Charlotte's Web Holdings, Inc. 10-Q

Item 1. Financial Statements 1 CHARLOTTE’S WEB HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) June 30, December 31, 2026 (unaudited) 2025 ASSETS Current assets: Cash and cash equivalents $ 13,988 $ 8,035 Accounts receivable, net 1,359 811 Inventories, net 16,517 18,022 Prepaid expenses and other current assets 2,738 3,491 Total current assets 34,602 30,359 Property and equipment, net 20,600 22,679 Operating lease right-of-use assets, net 10,941 11,297 Investment in unconsolidated entity 8,300 8,800 Intangible assets, net 737 785 Derivative and other long-term assets 1,209 1,353 Total assets $ 76,389 $ 75,273 LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $ 1,984 $ 2,186 Accrued and other current liabilities 4,874 5,053 Lease obligations – current 1,398 1,420 Total current liabilities 8,256 8,659 Converted debenture — 50,849 Lease obligations 11,657 12,186 Derivative and other long-term liabilities 412 5,618 Total liabilities 20,325 77,312 Commitments and contingencies (Note 7) Shareholders’ equity (deficit): Common shares, nil par value; unlimited shares authorized; 270,549,931 and 159,420,141 shares issued and outstanding as of June 30, 2026 and December 31, 2025 1 1 Additional paid-in capital 404,612 329,270 Accumulated deficit ( 348,549 ) ( 331,310 ) Total shareholders’ equity (deficit) 56,064 ( 2,039 ) Total liabilities and shareholders’ equity (deficit) $ 76,389 $ 75,273 See Notes to Unaudited Condensed Consolidated Financial Statements 2 CHARLOTTE’S WEB HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) Three Months Ended June 30, (unaudited) Six Months Ended June 30, (unaudited) 2026 2025 2026 2025 Revenue $ 10,855 $ 12,806 $ 22,014 $ 25,068 Cost of goods sold 5,698 6,816 11,653 12,848 Gross profit 5,157 5,990 10,361 12,220 Selling, general and administrative expenses 9,515 10,062 19,043 21,640 Operating loss ( 4,358 ) ( 4,072 ) ( 8,682 ) ( 9,420 ) Change in fair value of financial instruments 5,557 ( 1,543 ) ( 3,311 ) ( 1,669 ) Loss from extinguishment of debt ( 4,216 ) — ( 4,216 ) — Other income (expense), net ( 1,075 ) ( 675 ) ( 998 ) ( 1,413 ) Loss before provision for income taxes ( 4,092 ) ( 6,290 ) ( 17,207 ) ( 12,502 ) Income tax benefit (expense) ( 35 ) 2 ( 32 ) 2 Net loss $ ( 4,127 ) $ ( 6,288 ) $ ( 17,239 ) $ ( 12,500 ) Per common share amounts (Note 10) Net loss per common share, basic and diluted $ ( 0.02 ) $ ( 0.04 ) $ ( 0.10 ) $ ( 0.08 ) See Notes to Unaudited Condensed Consolidated Financial Statements 3 CHARLOTTE’S WEB HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) (in thousands, except share amounts) (unaudited) Common Shares Additional Paid-in Capital Accumulated Deficit Total Shareholders’ Equity (Deficit) Shares Amount Balance—December 31, 2025 159,420,141 $ 1 $ 329,270 $ ( 331,310 ) $ ( 2,039 ) Common shares issued upon vesting of restricted share units, net of withholding 263,812 — ( 41 ) — ( 41 ) Share-based compensation — — 151 — 151 Net loss — ( 13,112 ) ( 13,112 ) Balance— March 31, 2026 159,683,953 $ 1 $ 329,380 $ ( 344,422 ) $ ( 15,041 ) Common shares issued upon vesting of restricted share units, net of withholding 854,335 — ( 278 ) — ( 278 ) Exercise of common stock options 67,601 — 22 — 22 Share-based compensation — — 506 — 506 Conversion of convertible debenture into common stock 95,281,277 — 64,982 — 64,982 Issuance of common stock by private investment 14,662,765 — 10,000 — 10,000 Net loss — ( 4,127 ) ( 4,127 ) Balance—June 30, 2026 270,549,931 $ 1 $ 404,612 $ ( 348,549 ) $ 56,064 Balance—December 31, 2024 158,009,541 $ 1 $ 328,655 $ ( 301,569 ) $ 27,087 Common shares issued upon vesting of restricted share units, net of withholding — — — — — Share-based compensation — — 187 — 187 Net loss — ( 6,212 ) ( 6,212 ) Balance—March 31, 2025 158,009,541 $ 1 $ 328,842 $ ( 307,781 ) $ 21,062 Common shares issued upon vesting of restricted share units, net of withholding 608,226 — ( 25 ) — ( 25 ) Share-based compensation — — 180 — 180 Net loss — ( 6,288 ) ( 6,288 ) Balance—June 30, 2025 158,617,767 $ 1 $ 328,997 $ ( 314,069 ) $ 14,929 See Notes to Unaudited Condensed Consolidated Financial Statements 4 CHARLOTTE’S WEB HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Six Months Ended June 30, (unaudited) 2026 2025 Cash flows from operating activities: Net loss $ ( 17,239 ) $ ( 12,500 ) Adjustments to reconcile net loss to net cash used in operating activities: Loss on extinguishment of debt 4,216 — Change in fair value of financial instruments 3,311 1,669 Depreciation and amortization 3,171 2,961 Convertible debenture and other accrued interest 1,321 1,471 Share-based compensation 657 367 Changes in right-of-use assets 355 950 (Gain)/loss on foreign currency transaction ( 190 ) 2,522 Gain on disposal of assets — ( 2,326 ) Other 53 742 Changes in operating assets and liabilities: Accounts receivable, net ( 570 ) ( 760 ) Inventories, net 1,520 ( 311 ) Prepaid expenses and other current assets 700 22 Accounts payable, accrued and other liabilities ( 94 ) ( 202 ) Operating lease obligations ( 552 ) ( 1,220 ) Other operating assets and liabilities, net ( 364 ) ( 171 ) Net cash used in operating activities ( 3,705 ) ( 6,786 ) Cash flows from investing activities: Purchases of property and equipment and intangible assets ( 50 ) ( 652 ) Proceeds from sale of assets 5 113 Net cash used in investing activities ( 45 ) ( 539 ) Cash flows from financing activities: Proceeds from issuance of common stock 10,000 — Other financing activities ( 297 ) ( 25 ) Net cash provided by (used in) financing activities 9,703 ( 25 ) Net increase (decrease) in cash and cash equivalents 5,953 ( 7,350 ) Cash and cash equivalents —beginning of period 8,035 22,618 Cash and cash equivalents —end of period $ 13,988 $ 15,268 Supplemental disclosures of non-cash investing and financing activities Conversion of debt to equity $ 52,942 Extinguishment of embedded derivatives liability upon debt conversion 8,062 Extinguishment of embedded derivatives asset upon debt conversion 214 See Notes to Unaudited Condensed Consolidated Financial Statements 5 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) 1. DESCRIPTION OF BUSINESS AND PRESENTATION OF FINANCIAL STATEMENTS Description of the Business Charlotte's Web Holdings, Inc. together with its subsidiaries (collectively "Charlotte's Web" or the "Company") is a public company incorporated pursuant to the laws of the Province of British Columbia. The Company's common shares are publicly listed on the Toronto Stock Exchange ("TSX") under the symbol "CWEB" and quoted on the OTCQX under the symbol "CWBHF." The Company's corporate headquarters is located in Louisville, Colorado in the United States of America. The majority of the Company's business is conducted in the United States of America. The Company's primary products are made from high-quality and proprietary strains of whole-plant hemp extracts containing a full spectrum of phytocannabinoids, terpenes, flavonoids and other hemp compounds. Hemp extracts are produced from the plant Cannabis sativa L. ("cannabis" or "CBD"), and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol ("THC") concentration of not more than 0.3% on a dry weight basis ("hemp"). The Company is engaged in research involving the effectiveness of a broad variety of compounds derived from hemp, as well as other botanical-based wellness products such as functional mushrooms. The Company does not currently produce or sell medical or recreational marijuana or products derived from high-THC cannabis plants. The Company does not currently have any plans to expand into these products in the near future. The Company's current product categories include full-spectrum hemp extract oil tinctures (liquid product), gummies, soft-gels, CBD topical creams and lotions, broad-spectrum botanical CBD gummies, functional mushroom gummies, and pet products. The Company's products are distributed through its eCommerce website, third-party eCommerce websites, select distributors, and healthcare practitioners. The Company grows its proprietary hemp domestically in the United States on farms leased in northeastern Colorado and sources hemp through contract farming operations in Arizona, Colorado, Kentucky, New Mexico, and Canada. The hemp grown in Canada is utilized exclusively in the Canadian markets or for research purposes and not in products sold within the United States. In furtherance of the Company's research and development ("R&D") efforts, the Company established CW Labs, an internal division for R&D, to expand the Company's efforts around the science of hemp derived compounds. CW Labs is currently engaged in clinical trials addressing hemp-based health solutions. CW Labs is located in Louisville, Colorado at the Company's current good manufacturing practice ("cGMP") production and distribution facility. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES Basis of Presentation The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification ("ASC") and Accounting Standards Updates ("ASU") of the Financial Accounting Standards Board ("FASB"). In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company's financial position as of June 30, 2026 and its results of operations for the three and six months ended June 30, 2026 and 2025, cash flows for the six months ended June 30, 2026 and 2025, and stockholders' equity (deficit) for the three and six months ended June 30, 2026 and 2025. Operating results for the three and six months ended June 30, 2026, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2026. The unaudited interim condensed consolidated financial statements presented herein do not contain the required disclosures under U.S. GAAP for annual consolidated financial statements. Certain amounts presented in prior periods have been reclassified to conform with the current period presentation. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited 6 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) consolidated financial statements and related notes as of and for the year ended December 31, 2025 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 31, 2026. Inventories Inventories are stated at the lower of cost or net realizable value. 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. The Company's inventory production process for cannabinoid products includes the cultivation of botanical raw material. Due to the duration of the cultivation process, a portion of the inventory will not be sold within one year. Consistent with the practice in other industries that cultivate botanical raw materials, all inventory is classified as a current asset. Revenue Recognition The majority of the Company's revenue is derived from sales of branded products to consumers via the Company's direct-to-consumer eCommerce website, as well as distributors, and healthcare practitioners. The service revenue is due to the Company and DeFloria, Inc. ("DeFloria") entering into a Master Services Agreement ("Services Agreement") in which the Company is compensated for the provision of certain services to DeFloria. Refer to Note 3 for additional disclosure on the DeFloria Service Agreement. The following table sets forth the disaggregation of the Company's revenue: Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Product revenue $ 10,780 $ 12,731 $ 21,864 $ 24,918 Service revenue 75 75 150 150 Total revenue $ 10,855 $ 12,806 $ 22,014 $ 25,068 Substantially all of the Company's revenue is earned in the United States. Recently Adopted Accounting Pronouncements There are no new accounting pronouncements adopted by the Company that had or may have a material impact on the accompanying unaudited interim condensed consolidated financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted Other than described below, no new accounting pronouncements issued by the FASB had or may have a material impact on the Company's consolidated financial statements. I n December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. The guidance clarifies and improves Topic 270, including reorganizing the Codification, clarifying the scope of interim reporting guidance, adding a consolidated list of required interim disclosures, and introducing a disclosure principle for material events or changes occurring after the most recent annual reporting period. ASU 2025-11 is effective for public business entities for interim periods within annual periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the effect of adopting this ASU. In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40). This guidance modernizes and clarifies the accounting model for costs related to internal-use software, eliminating the historically used stage-based framework. The new guidance supersedes ASC 350-50 on website development costs, folding relevant guidance into ASC 350-40. ASU 2025-06 is effective for the Company beginning after December 15, 2027, and early adoption is permitted as of the beginning of an annual reporting period. The Company is currently evaluating the effect of adopting this ASU. 7 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The new guidance requires disaggregated disclosure of income statement expenses for public business entities. ASU 2024-03 is effective for the Company beginning December 31, 2026. The Company is currently evaluating the effect of adopting this ASU. 3. FAIR VALUE MEASUREMENT The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis as of June 30, 2026 and December 31, 2025, by level within the fair value hierarchy: June 30, 2026 Level 1 Level 2 Level 3 Total Financial assets: Debt interest rate conversion feature — — — — Total financial assets $ — $ — $ — $ — Investment in unconsolidated entity: $ — $ — $ 8,300 $ 8,300 Financial liabilities: Debt conversion option $ — $ — $ — $ — December 31, 2025 Level 1 Level 2 Level 3 Total Financial assets: Debt interest rate conversion feature — — 211 $ 211 Total financial assets $ — $ — $ 211 $ 211 Investment in unconsolidated entity: $ — $ — $ 8,800 $ 8,800 Financial liabilities: Debt conversion option $ — $ 5,187 $ — 5,187 There were no transfers between levels of the fair value hierarchy and there were no changes in the fair value methodologies during the three and six month periods ended June 30, 2026 and the year ended December 31, 2025. Investment in Unconsolidated Entity On April 6, 2023, the Company jointly formed an entity, DeFloria, with AJNA BioSciences ("AJNA"), and a subsidiary of British American Tobacco ("BAT"). AJNA is a botanical drug development company. AJNA is partially owned and was co-founded by a member of the Stanley Brothers. The seven Stanley brothers (the "Stanley Brothers") founded CWB Holdings, Inc. (predecessor to Charlotte's Web, Inc). As of June 30, 2026, BAT holds an equity interest in DeFloria in the form of approximately 2,000,000 or 100 % preferred units following its $ 10 million initial investment and has the right to participate in future equity issuances to maintain its pro rata equity position. In 2024, BAT and AJNA invested an additional $ 5 million and $ 2 million, respectively, into DeFloria in exchange for a convertible debenture. The Company and AJNA each hold 4,000,000 or approximately 50 % , respectively, of DeFloria's voting common units following a 1-10 stock split when DeFloria converted from a Limited Liability Company to a Corporation. The Company's contribution to DeFloria is a license permitting the use of certain proprietary hemp intellectual property, including clinical and consumer data. Additionally, the Company has a 8 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) supply agreement with DeFloria, under which the Company supplies the oils at cost used to produce and develop the new drug. AJNA's contribution to the entity is laboratory and regulatory services, clinical expertise, and the provision of clinical services. DeFloria used the investments for the clinical development of a hemp botanical Investigational New Drug application and has concluded Phase I clinical development. Concurrently with the formation of DeFloria, the Company was issued a warrant to purchase 865,052 shares of Class A Common Stock of AJNA for an exercise price of $ 2.89 per share. Management determined the warrant should be accounted for in accordance with ASC 321, which requires the warrant to be measured at fair value at issuance and subsequently remeasured at fair value each reporting period. All changes from the remeasurement of the warrant were recorded as a change in fair value of financial instruments in the condensed consolidated statements of operations. As of April 2025, the AJNA warrants have expired and as such have no value. The Company determined that it has a variable interest in the investment in DeFloria; however, the Company is not the primary beneficiary of DeFloria as it lacks the power to direct DeFloria's key activities. The Company concluded that the investment in DeFloria should not be consolidated. The maximum exposure to loss in the investment in DeFloria is limited to the Company's investment, which is represented by the financial statement carrying amount of its retained interest. In accordance with ASC 825-10, equity method investments are eligible for the fair value option as they represent recognized financial assets. As the Company is 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. Upon formation of the entity, the Company elected the fair value option because it allowed the investment to be valued based on current market conditions. The investment has been remeasured at fair value at each reporting date, with changes recognized in condensed consolidated statements of operations as changes in fair value of financial instruments for the period. For the three months ended June 30, 2026 and June 30, 2025, a loss of $ 300 and $ 1,100 , respectively, related to the investment in DeFloria was recognized as a change in fair value of financial instruments in the condensed consolidated statements of operations. Additionally, for the six months ended June 30, 2026 and June 30, 2025, a loss of $ 500 and $ 1,200 , respectively, related to the investment in DeFloria was recognized as a change in fair value of financial instruments in the condensed consolidated statements of operations. As of June 30, 2026 and December 31, 2025, the DeFloria investment represents an investment of $ 8,300 and $ 8,800 , respectively, within the condensed consolidated balance sheets. The use of assumptions for the fair value determination includes a high degree of subjectivity and judgment using unobservable inputs (level 3 on the fair value hierarchy), which results in estimation uncertainty. To determine the value of the investment, the Company utilizes an Option Pricing Model ("OPM"). The OPM considers the various terms of the stockholder agreements, including the level of seniority among the securities, dividend policy, conversion ratios, and cash allocations upon liquidation of the entity. The OPM is appropriate when the range of potential future outcomes is difficult to predict with any certainty. The following additional assumptions are used in the model: June 30, December 31, 2026 2025 Expected term (years) 5.0 5.0 Volatility 96.8 % 96.4 % Risk-free interest rate 4.2 % 3.7 % Expected dividend yield — % — % Discount for lack of marketability 31.0 % 31.0 % Convertible Debt Derivatives On 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) (the "Lender" or "BT DE"), providing for the issuance of a $ 56.8 9 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) million (C$ 75.3 million) convertible debenture (the "Convertible Debenture"). The Convertible Debenture was 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 Convertible Debenture accrued 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. as an ingredient in food products and dietary supplements in the United States. The term "federal regulation" is defined as the date that federal laws in the United States permit, authorize or do not prohibit the use of CBD as an ingredient in food products and dietary supplements. Following federal regulation of CBD, the annualized rate of interest shall reduce to 1.5 %. The maturity date for the debenture was November 14, 2029 (the "Maturity Date"). On May 28, 2026, the Company completed BT DE 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 BT DE (the "Investment") of $ 10 million (approximately C$ 13.9 million at the then applicable exchange rate) 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”) provided that the maximum number of Common Shares to be issued to BAT under the Investment would not exceed 14,760,638 common shares of the Company. On May 28, 2026, the Company and BT DE entered into an amendment and conversion notice for the Convertible Debenture (the "Amendment and Conversion Notice"). Pursuant to the Amendment and Conversion Notice: (i) the conversion price of the Convertible Debenture was reduced from C$ 2.00 to C$ 0.94 per share; (ii) the interest conversion price of the Convertible Debenture was amended to C$ 0.94 per share; and (iii) the applicable threshold for purposes of the Conversion Cap (as defined in the Conversion Debenture) was increased from 19.9 % to 40.8 %. At the closing and immediately following the effectiveness of the Amendment and Conversion Notice, BT DE converted the principal amount of, and all accrued but unpaid interest on, the Convertible Debenture into 95,281,277 common shares of the Company. As of the closing of the Transaction and upon the conversion of the Convertible Debenture and the Investment, BT DE holds an aggregate of 109,944,042 common shares of the Company, representing approximately 40.6 % of the issued and outstanding Common Shares (calculated on a non-diluted basis) of the Company based on 270,549,931 Common Shares issued and outstanding as of May 28, 2026. The Company initially determined that the debenture was a freestanding financial instrument which included embedded derivatives. The embedded derivatives were bifurcated from the debenture and accounted for separately in accordance with the provisions of ASC 815, Derivatives and Hedging . The Company reviewed the terms of the debenture and identified two material embedded features which required bifurcation under ASC 815: 1) the interest rate conversion feature based on changes in federal regulations, and 2) the debt conversion option to common shares. The debt interest rate conversion feature was classified as a derivative asset and measured at fair value using a probability-weighted income approach. The debt conversion option was classified as a derivative liability and measured at fair value using a Black-Scholes option pricing model. When a conversion feature has been separated from a convertible debt instrument and accounted for as a derivative liability or asset, there is no equity conversion feature remaining in the debt for accounting purposes. Therefore, while there is a legal conversion of the debt, the derivatives are subject to extinguishment accounting because they are being surrendered in exchange for common shares. As such, the following two derivatives have been extinguished as May 28, 2026. Debt Interest Rate Conversion Feature Prior to the amendment and conversion of the Convertible Debenture, the debt interest rate conversion feature was classified as a financial asset and is remeasured at fair value at 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 included a high degree of subjectivity and judgment using unobservable inputs (level 3 on the fair value hierarchy), which results in estimation uncertainty. The debt interest rate conversion feature, if triggered, reduced the stated interest rate of the debenture Convertible Debenture to 1.5 % upon federal regulation of CBD in the United States. 10 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) For the three months ended June 30, 2026 and June 30, 2025, a gain of $ 10 and a loss of $ 525 , respectively, related to the debt interest rate conversion feature was recognized as a change in fair value of financial instruments in the condensed consolidated statements of operations. Additionally, for the six months ended June 30, 2026 and June 30, 2025, a gain of $ 4 and a loss of $ 578 , respectively, related to the debt interest rate conversion feature was recognized as a change in fair value of financial instruments in the condensed consolidated statements of operations. As of June 30, 2026 and December 31, 2025, the debt interest rate conversion feature represents a financial asset of $ 0 and $ 211 , respectively, within Derivative and other long-term assets in the condensed consolidated balance sheets. The following table provides a roll forward of the fair value of the debt interest rate feature in connection with the conversion of the convertible debenture: Balance - December 31, 2025 $ 211 Change in fair value during the period, recognized in change in fair value of financial instruments 4 Foreign currency exchange impact ( 1 ) Reclassification to equity in connection with extinguishment of debt ( 214 ) Balance - June 30, 2026 $ — To determine the value of the debt interest rate conversion feature, the Company utilized a probability weighted income approach. This method calculated the present value of the reduced interest accrued on the Convertible Debenture assuming the feature is triggered at a certain time, after accounting for the probability of federal regulation of CBD. This approach is useful when ultimate valuation is based on an unverifiable outcome, such as an event outside of the Company's influence. The following additional assumptions were used in the model: May 28, December 31, 2026 2025 Stated interest rate 5.0 % 5.0 % Adjusted interest rate 1.5 % 1.5 % Implied debt yield 14.3 % 13.2 % Federal regulation probability Various various Year of event Various various Debt Conversion Option Prior to the amendment and conversion of the Convertible Debenture, the Lender had the option, at any time before the Maturity Date at no additional consideration, for all or any part of the principal amount to be converted into fully paid and non-assessable common shares. The Company determined that the debt conversion option was an embedded derivative that required bifurcation and was classified as a financial liability within the condensed consolidated balance sheet. The debt conversion option was initially measured at fair value and revalued at each reporting period using the Black-Scholes option pricing model based on Level 2 observable inputs. The assumptions used by the Company were the quoted price of the Company's common shares in an active market, risk-free interest rate, volatility and expected life, and assumed no dividends. Volatility was based on the actual historical market activity of the Company's shares. The expected life was based on the remaining contractual term of the Convertible Debenture and the risk-free interest rate was based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the expected maturity of the Convertible Debenture. For the three months ended June 30, 2026 and June 30, 2025, a gain of $ 5,848 and $ 83 , respectively, related to the debt conversion option was recognized as a change in fair value of financial instruments in the condensed consolidated statements of operations. For the six months ended June 30, 2026 and June 30, 2025, a loss of $ 2,814 and a gain of $ 162 , respectively, related to the debt conversion option was recognized as a change in fair value of financial instruments in the statements of operations. As of June 30, 2026 and December 31, 2025, the debt conversion option represents a financial liability of $ 0 and $ 5,187 , respectively, within Derivative and other long-term liabilities in the condensed consolidated balance sheets. 11 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) The following table provides a roll forward of the fair value of the debt conversion option feature in connection with the conversion of the convertible debenture: Balance - December 31, 2025 $ 5,187 Change in fair value during the period, recognized in change in fair value of financial instruments 2,814 Foreign currency exchange impact 61 Reclassification to equity in connection with extinguishment of debt ( 8,062 ) Balance - June 30, 2026 $ — The following table provides the assumptions regarding Level 2 fair value measurements inputs at their measurement dates prior to extinguishment upon conversion of the Convertible Debenture as of May 28, 2026: May 28, December 31, 2026 2025 Expected volatility 91.6 % 89.8 % Expected term (years) 3.47 3.9 Risk-free interest rate 4.3 % 3.9 % Expected dividend yield — % — % Value of underlying share C$ 0.70 C$ 0.50 Exercise price C$ 2.00 C$ 2.00 Stanley Brothers USA Holdings Purchase Option In 2021, the Company entered into an option purchase agreement (the "SBH Purchase Option") with Stanley Brothers USA Holdings, Inc ("Stanley Brothers USA"). The SBH Purchase Option was purchased for total consideration of $ 8,000 and had a term of five years (extendable for an additional two years upon payment of additional consideration). The SBH Purchase Option provided the Company the option to acquire all or substantially all the shares of Stanley Brothers USA, at a purchase price to be determined at the time of exercise of the SBH Purchase Option. As part of the SBH Purchase Option agreement, Stanley Brothers USA issued the Company a warrant exercisable to purchase 10 % of the outstanding Stanley Brothers USA shares and convertible securities that are considered in-the-money, subject to certain conditions and exclusions. The warrant was exercisable at the Company's election for a nominal exercise price in the event the Company elects not to acquire all or substantially all shares of Stanley Brothers USA and expired 60 days after the expiration of the option. The Company was not obligated to exercise the SBH Purchase Option or warrant and as such the unexercised option and warrant have expired. For the six months ended June 30, 2025, the Company recognized a loss of $ 52 related to the SBH Purchase Option within change in fair value of financial instruments in the condensed consolidated statements of operations. As of December 31, 2025, the SBH Purchase Option represented a financial asset of $ 0 within Derivative assets and other long-term assets in the condensed consolidated balance sheets. 12 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) 4. INVENTORIES Inventories consist of the following: June 30, December 31, 2026 2025 Harvested hemp and seeds $ 2,519 $ 2,212 Raw materials 8,623 10,379 Finished goods 6,451 6,606 17,593 19,197 Less: inventory provision ( 1,076 ) ( 1,175 ) Total $ 16,517 $ 18,022 5. LICENSE AND MEDIA RIGHTS MLB Promotion Rights Agreement On October 11, 2022, the Company entered into a Promotional Rights Agreement (the "MLB Promotional Rights Agreement") with MLB Advanced Media L.P., on its own behalf and on behalf of Major League Baseball Properties, Inc., the Office of the Commissioner of Baseball, The MLB Network, LLC and the Major League Baseball Clubs (collectively, the "MLB"), pursuant to which the Company entered into a strategic partnership with MLB to promote the Company’s new NSF-Certified for Sport® product line. On May 13, 2025, the Company and MLB entered into a letter agreement ("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 term of the MLB Promotional Rights Agreement. As consideration under the MLB promotional rights agreement, the Company paid a combination of cash over the license period, along with upfront non-cash consideration in the form of equity, as well as contingent consideration in the form of contingent payments based on revenue. The PRA Letter Agreement terminated the MLB Promotional Rights Agreement. As a result of the termination, the license and media rights assets as well as the current and non-current payable previously recorded on the condensed consolidated balance sheets were written off. This write-off resulted in the recognition of a gain of $ 2,326 which is included in Other income (expense), net within the condensed consolidated statements of operations for the six months ended June 30, 2025. The gain reflects the net impact of the derecognition of related obligation exceeding the carrying value of the associated assets. 6. DEBT Convertible Debenture On November 14, 2022, the Company entered into the Subscription Agreement with BT DE Investments, Inc., providing for the issuance of a $ 56.8 million ( C$ 75.3 million ) Convertible Debenture. The Convertible Debenture was denominated in Canadian Dollars ("CAD" or "C$"). The Convertible Debenture was convertible into 19.9 % ownership of the Company’s common shares at a conversion price of C$ 2.00 per Common Share of the Company. The Convertible Debenture accrued interest at a stated annualized rate of 5 % until such time that there was federal regulation permitting the use of 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 % . Interest accrued annually and payable on the maturity date or date of earlier conversion. On May 28, 2026, the Company completed a transaction with BT DE 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 13 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) conversion price of C$ 0.94 per share; and (ii) a concurrent additional equity investment by BT DE of $ 10 million (approximately C$ 13.9 million at the then applicable exchange rate) by way of a private placement at a price equal to 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 provided that the maximum number of common shares of the Company to be issued to BT DE under the Investment would not exceed 14,760,638 common shares of the Company. On May 28, 2026, the Company and BT DE entered into the Amendment and Conversion Notice. Pursuant to the Amendment and Conversion Notice: (i) the interest conversion price of the Convertible Debenture was reduced from C$ 2.00 to C$ 0.94 per share; (ii) the interest conversion price of the Convertible Debenture was amended to C$ 0.94 per share; and (iii) the applicable threshold for purposes of the Conversion Cap (as defined in the Convertible Debenture) was increased from 19.9 % to 40.8 %. At the closing and immediately following the effectiveness of the Amendment and Conversion Notice, BT DE converted the principal amount of, and all accrued but unpaid interest on, the Convertible Debenture into 95,281,277 common shares of the Company. As of the closing of the Transaction and upon the conversion of the Convertible Debenture and the Investments, BT DE holds an aggregate of 109,944,042 common shares of the Company, representing approximately 40.6 % of the issued and outstanding Common Shares (calculated on a non-diluted basis) of the Company based on 270,549,931 Common Shares issued and outstanding as of May 28, 2026. The retirement of the debt obligations was accounted for as an extinguishment of debt. In accordance with applicable accounting standards, the Company recognized $ 65.0 million in additional paid-in capital in connection with the transaction, including $ 52.9 million attributable to the fair value of the conversion feature and $ 12.0 million related to unamortized debt discount. As a result, the Company recognized a loss on extinguishment of debt of $ 4.2 million, which was recorded in Loss from extinguishment of debt on the Company’s condensed consolidated statements of operations. Following this conversion, the outstanding balance of the Convertible Debenture and its associated accrued interest represents a zero balance in the Company's condensed consolidated balance sheets statement. The following is a summary of the Company's convertible debenture as of December 31, 2025 : As of December 31, 2025 Principal Amount Unamortized Debt Discount and Costs Net Carrying Amount Convertible Debenture Convertible debenture $ 63,944 $ ( 13,095 ) $ 50,849 The Convertible Debenture, prior to extinguishment , was C$ 75.3 million per the subscription agreement and translated to USD on the transaction date. For the three months ended June 30, 2026 and June 30, 2025, the Company recognized a foreign currency loss of $ 498 and $ 2,600 , respectively, related to the net carrying value of the Convertible Debenture within the condensed consolidated statement of operations. Additionally, for the six months ended June 30, 2026 and June 30, 2025, the Company recognized a foreign currency gain of $ 227 and a loss $ 2,538 , respectively, related to the net carrying value of the Convertible Debenture within the condensed consolidated statement of operations. As of June 30, 2026 and June 30, 2025 , the principal amount of the Convertible Debenture, prior to extinguishment, included $ 10,378 and $ 7,549 , respectively, of accrued interest expense. The following is a summary of the interest expense and amortization expense, recorded 14 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) within the condensed consolidated statements of operations, of the Company's convertible debenture for the three and six months ended June 30, 2026 and June 30, 2025 : Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Interest expense $ 528 $ 749 $ 1,321 $ 1,471 Amortization of debt discounts and costs 411 514 999 977 Total interest and amortization expense $ 939 $ 1,263 $ 2,320 $ 2,448 7. COMMITMENTS AND CONTINGENCIES Legal Contingencies From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. Although the ultimate aggregate amount of monetary liability or financial impact with respect to these matters is subject to many uncertainties and is therefore not predictable with assurance, management believes that as of June 30, 2026 there is no litigation pending that could have, individually and in the aggregate, a material adverse effect on the Company’s financial position, results of operations or cash flows. 8. LEASES The Company has lease arrangements related to office space, warehouse and production space, and land to facilitate agricultural operations. The leases have remaining lease terms of less than 0.7 to 8.7 years, some of which include options to extend the leases for up to five years . Generally, the lease agreements do not include options to terminate the lease. Maturities of operating lease liabilities as of June 30, 2026 are as follows: Operating Leases 2026 (6 months remaining) $ 1,121 2027 1,898 2028 1,819 2029 1,825 2030 1,851 Thereafter 6,329 Total lease obligation 14,843 Less: Imputed interest ( 1,788 ) Total lease liabilities 13,055 Less: Current lease liabilities ( 1,398 ) Total non-current lease liabilities $ 11,657 9. SHAREHOLDERS’ EQUITY As of June 30, 2026 and December 31, 2025, the Company’s share capital consists of one class of issued and outstanding shares: common shares. The Company is also authorized to issue preferred shares issuable in series. To date, no shares of preferred shares have been issued or are outstanding. 15 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) Common Shares As of June 30, 2026 and December 31, 2025, the Company was authorized to issue an unlimited number of common shares, which have no par value. 10. LOSS PER SHARE The Company computes loss per share of common shares. Basic net loss per common share is computed by dividing the net loss by the weighted-average number of common shares outstanding. Diluted loss per common share is computed by dividing the net loss by the weighted-average number of common shares together with the number of additional common shares that would have been outstanding if all potentially dilutive common shares had been issued, unless anti-dilutive. The following table sets forth the computation of basic and dilutive net loss per share attributable to common shareholders: Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Net loss $ ( 4,127 ) $ ( 6,288 ) $ ( 17,239 ) $ ( 12,500 ) Weighted-average number of common shares - basic 198,673,161 158,611,084 180,156,332 158,313,655 Dilutive effect of stock options and awards — — — — Weighted-average number of common shares - diluted 198,673,161 158,611,084 180,156,332 158,313,655 Loss per common share – basic and diluted $ ( 0.02 ) $ ( 0.04 ) $ ( 0.10 ) $ ( 0.08 ) As of June 30, 2026 and June 30, 2025, potentially dilutive securities include stock options, restricted share units, and common share warrants. As of June 30, 2025, potentially dilutive securities also included convertible debenture conversion rights. When the Company recognizes a net loss from continuing operations, all potentially dilutive shares are anti-dilutive and are consequently excluded from the calculation of diluted net loss per share. The potentially dilutive awards outstanding for each period are presented in the table below: Three and Six Months Ended June 30, 2026 2025 Outstanding options 1,857,211 3,238,084 Outstanding restricted share units 5,845,804 5,668,941 Total 7,703,015 8,907,025 For the three and six months ended June 30, 2025, the Company's Convertible Debenture was 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. The price of the Company’s common shares did not exceed the conversion price and therefore there was no impact to potential common share diluted EPS during those periods. On May 28, 2026, the Company entered into an agreement with BAT comprised of two components: (i) amendment and conversion of BAT’s outstanding C$ 75.3 million C onvertible 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$ 13.9 million at the then applicable 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”) provided that the maximum number of Common Shares to be issued to BAT under the Investment would not exceed 14,760,638 Common Shares. 16 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) At closing and immediately following the effectiveness of the Amendment and Conversion Notice, BAT converted the principal amount of, and all accrued but unpaid interest on, the Convertible Debenture into 95,281,277 Common Shares. As of the Closing and upon the conversion of the Convertible Debenture and the purchase of the Purchased Shares, BAT holds an aggregate of 109,944,042 Common Shares, representing approximately 40.6 % of the issued and outstanding Common Shares (calculated on a non-diluted basis) of the Company based on 270,549,931 Common Shares issued and outstanding as of May 28, 2026. 11. SHARE-BASED COMPENSATION Stock options Stock options vest over a prescribed service period and are approved by the Company's board of directors on an award-by-award basis. Options have a prescribed service period generally lasting up to four years , with certain options vesting immediately upon issuance. Upon the exercise of any stock options, the Company issues shares to the award holder from the pool of authorized but unissued common shares. Detail of the number of stock options outstanding for the six months ended June 30, 2026 under the Company's 2015 legacy option plan and the Company's amended 2018 Long-Term Incentive Plan (the "2018 Plan") is as follows: Number of Options Weighted- Average Exercise Price per Option Weighted- Average Remaining Contract Term (in years) Aggregate Intrinsic Value Outstanding as of December 31, 2025 1,967,426 $ 1.04 6.57 $ 28 Granted — — Exercised ( 67,601 ) 0.32 Forfeited (and expired) ( 42,614 ) 1.20 Outstanding as of June 30, 2026 1,857,211 $ 1.06 6.05 $ 4 Exercisable/vested as of June 30, 2026 1,857,211 $ 1.06 6.05 $ 4 There were no options granted during the six months ended June 30, 2026 and 2025, respectively. As of June 30, 2026, all outstanding options were fully vested and exercisable. Restricted share units The Company has issued time-based restricted share units to certain employees as permitted under the Company's amended 2018 long term incentive plan (the "2018 Plan"). The restricted share units that are granted vest in accordance with the board-approved agreement, typically over equal installments up to four years . Upon vesting, one share of the Company’s common shares is issued for each restricted share unit awarded. The fair value of each restricted share unit granted is equal to the market price of the Company’s shares at the date of the grant. There were no shares vested during the three months ended June 30, 2026. The fair value of shares vested during the six months ended June 30, 2026 and 2025 was $ 238 and $ 106 , respectively. 17 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) Details of the number of restricted share units outstanding under the 2018 Plan is as follows: Number of Shares Weighted- Average Grant Date Fair Value Outstanding as of December 31, 2025 4,084,117 $ 0.18 Granted 4,186,205 $ 0.72 Forfeited ( 834,020 ) $ 0.43 Vested ( 1,118,147 ) $ 0.21 Shares withheld upon vesting ( 472,351 ) $ 0.20 Outstanding as of June 30, 2026 5,845,804 $ 0.52 Share-based Compensation Expense Share-based compensation expense for all equity arrangements for the three months ended June 30, 2026 and 2025 was $ 506 and $ 180 , respectively, included in selling, general and administrative expense in the condensed consolidated statements of operations. Share-based compensation expense for all equity arrangements for the six months ended June 30, 2026 and 2025 was $ 657 and $ 367 , respectively, included in selling, general and administrative expense in the condensed consolidated statements of operations. As of June 30, 2026, $ 2,537 of total unrecognized share-based compensation expense related to unvested awards granted to employees is expected to be recognized over a weighted-average period of 2.45 years. 12. INCOME TAXES The Company reported income tax benefit (expense) of $( 35 ) and $ 2 for the three months ended June 30, 2026 and 2025, respectively. Additionally, income tax benefit (expense) for the six months ended June 30, 2026 and 2025 was $( 32 ) and $ 2 , respectively. The Company's effective tax rate for the three and six months ended June 30, 2026 was 0.9 % and 0.2 %, respectively . The Company's effective tax rate for the three and six months ended June 30, 2025 was 0 %. The Company’s effective tax rates differ from the U.S. federal statutory rate of 21% for the three and six months ending June 30, 2026 and June 30, 2025 , respectively, primarily due to state tax payments. 13. OPERATING SEGMENT Segment information The Company has determined that it operates in a single operating and reportable segment, which is the production and sale of hemp-based CBD wellness products, which makes up substantially all of the revenue at this time. This is consistent with how the chief operating decision maker (the "CODM") allocates resources and assesses performance. The Company’s CODM is the executive operations committee that includes the chief executive officer, the chief financial officer, the chief operations officer and the chief people officer. The majority of Company’s products have similar characteristics due to the same raw material ingredient (CBD and derivatives), similar nature of cultivation process, the type of customer and the regulatory nature of the industry. The CODM assesses performance for this segment and decides how to allocate resources based on pre-tax income/(loss) that is reported on the condensed consolidated statement of operations. The measure of segment assets is reported on the condensed consolidated balance sheets as total assets. For the three months ended June 30, 2026 and 2025, the segment's revenues and pre-tax loss were $ 10,855 and $ 12,806 ; and $ 4,092 and $ 6,290 , respectively. Additionally, for the six months ended June 30, 2026 and 2025, the segment's revenues and pre-tax loss were $ 22,014 and $ 25,068 ; and $ 17,207 and $ 12,502 , respectively. There are no differences between segment revenues, pre-tax loss and the Company's consolidated revenues and pre-tax loss. 18 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) General Information Factors used to Identify Reportable Segments: The Company operates as a single reportable segment, focusing primarily on the production and sale of hemp-based CBD wellness products. Products and Services: The Company's revenue is primarily derived from the production and sale of hemp-based CBD wellness products. Chief Operating Decision Maker (CODM): The Company's Chief Executive Officer, Chief Financial Officer, Chief Operations Officer, and Chief People Officer. Measure of Segment Profit or Loss and Total Assets: The CODM evaluates performance and allocates resources based on pre-tax income/(loss), as presented in the accompanying financial statements. The measure of segment assets is reported on the balance sheet as total consolidated assets. Significant Segment Expenses The following significant expenses are regularly reviewed by the CODM for the three months ended June 30, 2026 and 2025: Cost of goods sold $ 5,698 and $ 6,816 , respectively; Selling, general, and administrative expenses $ 9,515 and $ 10,062 , respectively; Change in fair value of financial instruments $ 5,557 and $ 1,543 , respectively; Loss from extinguishment of debt $ 4,216 and $ — , respectively; and Depreciation and Amortization $ 1,494 and $ 512 , respectively. The CODM reviewed the following for the six months ended June 30, 2026 and 2025: Cost of goods sold $ 11,653 and $ 12,848 , respectively; Selling, general, and administrative expenses $ 19,043 and $ 21,640 respectively; Change in fair value of financial instruments $ 3,311 and $ 1,669 , respectively; Loss from extinguishment of debt $ 4,216 and $ — , respectively; and Depreciation and Amortization $ 3,171 and $ 2,961 , respectively. 19 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) Reconciliation to Consolidated Financial Statements As the Company operates as a single reportable segment, the amounts presented above align directly with the consolidated totals in the financial statements. Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Product Revenue $ 10,780 $ 12,731 $ 21,864 $ 24,918 Service Revenue 75 75 150 150 Total Revenue $ 10,855 $ 12,806 $ 22,014 $ 25,068 Cost of goods sold 5,698 6,816 11,653 12,848 Gross profit $ 5,157 $ 5,990 $ 10,361 $ 12,220 Gross profit % 47.5 % 46.8 % 47.1 % 48.7 % Selling, general, and administrative expenses 9,515 10,062 19,043 21,640 Operating loss $ ( 4,358 ) $ ( 4,072 ) $ ( 8,682 ) $ ( 9,420 ) Change in fair value of financial instruments 5,557 ( 1,543 ) ( 3,311 ) ( 1,669 ) Loss from extinguishment of debt ( 4,216 ) — ( 4,216 ) — Other income (expense), net ( 1,075 ) ( 675 ) ( 998 ) ( 1,413 ) Loss before provision for income taxes $ ( 4,092 ) $ ( 6,290 ) $ ( 17,207 ) $ ( 12,502 ) Other segment information Depreciation/Amortization 3,171 2,961 Total assets 76,389 87,976 Long-term liabilities 12,069 62,683 14. RELATED PARTY TRANSACTIONS Effective November 2020, the Company issued a secured promissory note, where $ 1,000 was loaned to one of the Stanley Brothers. The note receivable was secured by equity instruments with certain of the Stanley Brothers, bore interest at 3.25 % per annum, and required the unpaid principal and unpaid interest balances to be paid on or before the maturity date of November 13, 2021, which date was subsequently extended. Effective November 13, 2024, the Company entered into a third amendment of the promissory note to extend the maturity date until November 13, 2029. According to the terms of the agreement, no additional interest will accrue through the payment date. The note has been fully reserved for as of June 30, 2026 and December 31, 2025 . On March 2, 2021, the Company entered into the SBH Purchase Option with Stanley Brothers USA as discussed above ( Note 3 "Fair Value Measurement"). The SBH Purchase Option was purchased for total consideration of $ 8,000 . Certain members of the Stanley Brothers , who are or were employees of the Company at the time, are the majority shareholders of Stanley Brothers USA. The Company was not obligated to exercise the SBH Purchase Option and as such the unexercised option expired as of February 26, 2026. 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 20 CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( In thousands, except share, per share, per unit, and number of years) (unaudited) common units (Note 3). Effective May 1, 2023, the Company entered into an 8 % interest bearing note receivable with DeFloria for the sale of lab equipment in the amount of $ 170 . The principal and interest of the note receivable will be paid in 36 monthly installments. As of June 30, 2026 and December 31, 2025 , the remaining note receivable of $ 0 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 three and six months ended June 30, 2026, the Company recognized $ 68 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 six months ended June 30, 2026, the Company recognized $ 75 and $ 150 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 $ 1,689 and $ 1,471 as of June 30, 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. The note and accrued interest is due and payable by DeFloria upon the later of December 31, 2026, or the date the Company shall issue and sell units of a newly-authorized series of preferred units in a bona fide financing transaction to one or more investors for aggregate cash proceeds to DeFloria or any other convertible debt of DeFloria of not less than $ 10 million. 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 were distributed monthly between July and November 2025. The balance of the promissory note including accrued interest as of June 30, 2026 and December 31, 2025 is $ 827 and $ 784 , respectively. On June 4, 2026, 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 . 21 The Management's Discussion and Analysis of Financial Condition and Results of Operations for Charlotte’s Web Holdings, Inc. is also included in the Form 10-Q for the quarter ended June 30, 2026 filed on SEDAR+ on August 13, 2026 in its entirety. This document (this “MD&A”) contains information under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” which has been excerpted from Charlotte’s Web Holdings, Inc.’s (the “Company” or “our”) Quarterly Report on Form 10-Q for the quarter ended June 30, 2026 (the “Second Quarter Report”) filed concurrently with this MD&A on the date hereof on our profile on SEDAR+ at www.sedarplus.ca and on EDGAR at www.sec.gov . This MD&A should be read in conjunction with our Second Quarter Report including Item 1 containing the Company’s unaudited condensed consolidated financial statements and the related notes thereto as well as Item 1 “Business” and Item 1A “Risk Factors”. This MD&A incorporates by reference herein the section entitled “Disclosure Regarding Forward-Looking Statements” and Item 1A “Risk Factors” from our Second Quarter Report. Defined terms used herein but otherwise not defined have the meaning ascribed to them in the Annual Report on Form 10-K for the year ended December 31, 2025 and in Part II, Item 1A—Risk Factors” of this Form 10-Q. 22