What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-05-13 compared with 2025-11-12 · 113 added, 173 removed, 175 unchanged (62% of the section changed)

4 unchanged sentences

Instead, they are based on current beliefs, expectations or assumptions regarding the future of the business, future plans and strategies, operational results and other future conditions.

All statements other than statements of historical fact included in this Form 10-Q regarding the prospects of Charlotte's Web Holdings, Inc., ("Charlotte's Web", the "Company" or "we"), the industry or its prospects, plans, financial position or business strategy may constitute forward-looking statements.

All statements other than statements of historical fact included in this Form 10-Q regarding the prospects of Charlotte's Web Holdings, Inc.

("Charlotte's Web", the "Company" or "we"), the industry or its prospects, plans, financial position or business strategy may constitute forward-looking statements.

In addition, forward-looking statements generally can be identified by the use of forward-looking words such as "plans," "expects" or "does not expect," "is expected," "look forward to," "budget," "scheduled," "estimates," "forecasts," "will continue," "intends," "the intent of," "have the potential," "anticipates," "does not anticipate," "believes," "should," "should not," or variations of such words and phrases that indicate that certain actions, events or results "may," "could," "would," "might," or "will," "be taken," "occur," or "be achieved," or the negative of these terms or variations of them or similar terms.

17 unchanged sentences

BUSINESS OVERVIEW

Charlotte's Web Holdings, Inc., is a Certified B Corp headquartered in Louisville, Colorado, which conducts the majority of its business in the United States.

Charlotte's Web Holdings, Inc.

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

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

5 unchanged sentences

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

As of September 30, 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 to assess a lower-level unit of operations in isolation.

As of March 31, 2026, the Company operated in a single operating and reportable segment, with hemp-derived CBD wellness products making up the majority of the revenue of the Company products.

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

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

7 unchanged sentences

Recent Developments

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

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

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

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

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

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

Charlotte's Web believes expanding beyond CBD leverages the Company's brand recognition, intellectual property, and partnerships, including an ongoing collaboration with DeFloria LLC ("DeFloria") for botanical drug development.

As of September 30, 2025 , several states have adopted new regulations that will impact the Company's ability to sell certain products as currently formulated or packaged in these states.

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

The Company's strategic transformation includes product diversification beyond CBD into functional mushroom, minor cannabinoid, and hemp-derived THC categories.

Additionally, the Company has upgraded its eCommerce platform to improve conversion and consumer engagement metrics, and expanded omnichannel distribution across diverse platforms.

The Company launched Brightside™ precision low-dose hemp THC gummies.

These products feature proprietary TiME INFUSION® rapid-onset technology, delivering effects in 5-15 minutes versus 1-2 hours for traditional edibles.

The product line expanded throughout the year to include Rest & Relax, Focus & Flow, Relieve & Ease, and Brightside Knockout, a THC+CBN formulation for comprehensive sleep support.

The Company further expanded its sleep category leadership with the Quiet Sleep functional mushroom gummy, building on the success of CBN Stay Asleep Gummies.

The Company also entered the cognitive wellness segment with CBG Focus & Attention Gummies, offering a plant-based alternative in the growing nootropics category.

This diversified botanical wellness portfolio spans hemp-derived THC, minor cannabinoids, and functional mushrooms.

Charlotte's Web achieved significant milestones in vertical integration and cost optimization during 2025.

The Company completed full internalization of Brightside™ gummy production, providing multi-million-unit manufacturing capacity with improved quality control and supply chain resilience.

Consistent with prior periods , states continue to adopt new regulations that will impact the Company's ability to sell certain products as currently formulated or packaged in these states.

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

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

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

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

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

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

In February 2025, the Company announced that the U.S.

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

The FDA has cleared DeFloria to proceed with its planned FDA Phase 2 clinical trial for its botanical pharmaceutical candidate, AJA001 Oral Solution, a treatment for symptoms of autism spectrum disorder ("ASD").

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

The FDA has concluded that DeFloria may now proceed with its planned FDA Phase 2 clinical trial for its botanical pharmaceutical candidate, AJA001 Oral Solution, a treatment for symptoms of autism spectrum disorder ("ASD").

DeFloria is a collaboration including the Company and AJNA to develop AJA001 as a treatment for

irritability associated with autism spectrum disorder.

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

The Company and MLB entered into a letter agreement ("PRA Letter Agreement") terminating the MLB Promotional Rights Agreement as of May 13, 2025 and waives the Company's obligation to pay the remaining aggregate rights fee of $18 million for the current and remainder of the term of the MLB Promotional Rights Agreement.

In December 2025, the Company announced that it is planning to participate as a CBD provider supporting the treatment of senior oncology patients under the potential landmark pilot program by the Center for Medicare and Medicaid Innovation ("CMMI").

For the first time, seniors living with cancer could access science-backed CBD products with coverage through some areas of Medicare, creating a new model of care that prioritizes personalization, accessibility, and affordability.

Through CMMI, this initiative represents a transformative moment in senior healthcare policy, introducing long-awaited flexibility and optionality for patients and providers seeking therapeutic hemp products.

The Company will offer a set of products to address oncology patient needs in 2026 through a secure online healthcare portal.

The platform combines eCommerce technology with advanced data security to protect patient and physician information and part of the Company's continued expansion to its already established medical channel business.

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$13.6 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 ("VWAP") 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

Selected Financial Information

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2025 2024 2025 2024

Total revenues

$ 11,503 $ 12,587 $ 36,571 $ 37,000

Cost of goods sold

7,026 5,914 19,874 20,834

4,477 6,673 16,697 16,166

Selling, general, and administrative expenses

9,731 12,693 31,371 42,700

Operating loss $

1 unchanged sentence

Other income (expense), net

600 (1,189) (813) (584)

Net loss before income taxes

$ (5,854) $ (5,787) $ (18,356) $ (26,416)

Total assets $ 81,599 $ 119,644

Income tax benefit (expense) 3

Total liabilities

For The Three Months Ended September 30, 2025 and 2024

The majority of the Company’s revenue is derived from sales of branded products to consumers via the Company’s DTC e-commerce website, and distributors.

The majority of the Company's revenue is derived from sales of branded products to consumers via the Company's DTC eCommerce website, and distributors.

Service revenue is attributable to the Company and DeFloria entering into Services Agreement pursuant to which the Company is compensated for the provision of certain services to DeFloria.

Three Months Ended September 30, % Change

Three Months Ended March 31,

Product revenue

1 unchanged sentence

Total revenue

Total revenue for the three months ended September 30, 2025, was $11,503 , a dec rease of 8.6% compa red to the three months ended September 30, 2024.

The decrease is driven by the Company's decision to shift the majority of the B2B business to a more margin-accretive distributor model.

This strategy provides savings in selling, general and administrative expenses and is part of the overall cost efficiency direction.

The Company saw a decrease in B2B revenues of approximately $1.1 million or 48% for the quarter compared to prior year.

Total revenue for the three months ended March 31, 2026 was $11,159, a decrease of 9.0% compared to the three months ended March 31, 2025.

Total product revenue decreased by $1.1 million driven by the Company's decision to shift the majority of the retail business to a more margin-accretive distributor model during the third quarter of 2025.

Cost of Goods Sold

1 unchanged sentence

Other production costs include direct and indirect production costs including direct labor, processing, testing, packaging, quality assurance, security, shipping, depreciation of production equipment, indirect labor, including production management, and other related expenses.

The primary factors that can impact cost of goods sold on a period-to-period basis include the volume of products sold, mix of product sold, third-party quality costs, transportation, overhead allocations and changes in inventory provisions.

The primary factors that can impact cost of goods sold on a period-to-period basis include the volume of products sold, mix of products sold, third-party quality costs, transportation, overhead allocations and changes in inventory provisions.

The components of cost of goods sold are as follows:

Three Months Ended September 30, % Change

Three Months Ended March 31,

Inventory expensed to cost of goods sold

4 unchanged sentences

Cost of goods sold

Cost of goods sold increased 18.8% for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to increased production and depreciation costs.

The Company has experienced lower inventory turns as a result of lower revenues, this has resulted in higher inventory variances impacting our cost leverage.

Depreciation and amortization expense for the three months ended September 30, 2025 and September 30, 2024 was $1,689 and $2,523, respectively, of which $963 and $844, respectively, was expensed to cost of goods sold.

Cost of goods sold decreased 1.3% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to the Company's decision to shift the majority of the retail business to a more margin-accretive distributor model.

The decrease is partially offset by an increase in variable operating costs in the current period, including startup costs associated with the transition to in-house manufacturing.

Depreciation and amortization expense for the three months ended March 31, 2026 and March 31, 2025 was $1,678 and $2,449, respectively, of which $956 and $822, respectively, was expensed to cost of goods sold.

The remaining depreciation and amortization expenses of $722 and $1,627, respectively, was expensed to Selling, general, and administrative expenses.

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

Gross profit for the three months ended September 30, 2025 and September 30, 2024 is as follows:

Three Months Ended September 30, % Change

Gross profit $ 4,477 $ 6,673 (32.9) %

Gross margin 38.9 % 53.0 % (14.1) %

Gross profit was $4.5 million or 38.9% of revenue for the three months ended September 30, 2025, compared to $6.7 million, or 53.0% of revenue for the the three months ended September 30, 2024.

Gross margin compression resulted from a one-time $0.5 million B2B retail chargeback reserve related to the B2B transition, as well as higher Cost of Goods Sold due to temporary scaling inefficiencies associated with the transition to in-house manufacturing operations.

Excluding these anomalies, the underlying gross profit model remains aligned with the Company's historical 50% range.

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

Gross profit and gross profit margin are as follows:

Three Months Ended March 31,

Gross profit decreased 16.5% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

For the three months ended March 31, 2026, gross profit decreased due to an increase in variable startup operating costs in the current period as well as a decrease sales volume.

Selling, General, and Administrative Expenses

Total Selling, general, and administrative expenses are as follows:

Three Months Ended September 30, % Change

Three Months Ended March 31,

Selling, general, and administrative expenses

Total Selling, general, and administrative expenses for the three months ended September 30, 2025 and September 30, 2024 were $9,731 and $12,693, respectively.

The amended MLB Promotional Rights Agreement resulted in a decrease in amortization expense related to MLB assets of approximately $1.8 million compared to the three months ended September 30, 2024.

Additionally, the decrease is due to

operating expense reductions.

The Company made additional cost cutting measures in the third quarter to further align with current revenue levels.

Depreciation and amortization expensed to Selling, general, and administrative expenses for the three months ended September 30, 2025 and September 30, 2024 were $726 and $1,679, respectively.

The decrease was due to the decrease in amortization related to the amended MLB agreement, offset by higher depreciation for in sourcing of inventory production.

Total research and development costs expensed to Selling, general, and administrative expense for the three months ended September 30, 2025 and September 30, 2024 were $475 and $556, respectively.

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

Total Selling, general, and administrative expenses for the three months ended March 31, 2026 and March 31, 2025 were $9,528 and $11,578, respectively.

The 17.7% decrease was primarily attributable to cost cutting measures in personnel costs undertaken by the Company between the comparable periods.

These measures included adjusting the size of the workforce to properly align with the revenue scope.

Depreciation and amortization expensed to Selling, general, and administrative expenses for the three months ended March 31, 2026 and March 31, 2025 were $722 and $1,627, respectively.

Total research and development expenses expensed to Selling, general, and administrative expense for the three months ended March 31, 2026 and March 31, 2025 were $411 and $503, respectively.

Total Change in Fair Value of Financial Instruments

Total change in fair value of financial instruments is as follows:

Three Months Ended September 30, % Change

Three Months Ended March 31,

Change in fair value of financial instruments

Total change in fair value of financial instruments for the three months ended September 30, 2025 and September 30, 2024 was a net loss of $1,200 and a net gain of $1,422, respectively.

For the three months ended September 30, 2025, primarily due to the revaluation of the fair value of the Company's debt conversion option and debt interest rate conversion feature resulting in a net loss of $0.9 million, compared to a net gain of $1.6 million for the three months ended September 30, 2024.

Total change in fair value of financial instruments for the three months ended March 31, 2026 and March 31, 2025 was loss of $8,868 and $126, respectively.

For the three months ending March 31, 2026, the change in fair value of financial instruments was primarily due to the revaluation of the fair value of the Company's debt conversion option and debt interest rate conversion feature, which resulted in a net loss of $8,668, as well as a loss of $200 in the investment of DeFloria.

For the three months ending March 31, 2025, the change in fair value of financial instruments was primarily due to a loss of $100 in the investment of DeFloria.

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

For the Nine Months Ended September 30, 2025 and 2024

The majority of the Company’s revenue is derived from sales of branded products to consumers via the Company’s DTC e-commerce website, and distributors.

Service revenue is attributable to the Company and DeFloria entering into the Services Agreement pursuant to which the Company is compensated for the provision of certain services to DeFloria.

Nine Months Ended September 30, % Change

Product revenue $ 36,346 $ 36,541 (0.5) %

Service revenue 225 459 (51.0) %

Total revenue $ 36,571 $ 37,000 (1.2) %

Total revenue for the nine months ended September 30, 2025 was $36,571, a decrease of 1.2% compared to the nine months ended September 30, 2024.

Total product revenue for the nine months ended September 30, 2025 was $36,346, representing a 0.5% decrease compared to the nine months ended September 30, 2024.

The decrease is due to the Company's decision to shift the majority of the B2B business to a distribution model during the third quarter.

This channel has had declining revenue and profit margin.

B2B revenue decreased by approximately $2.4 million or 19% for the nine months ended September 30, 2025, partially offset by an increase in DTC revenue $1.6 million or 7% over the period.

Service revenue for the nine months ended September 30, 2025 was $225 or a decrease of 51.0%, compared to the nine months ended September 30, 2024.

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

DeFloria has concluded Phase I clinical trials, as such the service revenue has been decreased for Phase II.

Cost of Goods Sold

Cost of goods sold includes the cost of inventory sold, changes in inventory provisions, and other production costs expensed.

The components of cost of goods sold are as follows:

Nine Months Ended September 30, % Change

Inventory expensed to cost of goods sold 11,689 11,766 (0.7) %

Inventory provision, net 24 3,926 (99.4) %

Other production costs 5,363 2,133 151.4 %

Service costs 225 460 (51.1) %

Depreciation and amortization 2,573 2,549 0.9 %

Cost of goods sold $ 19,874 $ 20,834 (4.6) %

Cost of goods sold decreased 4.6% for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024.

The decrease was primarily due to the prior year period including a $3.9 million non-cash inventory provision related to wholesale hemp biomass transactions partially offset by an increase in variable operating costs in the current period, including startup costs associated with the transition to in-house gummy production and expanded product offerings.

The decrease was partially offset by an increase in production costs related to higher inventory variances due to lower turning revenue.

Depreciation and amortization expense for the nine months ended September 30, 2025 and September 30, 2024 was $4,650 and $7,505, respectively, of which $2,573 and $2,549, respectively, was expensed to cost of goods sold.

The remaining depreciation and amortization expenses of $2,077 and $4,956, respectively, was expensed to Selling, general, and administrative expenses.

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

Gross profit for the nine months ended September 30, 2025 and September 30, 2024 is as follows:

Nine Months Ended September 30, % Change

Gross profit $ 16,697 $ 16,166 3.3 %

Gross margin 45.7 % 43.7 % 4.6 %

Gross profit increased 3.3% year-over-year for the nine months ended September 30, 2025.The increase is primarily related to the absence of the inventory provision of $3.9 million for the nine months ending September 30, 2025.

Partially offset by gross margin compression resulted from a one-time $0.5 million B2B retail chargeback reserve related to the B2B transition, as well as higher Cost of Goods Sold due to temporary scaling inefficiencies associated with the transition to in-house manufacturing operations.

Selling, General, and Administrative Expenses

Total Selling, general, and administrative expenses are as follows:

Nine Months Ended September 30, % Change

Selling, general, and administrative expenses $ 31,371 $ 42,700 (26.5) %

Total selling, general, and administrative expenses for the nine months ended September 30, 2025 and September 30, 2024 were $31,371 and $42,700, respectively.

The 26.5% decrease was primarily attributable to a reduction in amortization expense of $3.8 million related to the termination of the MLB Promotional Rights Agreement.

The remaining decrease is due to cost cutting measures in personnel costs undertaken by the Company between the comparable periods.

These measures included adjusting the size of the workforce to properly align with the revenue scope, as well as improving the Company's insurance program and aligning with more cost-efficient software options and improved operating efficiencies.

Depreciation and amortization expensed to Selling, general, and administrative expenses for the nine months ended September 30, 2025 and September 30, 2024 were $2,077 and $4,956, respectively.

The decrease was due to the decrease in amortization related to the amended MLB agreement.

Total research and development costs expensed to Selling, general, and administrative expense for the nine months ended September 30, 2025 and September 30, 2024 were $1,500 and $1,955, respectively.

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

Total Change in Fair Value of Financial Instruments

Total change in fair value of financial instruments is as follows:

Nine Months Ended September 30, % Change

Change in fair value of financial instruments $ (2,869) $ 702 (508.7) %

Total change in fair value of financial instruments for the nine months ended September 30, 2025 and September 30, 2024 was a loss of $2,869 and a gain of $702, respectively.

The change in fair value of financial instruments was primarily due to a loss of $1.5 million for the nine months ended September 30, 2025, compared to a gain of $0.4 million for the nine months ended September 30, 2024 in the investment of DeFloria.

The decrease was primarily due to the financial projections extended for an additional year based on timing of completing clinical trials.

Additionally, the loss was due to a change in fair value of debt conversion option of $0.8 million.

The option is valued using the Black-Scholes option pricing model and an increase in the Company share price for the nine month ending September 30, 2025 caused the change during the period.

Liquidity and Capital Resources

1 unchanged sentence

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

As of September 30, 2025 and December 31, 2024 , the Company had total current liabilities of $8,873 and $15,936, respectively, and cash and cash equivalents of $9,810 and $22,618, respectively, to meet its current obligations.

The Company expects a reduction in overall selling, general, and administrative expenses in the remainder of 2025 as a result of several actions taken in the second half of 2024, as well as additional reductions projected in the second half of 2025.

This includes improvements

in operating efficiency throughout the business, cost savings from a more efficient e-commerce platform and associated information technology upgrades, and a data-driven reorganization of its B2B business and retail partnering strategies.

As of March 31, 2026 and December 31, 2025, the Company had total current liabilities of $8,100 and $8,659, respectively, and cash and cash equivalents of $5,198 and $8,035, respectively, to meet its current obligations.

The Company expects a continued cost containment strategy in overall selling, general, and administrative expenses in 2026 as a result of several actions taken over the prior two years.

This includes improvements in operating efficiency throughout the business from more efficient technology, and a data-driven reorganization of its revenue and partnering strategies.

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

3 unchanged sentences

The Company’s ability to raise funds through the issuance of additional equity and/or debt securities is dependent on a number of factors, including the current state of the capital markets, investor sentiment, and intended use of proceeds.

Cash from Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2025 and September 30, 2024 were as follows:

Nine Months Ended September 30,

Specifically, on March 30, 2026, the Company announced that it had entered into an agreement to complete the Transaction with BAT in which BAT, pursuant to which, among other things, upon satisfaction of certain conditions, including TSX and shareholder approval, BAT will make an additional equity investment by BAT of $10 million (approximately C$13.6 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.

Upon completion of the Transaction, approximately $65 million of total debt will be eliminated from the Company's balance sheet, interest on the debenture will stop accruing, and liquidity will increase for near-term operations.

The Company would operate with no long-term debt and with a simplified equity structure.

The Company's shareholders will be asked to approve the Transaction at the Annual General and Special Meeting of the Shareholders to be held on May 28, 2026.

Cash Flow from Operating Activities

Net cash used in operating activities for the three months ended March 31, 2026 and March 31, 2025 were as follows:

Three Months Ended March 31,

Net cash used in operating activities

For the nine months ended September 30, 2025,the decrease in cash used in operations is primarily due to operating cost saving measures, as well as, a reduction in payments associated with the MLB Promotional Rights Agreement, compared to $5.0 million for the nine months ended September 30, 2024.

The decrease is partially offset by increased inventory cost related to the ramp on manufacturing in-sourcing and rebranding costs.

Cash from Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2025 and September 30, 2024 were as follows:

Nine Months Ended September 30,

For the three months ended March 31, 2026, the cash used in operations increased by less than 1% compared to the three months ended March 31, 2025.

The Company has stabilized operating costs over the respective periods.

Cash Flow from Investing Activities

Net cash used in investing activities for the three months ended March 31, 2026 and March 31, 2025 were as follows:

Three Months Ended March 31,

Net cash used in investing activities

For the nine months ended September 30, 2025, the project to in-source topical and gummy production is complete resulting in a decrease in cash used in investing activities compared to the nine months ended September 30, 2024.

Cash from Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2025 and September 30, 2024 were as follows:

Nine Months Ended September 30,

For the three months ended March 31, 2026, the Company has spent minimal amounts on capital expenditures, compared to the three months ended March 31, 2025 in which the Company was finalizing the in-source projects for gummies and topicals.

Cash Flow from Financing Activities

Net cash used by financing activities for the three months ended March 31, 2026 and March 31, 2025 were as follows:

Three Months Ended March 31,

Net cash used in financing activities

For the nine months ended September 30, 2025, the change was primarily due to the vesting of restricted stock units.

For the three months ended March 31, 2026, the change was primarily due to the vesting of restricted stock units.

There were no vesting of restricted stock units for the three months ended March 31, 2025.

Off-Balance Sheet Arrangements

As of September 30, 2025 and December 31, 2024, we do not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on our results of operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.

As of March 31, 2026 and December 31, 2025, the Company does not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.

Related party transactions

7 unchanged sentences

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

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

AJNA is a botanical drug development company.

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

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

The Company is not obligated to exercise the SBH Purchase Option and as such the unexercised option expired as of March 31, 2026.

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

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

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

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

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

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

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

1 unchanged sentence

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

As of September 30, 2025 , and December 31, 2024, the remaining note receivable of $28 and $71, respectively is presented in other assets in the condensed consolidated balance sheets.

As of March 31, 2026 and December 31, 2025 , the remaining note receivable of $8 and $19 , respectively, is presented in other assets in the condensed consolidated balance sheets.

On April 6, 2023, the Company and DeFloria entered into a supply agreement in which the Company shall supply raw material that will be used in the development of the new drug.

The price charged by the Company is at cost of goods sold level.

For the nine months ended September 30, 2025 and September 30, 2024, the Company recognized $641 and $— in revenue and cost of goods sold, respectively, related to the supply agreement with DeFloria.

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

For the three and nine months ended September 30, 2025, the Company recognized $75 and $225 in revenue and cost of goods sold, respectively, related to the service agreement with DeFloria.

For the three and nine months ended September 30, 2024, the Company recognized $74 and $459 in revenue and cost of goods sold, respectively, related to the service agreement with DeFloria.

Additionally, the Company has an accounts receivable balance due from DeFloria of $1,134 and $648 as of September 30, 2025 and December 31, 2024, respectively.

For the three months ended March 31, 2026 and March 31, 2025, the Company recognized $75 and $75 in revenue and cost of goods sold, respectively, related to the service agreement with DeFloria.

Additionally, the Company has an accounts receivable balance due from DeFloria of $1,546 and $1,471 as of March 31, 2026 and December 31, 2025, respectively.

On July 15, 2025, the Company entered into a promissory note, as lender, where the Company loaned $750 to DeFloria.

1 unchanged sentence

Upon any event of default by DeFloria under the note, which includes DeFloria’s failure to pay amounts within 3 business days of when due and breaches of DeFloria’s obligations pursuant to the note, the Company will be entitled to exercise its rights under the note.

The funds will be distributed monthly to DeFloria between July and November 2025, and the balance of the promissory note as of September 30, 2025 is $575.

The funds were distributed monthly between July and November 2025.

The balance of the promissory note including accrued interest as of March 31, 2026 and December 31, 2025 is $805 and $784, respectively.

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

In consideration for Mr.

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

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

Recently Adopted Accounting Principles

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

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

The guidance is effective for the year ended

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

Critical Policies and Accounting Estimates

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

Please also refer to Note 2 of our notes to the condensed consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements.

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

Critical Accounting Policies and Estimates

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

Please also refer to Note 2 of our notes to condensed consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements.

Investment in Unconsolidated Entities

4 unchanged sentences

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

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

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

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

6 unchanged sentences

Cost is determined by use of the weighted average method.

To determine if a provision for inventories is required, the Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions, including forecasted demand compared to quantities on hand, as well as other factors such as potential excess or aged inventories based on product shelf life, and other factors that affect inventory obsolescence.

To determine if a provision for inventories is required, the Company

periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions, including forecasted demand compared to quantities on hand, as well as other factors such as potential excess or aged inventories based on product shelf life, and other factors that affect inventory obsolescence.

The Company's inventories of harvested hemp are recorded at cost to grow and harvest.

Raw materials costs as well as production costs are included in the carrying value of the Company's finished goods inventory.

The Company's inventory production process for cannabinoid products includes cultivating of botanical raw material.

The Company's inventory production process for cannabinoid products includes cultivating botanical raw material.

Because of the duration of the cultivation process, a portion of the inventory will not be sold within one year.

7 unchanged sentences

Impairment losses are recorded in selling, general, and administrative expense in the condensed consolidated statements of operations.

There were no impairment losses recognized for the three and nine months ended September 30, 2025 and 2024, respectively.

There were no impairment losses recognized for the three months ended March 31, 2026 and 2025, respectively.

Convertible Debenture

19 unchanged sentences

The Company accounts for uncertainties in income taxes under ASC Topic 740, which prescribes a recognition threshold and measurement methodology to recognize and measure an income tax position taken, or expected to be taken, in a tax return.

With respect to any tax positions that do not meet the recognition threshold, a corresponding liability, including interest and penalties, is recorded in the condensed consolidated financial statements.

With respect to any tax

positions that do not meet the recognition threshold, a corresponding liability, including interest and penalties, is recorded in the condensed consolidated financial statements.

The Company may be subject to examination by tax authorities where the Company conducts operations.

The earliest income tax year that may be subject to examination is 2022.

The Company has recorded an uncertain tax position as of September 30, 2025 and December 31, 2024.

The Company's policy is to recognize interest and penalties on taxes, if any, within the condensed consolidated statements of operations as income tax expense.

The Company has recorded an uncertain tax position as of March 31, 2026 and December 31, 2025.

The Company's policy is to recognize interest and penalties on taxes, if any, within the condensed consolidated statement of operations as income tax expense.

Revenue Recognition

6 unchanged sentences

The Company recognizes as revenue, the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The Company recognizes revenue from customers when control of the goods or services are transferred to the customer, generally when products are shipped, at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services.

Freight revenue is included in revenue on the condensed consolidated statements of operations, and is generally exempt from

state sales taxes.

The Company recognizes revenue from customers when control of the goods or services is transferred to the customer, generally when products are shipped, at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services.

Freight revenue is included in revenue on the condensed consolidated statements of operations, and is generally exempt from state sales taxes.

Sales tax collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenue in the condensed consolidated statements of operations.

2 unchanged sentences

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

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

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

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

2 unchanged sentences

Any product that does not meet the customer's expectations can be returned within the first 30 days of delivery in exchange for another product or for a full refund.

Generally, any product sold through a distributor must be returned to the original purchase location for any return or exchange.

The Company accounts for customer returns utilizing the "expected value method." Expected amounts are excluded from revenue and recorded as a "refund liability" that represents the Company's obligation to return the customer’s consideration.

Generally, any product sold through a distributor or retailer must be returned to the original purchase location for any return or exchange.

The Company accounts for customer returns utilizing the "expected value method".

Expected amounts are excluded from revenue and recorded as a "refund liability" that represents the Company's obligation to return the customer's consideration.

Estimates are based on actual historical and current specific data.

2 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis