What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-19 compared with 2024-03-21 · 267 added, 178 removed, 865 unchanged (34% of the section changed)

3 unchanged sentences

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Financial Statements:

5 unchanged sentences

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Charlotte’s Web Holdings, Inc.

To the Board of Directors and Stockholders of Charlotte’s Web Holdings Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Charlotte’s Web Holdings, Inc.

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with U.S.

We have audited the accompanying consolidated balance sheet of Charlotte’s Web Holdings Inc.

(the “Company”) as of December 31, 2024, the related consolidated statement of operations, changes in shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 2 and 15 to the financial statements, the Company adopted the provisions of Accounting Standard Update 2023-07 Segment Information in 2024 on a retrospective basis.

We have also audited the adjustments necessary to retrospectively apply the change in the December 31, 2023 segment information as provided in Note 15.

In our opinion, such adjustments are appropriate and have been properly applied.

We were not engaged to audit, review, or apply any procedures to the Company’s December 31, 2023 financial statements other than with respect to the adjustment and, accordingly, we do not express an opinion or any other form of assurance on the December 31, 2023 financial statements as whole.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit includes performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ PKF O’Connor Davies, LLP

We have served as the Company’s auditor since August 2024.

New York, New York

March 19, 2025

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Charlotte’s Web Holdings, Inc.

Opinion on the Financial Statements

We have audited, before the effects of the adjustments to retrospectively apply Accounting Standards Update 2023-07—Segment Reporting (Topic 280):

Improvements To Reportable Segment Disclosures (“ASU 2023-07”) described in Notes 2 and 15, the consolidated balance sheet of Charlotte’s Web Holdings, Inc.

(the Company) as of December 31, 2023, the related consolidated statement of operations, shareholders’ equity and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”) (the 2023 consolidated financial statements, before the effects of the adjustments discussed in Notes 2 and 15, are not presented herein).

In our opinion, the consolidated financial statements, before the effects of the adjustments to retrospectively apply ASU 2023-07 described in Notes 2 and 15, present fairly, in all material respects, the financial position of the Company at December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles.

Change in Accounting Principle

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply ASC 2023-07 described in Notes 2 and 15 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied.

Those adjustments were audited by PKF O’Connor Davies, LLP.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company's auditor since 2019.

We served as the Company’s auditor from 2019 to 2024.

Denver, Colorado

62 unchanged sentences

Change in fair value of financial instruments

9,339 ( 7,480 )

Other income (expense), net

18 unchanged sentences

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

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

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

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

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

20 unchanged sentences

Convertible debenture and other accrued interest 3,724 3,857

Gain on foreign currency transaction

( 3,631 ) 1,142

Share-based compensation

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Accounts receivable, net

( 809 ) 2,946

Inventories, net

( 1,520 ) 4,376

Prepaid expenses and other current assets

4 unchanged sentences

License and media rights payable ( 5,000 ) ( 8,000 )

( 8,000 ) ( 500 )

Income tax and other receivable

Cultivation liabilities

( 249 ) ( 4,000 )

Other operating assets and liabilities, net

620 ( 4,362 )

Net cash used in operating activities

7 unchanged sentences

Other financing activities ( 145 ) ( 251 )

Net cash provided by financing activities

Net cash used in financing activities

( 145 ) ( 251 )

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

( 25,202 ) ( 19,143 )

4 unchanged sentences

Non-cash activities:

Non-cash purchase of license and media rights assets — ( 31,399 )

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

Non-cash issuance of note receivable — ( 170 )

Non-cash purchases of property and equipment and intangibles

( 3 ) ( 233 )

See Notes to Consolidated Financial Statements

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Charlotte's Web Holdings, Inc.

together with its subsidiaries, (collectively "Charlotte's Web" or the "Company") is a public company incorporated pursuant to the laws of the Province of British Columbia and is also a Certified B Corp.

together with its subsidiaries, (collectively "Charlotte's Web" or the "Company") is a public company incorporated pursuant to the laws of the Province of British Columbia and a Certified B Corp.

The Company's common shares are publicly listed on the Toronto Stock Exchange ("TSX") under the symbol "CWEB" and quoted on the OTCQX under the symbol "CWBHF." The Company's corporate headquarters is located in Louisville, Colorado, in the United States of America.

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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").

("cannabis" or "CBD"), 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 the effectiveness of a broad variety of compounds derived from hemp.

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

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

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

The Company’s products are distributed through its e-commerce website, third-party e-commerce websites, select distributors, health practitioners, and a variety of brick-and-mortar specialty retailers.

The Company grows its proprietary hemp domestically in the United States on farms leased in northeastern Colorado and sources hemp through contract farming operations in Arizona, Kentucky, Oregon, and Canada.

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

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

As such, the Company has one operating segment, which is the business of hemp-based CBD wellness products.

As such, the Company has one operating segment, which is the business of hemp-based CBD wellness products, which makes up substantially all of the revenue at this time.

Substantially all long-lived assets are located in the United States and substantially all revenue is attributed to customers based in the United States.

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

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

For the year ended December 31, 2024 and 2023, no single customer accounted for more than 10% of the Company’s consolidated revenue.

Accounts Receivable and Allowance for Credit Losses

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Cost is determined by use of the weighted average method.

The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory 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, and other factors that affect inventory obsolescence, including State and Federal regulatory considerations.

The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory 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, historical annihilation trends of finished goods applied to current inventory of finished goods to estimate current reserve needs, and other factors that affect inventory obsolescence, including State and Federal regulatory considerations.

The Company's raw materials inventories of harvested hemp are recorded at cost to harvest.

6 unchanged sentences

Prepaid expenses and other current assets were comprised of the following amounts (in thousands):

Deposits $ 1,404 $ 1,172

Prepaid expenses 1,245 2,813

License and media rights 1,000 2,500

Deposits 1,172 2,313

Other miscellaneous receivables 545 379

49 unchanged sentences

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

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

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

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

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

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

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

Convertible Debenture

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Since the Company’s contracts involve the delivery of various tangible products, the arrangements are considered to contain only a single performance obligation, as such there is no allocation of the transaction price.

The Company also offers ecommerce discounts and promotions through its online rewards program.

The Company also offers e-commerce discounts and promotions through its online rewards program.

The Charlotte’s Web Loyalty Program offers customers rewards points for every dollar spent through the Company website to earn store credit for future purchases.

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Estimates are based on actual historical and current specific data.

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

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

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

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

Refer to Note 16 for additional disclosure on the DeFloria Service Agreement.

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

Year Ended December 31,

Direct-to-consumer $ 42,625 $ 50,700

Business-to-business 20,530 23,439

Product revenue

$ 49,019 $ 63,155

Service revenue 648 —

Total revenue

$ 49,667 $ 63,155

Substantially all of the Company’s revenue is earned in the United States.

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Selling, General and Administrative

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

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

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

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

Selling, general

For the year ended

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

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

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

December 31, 2024 and 2023, the Company recognized $ 7,978 and $ 13,782 of advertising expense, respectively.

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

For the year ended December 31, 2024 and 2023, the Company recognized $ 2,332 and $ 2,964 , respectively, of research and development expenses.

Defined Contribution Plan

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

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

Defined contribution expense of $ 493 and $ 565 was recorded during the year ended December 31, 2024 and December 31, 2023, respectively.

Share-based Compensation

9 unchanged sentences

Significant judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets.

We assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income.

The Company assesses the likelihood that deferred tax assets will be recovered as deductions from future taxable income.

The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis and includes a review of all available positive and negative evidence.

9 unchanged sentences

The Company’s 2021 through 2023 tax years remain open until the general statute of limitations lapses for each respective tax year.

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

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

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

Recently Issued Accounting Pronouncements

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

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

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

New accounting pronouncements recently adopted

In November 2023 the Financial Accounting Standards Board ("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.

Refer to Note 15 "Operating Segment" for additional disclosures.

Recently Issued Accounting Pronouncements

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

In November 2024, the FASB issued ASU 2024-04, Debt with Conversion and Other Options (Subtopic 470-20):

Induced Conversions of Convertible Debt Instruments.

The guidance clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion.

ASU 2024-04 is effective for the Company beginning December 31, 2025.

The Company is currently evaluating the effect of adopting this ASU.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.

The new guidance requires disaggregated disclosure of income statement expenses for public business entities.

ASU 2024-03 is effective for the Company beginning December 31, 2026.

The Company is currently evaluating the effect of adopting this ASU.

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

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

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

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

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

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

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

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

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

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

The Company is currently evaluating the impact, if any, that the updated standard will have on the Company's consolidated financial statements and related disclosures.

FAIR VALUE MEASUREMENT

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At December 31, 2024 and 2023, the carrying amounts of cash and cash equivalents, accounts receivable and other receivables, accounts payable and other current assets and liabilities approximated fair values because of their short-term nature.

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

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

The carrying value of the notes

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

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

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

5 unchanged sentences

Total financial assets

$ — $ — $ 1,075 $ 1,075

Investment in unconsolidated entity:

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Total financial assets

$ — $ — $ 2,602 $ 2,602

Investment in unconsolidated entity:

$ — $ — $ 11,000 $ 11,000

Financial liabilities:

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

There were no transfers between levels of the hierarchy during the years ended December 31, 2023 and December 31, 2022.

There were no transfers between levels of the fair value hierarchy and there were no changes in the fair value methodologies during the year ended December 31, 2024 and December 31, 2023.

Investment in Unconsolidated Entity

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

BATS and NYSE:

BTI) ("BAT").

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

AJNA is a botanical drug development company.

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

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

BAT holds an equity interest in DeFloria in the form of 200,000 or 100 % preferred units following its $ 10 million investment and has the right to participate in future equity issuances to maintain its pro rata equity position.

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

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

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

As of December 31, 2024, BAT holds an equity interest in DeFloria in the form of 2,000,000 or 100 % preferred units ( 200,000 preferred units as of December 31, 2023) following its $ 10 million initial investment and has the right to participate in future equity issuances to maintain its pro rata equity position.

In 2024, BAT and AJNA invested an additional $ 5 million and $ 2 million, respectively, into DeFloria in exchange for a convertible debenture.

The Company and AJNA each hold 4,000,000 or approximately 50 % ( 400,000 common shares as of December 31, 2023), respectively, of DeFloria's voting common units following a 1-10 stock split when DeFloria converted from a Limited Liability Comp to a Corporation.

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

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

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

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

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

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

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

Additionally, the Company has a supply agreement with DeFloria, under

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

which the Company supplies the oils at cost used to produce and develop the new drug.

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

DeFloria used the investments for the clinical development of a hemp botanical Investigational New Drug application and has concluded Phase I clinical development.

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

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

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

6 unchanged sentences

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

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

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

As of December 31, 2023, the DeFloria investment represents an investment of $ 11,000 within the condensed consolidated balance sheets.

For the year ended December 31, 2023, the Company recognized a gain for the initial investment in DeFloria of $ 10,700 within the consolidated statement of operations.

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

For the year ended December 31, 2024 and December 31, 2023, a loss of $ 200 and a gain of $ 300 , respectively, related to the investment in DeFloria was recognized as a change in fair value of financial instruments in the consolidated statement of operations.

As of December 31, 2024 and December 31, 2023, the DeFloria investment represents an investment of $ 10,800 and $ 11,000 , respectively, within the consolidated balance sheets.

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

3 unchanged sentences

The following additional assumptions are used in the model:

Year Ended December 31,

Expected term (years)

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BATS and NYSE:

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

The debenture is convertible into 19.9 % ownership of the Company’s common shares at a conversion price of C$ 2.00 per common share of the Company on the TSX.

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

The debenture is convertible into 19.9 % ownership of the Company's common

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

shares at a conversion price of C$ 2.00 per common share of the Company on the TSX.

The debenture will accrue interest at a stated annualized rate of 5 % until such time that there is federal regulation permitting the use of cannabidiol, a phytocannabinoid derived from the plant Cannabis sativa L .

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

as an ingredient in food products and dietary supplements in the United States.

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

2 unchanged sentences

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Debt Interest Rate Conversion Feature

2 unchanged sentences

The debt interest rate conversion feature, if triggered, reduces the stated interest rate of the debenture to 1.5 % upon federal regulation of CBD in the United States.

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

For the year ended December 31, 2024 and December 31, 2023, a gain of $ 228 and a loss of $ 471 , respectively, related to the debt interest rate conversion feature was recognized as a change in fair value of financial instruments in the consolidated statement of operations.

As of December 31, 2024 and December 31, 2023, the debt interest rate conversion feature represents a financial asset of $ 1,023 and $ 872 , respectively, within SBH purchase option and other derivative assets in the consolidated balance sheets.

7 unchanged sentences

Implied debt yield 9.9 % 11.0 %

Federal regulation probability various 15.0 %

Year of event various 2025

Federal regulation probability various various

Year of event various various

Debt Conversion Option

6 unchanged sentences

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

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

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

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

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

For the year ended December 31, 2024 and December 31, 2023, a gain of $ 2,265 and $ 10,080 , respectively, related to the debt conversion option was recognized as a change in fair value of financial instruments in the consolidated statements of operations.

As of December 31, 2024 and December 31, 2023, the debt conversion option represents a financial liability of $ 786 and $ 3,213 , respectively, within derivative and other long-term liabilities in the consolidated balance sheets.

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

Year Ended December 31,

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Stanley Brothers USA Holdings Purchase Option

On March 2, 2021, the Company executed an Option Purchase Agreement pursuant to which the Company has the option to acquire Stanley Brothers USA Holdings, Inc.

("Stanley Brothers USA"), a Cannabis wellness incubator.

Until the Stanley Brothers USA Holdings Purchase Option ("SBH Purchase Option") is exercised, both the Company and Stanley Brothers USA will continue to operate as standalone entities in the United States.

Internationally, the companies are able to explore opportunities where Cannabis is federally permissible.

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

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

("Stanley Brothers USA").

The SBH Purchase Option was purchased for total consideration of $ 8,000 and has a term of five years (extendable for an additional two years upon payment of additional consideration).

The SBH Purchase Option provides the Company the option to acquire all or substantially all the shares of Stanley Brothers USA on the earlier of February 26, 2024 and federal legalization of cannabis in the United States, or such earlier time as Stanley Brothers USA and the Company agree, at a purchase price to be determined at the time of exercise of the SBH Purchase Option.

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

The SBH Purchase Option provides the Company the option to acquire all or substantially all the shares of Stanley Brothers USA, at a purchase price to be determined at the time of exercise of the SBH Purchase Option.

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

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

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

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

For the year ended December 31, 2023 and December 31, 2022 , a loss of $ 570 and $ 10,700 , respectively, related to the SBH Purchase Option was recognized as change in fair value of financial instruments and other in the statements of operations.

As of December 31, 2023 and December 31, 2022 , the SBH Purchase Option represents a financial asset of $ 1,730 and $ 2,300 within SBH purchase option and other derivative assets in the consolidated balance sheets.

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

Primary assumptions utilized include

For the year ended December 31, 2024 and December 31, 2023 , a loss of $ 1,678 and $ 570 , respectively, related to the SBH Purchase Option was recognized as change in fair value of financial instruments in the statements of operations.

As of December 31, 2024 and December 31, 2023 , the SBH Purchase Option represents a financial asset of $ 52 and $ 1,730 , respectively, within SBH purchase option and other derivative assets in the consolidated balance sheets.

CHARLOTTE’S WEB HOLDINGS, INC.

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

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

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

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

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

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

Year Ended December 31,

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For the year ended December 31, 2024, inventory provisions of $ 4,154 were expensed through cost of goods sold in the consolidated statements of operations.

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

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

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

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

The increase was primarily due to an additional reserve for Hemp inventory of $ 20,349 based on the Company's determination during the fourth quarter 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.

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

For the year ended December 31, 2024, write-offs of inventory previously reserved of $ 6,386 were recognized.

For the year ended December 31, 2023, inventory provisions of $ 1,039 were expensed through cost of goods sold and write-offs of inventory previously reserved for of $ 29,238 were recognized.

Additionally, for the year ended December 31, 2024 and 2023, the Company sold harvested hemp that had a full inventory provision.

The sale of hemp resulted in a $ 4,573 and $ 12,854 reduction to the inventory provision as of December 31, 2024 and 2023, respectively.

CHARLOTTE’S WEB HOLDINGS, INC.

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$ 26,337 $ 27,513

Depreciation expense for the years ended December 31, 2023 and December 31, 2022, was $ 5,080 and $ 6,213 , respectively, of which $ 1,901 and $ 3,181 , respectively, was recorded in Selling, general, and administrative expense in the consolidated statements of operations.

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

Depreciation expense for the year ended December 31, 2024 and December 31, 2023, was $ 4,111 and $ 5,080 , respectively, of which $ 1,135 and $ 1,901 , respectively, was recorded in Selling, general, and administrative expense in the consolidated statements of operations.

For the year ended December 31, 2024 and December 31, 2023, depreciation expense of $ 2,976 and $ 3,179 , respectively, was recorded in Cost of goods sold in the consolidated statements of operations.

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

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

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

For the year ended December 31, 2024 and December 31, 2023, amortization expense of intangible assets of $ 218 and $ 849 , respectively, was recorded in Selling, general, and administrative expense in the consolidated statements of operations.

As of December 31, 2024 , expected amortization of intangible assets is as follows:

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MLB Promotion Rights Agreement

On October 11, 2022, the Company entered into a Promotional Rights Agreement (the "MLB Promotional Rights Agreement") with MLB Advanced Media L.P., on its own behalf and on behalf of Major League Baseball Properties, Inc., the Office of the Commissioner of Baseball, The MLB Network, LLC and the Major League Baseball Clubs (collectively, the "MLB"), pursuant to which the Company entered into a strategic partnership with MLB to promote the Company’s new NSF-Certified for Sport® product line.

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

On February 5, 2024, the Company and MLB entered into the First Amendment to the Promotional Rights Agreement ("First Amendment").

The First Amendment extended the agreement through December 31, 2027, with an aggregate rights fee of $ 23.0 million for the remainder of the term.

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

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

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

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

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

As of December 31, 2024 and 2023, the carrying value of the licensed properties was $ 11,691 and $ 14,589 , respectively, recorded as a license and media rights asset within the consolidated balance sheets.

As of December 31, 2024 and 2023, the carrying value of the media rights was $ 3,000 and $ 4,982 recorded as a prepaid asset and a license and media rights asset within the consolidated balance sheets.

The Company recognized $ 4,897 and $ 9,794 , respectively, in amortization expense related to the license and media rights assets for the year ended December 31, 2024 and 2023.

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

For the year ended December 31, 2024 and December 31, 2023 , the Company paid MLB $ 5,000 and $ 8,000 as part of the committed cash payments.

CHARLOTTE’S WEB HOLDINGS, INC.

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Total non-current license and media rights payable

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

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

As of December 31, 2024 , expected amortization of licensed properties is as follows:

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

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

For the year ended December 31, 2024 and 2023 , the Company recognized a foreign currency gain of $ 3,546 and a loss of $ 866 , respectively, related to the net carrying value of the debenture within o ther income (expense), net in the statement of operations.

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

On conversion, accrued interest will either be converted into common shares equal to the amount of accrued interest or will be paid in cash if agreed with the Lender.

As of December 31, 2023 and December 31, 2022, the principal amount of the debenture includes $ 3,182 and $ 379 of accrued interest expense.

The following is a summary of the interest expense and amortization expense, recorded within the statement of operation, of the Company's convertible debenture as of December 31, 2023:

As of December 31, 2024 and 2023 , the principal amount of the debenture includes $ 6,078 and $ 3,182 , respectively, of accrued interest expense.

The following is a summary of the interest expense and amortization expense, recorded within the statement of operation, of the Company's convertible debenture for the year ended December 31, 2024 and 2023 :

For the Year Ended December 31,

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The weighted average discount rate was 5.7 % for operating leases as of December 31, 2024.

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

The components of lease cost, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, for the year ended December 31, 2024 and 2023 are as follows:

Year Ended December 31,

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Total non-current lease liabilities

During the year ended December 31, 2022, the Company made the decision to cease utilizing the Denver office space and plans to sublease the office space at current market rents.

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

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

SHAREHOLDERS’ EQUITY

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Common Shares

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

As of December 31, 2024 and December 31, 2023, the Company was authorized to issue an unlimited number of common shares, which have nil par value.

Dividend Rights – Holders of common shares are entitled to receive dividends out of the assets available for the payment of dividends at such times and in such amount and form as the Board of Directors may determine from time to time.

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

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

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

LOSS PER SHARE

17 unchanged sentences

7,998,156 13,030,900

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

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

Convertible debenture conversion

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

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

For the year ended December 31, 2024 and December 31, 2023, the price of the Company’s shares did not exceed the conversion price and therefore there was no impact to potential common share diluted EPS during those periods.

Conversely, income available to common stockholders will be impacted by interest expense of $ 6,078 and amortization of debt issuance costs of $ 3,352 related to the debenture.

3 unchanged sentences

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

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

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

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

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

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

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

SHARE-BASED COMPENSATION

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

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

There were no options granted for the year ended December 31, 2024.

The fair values of options granted for the year ended December 31, 2023 were determined using a Black-Scholes valuation model, which requires assumptions and judgments regarding stock price, volatility, risk-free interest rates, dividend yields and expected option terms.

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

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Year Ended December 31,

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88.8 % - 89.5 %

83.0 % - 86.0 %

Expected term (years)

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3.4 % - 3.5 %

1.8 % - 3.3 %

Expected dividend yield

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$ 0.33 - $ 0.56

$ 0.44 - $ 1.56

Detail of the number of stock options outstanding for the years ended December 31, 2023 and 2022 under the 2015 and 2018 plans is as follows:

Detail of the number of stock options outstanding for the year ended December 31, 2024 and 2023 under the 2015 and 2018 plans is as follows:

Number of Options

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5,780,134 $ 0.75 8.56 $ —

3,748,671 0.38

Forfeited (and expired)

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For the options outstanding at December 31, 2024, the weighted average remaining contractual life is 7.30 years.

The weighted average grant-date fair value of options granted during the year ended December 31, 2023 was $ 0.38 .

There were no options granted during the year ended December 31, 2024.

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

The weighted average grant-date fair value of options granted during the year ended December 31, 2023 was $ 0.38 .

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

For the year ending December 31, 2024 and 2023 there were no exercise of options, respectively.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

The fair value of each restricted share unit granted is

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

The fair value of shares vested during the year ended December 31, 2024 and 2023 was $ 1,089 and $ 1,450 , respectively.

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Share-based Compensation Expense

Share-based compensation expense for all equity arrangements for the years ended December 31, 2023 and 2022 was $ 2,100 and $ 3,567 , respectively, included in selling, general and administrative expense in the consolidated statements of operations.

Share-based compensation expense for all equity arrangements for the year ended December 31, 2024 and 2023 was $ 1,520 and $ 2,100 , respectively, included in selling, general and administrative expense in the consolidated statements of operations.

As of December 31, 2024, and 2023, there was approximately $ 1,164 and $ 2,656 of total unrecognized share-based compensation expense, related to unvested options granted to employees under the Company’s share option plan that is expected to be recognized over a weighted average period of 1.87 years as of each year ended.

INCOME AND OTHER TAXES

Loss before provision for income taxes for the years ended December 31, 2023 and December 31, 2022 consists of the following:

Loss before provision for income taxes for the year ended December 31, 2024 and December 31, 2023 consists of the following:

Year Ended December 31,

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$ ( 39 ) $ ( 529 )

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

Income tax expense attributable to loss from continuing operations for the year ended December 31, 2024 and 2023 differed from the amounts computed by applying the U.S.

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

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Rate change ( 0.2 )% 3.4 %

Prior year true up — % 5.2 %

Other, net ( 2.4 )% 0.2 %

2 unchanged sentences

(1) During the year ended December 31, 2024 and 2023, the Company maintained a full valuation allowance on its deferred tax assets.

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

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

CHARLOTTE’S WEB HOLDINGS, INC.

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Investment in unconsolidated entity ( 2,765 ) ( 2,800 )

Warrants ( 134 ) ( 173 )

( 101 ) ( 134 )

Total deferred tax liabilities

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The Company considers all available positive and negative evidence, including scheduled reversals of deferred income tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance.

Based on the review of all positive and negative evidence, including a three-year cumulative pre-tax loss, the Company continues to believe its deferred tax assets are not more-likely-than-not to be realized and, as such, a full valuation allowance is recorded against net deferred taxes.

For the years ended December 31, 2023 and 2022, the Company’s valuation allowance increased by $ 8,062 and $ 14,694 , respectively, primarily related to the incremental net operating losses and an increase to the inventory provision.

Based on the review of all positive and negative evidence, including a three-year cumulative pre-tax loss, the Company continues to believe its deferred tax assets are more likely to not be realized and, as such, a full valuation allowance is recorded against net deferred taxes.

For the year ended December 31, 2024 and 2023, the Company’s valuation allowance increased by $ 6,525 and $ 8,062 , respectively, primarily related to the incremental net operating losses and an increase to the inventory provision.

As of December 31, 2024, the Company has US federal, US state, and Canadian net operating losses of approximately $ 283,708 , $ 236,746 , and $ 11,432 respectively.

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Employee Retention Credit

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

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

The Company qualified for federal government assistance through employee retention credit ("ERC") provisions of the Consolidated Appropriations Act of 2021.

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

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

OPERATING SEGMENT

Segment information

The Company has determined that it operates in a single operating and reportable segment, which is the production and sale of hemp-based CBD wellness products, which makes up substantially all of the revenue at this time.

This is consistent with how the chief operating decision maker (the "CODM") allocates resources and assesses performance.

The Company’s CODM is the executive operations committee that includes the chief executive officer, the chief financial officer, the chief operations officer and the chief people officer.

The Company’s products have similar characteristics due to the same raw material ingredient (CBD and derivatives), similar nature of cultivation process, the type of customer and the regulatory nature of the industry.

The accounting policies of the production and sale of the hemp-based CBD wellness segment are the same as those described in the summary of significant accounting policies.

The CODM assesses performance for this segment and decides how to allocate resources based on pre-tax net income/(loss) that is reported on the consolidated statement of operations.

The measure of segment assets is reported on the consolidated balance sheets as total assets.

The CODM uses pre-tax net income/(loss) to evaluate income generated from segment assets in deciding whether to reinvest profits into the segment or into other parts of the Company.

Pre-tax net income/(loss) are used to monitor budget versus actual results.

For the year ended December 31, 2024 and 2023, the segment's revenues and pre-tax net loss were $ 49,667 and $( 29,807 );

and $ 63,155 and $( 23,267 ), respectively.

Further details of the segment's revenues are included in Note 2 under Revenue Recognition.

Further details of the segment's expenses are included in the consolidated statements of operations.

Further details of the segment's reconciliation between pre-tax net income/(loss) are included in the results of operations measures section of this Form 10-K.

There are no difference between segment revenues, pre-tax net income/(loss) and the Company's consolidated revenues and pre-tax net income/(loss).

General Information

Factors used to Identify Reportable Segments:

The Company operates as a single reportable segment, focusing on the production and sale of hemp-based CBD wellness products.

Products and Services:

The Company's revenue is primarily derived from the production and sale of hemp-based CBD wellness products.

Chief Operating Decision Maker (CODM):

The Company's Chief Executive Officer is William Morachnick, the Chief Financial Officer is Erika Lind, the Chief Operations Officer is Ray Kunkel and the Chief People Officer is Mindy Garrison.

Measure of Segment Profit or Loss and Total Assets:

The accounting policies of the single reportable segment are the same as those described in the summary of significant accounting policies.

The CODM evaluates performance and allocates resources based on pre-tax net income/(loss), as presented in the accompanying financial statements.

The measure of segment assets is reported on the balance sheet as total consolidated assets.

Significant Segment Expenses

The following significant expenses are regularly reviewed by the CODM for the year ended December 31, 2024 and 2023:

Cost of goods sold $ 28,407 and $ 27,589 , respectively;

Selling, general, and administrative expenses $ 53,247 and $ 75,630 , respectively;

Asset impairment $ — and $ 548 , respectively;

Change in fair value of financial instruments $ 615 and $ 20,039 , respectively;

and Depreciation and Amortization $ 9,979 and $ 15,160 , respectively.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Reconciliation to Consolidated Financial Statements

As the Company operates as a single reportable segment, the amounts presented above align directly with the consolidated totals in the financial statements.

Product Revenue

$ 49,019 $ 63,155

Service Revenue 648 —

Total Revenue $ 49,667 $ 63,155

Cost of goods sold

28,407 27,589

$ 21,260 $ 35,566

Gross profit %

42.8 % 56.3 %

Selling, general, and administrative expenses

53,247 75,630

Asset impairment — 548

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

Change in fair value of financial instruments 615 20,039

Other income (expense), net

1,565 ( 2,694 )

Loss before provision for income taxes

$ ( 29,807 ) $ ( 23,267 )

Other segment information

Depreciation/Amortization 9,979 15,160

Total assets 113,442 152,548

Long-term liabilities 70,419 73,344

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

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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

AJNA is a botanical drug development company.

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

AJNA is partially owned and was co-founded by a member 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.

3 unchanged sentences

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 includes 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 consolidated statements of operations related to this agreement.

SUBSEQUENT EVENTS

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

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

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

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 .

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data