agreement and are marketed in compliance with an OTC tentative final monograph for external analgesic drug products as described above.

As such, the Company takes the position that these products are exempt from the requirements for an NDA or ANDA pre-market approval.

Aidance, as the manufacturer, has registered its facility as a drug establishment and Aidance and Company have submitted to FDA for National Drug Code ("NDC") numbers for the OTC drug products.

There is no assurance that the position taken by the Company that its products are exempt from the requirements for an NDA or ANDA pre-market approval will not, in the future, be challenged by the FDA, which could result in material adverse effects to the Company and its business.

In the letters, the FDA also alleged the products are misbranded due to the prominent featuring of CBD on the labeling, which the FDA stated is misleading because it presents the CBD inactive ingredients "in a manner that creates an impression of value greater than their true functional role in the formulation." 16 Since 2022, the FDA has not issued similar letters to

Code § 321(ff)(3)(B).

Food and Drug Administration, "FDA Warns Companies Illegally Selling Over-the-Counter CBD Products for Pain Relief," https://www.fda.gov/news-events/press-announcements/fda-warns-companies-illegally-selling-over-counter-cbd-products-pain-relief.

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statement of ingredients.

marketers of CBD-containing OTC products, or issued any public statements with respect to the use of CBD in OTC drugs.

The Company's CBD CLINIC and CBD MEDIC products are manufactured by a third-party manufacturer, Aidance, in an FDA-registered facility which complies with GMP requirements.

The CBD CLINIC and CBD MEDIC products are manufactured under the Aidance Manufacturing and Services Agreement and are marketed in compliance with the Over-the-Counter (OTC) Monograph M017:

External Analgesic Drug Products for Over-the-Counter Human Use as described above.

As such, the Company takes the position that these products are exempt from the requirements for an NDA or ANDA pre-market approval.

Aidance, as the manufacturer, has registered its facility as a drug establishment and Aidance and Company have submitted to FDA for National Drug Code ("NDC") numbers for the OTC drug products.

The FD&C Act provides that a substance added to food is unsafe unless the substance is GRAS ("Generally Recognized as Safe").

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The Company’s products containing CBD derived from hemp are not marketed or sold using claims that the products are intended to diagnose, mitigate, treat, cure, or prevent disease in violation of the FD&C Act.

Since the passage of the 2018 Farm Bill, FDA released multiple statements concerning its efforts to review the safety of CBD to help determine whether to allow the marketing of CBD as a dietary supplement.

For example, on March 5, 2020, former FDA Commissioner Dr.

Hahn issued a statement on the FDA’s work related to CBD products.

The statement described the FDA's steps to solicit additional public feedback, data, and research on the science, safety, and quality of CBD products, including opening the public docket so that FDA can obtain additional scientific data on CBD.

Based on FDA’s prior guidance and statements, topical cosmetic products are not currently subject to the same regulatory scrutiny as ingestible products that contain CBD.

For instance, while FDA notes that topical products must comply with all applicable legal requirements including the adulteration and misbranding provisions of the FD&C Act specific to cosmetic products, FDA’s website states that "[c]ertain cosmetic ingredients are prohibited or restricted by regulation, but currently that is not the case for any cannabis or cannabis-derived ingredients." Additionally, former Commissioner Hahn had positively suggested that the effects of CBD may differ depending on the route of administration.

On January 26, 2023, the FDA issued a statement denying three Citizen Petitions requesting that the agency conduct rulemaking to allow the marketing of CBD products as dietary supplements, and further stated that a new regulatory pathway is necessary to provide safeguards and manage the risks related to CBD products.

As noted above, in January 2023, the FDA stated that a new regulatory pathway is necessary to provide safeguards and manage the risks related to CBD products.

In the statement, the agency suggested that Congress create a new regulatory pathway that balances individuals' access to CBD products with the necessary oversight to manage these risks, adding it is prepared to work with Congress on this matter.

The FDA also noted that it "will continue to take action against CBD and other cannabis-derived products to protect the public, in coordination with state regulatory partners, when appropriate" and "will remain diligent in monitoring the marketplace, identifying products that pose risks and acting within our authorities." Based on this statement, a significant shift in the enforcement landscape is not expected.

In the past year, Warning Letters for cannabis-derived products have primarily focused on delta-8 THC products 18 .

Despite the position taken by the FDA that there is no evidence of CBD being marketed as a food or dietary supplement prior to drug trials being commenced and made public, the Company believes there is substantial uncertainty and different interpretations among state and federal regulatory agencies, legislators, academics and businesses as to whether cannabinoids including CBD were present in the food supply and marketed prior to October 15, 1994 or whether such inclusion of cannabinoids is otherwise permitted by the FDA as dietary ingredients.

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Currently it is unclear whether Congress will move forward with legislation to permit the use of CBD in dietary supplements, given FDA’s January 2023 determination that existing regulatory frameworks are not appropriate for CBD.

Continued delays in the development of a regulatory pathway for CBD may have a materially adverse effect upon the Company and its business.

Continued delays in the development of a regulatory pathway for CBD may have a materially adverse effect on the Company and its business.

Future Uncertainty of Legal Status There remain a number of considerations and uncertainties regarding the cultivation, sourcing, production and distribution of hemp and products containing hemp derivatives.

Applicable laws and regulations remain subject to change as there are different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses with respect to the treatment of the importation of derivatives from exempted portions of the Cannabis plant and the scope of operation of 2018 Farm

15 21 USC § 348(a)(3).

DEA has allowed 3 GRAS notifications for hemp seed:

Applicable laws and regulations remain subject to change as there are different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses with respect to the treatment of the importation of derivatives from exempted portions of the cannabis plant and the scope of operation of 2018 Farm Bill-compliant hemp programs.

These different federal, state and local agency interpretations, as discussed above, touch on the regulation

17 In December 2018, FDA stated it had no questions following the submission of three GRAS notifications concluding that hulled hemp seed, hemp see protein powder, and hemp seed oil are GRAS for the intended conditions of use outlined in the notifications:

https://www.fda.gov/food/cfsan-constituent-updates/fda-responds-three-gras-notices-hemp-seed-derived-ingredients-use-human-food.

16 21 CFR § 1308.35 (a)(2).

The DEA’s final rule on legal hemp materials and products specifically excludes materials used for human consumption.

Bill-compliant hemp programs.

These different federal, state and local agency interpretations, as discussed above, touch on the regulation of cannabinoids by the FDA and the extent to which imported derivatives, and/or 2018 Farm Bill-compliant cultivators and processors may engage in interstate commerce, whether under federal and/or state law.

18 https://www.fda.gov/news-events/public-health-focus/warning-letters-cannabis-derived-products

of cannabinoids by the FDA and the extent to which the 2018 Farm Bill-compliant cultivators and processors may engage in interstate commerce, whether under federal and/or state law.

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

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While the Company has no reason to believe the operation of its facilities violates any such regulations or requirements, if such a violation were to occur, or if environmental regulations were to become more stringent in the future, the Company could be adversely affected.

International Regulatory Matters The Company is currently exploring partnerships for local production, manufacturing and/or distribution in select international markets.

Legislative approaches to the regulation of CBD-related products vary country by country, including local regulations with respect to THC content, and continue to evolve.

International Regulatory Matters Legislative approaches to the regulation of CBD-related products vary country by country, including local regulations with respect to THC content, and continue to evolve.

In some cases, there may be a disconnect between a foreign country’s import requirements and the United States’ export requirements with respect to hemp.

The Company makes decisions as to international expansion upon completion of a regulatory review and assessment of risk.

The Company has sold its products in United Kingdom, Canada, and to other jurisdictions through third-party distributors who take delivery in bulk and manage individual orders.

The Company has sold its products in Canada, and other jurisdictions through third-party distributors who take delivery in bulk and manage individual orders.

Each of these countries regulates the import of cannabis-derived products and requires some form of importation license, permit or other documentation for products.

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Additional Information

The Company’s head office is located at 700 Tech Court, Louisville, Colorado, United States 80027 and its registered and records office is located at 2800 Park Place, 666 Burrard Street, Vancouver, British Columbia, Canada V6C 2Z7.

The Company’s head office is located at 700 Tech Court, Louisville, Colorado, United States 80027 and its registered and records office is located at Suite 2700 Park Place, 1133 Melville Street, Vancouver, British Columbia, Canada V6E 4E5.

The Company's website address is www.charlottesweb.com.

The information provided on the Charlotte’s Web website is not part of this or any other report we file with or furnish to the SEC.

The Company has a Code of Business Conduct and Ethics posted on this site.

The information provided on the Charlotte’s Web website is not part of this or any other report filed with or furnished to the SEC.

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 1. Business