What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-19 compared with 2024-03-21 · 105 added, 108 removed, 231 unchanged (48% of the section changed)

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and Abacus Products, Inc., and its wholly-owned subsidiaries;

Abacus Wellness, Inc.

Abacus Health Products, Inc., Abacus Wellness, Inc.

and CBD Pharmaceuticals Ltd.

This management’s discussion and analysis of financial condition and results of operations ("MD&A") is provided as of March 21, 2024 an d should be read together with the Company’s audited consolidated financial statements and the accompanying notes for the years ended December 31, 2023 and December 31, 2022.

This management’s discussion and analysis of financial condition and results of operations ("MD&A") is provided as of March 19, 2025 and should be read together with the Company’s audited consolidated financial statements and the accompanying notes for the year ended December 31, 2024 and December 31, 2023.

The results herein have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.

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is a Certified B Corp headquartered in Louisville, Colorado, which conducts the majority of its business in the United States.

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

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

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

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

The Company is headquartered in a cGMP compliant facility in Louisville, Colorado, where the Company conducts its production of tinctures, distribution, and quality control activities as well as research and development ("R&D").

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

The Company also offers NSF Certified for Sports® broad spectrum tincture and gummy products.

Charlotte's Web product categories include full-spectrum hemp extract oil tinctures (liquid products), gummies, capsules, CBD topical creams and lotions, broad-spectrum botanical CBD, functional mushrooms, and pet products.

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

Charlotte's Web products are distributed to retailers and health care practitioners, and online through the Company's website at www.CharlottesWeb.com.

The information provided on the website is not part of this MD&A.

The Company's business consists of the farming, manufacturing, marketing, and sales 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.

The 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's business consists of the farming, manufacturing, marketing, and sales of hemp-derived CBD and botanical-based wellness products.

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.

The Company's primary products are made from proprietary strains of whole-plant hemp extracts containing a full spectrum of phytocannabinoids, terpenes, flavonoids, and other hemp compounds.

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

Where research provides evidence that a greater than 0.3% THC level 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 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 hemp through contract farming operations in Arizona, Kentucky, Oregon, and Canada.

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

The hemp grown in Canada is utilized exclusively in the Canadian markets or for research purposes and not in the Company's products sold within the United States.

Recent Developments

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

BATS and NYSE:

BTI) ("BAT").

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

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

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

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

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

DeFloria is utilizing the investments for the clinical development of a novel hemp botanical Investigational New Drug application and has commenced Phase I clinical development.

On July 11, 2023, the Company expanded its product footprint with the launch of NSF Certified for Sports® broad spectrum gummy products, the Company's lifestyle and botanical wellness brand focused on the combination of organic broad-spectrum CBD and functional botanicals.

In June of 2023, the Company announced its partnership as the Official CBD of the Premier Lacrosse League ("PLL").

In early 2023, Charlotte’s Web initiated a plan to move the production of topicals and gummies in-house, and in the third quarter, construction progressed with an initial capital expenditure.

On-site manufacturing better utilizes the Company’s existing Louisville production facility, improving gross margins and aligns with the Company’s ongoing efforts to improve overall operating efficiencies.

As of December 31, 2023, several states, including, but not limited to, Alaska, Florida, Maryland, Minnesota, New York, Utah, and Virginia, have adopted new regulations that will impact the Company's ability to sell certain products as currently formulated or packaged in these states.

Many of these states have also implemented new THC/CBD limits, age verification, labeling and packaging requirements.

With an increased commitment to innovation, Charlotte's Web has refreshed its mission to "Unearth the Science of Nature to Revolutionize Wellness," and is evolving its wellness offerings both to strengthen the Company's core leadership in CBD, and extend beyond CBD to include a broader range of botanical-based wellness solutions, including minor cannabinoids.

A testament to this expansion is the launch of Charlotte's Web Stay Asleep Cannabidiol ("CBN") gummies.

Similar to CBD, CBN is a non-intoxicating cannabinoid found in the hemp plant.

At the cutting edge of innovative natural sleep solutions, these new melatonin free gummies could offer distinct benefits for the approximately 67% of adults who report waking up during the night (Phillips Global Sleep Survey, 2019).

This is the first CBN sleep product supported by placebo-controlled peer-reviewed research study, offering a 20 mg dose of CBN.

The Stay Asleep gummy demonstrates Charlotte's Web's commitment to science-backed products, providing an effective alternative to more traditional sleep supplements and medications.

Charlotte's Web believes expanding beyond CBD leverages the Company's brand recognition, intellectual property, and partnerships, including an ongoing collaboration with DeFloria, Inc.

("DeFloria") for botanical drug development.

In September 2024, the Company launched its new functional mushroom line which included three products:

Focus Support, Stress Support, and Energy Support.

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

The Company's ReCreate brand has been absorbed under the recognized Charlotte’s Web brand to better penetrate the lifestyles category.

As of December 31, 2024, several states have adopted new regulations that will impact the Company's ability to sell certain products as currently formulated or packaged in these states.

Many of these states have also implemented new THC/CBD limits, age verification, testing, labeling and packaging requirements.

The Company continues to assess the business and financial impacts of the new regulations, including steps that can be taken to address the new product formulation and labeling requirements, as well as costs and potential revenue impacts and anticipated timing for such impacts to the Company in these states.

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

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

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 retail expansion.

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

On February 24, 2025, the Company announced that the U.S.

Food and Drug Administration ("FDA") has completed its review of the Phase 1 data and Investigational New Drug ("IND") application submitted by DeFloria.

The FDA has concluded that DeFloria may now proceed with its planned FDA Phase 2 clinical trial for its botanical pharmaceutical candidate, AJA001 Oral Solution, a treatment for

symptoms of autism spectrum disorder ("ASD").

DeFloria is a collaboration including the Company and AJNA to develop AJA001 as a treatment for irritability associated with autism spectrum disorder.

AJA001 employs the Company's proprietary full-spectrum cannabidiol hemp extract derived from one of its patented cultivars.

Selected Financial Information

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53,247 75,630

Goodwill and asset impairments 548 1,837

Asset impairments

Operating loss $ (31,987) $ (40,612)

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Change in fair value of financial instruments 615 9,339

9,339 (7,480)

Other income (expense), net

1,565 (2,694)

Income tax expense (39) (529)

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December 31, % Increase (Decrease)

Direct-to-consumer ("DTC") revenue $ 42,625 $ 50,700 (15.9) %

Business-to-business ("B2B") revenue 20,530 23,439 (12.4) %

Product revenue

$ 49,019 $ 63,155 (22.4) %

Service revenue 648 — 100.0 %

Total revenue

$ 49,667 $ 63,155 (21.4) %

Total revenue for the year ended December 31, 2024, was $49,667, a decrease of 21.4% compared to the year ended December 31, 2023.

DTC e-commerce revenue decreased 15.9% compared to the year ended December 31, 2022.

Lower year-over-year revenue was primarily due to lower traffic and sales through the Company’s webstore.

The Company is revamping its e-commerce platform and upgrading its overall technology platform to enhance the consumer experience and increase traffic.

B2B revenue decreased 12.4% compared to the year ended December 31, 2022.

The decrease was primarily due to lower comparable shipments to some of the Company’s retail customers in 2023 who reduced total shelf space for CBD products, exited the CBD category, or closed retail locations.

Charlotte’s Web remains the market share leader in combined SPINs and LLC/IRI measurements of total retail.

Total product revenue decreased 22.4% compared to the year ended December 31, 2023.

The decrease was primarily driven by lower comparable average order value sales through the Company’s web store, reflecting a price reduction of the Company’s oil tincture products introduced at the beginning of 2024.

However, comparable year-over-year unit volume sales began improving in the second half of 2024.

Revenue was also negatively impacted by inflationary impacts on consumer spending, reduced retailer shelf allocations to the CBD category, and the fallout of some retailers exiting the CBD category as a result of increased state regulatory pressures.

The service revenue is attributable to the Company and DeFloria, Inc.

("DeFloria") entering into a Master Services Agreement ("Services Agreement") pursuant to which the Company is compensated for the provision of certain services to DeFloria.

Cost of Goods Sold

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Other production costs 4,188 3,222 30.0 %

Service costs 647 — 100.0 %

Depreciation and amortization 3,388 3,571 (5.1) %

Cost of goods sold $ 28,407 $ 27,589 3.0 %

Cost of goods sold decreased 49.6% for the year ended December 31, 2023 compared to the same period in 2022.

Inventory and other production costs that were expensed to cost of goods declined for the current year proportionately with revenue, with a further reduction of inventory provisions.

The inventory provision is estimated by management based on its assessment of market conditions, including forecasted demand compared to quantities on hand, as well as other factors such as potential excess, or aged inventories based on product shelf life.

Inventory obsolescence is impacted by changes or prospective probable changes in the regulatory environments.

For the year ended December 31, 2022, the Company's inventory provision was primarily due to the reserve for Hemp inventory of $20,349.

Management determined that this inventory would no longer be used in product formulations as a result of Colorado's anticipated regulatory changes based on Senate Bill 22-205, as well as aged finished goods.

For the year ended December 31, 2023, there was no similar inventory provision.

Cost of goods sold increased 3.0% for the year ended December 31, 2024 despite lower revenue compared to the same period in 2023.

The increase was primarily due to a $4.2 million increase in inventory provisions in 2024 due to the revaluation of aged hemp biomass based on current market conditions.

The increase was partially offset by lower inventory expense and other variable costs associated with lower revenue in 2024.

Depreciation and amortization expense for the year ended December 31, 2024 and 2023 was $9,979 and $15,160, respectively, of which $3,388 and $3,571, respectively, was expensed to cost of goods sold.

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The primary factors that can impact gross profit margins include the volume of products sold, revenue mix between DTC e-commerce and B2B, product sales mix, promotional and sales discount rate, manufacturing spend, transportation costs, and changes in inventory provisions.

Gross profit for the years ended December 31, 2023 and 2022 is as follows:

Gross profit for the year ended December 31, 2024 and 2023 is as follows:

December 31, % Increase (Decrease)

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Gross margin 42.8 % 56.3 % (24.0) %

Gross profit for the year ended December 31, 2023 was $35,566, compared to $19,411 for the year ended December 31, 2022, which included much larger inventory provisions of $23,394 in cost of goods sold.

Before inventory provisions, gross profit was $36,605 and $42,805, respectively.

The decrease in 2023 reflects the lower revenue in both DTC and B2B channels as discussed above.

Gross margin reported for the years ended December 31, 2023 and 2022 was 56.3%, and 26.2% respectively.

Before inventory provisions, gross margin for the years ended December 31, 2023 and 2022 was 58.0% and 57.7%, benefiting in 2023 from manufacturing efficiencies and improved costs of goods sold, despite lower year-over-year sales volume.

Gross profit for the year ended December 31, 2024 was $21,260, compared to $35,566 for the year ended December 31, 2023.

The decrease primarily related to the revenue decrease of 21.4%, impacting fixed cost absorption, and lowering blended margin following price reductions on oil tincture products initiated in the first quarter of 2024.

Additionally, gross profit was reduced by the $4.2 million inventory provision as described within Cost of Goods Sold.

Selling, General, and Administrative Expenses

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Total Selling, general, and administrative expenses for the year ended December 31, 2024 and 2023 were $53,247 and $75,630, respectively.

The 8.0% increase for the current year is primarily due to the amortization related to the MLB license and media rights assets of $9,794, compared to $2,034 for the year ended December 31, 2022.

Additionally, for the year ended December 31, 2022, an Employee Retention Credit ("ERC") tax benefit of $4,106 was recognized reducing Selling, general, and administrative expense.

Depreciation and amortization expensed to Selling, general, and administrative expenses for the year ended December 31, 2023 and 2022 were $11,589 and $5,563, respectively.

For the year ended December 31, 2024, the 29.6% decrease was primarily due to the cost cutting measures undertaken by the company in the second half of the year, These measures included adjusting the size of the workforce to properly align with the revenue scope, improving the Company's insurance program, aligning with more cost-efficient software options, and making prudent travel decisions, among others.

Depreciation and amortization expensed to Selling, general, and administrative expenses for the year ended December 31, 2024 and 2023 were $6,591 and $11,589, respectively, and decreased due to the amendment to the MLB agreement that allowed for the extension of the payments and amortization.

Total research and development expenses for the year ended December 31, 2024 and 2023 were $2,332 and $2,964, respectively, expensed to Selling, general, and administrative expense.

Research and development expenses primarily include personnel costs related to our R&D science division as well as R&D related projects advancing Hemp cannabinoid science through research programs that provide a better understanding of the therapeutic uses of cannabinoids.

Research and development expenses primarily include personnel costs related to the Company's R&D science division as well as R&D related projects advancing hemp cannabinoid science through research programs that provide a better understanding of the therapeutic uses of cannabinoids.

Gain on Initial Investment in Unconsolidated Entity

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$ — $ 10,700 100 %

The gain on initial investment in unconsolidated entity for the year ended December 31, 2023 was $10,700.

The gain was due to the Company jointly forming an entity, DeFloria, with AJNA, and BAT.

Total change in gain on investment in unconsolidated entity the year ended December 31, 2024 and 2023 was $0 and $10,700 respectively.

For the year ended December 31, 2023, the gain was due to the Company jointly forming an entity, DeFloria, with AJNA, and BAT.

DeFloria was established to pursue FDA approval for a novel botanical drug to target a neurological condition, with the botanical drug being developed from certain proprietary hemp genetics of the Company.

The Company has the ability to select and elected to utilize the fair value option for the investment in DeFloria.

As such the initial investment is measured at fair value and remeasured at each reporting date, with changes recognized in changes in fair value of financial instruments.

The initial investment was measured at fair value and is remeasured at each reporting date, with changes recognized in changes in fair value of financial instruments.

Total Change in Fair Value of Financial Instruments

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Change in fair value of financial instruments $ 615 $ 9,339 93.4 %

$ 9,339 $ (7,480) 224.9 %

Total change in fair value of financial instruments for the year ended December 31, 2023 and December 31, 2022 was a gain of $9,339 and a loss of $7,480, respectively.

For the year ended December 31, 2023, the increase in the change in fair value of financial instruments was primarily due to the revaluation of the fair value of the Company's debt conversion option and debt interest rate conversion feature

resulting in a net gain of $9,609.

Total change in fair value of financial instruments for the year ended December 31, 2024 and December 31, 2023 was a gain of $615 and $9,339, respectively.

For the year ended December 31, 2024, the gain in fair value of financial instruments was primarily due to the

revaluation of the fair value of the Company's debt conversion option and debt interest rate conversion feature resulting in a gain of $2.5 million, compared to a net gain of $9.6 million for the year ended December 31, 2023.

The fair value of the Company's embedded derivatives and options are revalued at each reporting date, with changes impacted by variability in the Company's share price and implied debt yields.

For the year ended December 31, 2022, the change in fair value of financial instruments was primarily driven by a loss of $10,700 in the fair value of the Company's SBH Purchase Option.

The SBH Purchase option is revalued at each reporting date with changes primarily based on financial projections of Stanley Brothers USA and the probability and timing of exercise.

Additionally, for the year ended December 31, 2022, the change in fair value of financial instruments was partially offset by the revaluation of the fair value of the Company's debt interest rate conversion feature and debt conversion option resulting in a net gain of $3,220.

Asset Impairments

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

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

For the year ended December 31, 2022, the Company recorded an impairment of $1,837 related to operating leases.

During the prior year, the Company ceased utilizing the Denver office space and plans to sublease the office space at current market rents.

December 31, % Increase (Decrease)

Asset Impairment

$ — $ 548 100.0 %

For the year ended December 31, 2023, the Company recorded an impairment loss due to the decline in market conditions at the Company's hemp farm that indicated a fair value less than the carrying value.

Provision for Income Taxes

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Income tax expense $ (39) $ (529) (92.6) %

$ (529) $ (91) 481.3 %

Effective tax rate (0.1) % (2.3) %

The Company’s effective tax rate during the year ended December 31, 2024 and December 31, 2023 was (0.1)% and (2.3)%, respectively.

The effective tax rate for the year ended December 31, 2023 is (2.3)% as the Company continues to believe its deferred tax assets are not more-likely-than-not to be realized and a full valuation allowance remains recorded against net deferred taxes as of December 31, 2023 and December 31, 2022.

The decrease in the effective rate for the year ended December 31, 2023 compared to the year ended December 31, 2022, is primarily due to the remeasurement of the valuation allowance as well as changes in convertible debenture.

The effective tax rate for the year ended December 31, 2024 is (0.1)% as the Company continues to believe its deferred tax assets are more likely to not be realized and a full valuation allowance remains recorded against net deferred taxes as of December 31, 2024 and December 31, 2023.

The increase in the effective rate for the year ended December 31, 2024 compared to the year ended December 31, 2023, is primarily due to the remeasurement of the valuation allowance.

Liquidity and Capital Resources

The Company’s objective when managing its liquidity and capital resources is to provide sufficient short and long-term liquidity to fund net operating losses and capital expenditures while executing strategic growth plans.

In the near to mid-term, we are focused on reducing negative cash flows from operations.

In the near to mid-term, it is focused on reducing negative cash flows from operations.

On November 14, 2022, the Company entered into a subscription agreement with BT DE Investments, Inc.

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

We believe that our existing cash and cash equivalents, and short-term investments will provide sufficient liquidity to fund operations and planned capital expenditures for the next 12 months.

The Company’s ability to fund its operations for the longer term will depend on our future operating performance, particularly revenue growth, which can be affected by general economic conditions, industry regulatory changes, and other factors beyond the Company’s control.

Management believes that the Company's existing cash and cash equivalents, and short-term investments will provide sufficient liquidity to fund operations and planned capital expenditures for the next 12 months.

The Company’s ability to fund its operations for the longer term will depend on the future operating performance, particularly revenue growth, which can be affected by general economic conditions, industry regulatory changes, and other factors beyond the Company’s control.

In addition to cash provided by operations, the Company may fund long-term liquidity requirements through various sources of capital.

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Net cash used in operating activities $ (21,261) $ (15,386)

For the year ended December 31, 2023, the increase in cash used in operations is primarily due to cash outflows of $8,000 associated with the MLB Promotional Rights Agreement, compared to $500 for the year ended December 31, 2022.

Additionally, for the year ended December 31, 2022, the Company collected $10,841 from income tax refunds and related interest.

For the year ended December 31, 2024, the increase in cash used in operations of $5.9 million is primarily due to the Company's collection of $4.3 million from income tax refunds during the year ended December 31, 2023.

Cash Flow from Investing Activities

Net cash provided by (used in) investing activities for the year ended December 31, 2023 and December 31, 2022 were as follows:

Net cash used in investing activities for the year ended December 31, 2024 and December 31, 2023 were as follows:

Year Ended December 31,

Net cash provided by (used in) investing activities $ (3,506) $ 395

Net cash used in investing activities

$ (3,796) $ (3,506)

For the year ended December 31, 2024, the increase in cash used in investing activities was driven primarily by machinery purchases as part of the Company's plan to in-source topical and gummy production.

Cash Flow from Financing Activities

Net cash provided by (used in) financing activities for the year ended December 31, 2023 and December 31, 2022 were as follows:

Net cash used in financing activities for the year ended December 31, 2024 and December 31, 2023 were as follows:

Year Ended December 31,

Net cash provided by (used in) financing activities

Net cash used in financing activities

$ (145) $ (251)

For the year ended December 31, 2023, the decrease in cash provided by financing activities was primarily due to proceeds from the issuance of a $56.8 million convertible debenture received as of December 31, 2022.

For the year ended December 31, 2024, the change was primarily due to the vesting of restricted stock units.

Outstanding Share Data

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Off-Balance Sheet Arrangements

As of December 31, 2023, we do not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on our results of operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.

As of December 31, 2024, the Company does not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.

Related party transactions

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

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

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

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

The note receivable was secured by equity instruments with certain of the Stanley Brothers, bore interest at 3.25% per annum, and required the unpaid principal and unpaid interest balances to be paid on or before the maturity date of November 13, 2021, which was subsequently extended.

Effective November 13, 2024, the Company entered into a third amendment of the promissory note to extend the maturity date until November 13, 2029.

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

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

The note has been fully reserved for as of December 31, 2024.

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

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

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

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

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

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

Effective January 5, 2023, the Company entered into a Brand License and Option Agreement with JMS Brands LLC, an entity owned by one of the Stanley Brothers.

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.

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

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AJNA is a botanical drug development company.

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

AJNA is partially owned and was co-founded by certain of the Stanley Brothers.

BAT holds an equity interest in the entity in the form of 2,000,000, preferred units following its $10 million investment and has the right to participate in future equity issuances to maintain its pro rata equity position.

On February 12, 2024, BAT invested an additional $3 million in the form of convertible debt.

The Company and AJNA each hold 4,000,000 of the entity’s voting common units (Note 3).

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As of December 31, 2024, the remaining note receivable of $71 is presented in other assets in the consolidated balance sheets.

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

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

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

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

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

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

For the year ended December 31, 2024, the Company recognized $648 in revenue and cost of goods sold, respectively, related to the service agreement with DeFloria.

The Company has an accounts receivable balance due from DeFloria of $648 as of December 31, 2024.

On June 21, 2024, the Company entered into a consulting agreement with Jared Stanley, former executive of the Company, and current member of the Board of Directors.

In consideration for Mr.

Stanley's services, he will receive a bi-weekly fee of $6.

Recently Adopted Accounting Pronouncements

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

In November 2023 the FASB issued ASU 2023-07—Segment Reporting .

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

The guidance is effective for the year ended December 31, 2024, and the expanded interim disclosures are effective in entities in 2025 and will be applied retrospectively to all prior periods presented.

Critical Accounting Policies and Estimates

Listed below are the accounting policies and estimates we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue, or expense being reported.

Please also refer to note "Summary of Significant Accounting Policies and Use of Estimates" of our notes to consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements.

Listed below are the accounting policies and estimates believed to be critical to the Company's financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue, or expense being reported.

Please also refer to note "Summary of Significant Accounting Policies and Use of Estimates" of the notes to the consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements.

Fair Value Option

2 unchanged sentences

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

The use of assumptions for the fair value determination includes a high degree of subjectivity and judgment using unobservable inputs (level 3 on

the fair value hierarchy), which results in estimation uncertainty.

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

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

Changes in assumptions that reasonably could have been different at the

reporting date may result in a higher or lower determination of fair value.

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

33 unchanged sentences

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

1) the interest rate conversion feature based on

changes in federal regulations, and 2) the debt conversion option to common shares.

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

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

The debt interest rate conversion feature is classified

as a derivative asset and measured at fair value using a probability-weighted income approach.

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

44 unchanged sentences

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 7. Management’s Discussion and Analysis