Charlotte's Web Holdings, Inc. 10-K

Item 1. Business General Charlotte's Web Holdings, Inc., ("Charlotte's Web", the "Company" or "we"), a benefit company under the Business Corporations Act (British Columbia) ("BCBCA"), S.B.C. 2002, c. 57, as amended, including the regulations promulgated thereunder, headquartered in Louisville, Colorado, was incorporated under the BCBCA on May 18, 2018 under the name Stanley Brothers Holdings Inc. On July 12, 2018, the Company changed its name to Charlotte's Web Holdings, Inc. On August 29, 2018, the Company filed articles of amendment to amend its share capital in connection with its initial public offering to authorize the issuance of common shares ("Common Shares"), preferred shares and proportionate voting shares ("Proportionate Voting Shares") of the Company. On November 3, 2021, all outstanding Proportionate Voting Shares of the Company were converted by way of mandatory conversion in accordance with the Company's Articles and at the discretion of the Company, into Common Shares. Pursuant to the Company's Articles, the Company is no longer authorized to issue additional Proportionate Voting Shares. The Company's Common Shares are listed on the Toronto Stock Exchange ("TSX") under the symbol, "CWEB". The Company's Common Shares are also quoted on the over-the-counter stock market, the OTCQB, in the United States under the symbol, "CWBHF". The Company is a market leader in the United States in innovative hemp extract and other botanical-based wellness products under a family of brands which includes Charlotte’s Web™, CBD Medic™, and CBD Clinic™. Charlotte's Web branded premium quality full-spectrum cannabidiol ("CBD") products start with proprietary hemp genetics that are 100% North American farm grown and manufactured into hemp extracts containing naturally occurring phytocannabinoids including CBD, cannabichromene ("CBC"), cannabigerol ("CBG"), cannabinol ("CBN"), terpenes, flavonoids and other beneficial hemp compounds. The Company operates from its cGMP (current good manufacturing practices) compliant production facility in Louisville, Colorado (the "LOFT") where it produces hemp oil tinctures and maintains distribution, quality control and research and development ("R&D") activities. Charlotte’s Web product categories include functional mushroom gummies, hemp extract oil tinctures (liquid products), gummies, capsules, topical creams and lotions, and pet products. Charlotte’s Web products are sold through select distributors and healthcare practitioners, as well as online through the Company’s website at www.charlottesweb.com and other third-party e-commerce sites. The information provided on the Company's website is not part of this report or any other report filed with or furnished to the SEC. The business of the Company consists of the manufacturing, sales, and marketing of hemp-derived CBD and other botanical-based wellness products, including functional mushroom gummies. As of December 31, 2025, the Company operated in a single operating and reportable segment, hemp-derived CBD wellness products, making up the majority of the revenue of the Company. The executive officers reviewed overall operating results in order to assess financial performance and to make resource allocation decisions, rather than assessing any lower-level unit of operations in isolation. Hemp extracts are produced from the plant Cannabis sativa L. ("cannabis") and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol ("THC") concentration of not more than 0.3% on a dry weight basis ("hemp"). The Company is engaged in research involving a broad variety of compounds derived from hemp, as well as other botanical-based wellness products, such as functional mushrooms. Where such research indicates that a product may have a potential therapeutic use, the Company may consider pursuing development of that use in jurisdictions where it is legal to do so in accordance with applicable regulations and if consistent with the Company’s strategic vision. The Company does not currently produce or sell medicinal or recreational marijuana or products derived from high-THC cannabis plants and does not have any plans to expand into such in the near future. On March 2, 2021, Charlotte's Web executed an Option Purchase Agreement (the "SBH Purchase Option") pursuant to which the Company had the option to acquire Stanley Brothers USA Holdings, Inc. ("Stanley Brothers USA"), a cannabis wellness incubator. The Company is not obligated to exercise the SBH Purchase Option and as such the unexercised option expired as of February 26, 2026. The Company grows its proprietary hemp domestically in the United States through contract farming operations in Arizona, Colorado, Kentucky, New Mexico, and Canada. The hemp grown in Canada is utilized exclusively for the Canadian market and not in the Company's products sold in the United States. 1 The Company continues to invest in R&D efforts to identify new product opportunities. Management is working to expand the Company’s production capacity, and to find opportunities for continuous improvement in the supply chain, including in-sourcing production to reduce its dependence on third party contract manufacturers. The Company may consider expanding its product line beyond hemp-based products and functional mushrooms should the science and the Company’s strategic vision support such expansion. In furtherance of the Company’s R&D efforts, in February 2020, the Company established CW Labs, an internal division for R&D, to substantially expand the Company’s efforts around the science of hemp-derived compounds. CW Labs is currently engaged in clinical trials addressing hemp-based solutions. CW Labs is located at the LOFT in Louisville, Colorado. Effective as of November 14, 2022, the Company entered into a subscription agreement (the "Subscription Agreement") with BT DE Investments, Inc. a wholly-owned subsidiary of BAT Group (LSE: BATS and NYSE: BTI), providing for the issuance of an approximately $56.8 million ("Canadian Dollar" C$75.3 million) convertible debenture (the "debenture"), convertible into 19.9% ownership of the Company’s Common Shares at a conversion price of C$2.00 per Common Share of the Company on the TSX. The debenture will accrue interest at a stated annualized rate of 5% until such time that there is federal regulation permitting the use of cannabidiol, a phytocannabinoid derived from the plant Cannabis sativa L. ("CBD") as an ingredient in food products and dietary supplements in the United States. Following federal regulation of CBD, the stated annualized rate of interest shall reduce to 1.5%. The maturity date for the debenture is November 2029. On April 6, 2023, the Company jointly formed an entity, DeFloria, Inc. ("DeFloria"), with AJNA BioSciences PBC ("AJNA"), and a subsidiary of British American Tobacco PLC (LSE: BATS and NYSE: BTI) ("BAT"). The entity was established to pursue FDA-approval for a botanical drug to target a neurological condition. The Company and AJNA each hold 4,000,000, or approximately 50%, respectively, of the entity’s voting common units. Additionally, AJNA holds an additional $2 million secured convertible indenture that can be converted upon an additional qualified financing or upon maturity of such indenture. BAT holds an equity interest (a) in the form of 2,000,000 or 100% preferred units, and (b) a $5 million secured convertible indenture that can be converted upon an additional qualified financing or upon maturity of such indenture. In October 2022, the Company entered into a Promotional Rights Agreement (the "MLB Promotional Rights Agreement") with MLB Advanced Media L.P., on its own behalf and on behalf of Major League Baseball Properties, Inc., the Office of the Commissioner of Baseball, The MLB Network, LLC and the Major League Baseball Clubs (collectively, the "MLB"), pursuant to which the Company entered into an exclusive strategic partnership with MLB. On May 13, 2025, the Company and MLB entered into a letter agreement (the "PRA Letter Agreement") terminating the MLB Promotional Rights Agreement and waiving the Company's obligation to pay the remaining aggregate rights fee of $18 million for the remainder of the original term of the MLB Promotional Rights Agreement. In September 2024, the Company launched its new functional mushroom gummy product line with three formulations: Focus Support, Stress Support, and Energy Support. These mushroom products are hemp-free and expand the Company's ongoing commitment to providing science-supported botanical-based solutions to its customers. Public Benefit Company Status The Company became a benefit company under the BCBCA on July 24, 2020. Benefit companies are a class of corporations in British Columbia that are formally and legally empowered to conduct their business in a responsible and sustainable manner and promote one or more public benefits. Under British Columbia law, benefit companies are required to identify in their Articles the public benefit or benefits they will promote. Their directors have a duty to act honestly and in good faith with a view to conducting business in a responsible and sustainable manner and to promote the company’s public benefits and must balance this duty with their general fiduciary duties under section 142(1)(a) of the BCBCA to act honestly and in good faith with a view to the best interests of the company. As a benefit company, the Company must balance a variety of interests that may result in actions that do not maximize Shareholder value as the board of directors of the Company (the "Board" or the "Board of Directors") must balance the interests of Shareholders and stakeholders in working to achieve the Company’s public benefits. See "Risk Factors – As a public benefit company, the Company has a duty to balance a variety of interests that may result in actions that do not maximize Shareholder value." In practice, the Board of Directors of the Company takes an expanded view of decision making to balance their fiduciary duties and their duty to act honestly and in good faith with a view to conducting business in a responsible and sustainable manner and to promote the Company’s public benefits, including weighing potential conflicts of interest and ultimately making decisions that the Board believes most appropriately address all of the Board’s duties. British Columbia courts have generally been deferential to the business decisions of 2 directors, as directors are in the best position to take into account the diverse interests of a company and its stakeholders (including what weight to give to Shareholder interests), as long as the business decision lies within the range of reasonable alternatives. However, as a benefit company, there is uncertainty as to how British Columbia courts would view the balancing of these interests and the weighing of Shareholder and stakeholder concerns. See "Risk Factors - As a benefit company, the Company may be subject to increased legal proceedings concerning its duty to balance Shareholder and public benefit interests, the occurrence of which may have an adverse impact on the Company’s financial condition and results of operations." Benefit companies also are required under the BCBCA to publish on their websites and provide to their Shareholders an annual benefit report that assesses, against a selected third-party standard, their performance in carrying out the commitments set out in the benefit company’s benefit provisions. The Company’s annual benefit report discloses, in relation to the most recently completed fiscal year, (a) a fair and accurate description of the ways it demonstrated commitment to conducting its business in a responsible and sustainable manner, and to promoting the public benefits specified in its Articles; (b) a record of assessment based on a third-party standard; and (c) the circumstances, if any, that hindered the Company’s endeavors to carry out the commitments set out in the Company’s benefit provisions. For so long as the Company is a benefit company under the BCBCA, the Company will include an annual benefit report as part of its annual proxy materials sent to its Shareholders and post the report to its website. The Company’s public benefit, as provided in its Articles, is "to pioneer the way to healthier lives, stronger communities, and a more bountiful planet by making it easier for everyone to access the natural restorative power of plants." Accordingly, this social focus includes contributing to non-profit organizations and charities, which are made on an ad hoc basis, concentrating first on those entities that have historically supported the business through education of existing and potential customers. The Company also supports non-profits that it believes can utilize the wellness aspects of its products (i.e., military veterans, adaptive athletes, educational organizations, etc.). By doing so, the Company believes that socially oriented actions will ultimately have a positive impact on the Company, its employees, and its Shareholders. History and Development of the Company The seven Stanley brothers (the "Stanley Brothers") founded CWB Holdings, Inc. (predecessor to Charlotte's Web, Inc. ("CW"), a subsidiary of the Company) on December 8, 2013. CWB Holdings, Inc. was initially formed under the Colorado Business Corporation Act ("CBCA") under the name Stanley Brothers Social Enterprises, LLC, and on June 19, 2015, changed its name to CWB Holdings, LLC. On December 30, 2015, it converted from a limited liability company to a corporation pursuant to Colorado law and changed its name to CWB Holdings, Inc. On August 30, 2018, CWB Holdings, Inc. merged into Stanley Brothers, Inc. and the resulting entity, a wholly-owned subsidiary of Charlotte's Web Holdings, Inc., changed its name to Charlotte's Web, Inc. On August 30, 2018, the Company announced the closing of its initial public offering and secondary offering of its Common Shares at a price of C$7.00 per Common Share for total gross proceeds of C$115,115,000. Charlotte’s Web sold 13,312,150 Common Shares under the initial public offering ("IPO"), for total gross proceeds to the Company of C$93,185,050, while certain selling Shareholders under the IPO sold an aggregate of 3,132,850 Common Shares, for total gross proceeds to the selling Shareholders of C$21,929,950. On March 23, 2020, the Company announced it had entered into an arrangement (the "Arrangement Agreement") with Abacus Health Products ("Abacus"), pursuant to which the Company proposed to acquire all of the issued and outstanding subordinate voting shares of Abacus (the "Abacus Shares"). Under the terms of the Arrangement Agreement, Shareholders of Abacus would receive 0.85 of a Common Share for each Abacus Share held. Effective as of June 11, 2020, the Company and Abacus completed the arrangement (the "Arrangement") pursuant to the Arrangement Agreement and the Company acquired all of the issued and outstanding Abacus Shares. Upon completion of the Arrangement, Abacus became a wholly-owned subsidiary of the Company. On October 11, 2022, the Company entered into a Promotional Rights Agreement (the "MLB Promotional Rights Agreement") with MLB Advanced Media L.P., on its own behalf and on behalf of Major League Baseball Properties, Inc., the Office of the Commissioner of Baseball, The MLB Network, LLC and the Major League Baseball Clubs (collectively, the "MLB"), pursuant to which the Company entered into an exclusive strategic partnership with MLB. In consideration for the MLB Promotional Rights Agreement, the Company paid MLB over the term of the MLB Promotional Rights Agreement, a promotional rights fee and a royalty on the Company’s gross revenue from MLB branded products of the Company sold after prior sales of all such branded products exceeded $18.0 million. The Company also entered into a subscription agreement (the "Subscription Agreement") pursuant to which the Company issued to MLB Common Shares equal to four percent (4%) of the Company’s fully diluted outstanding Common Shares (such Common Shares, the "MLB Shares"). The total number of MLB Shares issued to MLB was 6,119,121 common shares of the Company, issued pursuant to an exemption from 3 registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 of Regulation D promulgated under the Securities Act. The Company did not receive any proceeds in respect of the MLB Shares. Effective as of November 14, 2022, the Company entered into a subscription agreement with BT DE Investments, Inc. a wholly-owned subsidiary of BAT Group (LSE: BATS and NYSE: BTI), providing for the issuance of an approximately US$56.8 million (C$75.3 million) convertible debenture that is convertible into 19.9% ownership of Common Shares at a conversion price of C$2.00 per Common Share of the Company on the TSX. Financial Year Ended December 31, 2023 Effective as of February 22, 2023, the Company entered into an Extension and Fifth Amending Agreement to Name and Likeness and License Agreement (the "Fourth Extension Agreement") with Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, a Colorado limited liability company ("Licensor"). Pursuant to the Fourth Extension Agreement, the term of the Name and Likeness and License Agreement dated August 1, 2018 between the Company and Licensor, as amended by the Amending Agreement to Name and Likeness Agreement effective April 16, 2021, was extended to June 30, 2023. Effective March 14, 2023, Jonathan Atwood was appointed as the designee to the Board of Directors by BT DE Investments Inc., pursuant to the Investor Rights Agreement between the Company and BT DE Investments Inc., dated November 14, 2022. The Investor Rights Agreement was entered into by the Company and BT DE Investments Inc. in connection with the Company’s issuance of the $56.8 million debenture to BT DE Investments Inc. and permits BT DE Investments Inc. to appoint up to 20% of the members of the Company's Board of Directors. Effective March 30, 2023, the Company entered into an amendment to the offer of employment, dated December 19, 2022, with Jessica Saxton, Chief Financial Officer of the Company. Pursuant to the amendment, Ms. Saxton’s relocation reimbursement was increased from $40,000 to $45,000, she was provided a 12-month housing assistance allowance of $1,500 per month through March 31, 2024, and she was provided a vehicle assistance allowance of $1,120 per month through January 31, 2025. On April 6, 2023, the Company issued a press release announcing the formation of an entity with AJNA , and a subsidiary of BAT for the purpose of clinical development of a novel hemp botanical IND application. On June 13, 2023, the Company issued a press release, responding to a letter and subsequent press release issued by Joel and Jesse Stanley regarding the replacement of a majority of the Board of Directors of the Company. The Company announced on June 20, 2023 that following the 2023 annual general meeting ("AGM"), the Board of Directors of the Company was comprised of John Held, Jonathan Atwood, Thomas Lardieri, Alicia Morga, Jacques Tortoroli, and Susan Vogt. The Company announced that certain of the directors received less than majority support at the AGM and that each such director complied with the Company's majority voting policy and provided an offer to resign to the Board. Effective as of June 30, 2023, the Company entered into an Extension and Sixth Amending Agreement to Name and Likeness and License Agreement with Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, a Colorado limited liability company. Pursuant to the extension, the term of the Name and Likeness and License Agreement was extended to December 31, 2023. Effective August 28, 2023, the Company appointed Sarah Cambridge as Chief Accounting Officer of the Company. On September 13, 2023, the Company issued a press release announcing the appointment of Mr. Bill Morachnick as Chief Executive Officer, effective as September 13, 2023 and the departure of Mr. Tortoroli as the Company’s Chief Executive Officer and Director. The Company also announced the rejection of the offers to resign of John Held, Thomas Lardieri, Alicia Morga and Jacques Tortoroli that had been offered pursuant to the Company’s Majority Voting Policy. Effective October 11, 2023, the Board of Directors of the Company appointed Angela McElwee to the Company’s Board of Directors. Effective December 28, 2023, the Company entered into an amendment to extend until November 13, 2024, the maturity date of a secured promissory note, as lender, where the Company loaned $1,000,000 to one of the Stanley Brothers. 4 Financial Year Ending December 31, 2024 On February 5, 2024, the Company and MLB entered into an amendment to the MLB Promotional Rights Agreement, whereby the term of the MLB Promotional Rights Agreement was extended through December 31, 2027, with an aggregate rights fee of $23 million for the remainder of the term. Effective as of February 1, 2024, the Company accelerated the vesting and settlement of outstanding restricted stock units ("RSU’s") granted under the Charlotte’s Web Holdings, Inc. Amended 2018 Long-Term Incentive Plan for the Company’s Principal Financial Officer, Jessica Saxton, Chief Financial Officer, and certain of its named executive officers, Stephen Rogers and Jared Stanley. Effective February 6, 2024, the Board of Directors of the Company appointed Matthew McCarthy to the Company’s Board of Directors. Mr. McCarthy’s appointment to the Company's Board of Directors followed the departure of Susan Vogt, who notified the Company and the Board of Directors of her immediate retirement from the Board of Directors. Effective February 12, 2024, the Company and DeFloria entered into a Master Services Agreement, pursuant to which the Company will be compensated for the provision of certain services to DeFloria. On April 29, 2024, the Company announced that John Held, Thomas Lardieri, and Alicia Morga would not stand for re-election at the Company's 2024 Annual General and Special Meeting. On June 14, 2024, the Company announced that following the 2024 AGM, the Board of Directors of the Company was comprised of Angela McElwee, Jonathan Atwood, Matthew McCarthy, Bill Morachnick, Jared Stanley, and Maureen Usifer. On June 18, 2024, the Company announced the departure of Jessica Saxton and the appointment of Erika Lind as Chief Financial Officer of the Company. On August 21, 2024, the Company announced the appointment of PKF O'Connor Davies, LLP and the dismissal of Ernst & Young as the Company's independent registered accounting firm. On September 24, 2024, the Company announced emergency regulations enacted in the State of California. On November 1, 2024, the Company announced that it had entered into a retention agreement with Erika Lind, the Company's Chief Financial Officer. Financial Year Ending December 31, 2025 On January 17, 2025, the Company announced the departure of Sarah Cambridge as the Company's Principle Accounting Officer and that Erika Lind, the Company's Chief Financial Officer, would also assume the role of Principal Accounting Officer for the Company. On February 24, 2025, the Company announced that DeFloria received notification from the FDA which allows DeFloria to proceed with Phase 2 human clinical trials. On May 13, 2025, the Company and MLB entered into a letter agreement (the "PRA Letter Agreement") terminating the MLB Promotional Rights Agreement and waiving the Company's obligation to pay the remaining aggregate rights fee of $18 million for the remainder of the original term of the MLB Promotional Rights Agreement. On May 27, 2025, the Company introduced Brightside™ — a new line of low-dose THC gummies featuring four formulations — Recover, Unwind, Focus, and Knockout. Brightside gummies combine micro- to moderate doses of THC with synergistic cannabinoids. On July 15, 2025, the Company entered into a promissory note, as lender, where the Company loaned $750,000 to DeFloria, Inc. The promissory note and accrued interest is due and payable by DeFloria upon the later of (a) December 31, 2026, or (b) the date the Company shall issue and sell units of a newly-authorized series of preferred units (or similar securities or instruments) in a bona fide financing transaction to one or more investors for aggregate cash proceeds to the Company or any other convertible debt of the Company of not less than ten million dollars ($10,000,000). 5 On July 31, 2025, the Company announced the departure of Stephen Rogers as Senior Vice President - General Counsel and Corporate Secretary. Ms. Mindy Garrison, the Company’s Chief People Officer, assumed the role of Corporate Secretary. On September 16, 2025, Mr. Jonathan Atwood notified the Company of his intention to resign from his position as a member of the Board of Directors of the Company (and any committees upon which he sits) effective October 1, 2025. Effective November 1, 2025, the Board of Directors of the Company, appointed Borgia Walker to the Company’s Board of Directors. Ms. Walker was appointed as the designee to the Board of Directors by BAT, pursuant to the Investor Rights Agreement between the Company and BT DE Investments Inc., dated November 14, 2022. On December 18, 2025, the Company announced its participation as a CBD provider supporting the treatment of senior oncology patients under a pilot program being initiated by the Center for Medicare and Medicaid Innovation (CMMI). Financial Year Ending December 31, 2026 On March 30, 2026, the Company announced that it has entered into an agreement to complete a transaction with BAT comprised of two components: (i) amendment and conversion of BAT’s outstanding C$75.3 million convertible debenture, as well as, all accrued interest, into Charlotte’s Web's common shares at a conversion price of C$0.94 per share; and (ii) a concurrent additional equity investment by BAT of $10 million (approximately C$13.8 million at current exchange rates) by way of a private placement at a price equal to the greater of (a) C$0.94 per share, and (b) a dollar amount equal to the maximum discount available pursuant to section 607 of the TSX Company Manual applied to the 5-day volume weighted average price of the Company’s common shares on the TSX prior to the closing date (collectively, the “Transaction”). The Transaction will result in the issuance of approximately 110 million Charlotte's Web's common shares to BAT and represents a total equity commitment of approximately C$103 million (approximately $75 million). Completion of the Transaction is subject to, among other conditions, TSX and shareholder approval. The Company's shareholders will be asked to approve the Transaction at an annual general and special meeting of the shareholders to be held on or about May 28, 2026 Business of the Company Business Objectives and Strategy The Company is a market leader in the production and distribution of innovative hemp-derived wellness products. Through its substantially vertically integrated business model, the Company strives to improve customers’ lives and meet their demands for stringent product quality and consistency. Charlotte’s Web’s mission is to unearth the science of nature to revolutionize wellness. The Company does this primarily by growing its proprietary non-GMO hemp genetics on family farms that are made into premium, full-spectrum phytocannabinoid health and wellness products. Charlotte’s Web products are manufactured both in-house and at third-party certified FDA-registered facilities. The above statements capture the essence of the Company’s business strategy and the pioneering vision of its founders. The Company strives to realize significant growth by expanding further into the health and wellness sector, while capitalizing on the Company’s unique differentiators to create sustainable value. This commitment to innovation has translated into a deliberate broadening of the Company's product portfolio beyond its core full-spectrum CBD offerings. In 2024, Charlotte's Web expanded into minor cannabinoids with the launch of Stay Asleep CBN Gummies — the first CBN sleep product supported by peer-reviewed research — and extended its botanical expertise into the functional mushroom wellness category with a targeted line of hemp-free Functional Mushroom Gummies. In 2025, the Company launched CBG Focus & Attention Gummies, addressing the growing nootropics market, and introduced Brightside™, a precision-formulated line of federally compliant, hemp-derived low-dose THC gummies featuring proprietary TiME INFUSION® rapid-onset technology.In accordance with the Company’s social responsibility goals, Charlotte’s Web supports several non-profit organizations that utilize its products or that further consumer education, advocacy, and research in the hemp, CBD and wellness marketplaces. Industry Overview The Company’s primary products are made from high quality and proprietary strains of whole-plant hemp extracts containing a full spectrum of phytocannabinoids, including naturally occurring CBD. Full-spectrum hemp extracts ("FSHE") are produced from hemp. The Company does not produce or sell medicinal or recreational marijuana or products derived from high-THC marijuana plants. 6 Historically, the health and wellness benefits of hemp-based products focused on protein and nutritional oil content. Hemp seeds are known to provide both protein and valuable omega fatty acids. However, beginning with the publication of United States Patent No. 6,630,507 (cannabinoids as antioxidants and neuroprotectants) issued to the United States Department of Health and Human Services on October 7, 2003, consumer interest surrounding the health and wellness benefits of cannabinoids grew significantly. This interest continued until the passage of 2014 Farm Bill, which created a path for institutions of higher education and state departments of agriculture to cultivate hemp for research purposes under certain conditions. Hemp extracts contain an assortment of naturally-occurring substances, including phytocannabinoids, terpenes, flavonoids and other hemp compounds. The Company believes the presence of various phytocannabinoids, terpenes and flavonoids work synergistically to heighten the effects of the products, making full-spectrum and broad-spectrum hemp extracts superior and distinctly different to single-compound CBD isolates. This assortment of hemp compounds is the basis for the theory known as the "entourage effect" as introduced by Israeli chemists, Shimon Ben-Shabat and Raphael Mechoulam, in 1998. Although research regarding the potential therapeutic uses of CBD and FSHE continues to evolve, industry reports suggest consumers are using CBD for various applications including assistance with sleep, daily stress, anxiety, pain relief, cognitive function and immune health, among other applications. Product Overview Product Portfolio The Company offers a mix of products that have been strategically developed to fit with its objective of delivering a full suite of best-in-class FSHE wellness products that meet its customers’ demands for stringent quality and consistency. The Company currently markets its products under the "Charlotte’s Web", "Brightside", "CBD Clinic", and "CBD Medic" trade names. The Company’s current product categories include human ingestible products (tinctures, capsules, and gummies), topicals, pet products, and broad-spectrum products. Tinctures A human ingestible liquid product is a combination of oil and full-spectrum hemp extracts containing naturally occurring CBD. Ingestible liquid products are delivered in either coconut-based medium chain triglyceride ("MCT") oil or olive oil, in some cases with flavor. Liquid products are meant to be consumed by direct ingestion. Gel Caps In 2024 Charlotte’s Web introduced its new Soft Gel Capsule, offering easy-to-swallow gel caps that provide precise, potent dosing of full-spectrum CBD. The ingestible gel caps are designed for portability, convenience, and effectiveness. Gummies The Company’s FSHE gummies are made from whole-plant hemp extract and nutraceutical blends, and are flavored with natural juices. Hemp-derived THC gummies are made from isolates made from whole-plant extract and are flavored with natural juices. These products are meant to be consumed by direct ingestion. Topicals The Company’s topical products are delivered in cream, balm, gel, roll-on, ointment, other cosmetic type forms. These products are combinations of hemp, plant-based oils, herbal extracts and other ingredients. Topical products are meant to be applied externally by topical application. Pet The Company's pet products are currently intended for canine use. Ingestible pet products are delivered in liquid (drops) and solid (chew) forms. Ingredients are a combination of oil and FSHE. Liquid canine products are delivered in coconut-based MCT oil with or without flavor. The liquid and solid products are meant to be consumed by direct ingestion. Mushrooms Gummies The Company's line of adaptogenic mushroom gummies is formulated with high-quality mushrooms and functional botanicals for direct ingestion. These products are hemp-free and expand the Company's commitment to providing effective science supported plant-based wellness solutions. Key Competitive Advantages of Product Offering In addition to the Charlotte’s Web brand and substantial goodwill generated from the Company’s legislative efforts and media exposure, the Company believes the following are also competitive advantages of the Company: 7 a. Cultivation Experience and Capacity — With years of experience in plant cultivation, the Company has selected prime farmland to grow its hemp with access to substantial additional farmland for future capacity. The Company believes there is no other entity in the world with more experience bringing large-scale, hemp-based operations to the market while maintaining impeccable product quality. b. Industry-leading Manufacturing Capability — Charlotte's Web leases a 136,610-square-foot industrial building located in Louisville, Colorado, which houses its primary production and R&D divisions. This facility is staffed with professional personnel responsible for production management, quality control/assurance, analytical chemistry, product development and process engineering to ensure product quality. This facility is also the location of corporate functions, including HR, IT, Finance, Sales and Marketing. c. Control of Supply Chain — The Company is substantially vertically-integrated and maintains control over its proprietary genetics throughout the entire cultivation and extraction processes — from seed/clone to packaged products. The Company currently uses in-house manufacturing for its gummies and topical products. Additionally, select contract manufacturers are utilized for some gummies, topicals, pet and gel caps who manufacture products according to the Company’s specifications and standards. Some companies in the CBD industry produce their products from imported hemp pastes of unknown origin, quality, and purity. d. Rigid Quality Management System — The Company has implemented a rigid quality management system that includes documented internal quality processes and both internal and independent third-party testing laboratories. e. Proprietary Genetics — The Company has been granted U.S. and Canadian Utility Patents covering hemp varieties as it advances the science of hemp horticulture. The Company believes that the positive media exposure surrounding its proprietary strains has made Charlotte’s Web one of the most sought-after brands in the emerging hemp and CBD markets. f. Protection of Intangible Assets — The ownership and protection of the Company's intellectual property is a significant aspect of the Company’s future success. Currently the Company protects its intangible assets through trade secrets, technical know-how, and proprietary information. The Company protects its intellectual property by seeking and obtaining registered protection (including patents and trademarks) where possible, developing and implementing standard operating procedures and entering into agreements with parties that have access to the Company's inventions, trade secrets, technical know-how and proprietary information such as business partners, collaborators, employees, and consultants, to protect the Company’s confidentiality and ownership of its intellectual property. The Company also seeks to preserve the integrity and confidentiality of its inventions, trade secrets, trademarks, technical know-how, and proprietary information by maintaining physical security of the Company’s premises and physical and electronic security of the Company’s information technology systems. The Company has sought trademark and patent protection in the United States, Canada and other countries. The Company’s patent portfolio (patents and patent applications) covers, among other things, its plant genetics, extraction and cannabinoid isolation, and conversion processes and designs. There can be no guarantee, however, that the Company’s efforts to secure trademark or patent protection will be successful. The duration of the protection afforded by the Company’s registered intellectual property varies by the nature of the registration, but it manages renewals and notices on an on-going basis to ensure that the Company’s intellectual property is protected to the full extent possible under applicable law. See Item 1A - " Risk Factors – Risks Relating to the Company's Business and Industry – The Company's intellectual property may be difficult to protect." g. Confidentiality and Proprietary Rights — The Company requires employees and third parties to sign non-disclosure agreements prior to receiving any of the Company’s confidential information. Employees are also required to sign proprietary rights agreements regarding intellectual property they create for the Company. The Company uses standard precautions to protect confidentiality, including physical and electronic security measures. Cultivation The Company's proven cultivation practices have been engineered for scalability to meet long-term sales demand projections. The Company has conducted extensive development over the past several years to demonstrate that it can scale its cultivation operations significantly without sacrificing quality and consistency. 8 The Company has established infrastructure across multiple states in order to diversify the seed supply and maintain hemp biomass consistency through standardized mechanization. If needed, the Company believes it will be able to continue to rapidly scale cultivation by: (i) expanding cultivation sites; (ii) diversifying cultivation geographies to extend growing seasons and mitigate crop risk; (iii) increase seed production capabilities; and (iv) further mechanizing cultivation processes to ensure that raw material demand is satisfied without sacrificing quality and consistency. The Company maintains title to its hemp plants throughout the growing process. The Company grows its hemp plants outdoors on farms and is therefore subject to seasonal weather patterns in North America. The seeds or propagation are typically planted in the May-June timeframe and have no CBD content until September. The plants are then typically completely harvested and processed by the end of November of each year. Cultivation Overview The Company has grown its proprietary hemp plants in Arizona, Colorado, Kentucky, New Mexico, and Canada on owned and/or leased farmland operated by the Company or third-party farming operators. The Company is actively involved in all aspects of genetics development, propagation, seed production, cultivation, and harvesting. All hemp cultivation activities are done under the oversight of, and licensed by, each state’s Department of Agriculture, or Health Canada, each of which rigorously tests the Company’s crops to ensure compliance with each department’s hemp programs (including THC content of less than 0.3% on a dry weight basis). The Company and its third-party farming operators are in compliance with the regulations as outlined by Health Canada and each applicable Department of Agriculture and all hemp produced and sold by the Company constitutes hemp under the 2018 Farm Bill, as well as the laws of the states in which it produces and sells such hemp. Cultivation Research & Development Since its first crop production in 2014, the Company has taken a leadership position in advancing the technology surrounding all aspects of hemp production. The Company’s R&D efforts are being driven both by the increasing demand for the Company’s products and its desire to create an expanded portfolio of products that serve the customers’ needs. Breeding Division The breeding division's main purpose is to expand the Company’s proprietary hemp variety portfolio. This allows for successful cultivation expansion in both US and international markets, as well as creating innovative cannabinoid development for expanded product development. The breeding program has a variety of patents, including hemp hybrid varieties with proven disease resistance and increased yield which lowers cultivation costs of production. In addition to hybrid development, the division oversees the Company’s seed production and supply, import/export requirements, R&D hemp regulatory compliance, assists in state and federal legislative efforts and supports cultivation operations. Harvesting Harvesting continues to be a significant challenge in the broader hemp industry with current practices following the processes of the tobacco industry. Once the plants are harvested from the fields, they are hung upside down in outdoor dry structures. The dried plants are then further processed off the plant stalk for final storage. If processed at the correct moisture content, the shelf life of the harvested plants is proven to remain stable for at least four years. However, this method of drying creates scalability issues and can also cause potency loss in the raw material. With this harvesting process, there are limitations applicable to both available infrastructures and labor in agricultural regions. To mitigate these challenges, the Company has focused its Arizona, Colorado, Kentucky, New Mexico, and Canada cultivation teams on the development of new, more scalable processes to mechanize harvesting without sacrificing quality. The Company has successfully scaled the harvesting and drying process and believes it has enough capacity to meet the Company’s needs. Manufacturing The Company’s manufacturing operations are centered around the quality of its products and the efficiency of their production. The Company has proprietary extraction processes and recently developed the next generation of processes and equipment to serve the Company’s expanding production requirements and product offerings. The Company operates its finished products manufacturing in accordance with cGMP to create high quality products in the market. In 2020, the Company began operating from the LOFT, its 136,610-square foot manufacturing and extraction, warehouse, and distribution facility. The LOFT has been constructed using state of the art processes and equipment to deliver superior products to the Company’s customers. The facility efficiently executes the Company’s core competencies in R&D, product development, quality control, tincture manufacturing and filling, and product delivery. In 2025, the Company began manufacturing gummy and topical products at the LOFT. The Company believes it has sufficient capabilities to meet its core production requirements over the long term. The facility also has been designed to accommodate incremental manufacturing capacity as business needs require, including the strategic in-sourcing of contract manufactured products beyond tinctures. 9 Arrangements with Suppliers and Manufacturers The Company currently contracts key parts of supply chain management, including manufacturing, production, and packaging for non-proprietary aspects of its manufacturing process for certain of its products. These large-scale manufacturers reduce the reliance on internal manufacturing resources and allow for rapid scaling of production on an as needed basis. Extraction and Product Formulation The Company’s harvested hemp is delivered to the Company’s production facility in a coarse-ground form. At the facility, the extraction processes do not commence until the raw hemp material passes initial screenings for moisture content and toxic mold by-products (aflatoxins). Upon passing these screenings, the raw hemp material passes through one of two different extraction processes. The Company utilizes both Carbon Dioxide super critical fluid extraction ("SFE") and Alcohol Extraction ("AE") processes. These two processes and the resultant extracts have differing phytochemical profiles, which appeal to different customer bases. After processing, both the SFE and AE extracts are rigorously batch tested both internally and by third-party laboratories for cannabinoid potency, residual solvents, heavy metals, and pesticides. After passing these quality control tests, both the SFE and AE extracts are released into finished products production, where they are diluted with carrier food oils, either medium chain triglycerides from coconut oil or olive oil, or otherwise added to the Company’s products, including the chews or topical products. Some of the SFE extract is dedicated to capsule production. The Company’s topical, chews, and liquid products are currently blended, flavored, filled, labeled, and packaged into consumer cartons at either its production facility or at contract manufacturer facilities. Quality Management Systems In 2020, the Company obtained NSF's certification for current Good Manufacturing Practices for dietary supplements (NSF 455-2). NSF International’s dietary supplements certification is a globally recognized standard that establishes requirements for finished products and ingredients used, and is considered the gold standard for products in the dietary supplement space. Additionally, in January 2022, the Company achieved International Organization for Standardization (ISO) 17025 accreditation on its internal laboratory quality systems and chemistry methodology. In November 2025, the Company expanded its ISO 17025 accreditation to include its microbiology methodologies. This accreditation certifies that the Company meets the technical and quality benchmarks set by ISO for testing laboratory quality systems and analytical chemistry and microbiology testing methodology. The Company employs current cGMPs at each stage of its production. Adherence to cGMP regulations assures the strength, quality, purity, and composition of products by requiring that manufacturers adequately design, monitor, and control manufacturing operations. This includes establishing strong quality management systems, obtaining appropriate quality raw materials, establishing comprehensive standard operating procedures, detecting and investigating product quality deviations and maintaining reliable testing practices. This formal system of controls helps in preventing instances of contamination, deviations, failures, and errors. This ensures products manufactured under cGMP meet quality standards. The Company’s products meet regulatory guidelines for contaminants and are tested by independent third-party laboratories. Products are tested for, among other items: cannabinoid potency, residual solvents, microbial contaminants, mycotoxins, heavy metals, and pesticides. To create the highest quality products, the Company closely controls every step in the growing and manufacturing processes. This includes procedures and controls on the propagation and cultivation, hemp refinement, ingredient sourcing, manufacturing, packaging, and distribution processes. The control and visibility maintained through the Company’s substantial vertical integration allows for the continual monitoring and refinement of critical processes, resulting in high quality standardized products. Sales and Distribution Strategy The Company’s products are distributed through its e-commerce website (www.charlottesweb.com), third-party e-commerce websites, select distributors, and healthcare practitioners. The Company’s products are sold in chiropractic and doctors’ offices, direct delivery services, and pet stores. The Company sells its CBD CLINIC products into the practitioner market comprised of naturopathies, chiropractors, acupuncturists, physical and massage therapists, and functional practitioners, and continues to expand the total number of healthcare practitioners in the CBD CLINIC network. The market for the CBD CLINIC products is primarily served through national distributors. The Company believes that it can continue to capture and increase its market share in this market by increasing its sales and marketing efforts targeted at this market. 10 The Company utilizes e-commerce to reach consumers and guide them through the hemp and CBD buying process. The Company believes consumers rely heavily on digital research. Key to this approach is the ability to access consumers organically who are searching the web for "CBD" or "Charlotte’s Web" both on the Company's website as well as through linking from reliable providers of content and education. The Company’s website delivers on this through high levels of product purchase and engagement via opting into the Company’s email newsletter subscription. This indicates a higher level of interest in educational resources and product knowledge. Currently, orders are fulfilled through a LOFT fulfillment center located in Louisville, Colorado, and the use of third-party logistics providers. Marketing and Promotion The Company benefits from an authentic origination story linked to its first consumer served, Charlotte Figi. The story of how Charlotte’s mom, Paige Figi, desperately reached out to the Stanley Brothers seeking an alternative solution for her daughter’s wellness was captured and broadcasted in a CNN documentary by Dr. Sanjay Gupta. Data collection and customer analysis from e-commerce sales continues to be a significant component of the Company’s marketing strategy. Direct-to-consumer e-commerce sales give an unprecedented opportunity to gain meaningful insight into how to better support the customer based on data including buying habits, purchase frequency, and in many cases, why the product is being used. The Company has a subscription program. Through its subscription program, the Company utilizes a discount structure to encourage enrollment with a similar structure to online "subscribe and save" models. This is expected to deliver upside demand and repeat purchases from existing customers by enabling scheduled reorders and improved continuity in consumption. The Company continues to promote the awareness of its brands through investment in marketing programs, sponsorships and continued participation in events that offer wide exposure to both trade partners and consumer retail markets. Growth from the Existing Product Portfolio Through Marketing Initiatives The Company’s marketing mix strives to connect with audiences and the consumer journey through: • Paid, earned, and affiliate media to build awareness of the sector and the unique qualities of the Company’s brand equity and products • Search engine optimization ("SEO") and email marketing to drive consumer purchase and subscriptions on charlottesweb.com, the Company’s e-commerce platform • Partnerships and affiliates that reach expanded consumer segments • Public relations campaigns and events to amplify targeted social and media marketing communications • Trade marketing to increase visibility and differentiation of the Company's products in customer stores • Word of mouth and referrals from health care practitioners, their colleagues, and patients • Event marketing and support of various social responsibility initiatives Competition The Company is substantially vertically integrated from seed to packaged product, which helps ensure product quality. Being substantially vertically integrated and focusing on quality and standardization creates an important competitive differentiator for the Company, as the majority of its competitors are not substantially vertically integrated. The Company's knowledge of hemp cultivation, combined with its scientific and financial resources, allow it to maintain a strong market position amongst its competitors. The Company's principal competitors in the CBD wellness products space include companies such as , Medterra, SUNMED, Global Widget, CBD American Shaman, CBDfx, Wyld and PlusCBD . Information Systems The Company's primary enterprise resource planning ("ERP") system is a cloud-based system well-known for manufacturing, shipping, and receiving, inventory control, supply chain management, sales, accounting, and finance. In addition to this 11 centralized ERP system, supplemental peripheral software applications are used for specialized activities in finance, human resources, customer support, manufacturing, distribution, and marketing. Intellectual Property The Company's intellectual property and proprietary rights are important to its business. In efforts to secure, maintain, and protect its intellectual and proprietary rights, the Company relies on a combination of patent, trademark, trade secret, trade dress and other rights in the United States and Canada. The Company also has confidentiality and/or license agreements with certain employees, contractors and other third parties, which limit access to and use of the Company's proprietary intellectual property. Effective January 5, 2023, the Company entered into a Brand License and Option Agreement ("License Agreement") with JMS Brands LLC, an entity owned by Jesse Stanley. Pursuant to the Brand License and Option Agreement, the Company licensed certain intellectual property from JMS Brands LLC, for an annual license fee of $500,000. On January 5, 2024, the License Agreement expired. The Company currently has a portfolio of pending U.S. plant, utility and design patent applications directed to Charlotte's Web’s most promising plant genetics, proprietary extraction technology, cannabinoid isolation methods and cannabinoid conversion processes and industrial designs. The Company also has trademark registrations and pending applications for core Company brands, including registrations for the CHARLOTTE'S WEB mark in the U.S. and Canada. The Company now has earned a total of seven U.S. Utility Patents covering hemp varieties as it advances the science of hemp horticulture. The Company also has five Canadian Utility Patents covering the 'CW1AS1', 'Lindorea', 'Kirsche', 'AF15B15-21', and ‘EM15B2A170' hemp varieties. For each of the Company’s material patents, the chart below identifies (i) the patent, (ii) the type of intellectual property ("IP") subject to the patent, (iii) the jurisdiction where the patent is held, (iv) the title of the patent, (v) the inventor(s) and assignee(s), and (vi) the status of the patent. The patents listed below expire between 2039 and 2042, and cover novel hemp strains used or with potential use in Company products, or for other commercialization opportunities. Patent / Publication Type of IP / Jurisdiction Title / Inventor(s) / Assignee (s) Status / Comments US 11,666,016 2023-06-06 Utility - United States HEMP PLANT NAMED 'AF14B15-21' Campbell, Brian CHARLOTTE'S WEB, INC. ISSUED Related Technologies: • Protection for 'AF14B15-21' hemp line. US 10,653,085 2020-05-19 Utility - United States HEMP PLANT NAMED 'CW1AS1' Stanley, Joel Reel, Keri CHARLOTTE'S WEB, INC. ISSUED Related Technologies: • Protection for 'CW1AS1' hemp line. US 10,736,295 2020-08-11 Utility - United States HEMP PLANT NAMED 'CW1AS1' Stanley, Joel Reel, Keri CHARLOTTE'S WEB, INC. ISSUED Related Technologies: • Protection for 'CW1AS1' hemp line. 12 Patent / Publication Type of IP / Jurisdiction Title / Inventor(s) / Assignee (s) Status / Comments US 10,888,059 2021-01-12 Utility- United States HEMP PLANT NAMED 'LINDOREA' Reel, Keri CHARLOTTE’S WEB, INC. ISSUED Related Technologies: • Protection for 'LINDOREA' hemp line. . US 10,888,060 2021-01-12 Utility- United States HEMP PLANT NAMED 'KIRSCHE' Reel, Keri CHARLOTTE’S WEB, INC. ISSUED Related Technologies: • Protection for 'KIRSCHE' hemp line. US 11,503,787 2022-11-22 Utility- United States HEMP PLANT NAMED 'EM15B2A170' Campbell, Brian CHARLOTTE’S WEB, INC. ISSUED Related Technologies: • Protection for 'EM15B2A170' hemp line. US 12,382,891 2025-08-12 Utility- United States HEMP PLANT NAMED 'CW-676' Campbell, Brian CHARLOTTE’S WEB, INC. ISSUED Related Technologies: • Protection for 'CW-676' hemp line. CA 3,101,952 2022-01-25 Utility- Canada HEMP PLANT NAMED 'CW1AS1' Stanley, Joel Reel, Keri CHARLOTTE’S WEB, INC. ISSUED Related Technologies: • Protection for 'CW1AS1' hemp line. . CA 3,169,404 2023-02-07 Utility- Canada HEMP PLANT NAMED 'LINDOREA' Reel, Keri CHARLOTTE’S WEB, INC. ISSUED Related Technologies: • Protection for 'LINDOREA' hemp line. . CA 3,169,446 2023-03-07 Utility- Canada HEMP PLANT NAMED 'KIRSCHE' Reel, Keri CHARLOTTE’S WEB, INC. ISSUED Related Technologies: • Protection for 'KIRSCHE' hemp line. 13 Patent / Publication Type of IP / Jurisdiction Title / Inventor(s) / Assignee (s) Status / Comments CA 3,155,121 2023-01-31 Utility- Canada HEMP PLANT NAMED 'AF14B15-21' Campbell, Brian CHARLOTTE’S WEB, INC. ISSUED Related Technologies: • Protection for 'AF14B15-21' hemp line. CA 3,157,865 2023-02-07 Utility- Canada HEMP PLANT NAMED 'EM15B2A170' Campbell, Brian CHARLOTTE’S WEB, INC. ISSUED Related Technologies: • Protection for 'EM15B2A170' hemp line. The Company is subject to certain risks related to its intellectual property. For more information, see " Risk Factors –Risks Relating to the Company's Business and Industry – The Company’s intellectual property may be difficult to protect ." Employees and Human Capital As of December 31, 2025, the Company had 107 full time employees. Of these employees, 52 were employed in manufacturing operations positions, 29 were employed in sales and marketing positions, 20 were employed in general, quality, and administrative positions, 3 were employed in cultivation positions, and the remaining 3 employees were engaged in R&D aspects of the business. The Company believes it has an advantage in attracting employees with its purpose-based mission, B-Corp status, and its leadership position in the industry, and prides itself in attracting, retaining and developing individuals with complementary mix of professional experiences and industry knowledge. The Company values diversity in culture, race, and sexual differences and that employees may realize their professional goals through development programs and mentoring. The Company has assembled a management team with significant professional expertise in distribution, cultivation, sales, science, intellectual property, technology, finance, customer service, consumer packaged goods ("CPG"), marketing, business development, acquisitions, capital markets and market analysis. The Company’s management team includes executives with many years of experience in their respective fields. See " Risk Factors – Risks Relating to the Company's Business and Industry – The Company depends on key personnel and its ability to attract and retain employees ." Third-Party Suppliers, Service Providers and Distribution Although the Company is substantially vertically integrated, the Company obtains certain input components, such as packaging components, flavors, and certain raw materials, from third-party suppliers. None of the third-party suppliers are considered to be material to the business on a standalone basis and all supply input components are readily available from other suppliers in the market. If any given supplier or distributor is lost in a specific region, the Company believes these could be replaced without material disruption as it could contract with multiple alternative suppliers or distributors to provide the requisite service(s) and product(s). The Company is a substantially vertically integrated company that performs its own manufacturing for proprietary elements in the manufacturing process. The Company utilizes contract manufacturers for non-proprietary elements in its manufacturing process such as bottling and packaging. The Company manages risks that are associated with third-party distributors, manufacturers and suppliers by identifying and qualifying alternative distributors, manufacturers and suppliers. The Company regularly assess its supply chain for threats to business continuity. See " Risk Factors – Risks Relating to the Company’s Business and Industry – The Company relies on third-parties for the transportation of its hemp and hemp-derived products, any delay or failure by these third-parties to meet the Company’s transport needs could impact the Company’s operations and financial performance; Supply chain issues, including significant price fluctuations or shortages of materials, and distribution challenges may increase the Company’s cost of goods sold and cause its results of operations and financial condition to suffer ." 14 Building Brand Awareness Management believes the Charlotte’s Web brand is among the strongest in the hemp-derived CBD industry. Brand recognition will continue to be driven by several factors including: (i) earned media events similar to what has historically occurred with the Company with entities such as CNN, Today Show, the New York Times and Forbes; (ii) paid media and affiliate programming through targeted consumer campaigns on major platforms; (iii) email, social media and blogs; (iv) partnerships and influencer marketing; (v) use of subject matter experts; (vi) legislative participation; (vii) public speaking engagements at key industry and cultural events; and (viii) B-Corporation certification and social impact partnerships. In addition to these active outlets to build brand awareness, the Company supports word-of-mouth endorsements and testimonials from its customers who are advocates for its brands and products. Marketing activations and marketing-driven innovations are developed with the support of industry data through various insight partners. International Expansion The Company continues to explore increased global distribution. Expansion into additional jurisdictions will be done in compliance with applicable regulatory requirements in such jurisdictions and the cost and complexity of such compliance will form part of the strategic evaluation process for any proposed expansion. International penetration will be done primarily via local and regional sales and distribution partnerships. Regulatory Framework As a hemp-related business, the Company is subject to extensive regulation. The industry in which the Company operates is subject to regulation and control resulting from legislation enacted by the various levels of government. All applicable legislation is a matter of public record, and the Company is unable to predict what additional legislation or amendments governments may enact in the future. Changes to government regulation could impact the Company’s existing and planned operations or increase its operating expenses, which could have an adverse effect on the Company’s financial condition, results of operations and cash flows. For additional details on the regulatory risks facing the Company, see " Risk Factors – Risks Relating to the Regulatory Environment." United States Regulatory Matters The Company does not produce or sell medicinal or recreational marijuana or products derived therefrom. It sells hemp-based CBD products. While such products come from the same plant genus and species, hemp and marijuana are legally distinct and are generally regulated, respectively, by the 2018 Farm Bill (which refers to the Agricultural Act of 2018) and the CSA (which refers to the U.S. Controlled Substances Act, 21 USC § 801 et. seq.). Hemp, by legal definition, contains 0.3% THC or less on a dry weight basis. Consequently, the Company’s products are not sold pursuant to the rules and regulations governing the cultivation, transportation, and sale of medicinal or recreational marijuana. The Company cultivates, processes, transports, and sells its products pursuant to the 2018 Farm Bill and in accordance with applicable state and local laws. All hemp produced and sold by the Company constitutes hemp under the 2018 Farm Bill as well as under the laws of the states in which the Company cultivates, manufactures, and sells such hemp-based products. If sold internationally, products are sold in accordance with the laws of the importing and exporting jurisdiction. The 2018 Farm Bill permanently removed hemp and its derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers from the purview of the CSA. Hemp is now deemed an agricultural commodity, and is no longer classified as a controlled substance, like marijuana. Furthermore, by defining hemp to include its derivatives, extracts, and cannabinoids, 1 Congress impliedly removed popular hemp products, such as hemp-derived CBD, from the purview of the CSA. Accordingly, the U.S. Drug Enforcement Agency ("DEA") no longer has regulatory authority to interfere with the interstate commerce of hemp products, so long as the THC level of such products is at or below 0.3% on a dry weight basis. The 2018 Farm Bill also provides that state and Native American tribal governments may impose separate restrictions or requirements on hemp growth and the sale of hemp products, but they cannot interfere with the interstate transportation or shipment of lawfully produced hemp or hemp products. As a result of the 2018 Farm Bill, federal law now provides that CBD derived from hemp is not a controlled substance under the CSA. However, federal legislation enacted in November 2025 revised the federal definition of “hemp” to, among other changes, require that hemp and intermediate hemp-derived cannabinoid products contain a total THC concentration (including THCA) of no more than 0.3% on a dry weight basis, with an effective date of November 12, 2026. The law also limits final hemp products intended for human or animal use (ingestion, inhalation, topical use) to no more than 0.4 milligrams of total THC per container. Although this change would significantly impact the entire hemp supply chain, including the vast majority of hemp products in the market, several legislative efforts are underway to repeal or amend these provisions before they take effect in November 2026. States take varying approaches to regulating the production and sale of hemp and hemp-derived CBD. A number of states prohibit the sale of ingestible CBD products based on the FDA's position that, pursuant to the Federal Food, Drug and Cosmetic Act (the "FD&C Act"), it is unlawful to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived. Several states have also enacted or are 1 Agriculture Improvement Act of 2018 (section 10113) (defining hemp under the Agricultural Marketing Act of 1946, 7. U.S.C. 1621). 15 considering enacting sales channel limitations, THC limits and age-related sales restrictions for hemp-derived products. In addition, some states have adopted or are considering adopting total THC limits that align with the new federal requirements. The Company's activities related to the production, marketing and sale of its products comply with the 2018 Farm Bill, as applicable to its operations. However, certain government agencies (such as the FDA) and certain federal officials have challenged the scope of permissible commercial activity. FDA representatives, for example, have stated they believe that producers of some CBD-based products, including the Company, produce and sell their products in violation of the FD&C Act. Similarly, the Company’s marketing activities fall within the FDA’s jurisdiction, and in 2017, the FDA issued a Warning Letter to the Company for FD&C Act non-compliance, which the Company has responded to, in part to comply with the Warning Letter and in part to challenge FDA’s assertions in the letter. The Company has not received a response from the FDA and the Warning Letter remains open. Over the past several years, FDA has issued numerous Warning Letters to companies marketing CBD products with disease or unlawful drug claims. The letters reiterate the agency’s position that CBD cannot be added to food and dietary supplements and targeted companies whose products violated the FD&C Act’s prohibition against: i) marketing CBD as or in a dietary supplement, human and animal food, or food additives; ii) marketing a dietary supplement, human and animal food, or cosmetic with disease or drug claims (i.e., claims suggesting that a product is intended to treat, cure, or prevent disease); iii) including a substance in human or animal food when that substance is not GRAS; and iv) selling products that are misbranded due to their failure to include "adequate directions for use by a layperson". The FDA’s enforcement against the sale and marketing of CBD products has to date been limited to the issuance of Warning Letters, although enforcement could include civil and criminal penalties. The legal status of CBD non-drug products remain under active consideration by the FDA as of the date of this Form 10-K, as the agency continues to evaluate the potential regulatory frameworks that should apply to hemp-derived products intended for non-drug uses. In January 2023, the FDA issued a statement concluding that existing regulatory frameworks for dietary supplements and foods are not appropriate for CBD due to potential safety risks, and that it will work with Congress to develop an appropriate pathway for the regulation of CBD products. While the Company disagrees with the position of the FDA, there is a risk that this agency could take enforcement or regulatory actions against the Company. Legal barriers applicable to, and risks associated with, selling hemp and hemp-derived CBD products result from a number of factors, including the fact that hemp and marijuana are both derived from the Cannabis sativa L. plant, the uncertainty with respect to the newly enacted federal THC limits, the rapidly changing patchwork of state laws governing hemp and hemp-derived CBD, and the FDA’s position that it is unlawful to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, i.e., the FDA’s position that CBD cannot be marketed in a dietary supplement on the basis that substantial clinical trials studying CBD as a new drug were made public prior to the marketing of any food or dietary supplement containing CBD, and therefore food or dietary supplements are precluded from containing this ingredient, referred to as the IND Preclusion. However, the Company believes that the removal of hemp and its extracts, including CBD, from the CSA pursuant to the 2018 Farm Bill, and the establishment of multiple state regulatory frameworks that permit the sale of hemp-derived CBD products are positive developments. Currently, it is unclear whether Congress will move forward with legislation to allow CBD in dietary supplements in light of the FDA’s determination that a new regulatory pathway is needed. Timing for the FDA to develop a new pathway is also uncertain, but is likely to take several years. In addition, several members of Congress have voiced their support for legislation that would amend or repeal the changes to the definition of hemp, and the Administration has also signaled its support for changes to federal hemp policy through the President’s Executive Order addressing hemp regulation, which may also influence FDA’s efforts to regulate hemp products. United States Federal Regulation of Hemp Development of Current Regulatory Framework Summary In addition to customary regulations applicable to any commercial business, the Company’s operations are subject to state and federal regulation in respect of the cultivation of hemp and the production, distribution and sale of products intended for human ingestion or topical application and, with respect to certain products, by animals. Botanically, hemp is categorized as Cannabis sativa L ., a subspecies of the cannabis genus. Numerous unique, chemical compounds are extractable from hemp, including THC and CBD. These cannabinoids are responsible for a range of potential psychological and physiological effects. Hemp, as defined in the 2018 Farm Bill, is distinguishable from marijuana, which also comes from the Cannabis sativa L . subspecies, by its absence of more than trace amounts (0.3% or less) of the psychoactive compound THC. Although international standards vary, other countries, such as Canada, have used the same THC potency standards to define hemp. 16 The 2014 Farm Bill In 2014, Congress enacted the 2014 Farm Bill. The 2014 Farm Bill, the provisions of which expired as of December 31, 2021, authorized institutions of higher education and state departments of agriculture (and their contractual designees) to cultivate hemp, notwithstanding the CSA or any other federal law, provided that certain conditions are met. The scope of the 2014 Farm Bill was limited to cultivation that was: (a) for research purposes (inclusive of market research, which multiple federal agencies have confirmed includes commercial sales with a research purpose); (b) part of an "agricultural pilot program" or other agricultural or academic research; and (c) permitted by state law. Many states that adopted pilot programs under the 2014 Farm Bill have since replaced them with approved programs under the 2018 Farm Bill, which is further described below. 2 FDA Approval of Epidiolex On June 25, 2018, the FDA issued to GW Pharmaceuticals plc its approval for Epidiolex, the first cannabis-derived prescription medicine to be available in the U.S. The active ingredient in Epidiolex is CBD isolate created from marijuana-based plants. The 2018 Farm Bill The 2018 Farm Bill became law on December 20, 2018. Prior to this law, all non-exempt cannabis plants grown in the United States were scheduled as a controlled substance under the CSA, and as a result, the cultivation of hemp for any purpose in the United States without a Schedule I registration with the DEA was, unless exempted by the 2014 Farm Bill, illegal under federal law. The passage of the 2018 Farm Bill materially changed federal laws governing hemp by removing hemp from the CSA and establishing a federal regulatory framework for hemp cultivation. Specifically, the 2018 Farm Bill: (a) explicitly amended the CSA to exclude from the definition of marijuana all parts of the cannabis plant (including its derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not) containing a THC concentration of not more than 0.3% on a dry weight basis; (b) allows the commercial production and sale of hemp in interstate commerce; (c) establishes the USDA as the primary federal agency regulating the cultivation of hemp in the United States, while allowing states to adopt their own plans to regulate the same; and (d) affords farmers the opportunity to obtain crop insurance and research grants. The 2018 Farm Bill also excluded from the CSA definition of "tetrahydrocannabinol" any material, compound, mixture, or preparation that falls within the definition of hemp. By defining hemp to include its derivatives, extracts, and cannabinoids, popular hemp products, such as hemp-derived CBD, are no longer subject to DEA control. Accordingly, the DEA no longer has regulatory authority to interfere with the interstate commerce of hemp products, so long as the THC level of such products is at or below 0.3%. Although the DEA no longer regulates hemp, marijuana continues to be classified as a Schedule I controlled substance under the CSA. As a result, CBD and other cannabinoids, if derived from marijuana as defined by the CSA, also remain Schedule I controlled substances under U.S. federal law. Though chemically and genetically distinct, hemp and marijuana appear similar to the naked eye. The active enforcement against illegal marijuana and marijuana-based products under current federal law may inadvertently result in enforcement actions taken against hemp or hemp-derived products. The 2018 Farm Bill amends the Agricultural Marketing Act of 1946 to categorize hemp as an agricultural commodity under the regulatory purview of the USDA in coordination with state departments of agriculture. Although the USDA is the primary federal regulatory agency overseeing hemp cultivation in the United States, states, U.S. territories, and Indian tribes desiring to obtain (or retain) primary regulatory authority over hemp activities within their borders are allowed to do so after submitting a plan for regulation to the USDA, and receiving approval from the USDA for the same. Pursuant to the 2018 Farm Bill, states, U.S. territories, and tribal governments can adopt their own regulatory plans for hemp cultivation, even if more restrictive than federal regulations, so long as the plans meet minimum federal standards and are approved by the USDA. Hemp cultivation in states and tribal territories that do not choose to submit their own plans (and that do not prohibit hemp cultivation) will be governed by USDA regulation. On January 19, 2021, the USDA released the USDA Final Rule ("USDA FR"), which governs the domestic production of hemp under the 2018 Farm Bill. The USDA FR also specifies the provisions that a state or tribal hemp plan must contain to be in compliance with the 2018 Farm Bill. To date, the USDA has approved over 90 state and tribal hemp production plans. As noted above, state and tribal governments may impose separate restrictions or requirements on hemp cultivation and the sale of hemp products; however, states may not interfere with the interstate transportation or shipment of lawfully produced hemp or hemp products. This was confirmed in a May 2019 memorandum released by the USDA’s Office of General Counsel. That memorandum reiterated that, due to enactment of the 2018 Farm Bill, states and Native American tribes may not prohibit the interstate transportation or shipment of hemp lawfully produced under the 2014 or 2018 Farm Bills. 2 https://www.ams.usda.gov/rules-regulations/hemp/state-and-tribal-plan-review. 17 It is important to note that the 2018 Farm Bill preserves the authority and jurisdiction of the FDA, under the FD&C Act, to regulate the manufacture, marketing, and sale of food, drugs, dietary supplements, and cosmetics, including products that contain hemp extracts and derivatives, such as CBD. As a result, the FD&C Act will continue to apply to hemp-derived food, drugs, dietary supplements, and cosmetics introduced, or prepared for introduction, into interstate commerce. As a producer and marketer of hemp-derived products, the Company must comply with the FDA regulations applicable to manufacturing and marketing of FDA-regulated products. See "FDA Regulation", below. As of late 2025, the FDA has issued over 100 Warning Letters to companies marketing unapproved cannabis products, including those made from hemp. 3 These Warning Letters reference violations of the FD&C Act, including marketing CBD products claiming to treat medical conditions in humans and animals, promoting CBD products as dietary supplements, adding CBD to human and animal foods, producing products with delta-8 THC, and selling CBD products that people may confuse for traditional foods and beverages or in forms that are appealing to children. On January 26, 2023, the FDA issued a statement denying three Citizen Petitions that had asked the agency to conduct rulemaking to allow the marketing of CBD products as dietary supplements, and further stated that a new regulatory pathway would benefit consumers by providing safeguards and oversight to manage and minimize risks related to CBD products. The agency suggested that Congress create a new regulatory pathway that balances individuals' access to CBD products with the necessary oversight to manage risks, adding that it is prepared to work with Congress on this matter. In addition, the Federal Trade Commission ("FTC") has pursued enforcement actions against companies making deceptive marketing claims related to CBD products, including scientifically unsupported claims about the products’ ability to treat serious health conditions, such as cancer, heart disease, and Alzheimer’s disease. On December 20, 2022 the FTC released a new Health Products Compliance Guidance. The document replaces and expands upon previous guidance focused on substantiating health-related claims for dietary supplements, clarifying that the scope will cover all health-related product advertising. 4 The guidance describes in detail the amount and type of evidence needed to substantiate health-related claims, with more emphasis on the fact that the FTC, as a general rule, expects high quality randomized, placebo-controlled human clinical trials. On April 13, 2023, the FTC sent the Company and over 600 other companies a Notice of Penalty Offense letter. 5 The Notice letters are intended to put advertisers on notice that they should avoid deceiving consumers with advertisements that make unsubstantiated product claims. However, the letters are not Warning Letters and do not indicate or allege any wrongdoing, and it does not appear that the FTC engaged in subsequent enforcement action against any of the companies that received the letters. On July 5, 2023, the FDA and FTC jointly issued cease-and-desist letters to six companies for marketing "copycat" food products containing delta-8 THC 6 . Similar to the FDA Warning Letters issued in November 2022, the letters assert that the products are adulterated foods that can easily be mistaken for traditional foods like chips, cookies, candy, gummies or other snack food items and raised concerns that such products can be accidentally ingested by consumers, including children, or consumed at higher amounts than intended. On July 16, 2024, the FDA and FTC issued a second set of cease-and-desist letters to five companies marketing delta-8 THC products that resemble popular snacks and treats popular with children. Like the previous letters, the FTC stated that manufacturers’ online marketing of the products were deemed to be unfair or deceptive practices that put the health of young children at risk. These letters are part of the FDA and FTC’s ongoing joint effort to take action against companies selling copycat food products containing delta-8 THC 7 . Beyond the Notice of Penalty Offense letters and letters to delta-8 THC marketers, the FTC has not publicly initiated compliance or enforcement actions involving hemp product marketers, or marketers of dietary supplements, food, and cosmetics generally. FTC representatives under the current administration have also indicated that they believe the Health Products Compliance Guidance does not have the force of law, which suggests that the FTC is unlikely to pursue investigations based on the positions outlined in the guidance. However, the FTC continues to actively enforce against potential violations of its Made in the U.S.A. rule and deceptive practices related 3 https://www.fda.gov/news-events/public-health-focus/warning-letters-cannabis-derived-products 4 https://www.ftc.gov/system/files/ftc_gov/pdf/Health-Products-Compliance-Guidance.pdf. 5 https://www.ftc.gov/system/files/ftc_gov/pdf/Sample-cover-letter-substantiaton.pdf. 6 https://www.ftc.gov/news-events/news/press-releases/2023/07/ftc-sends-cease-desist-letters-fda-companies-selling-edible-products-containing-delta-8-thc. 7 https://www.ftc.gov/news-events/news/press-releases/2024/07/ftc-fda-send-second-set-cease-desist-letters-companies-selling-products-containing-delta-8-thc. 18 to subscription programs and other online services. Scrutiny of social media marketing practices, e.g., disclosures of material connections by influencers, and deceptive practices related to product reviews are also priorities for the FTC. DEA IFR On August 21, 2020, the DEA issued an interim final rule (the "DEA IFR") concerning implementation of the 2018 Farm Bill. Even though the 2018 Farm Bill removed hemp from scheduling under the CSA, the DEA IFR purports to clarify that material that exceeds 0.3% delta-9 THC remains controlled in Schedule I of the CSA. Additionally, the DEA IFR states that the 2018 Farm Bill does not impact the control status of synthetically derived THCs, for which the DEA claims that the amount of delta-9 THC is not a determining factor in whether the material is a controlled substance. The DEA IFR has caused consternation throughout the hemp industry because of concerns that it confuses the legality of in-process hemp extract material that may temporarily and unintentionally exceed 0.3% delta-9 (before returning to or below 0.3% delta-9 THC in finished form). However, DEA spokesperson Sean Mitchell has indicated that the DEA is aware of the hemp industry’s policy concerns and "has higher enforcement priorities, such as opioids and methamphetamine." To date, the DEA has not enforced the IFR and the Company believes the DEA IFR is improper and unconstitutional. It is possible that legal protections for in-process hemp extract and issues such as raising the THC limit for hemp in the field and establishing permissible THC levels in finished hemp products may be addressed in new federal legislation, regulation, or a definitive judicial interpretation of existing legislation and rules. Congress Currently, the timing for legislation that may include changes to the definition of hemp and a new potential regulatory pathway for CBD developed by the FDA is uncertain. While authorizing legislation could be introduced in 2026, the FDA’s development and implementation of a new pathway would likely take several years. As such, it is possible Congress may introduce and move forward with legislation that would authorize a pathway for hemp-derived CBD in a more efficient manner, and would permit the use of CBD in dietary supplements and/or food, while also addressing the definition of hemp in the same or a separate legislative measure. The Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 (H.R. 5371), enacted on November 12, 2025, ended a government shutdown but included a significant, controversial provision adversely impacting the hemp industry. This act (Section 781) revised the federal definition of hemp by changing the THC concentration limit from 0.3% delta-9 THC on a dry weight basis to a total THC limit (including THCA) of 0.3% on a dry weight basis, with an effective date of November 12, 2026, giving the industry a one-year transition period to comply. The new total THC limit also applies to intermediate (i.e., in-process) hemp-derived cannabinoid products. Additional changes to the definition of hemp include limiting final hemp products intended for human or animal use (ingestion, inhalation, topical use) to no more than 0.4 milligrams of total THC per container, regardless of the container size. This would negatively impact a large percentage of existing full-spectrum, broad-spectrum, and many other hemp products in the market and throughout the supply chain, as it also impacts hemp farming and processing activities. Several legislative efforts are underway to repeal or amend these provisions before they take effect in November 2026. President’s Executive Order On December 18, 2025, the President signed an Executive Order (“EO”) titled “Increasing Medical Marijuana and Cannabidiol Research” to accelerate federal research on medical cannabis, direct the Attorney General to expedite rescheduling marijuana from Schedule I to Schedule III under the CSA, and task federal agencies with developing a regulatory framework for hemp‑derived cannabinoid products such as CBD. 8 The order recognizes the evidence and growing interest in CBD and THC for pain management, while also acknowledging that the changes in federal law taking effective in November 2026 will result in full-spectrum CBD products becoming controlled under the CSA. Thus, the order signals the Administration’s intent to work with Congress on updating the legal framework to advance research and ensure access to full‑spectrum CBD products. In November 2025, the Center for Medicare and Medicaid Services (“CMS”) issued proposed changes to its regulations covering Supplemental Benefits for the Chronically Ill to allow access to lawful hemp-derived products, including hulled hemp seed, hemp seed oil, and hemp seed protein powder. 9 While the CMS proposed rule would allow only limited hemp products, during the EO’s signing ceremony, CMS Administrator Dr. Mehmet Oz announced a Medicare pilot program that would allow reimbursement for certain physician-recommended CBD products. Collectively, these actions indicate wider support for changes to the federal definition of hemp and that a lawful pathway for full-spectrum CBD is a priority for the Administration, which could positively influence federal legislative efforts. However, if these efforts are unsuccessful and 8 U.S. President, Executive Order on Increasing Medical Marijuana and Cannabidiol Research, Dec. 18, 2025, https://www.whitehouse.gov/presidential-actions/2025/12/increasing-medical-marijuana-and-cannabidiol-research/. 9 Medicare Program; Contract Year 2027 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, and Medicare Cost Plan Program, 90 Fed. Reg. 54894 (Nov. 28, 2025), https://www.govinfo.gov/content/pkg/FR-2025-11-28/pdf/2025-21456.pdf 19 the revised definition goes into effect in November 2026, it would have a have a material adverse impact on the Company’s business, financial condition and results of operations. State Regulation of Hemp in the United States At present, the Company sources its hemp and hemp-derived ingredients from farming operations and ingredient suppliers that are in compliance with state and federal regulations. However, the Company is aware of variations in certain states’ definition of hemp as compared with the definition of hemp in the 2018 Farm Bill, although the majority of states have aligned their definition of hemp with the federal definition. All hemp produced and sold by the Company constitutes hemp under the 2018 Farm Bill as well as under the laws of the states in which the Company cultivates, manufactures and sells such hemp-based products. Under the 2018 Farm Bill, states retain significant discretion and authority to adopt their own regulatory regimes governing hemp production. As a result, regulation of hemp and the products derived therefrom will likely continue to vary on a state-by-state basis even though the 2018 Farm Bill has been fully implemented. In addition, states take varying approaches to regulating the production and sale of hemp-derived CBD. The majority of states explicitly authorize and regulate the sale of hemp-derived CBD products subject to certain requirements and restrictions, or otherwise provide legal protection for authorized individuals to engage in commercial hemp activities. Additionally, a number of states prohibit the sale of ingestible CBD products based on FDA’s position that, pursuant to the FD&C Act, it is unlawful to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived. Since the Company’s products are specifically excepted from the CSA by the 2018 Farm Bill’s definition of hemp, it is the Company’s position that such state laws would specifically except them as well. The regulatory environment at the state level for hemp-derived products is highly fragmented. States have adopted different definitions of allowable cannabinoids, potency limits, serving sizes, packaging and labeling requirements, testing requirements, age restrictions, and sales channel limitations. Several states have enacted specific rules governing hemp-derived delta-9 THC products, including potency limits, product registration and sales channel limitations. These divergent laws may require reformulation, labeling adjustments, packaging updates, and market-specific strategies. Certain products may not be legal for sale in particular states, and the Company’s distribution decisions must account for these differences. Several states are currently considering legislation imposing similar restrictions, with some contemplating updates to their laws to align with the recent federal legislative changes. The Company understands that there are risks of state and local law enforcement or regulatory action, and the state-specific requirements may vary significantly. FDA Regulation The governing food and drug law in the United States is the FD&C Act. One purpose of the FD&C Act is to forbid the movement in interstate commerce of adulterated and misbranded food, drugs, devices and cosmetics. 10 The FDA is responsible for protecting the public health by ensuring the safety, efficacy, and security of human and veterinary drugs, biological products, and medical devices; and by ensuring the safety of the nation's food supply, cosmetics, and products that emit radiation. 11 The FD&C Act prohibits the use in a food or dietary supplement of an ingredient that has already been approved as a new drug, or an article authorized for investigation as a new drug for which substantial clinical investigations have been instituted and made public. To date, the FDA has approved one product containing CBD as a drug, and continues to take the position that CBD cannot be marketed as a dietary supplement or added to food because a product containing CBD was approved as a drug and substantial clinical trials studying CBD as a new drug were made public prior to the marketing of any food or dietary supplements containing CBD, and therefore dietary supplements or food are precluded from containing this ingredient. While the Company disagrees with the FDA's position, this creates additional barriers to selling certain CBD and CBD-based products in the U.S. Notably, the FDA does not impose the same restrictions on the use of CBD in cosmetic products. The agency states on its website that "[c]ertain cosmetic ingredients are prohibited or restricted by regulation, but currently that is not the case for any cannabis or cannabis-derived ingredients." 12 However the FDA further notes that such products must comply with all applicable legal requirements including the adulteration and misbranding provisions of the FD&C Act specific to cosmetic products. The Dietary Supplement Health and Education Act (the "DSHEA"), an amendment to the federal FD&C Act, established a framework governing the composition, safety, labeling, manufacturing, and marketing of dietary supplements in the United States. Generally, under the DSHEA, dietary ingredients marketed in the United States prior to October 15, 1994 may be used in dietary supplements without 10 https://www.fda.gov/about-fda/fda-basics/how-did-federal-food-drug-and-cosmetic-act-come-about. 11 U.S. Food and Drug Administration, Mission Statement: https://www.fda.gov/about-fda/what-we-do. 12 U.S. Food and Drug Administration, "FDA Regulation of Cannabis and Cannabis-Derived Products, Including Cannabidiol (CBD), Questions and Answers," https://www.fda.gov/news-events/public-health-focus/fda-regulation-cannabis-and-cannabis-derived-products-including-cannabidiol-cbd#qandas. 20 notifying the FDA. "New" dietary ingredients (i.e., dietary ingredients "not marketed in the United States before October 15, 1994") must be the subject of a new dietary ingredient notification submitted to the FDA unless the ingredient has been "present in the food supply as an article used for food" and is not "chemically altered". Any NDI notification must provide the FDA with evidence of a "history of use or other evidence of safety" establishing that use of the dietary ingredient "will reasonably be expected to be safe." 13 As noted above, the FDA has taken the position that CBD cannot be marketed as a dietary supplement because it has been the subject of investigation as a new drug (referred to as "IND Preclusion"). According to the FDA, the submission of the IND for Epidiolex and Sativex by Greenwich Biosciences, the U.S. subsidiary of London-based GW Pharmaceuticals, preceded the sales and marketing of CBD as a dietary supplement. Excluded from the DSHEA definition of a dietary supplement is: "an article authorized for investigation as a new drug, antibiotic, or biological for which substantial clinical investigations have been instituted and for which the existence of such investigations has been made public, which was not before such approval, certification, licensing, or authorization marketed as a dietary supplement or as a food unless the Secretary, in the Secretary’s discretion, has issued a regulation, after notice and comment, finding that the article would be lawful under this Act." 14 It is the FDA’s interpretation of the IND Preclusion that the preclusion date is the date in which it authorized the drug for investigation; however, the Company believes there are significant arguments against this position in that all conditions of the statute must be met before the IND Preclusion applies, including (1) authorization for investigation as a new drug; (2) substantial clinical investigations must be instituted; (3) such substantial investigations must be made public; and (4) all of the above must occur prior to the marketing of the article as a food or dietary supplement. In response to a Citizen Petition challenging the FDA’s application of the IND preclusion to beta-nicotinamide mononucleotide (“NMN”) on similar grounds (i.e., that the conditions of the statute were not met), the FDA rejected industry’s arguments, indicating that the agency’s position is unlikely to change with respect to the preclusion date and whether “substantial” clinical investigations must have been instituted for the IND Preclusion to apply. 15 Importantly, however, the FDA reversed its position that NMN is excluded from the definition of dietary supplement under DSHEA, finding that “lawful” marketing is not required for purposes of determining whether a dietary supplement or food containing the article was marketed prior to the article being authorized for investigation as a new drug. Although the FDA’s determination is specific to NMN and other factors like safety would play a dispositive role (since the FDA had already acknowledged the safety of NMN), it does indicate that the agency may be willing to consider evidence of CBD’s marketing in dietary supplements or food prior to its investigation as a drug, which is a positive development for CBD and potentially other cannabinoids. On July 23, 2021, the Company was advised by the FDA of its objection to a New Dietary Ingredient Notification ("NDIN") submitted by the Company earlier in 2021. The FD&C Act requires that manufacturers who wish to market dietary supplements that contain NDIs notify the FDA with their basis for concluding that a dietary supplement containing the NDI will reasonably be expected to be safe. The Company’s submission was objected to on the basis that its CBD-containing a full-spectrum hemp extract does not meet the definition of a dietary supplement due to the IND Preclusion and insufficient safety data. The Company does not agree with a number of conclusions reached by the FDA, in particular, its analysis of safety data provided. While the objection has not impacted the Company’s existing business, the Company will continue to engage with the FDA and lawmakers with the objective of securing a favorable ruling and/or facilitating the enactment of definitive legislation establishing an appropriate regulatory environment to protect consumers and to establish guidance for manufacturers and marketers of CBD-containing dietary supplements. The CBD CLINIC and CBD MEDIC brands include products that are OTC drug products regulated by the FDA. To legally market an OTC drug product, the FD&C Act and FDA regulations promulgated under its authority require FDA approval of a New Drug Application ("NDA") that includes substantial evidence of effectiveness based on adequate and well-controlled studies, or an Abbreviated New Drug Application ("ANDA"). Alternatively, an OTC drug product may be marketed without an FDA approved NDA or ANDA if the drug product is manufactured in compliance with an OTC drug regulation, referred to as a monograph, which has been established for that therapeutic class of drug. The OTC drug monographs identify permissible active ingredients, labeling, and claims. OTC monographs generally do not specify inactive ingredients that may be used in the manufacture of OTC drugs. OTC drugs marketed in compliance with a final monograph are generally recognized and safe and effective, and are exempt from premarket approval requirements. On May 2, 2023, the FDA issued the final monograph titled "Over-the-Counter (OTC) Monograph M017: External Analgesic Drug Products for Over-the-Counter Human Use." The FDA allows drug products that comply with the tentative final monograph to be 13 21 U.S. Code § 350b(a)(2). 14 21 U.S. Code § 321(ff)(3)(B). 15 U.S. Food and Drug Administration, Response Letter from FDA Human Foods Program to Natural Products Association and Alliance for Natural Health USA (September 29, 2025), https://www.regulations.gov/document/FDA-2023-P-0872-2754. 21 marketed under its enforcement discretion policy. Formulation, labeling, and marketing must conform to the final monograph, or the OTC drug products may be considered adulterated or misbranded under the FD&C Act. The active ingredients in the Company’s products offered under CBD CLINIC and CBD MEDIC brands (menthol and camphor) are currently covered by the Over-the-Counter (OTC) Monograph M017: External Analgesic Drug Products for Over-the-Counter Human Use. The final monograph does not specify or otherwise address what inactive ingredients may be used in external analgesic drug products. Inactive ingredients do not require individual approval by the FDA. The FDA evaluates an inactive ingredient within the context of an NDA. After approval of the NDA, the FDA will list the inactive ingredients in the approved drug product in the FDA’s Inactive Ingredient Database. Based on the listings in this Database, the FDA has not approved an NDA for a new drug containing CBD as an inactive ingredient. FDA does not list OTC inactive ingredients in the Inactive Ingredient Database for OTC drug products manufactured and marketed in accordance with an OTC monograph. It is the drug manufacturer’s responsibility to ensure the suitability and safety of the inactive ingredients in its OTC monographed drug products. On March 22, 2021, the FDA issued a news release announcing the issuance of Warning Letters to two companies for selling OTC products labeled as containing CBD, alleging that the products are illegally marketed unapproved drugs. 16 Similar Warning Letters were issued to CBD companies in 2021 and 2022. The letters explain that, because CBD has known pharmacological effects on humans, with demonstrated risks, it cannot be legally marketed as an inactive ingredient in OTC drug products that are not reviewed and approved by the FDA. In the letters, the FDA also alleged the products are misbranded due to the prominent featuring of CBD on the labeling, which the FDA stated is misleading because it presents the CBD inactive ingredients "in a manner that creates an impression of value greater than their true functional role in the formulation." 17 Since 2022, the FDA has not issued similar letters to marketers of CBD-containing OTC products, or issued any public statements with respect to the use of CBD in OTC drugs. The agency has also removed the news release from its website. The Company's CBD CLINIC and CBD MEDIC products are manufactured by a third-party manufacturer, Aidance Scientific, Inc. (Aidance), in an FDA-registered facility which complies with GMP requirements. The CBD CLINIC and CBD MEDIC products are manufactured under the Aidance Manufacturing, Fulfillment & Business Services Agreement and are labeled and marketed in compliance with the Over-the-Counter (OTC) Monograph M017: External Analgesic Drug Products for Over-the-Counter Human Use as described above. As such, the Company takes the position that these products are exempt from the requirements for an NDA or ANDA pre-market approval. Aidance, as the manufacturer, has registered its facility as a drug establishment and Aidance and the Company have submitted to FDA for National Drug Code ("NDC") numbers for the OTC drug products. There is no assurance that the position taken by the Company that its products are exempt from the requirements for an NDA or ANDA pre-market approval will not, in the future, be challenged by the FDA, which could result in material adverse effects to the Company and its business. The FD&C Act provides that a substance added to food is unsafe unless the substance is GRAS ("Generally Recognized as Safe"). The FDA has not recognized CBD as GRAS for human consumption, although certain hemp seed derivatives may be considered GRAS. 18 Further research is needed to determine if other cannabinoids would be considered GRAS or what steps would be necessary for them to be recognized as GRAS. In the meantime, stakeholders including the Company are collecting data to pursue a GRAS determination for CBD, as the FDA has indicated it cannot conclude that CBD is GRAS due to the current lack of information to support this determination. On March 6, 2020, the Company achieved self-affirmed GRAS status for its hemp extract, adding to the current body of scientific literature on the safe use of CBD. Enforcement of this prohibition on the use of CBD in food has been generally limited to products making unlawful drug or disease claims, with the FDA also asserting its position that CBD is not a permissible food or dietary supplement ingredient. The Company’s products containing CBD derived from hemp are not marketed or sold using claims that the products are intended to diagnose, mitigate, treat, cure, or prevent disease in violation of the FD&C Act. Of note, the FDA is likely to issue a proposed rule that would amend the GRAS regulations to require mandatory submission of GRAS notices for both human and animal food substances that are purported to be GRAS, which would essentially eliminate the self-affirmed GRAS pathway. As of December 1, 2025, the proposed rule was pending review by the White House Office of Management and Budget, which signals that FDA could issue the rule by mid-2026 or earlier. Because GRAS reform is a high priority for the FDA and the Secretary 16 See, e.g., U.S. Food and Drug Administration, Waring Letter to Honest Globe, Inc., https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/warning-letters/honest-globe-inc-597177-03152021. 17 See 21 CFR 201.10(c)(4), Drugs; statement of ingredients. 18 In December 2018, FDA stated it had no questions following the submission of three GRAS notifications concluding that hulled hemp seed, hemp see protein powder, and hemp seed oil are GRAS for the intended conditions of use outlined in the notifications: https://www.fda.gov/food/cfsan-constituent-updates/fda-responds-three-gras-notices-hemp-seed-derived-ingredients-use-human-food. 22 of Health and Human Services, the rule may be fast-tracked with an abbreviated notice-and-comment period. However, questions have been raised about whether FDA can require mandatory GRAS submissions without federal legislation that amends the FD&C Act’s food additive provisions, raising the possibility of a legal challenge to the proposed rule. Several bills have also been introduced in Congress aimed at GRAS reform. Currently, it is unclear how these proposals would affect hemp-derived ingredients given the FDA’s position and potential for a new regulatory pathway for hemp-derived products, and any changes as the result of a new GRAS rule or legislation are not expected to take effect immediately. As noted above, in January 2023, the FDA stated that a new regulatory pathway is necessary to provide safeguards and manage the risks related to CBD products. In the statement, the agency suggested that Congress create a new regulatory pathway that balances individuals' access to CBD products with the necessary oversight to manage these risks, adding it is prepared to work with Congress on this matter. The FDA also noted that it "will continue to take action against CBD and other cannabis-derived products to protect the public, in coordination with state regulatory partners, when appropriate" and "will remain diligent in monitoring the marketplace, identifying products that pose risks and acting within our authorities." Based on this statement, a significant shift in the enforcement landscape is not expected. In the past year, Warning Letters for cannabis-derived products have primarily focused on delta-8 THC products 19 . Despite the position taken by the FDA that there is no evidence of CBD being marketed as a food or dietary supplement prior to drug trials being commenced and made public, the Company believes there is substantial uncertainty and different interpretations among state and federal regulatory agencies, legislators, academics and businesses as to whether cannabinoids including CBD were present in the food supply and marketed prior to October 15, 1994 or whether such inclusion of cannabinoids is otherwise permitted by the FDA as dietary ingredients. As a result, the Company believes the federal legality regarding the distribution and sale of hemp-based products intended for human consumption must be considered on a case-by-case basis and that the uncertainties cannot be resolved without further federal legislation, regulation or a definitive judicial interpretation of existing legislation and rules. However, if the FDA were to enforce the IND Preclusion based on its interpretation of the legislation, this would have a materially adverse effect upon the Company and its business. Currently it is unclear whether Congress will move forward with legislation to permit the use of CBD in dietary supplements, given FDA’s January 2023 determination that existing regulatory frameworks are not appropriate for CBD. Continued delays in the development of a regulatory pathway for CBD may have a materially adverse effect on the Company and its business. Future Uncertainty of Legal Status There remain a number of considerations and uncertainties regarding the cultivation, sourcing, production, distribution, marketing and sale of hemp and products containing hemp derivatives. Applicable laws and regulations remain subject to change as there are different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses. The interplay of these federal, state, and local regulatory frameworks creates a dynamic and often uncertain regulatory environment. The Company expects continued evolution in the laws governing hemp-derived cannabinoids, including potential congressional action, FDA rulemaking, state legislation, and state agency rulemaking. The uncertainties likely cannot be resolved without further federal legislation, regulation or a definitive judicial interpretation of existing legislation and rules. Environmental Regulation The Company’s hemp products and cultivation operations are subject to federal, state and local environmental regulations and permitting requirements regarding air emissions, water discharges and the handling and disposal of hazardous wastes, among other matters. Compliance with such regulations and requirements have not had, nor are they expected to have, any direct material effect on the Company’s capital expenditures, earnings or competitive position. However, such factors could indirectly affect the Company and its business, operations, vendors or suppliers, or could impact those with whom the Company serves or is served by in the supply chain for the Company’s products. While the Company has no reason to believe the operation of its facilities violates any such regulations or requirements, if such a violation were to occur, or if environmental regulations were to become more stringent in the future, the Company could be adversely affected. International Regulatory Matters Legislative approaches to the regulation of CBD-related products vary country by country, including local regulations with respect to THC content, and continue to evolve. In some cases, there may be a disconnect between a foreign country’s import requirements and the United States’ export requirements with respect to hemp. The Company makes decisions as to international expansion upon completion of a regulatory review and assessment of risk. The Company has sold its products in Canada, and other jurisdictions through third-party distributors who take delivery in bulk and manage individual orders. Each of these countries regulates the import of cannabis-derived products and requires some form of importation license, permit or other documentation for products. The exact nature of the importation documentation varies from country to country, and 19 https://www.fda.gov/news-events/public-health-focus/warning-letters-cannabis-derived-products 23 is affected by various factors, including the level of THC content and the intended use of the product. For example, in certain international jurisdictions, CBD products may be regulated as a dietary supplement and subject to local packaging and labelling requirements, whereas in certain jurisdictions a prescription from a licensed medical practitioner is required. See " Risk Factors – Risks Relating to the Regulatory Environment – The Company is subject to regulations that could impact its ability to sell its product internationally ." Additional Information The Company’s head office is located at 700 Tech Court, Louisville, Colorado, United States 80027 and its registered and records office is located at Suite 2700 Park Place, 1133 Melville Street, Vancouver, British Columbia, Canada V6E 4E5. The Company's website address is www.charlottesweb.com. The Company has a Code of Business Conduct and Ethics posted on this site. The information provided on the Charlotte’s Web website is not part of this or any other report filed with or furnished to the SEC.