LOUISVILLE, Colo. – Charlotte’s Web Holdings Inc., a market leader in hemp-derived CBD and other botanical wellness products, reported financial results for the third quarter ended September 30, 2024.
“Our return to quarter-over-quarter growth in 2024 signals that our strategic direction is paying off,” said Bill Morachnick, CEO of Charlotte’s Web. “We’ve seen positive impacts from our e-commerce platform upgrades, recent product launches, and additional retailers, highlighted by our new partnership with Walmart that brings our CBD topicals to another 827 stores. The gummies category remains healthy, with notable demand for our CBN ‘Stay Asleep’ gummy supporting volume growth. Our omni-channel focus across direct-to-consumer, retail, and healthcare channels aims to provide a seamless brand experience that resonates with our consumers.”
New Product Innovations
In response to consumer preferences for convenient formats, Charlotte’s Web introduced its new Soft Gel Capsule, offering easy-to-swallow gel caps that provide precise, potent dosing of full-spectrum CBD. The new gel caps have received positive consumer feedback for their portability, convenience, and effectiveness.
In the third quarter of 2024, Charlotte’s Web expanded beyond hemp wellness with the launch of its latest innovation, a new line of Functional Mushroom Gummies, tapping into the rapidly growing mushroom wellness category. These gummies leverage Charlotte’s Web’s botanical expertise, blending mushroom extracts with targeted botanicals for wellness support. The introduction of mushroom gummies marks a key step in diversifying Charlotte’s Web’s product offerings and broadening its portfolio. This expansion allows the Company to reach new wellness-focused consumers, particularly millennials and Gen X, who prefer alternative, plant-based solutions. With this new product line, Charlotte’s Web is positioning to participate in the transition of functional mushroom supplements from niche adoption to mainstream availability. The mushroom gummies have initially rolled out to over 200 retail locations, enabling the Company to capitalize on a growing market with an expected CAGR of over 11% through 2030, according to the Grand View Research “Functional Mushroom Market Report” (July 2024).
“At Charlotte’s Web, we believe our dedication to quality and transparent hemp offerings has established us as a wellness thought leader, and we’re thrilled to extend that legacy with the launch of our new Functional Mushroom Gummies,” said CEO Bill Morachnick. “Drawing on our botanical expertise, we’re bringing innovative solutions to curious consumers who prioritize natural wellness. We’re expanding our portfolio to lead the way in a mushroom supplements market that demands clarity, helping consumers access effective, transparent wellness solutions across our growing channels.”
Omni-Channel Expansion for Broader Consumer Access
As Charlotte’s Web diversifies its product portfolio with innovations like gel caps, mushroom gummies, and minor cannabinoid isolate products, it is implementing a robust omni-channel strategy to maximize distribution and accessibility. This approach integrates multiple sales channels, expanding its established brick-and-mortar retail network and its new e-commerce platform to include third-party retail websites and online sales portals of retail partners. With more regulatory clarity around products like cannabinoid isolates and mushroom supplements, Charlotte’s Web has access to more channels, allowing for greater flexibility in distribution. Through this omni-channel strategy, Charlotte’s Web believes that it is positioned to drive growth, enhance consumer engagement, and strengthen its market presence, allowing each product category to reach its target channels while ensuring operational flexibility.
Canada Gummy Launch with Tilray
Our collaboration with Tilray is a first-of-its-kind agreement for Charlotte’s Web, allowing the Company to license its brands, intellectual property, and formulations to a trusted partner. This underscores Charlotte’s Web’s international expansion strategies through an asset-light model, by partnering to leverage well-established infrastructure, co-production, and route-to-market capabilities.
At the end of the third quarter, Charlotte’s Web gummies were launched in Canada. These gummies are crafted using Charlotte’s Web’s proprietary hemp genetics, cultivated in the pristine northern Okanagan Valley of British Columbia, Canada, and feature full-spectrum CBD hemp extract combined with functional botanical supplements, designed to provide synergistic support for targeted wellness benefits. The gummies are produced in accordance with Health Canada Processing and under a license by Aphria Inc., a subsidiary of Tilray Brands Inc. They are being distributed through cannabis retailers in select provinces and on the Tilray Medical website. The launch of gummies follows the earlier availability of Charlotte’s Web hemp extract oil tinctures and topicals in Canada, expanding Canadian access to trusted, high-quality CBD products.
Regulatory Progress
The Company, in collaboration with One Hemp—a coalition of responsible, industry-leading hemp CBD companies—is proactively engaging with industry and consumer organizations to advance federal and state legislation that protects consumer access to safe, non-intoxicating hemp wellness products. This coalition serves as a resource for crafting regulatory frameworks on the federal and state level that prioritizes public health while protecting the rights of millions of CBD consumers who depend on these rigorously tested, quality-assured products. Federal momentum continues, with Congress making strides toward legislation that would establish a consistent, nationwide framework for CBD under FDA guidance. Charlotte’s Web remains encouraged by bipartisan support and is committed to furthering these critical regulatory efforts.
DeFloria LLC IND Update
DeFloria is finalizing its Phase 1 trial data for the U.S. Food and Drug Administration (FDA) as part of its investigational new drug (IND) application. The Phase 1 clinical trial determined the dose range that will inform an IND opening Phase 2 clinical trial, which would follow a No Objection letter from the FDA. Updates on DeFloria’s progress toward a Phase 2 clinical trial program will be provided accordingly. DeFloria is a botanical drug development company developing a botanical drug utilizing patented hemp genetics from Charlotte’s Web.
Financial Review – Q3 2024
“Expense and cash flow management have been our top priorities this year. The cost reduction initiatives in the first half of the year to reorganize and streamline our operations have delivered a leaner overhead structure, reducing cash burn moving forward,” said Erika Lind, Chief Financial Officer of Charlotte’s Web. “We will commence initial commercial in-house production for our gummy lines this quarter, improving capacity utilization and fixed cost absorption that will strengthen gross margins over the long term. Gummies are our largest revenue product segment, and this transition will also support innovation and speed to market, aligning with our broader operational goals.”
Consolidated net revenue for the third quarter ended September 30, 2024, was $12.6 million compared to $14.3 million in the third quarter of 2023, with retail and e-commerce revenues lower year-over-year. Overall, CBD industry growth in 2024 has been hindered by ongoing headwinds in the category, including regulatory ambiguities at the federal and state levels and associated competitive alternatives causing retailer and consumer confusion.
Gross profit was $6.7 million, or 53.0% of revenue, compared to $7.9 million, or 55.5%, in Q3 2023. The decrease reflects the lower revenue impacting fixed cost absorption in Q3 2024 and the Q1 2024 price reductions implemented on all oil tinctures. Improved production costs partially offset this gross margin decline.
Direct-to-consumer net revenue through the Company’s web store was $8.2 million, a decrease of $1.2 million compared to $9.4 million in Q3 2023, primarily due to lower year-over-year online traffic and consumer acquisitions. During Q2 2024, the Company migrated to a new e-commerce platform that provides improved software integrations, advanced target marketing tools, and superior customer relationship management capabilities. The new platform offers a more engaging consumer experience, and on a quarter-over-quarter basis, D2C’s net revenue increased 4.4% compared to the second quarter of 2024.
Business-to-business retail net revenue was $4.3 million compared to $4.9 million in Q3 2023. The $0.6 million decrease was primarily due to some reductions in retail shelf space allocated to the CBD category between the comparable periods. Inflationary impact on discretionary consumer spending activity and product mix shift away from higher-priced tinctures were additional contributing factors. Despite declines in the overall CBD category this year, according to data from SPINS LLC, Charlotte’s Web has been outperforming the category at retail. According to the latest surveys by The Brightfield Group, it holds the leading brand position in trust and loyalty.
On a quarter-over-quarter basis, B2B net revenue was essentially flat compared to the second quarter of 2024, when Charlotte’s Web rolled out its new CBD topical isolates to more than 800 Walmart retail locations. The Company’s leading gummy lines continue to deliver growth, with third-quarter sales increasing more than 10% year-over-year, further supported by its new CBN ‘Stay Asleep’ gummies. The distribution improvements in the first half of 2024, combined with CBN Stay Asleep gummy retail placements, increased overall retail Q3 distribution in the Natural channel by more than 20% year-over-year.
SG&A Expenses
Total selling, general, and administrative (“SG&A”) expenses in the quarter were $12.7 million, a 36.2% improvement versus $19.9 million in Q3 2023. The improvement reflects actions taken during the first half of 2024 to reduce operating expenses and better align SG&A against revenue levels. Q3 2024 SG&A includes amortizing the MLB license and media rights assets of $1.8 million, compared to $2.9 million in Q3 last year. For the nine months ended September 30, 2024, SG&A expenses were approximately $42.7 million, including $3.8 million related to the MLB partnership. This compares to $57.0 million for the first nine months of 2023, including $6.8 million in MLB expenses. As a result of the operating expense reductions, efficiency improvements, and stringent cost controls, the Company expects operating expenses for 2024 to be more than $20 million lower than 2023.
Net Income and Adjusted EBITDA
Charlotte’s Web reported a net loss of $5.8 million, or ($0.04) per share basic and diluted, for the third quarter of 2024, as compared to a net loss of $15.2 million, or ($0.10) per share basic and diluted, for the third quarter of 2023.
Adjusted EBITDA loss for the third quarter of 2024 was $3.9 million, compared to Adjusted EBITDA loss of $6.0 million in the third quarter of 2023.
Cash Flow and Balance Sheet
Net cash used for operations for the three months ended September 30, 2024, was $7.6 million, including $2.5 million in cash paid to MLB regarding license and media rights assets. This is compared to $7.8 million in Q3 2023, which included $2.0 million in cash paid to MLB. There was $0.3 million in capital expenditures during the quarter related to insourcing manufacturing lines for gummy and topical products.
At September 30, 2024, the Company’s cash and working capital were $24.6 million and $33.5 million, respectively, compared to $47.8 million and $54.5 million, respectively, at December 31, 2023.
About Charlotte’s Web Holdings, Inc.
Charlotte’s Web Holdings, Inc., a Certified B Corporation headquartered in Louisville, Colorado, is A market leader in innovative hemp extract wellness products that include Charlotte’s Web whole-plant full-spectrum CBD extracts as well as broad-spectrum CBD certified NSF for Sport. Charlotte’s Web is the official CBD of Major League Baseball and the Premier Lacrosse League. Charlotte’s Web branded premium quality products start with proprietary hemp genetics that are North American farm-grown using organic and regenerative cultivation practices. The Company’s hemp extracts have naturally occurring botanical compounds including cannabidiol (“CBD”), CBN, CBC, CBG, terpenes, flavonoids, and other beneficial compounds. Charlotte’s Web product categories include CBD oil tinctures (liquid products), CBD gummies (sleep, calming, exercise recovery, immunity), CBN gummies, CBD capsules, CBD topical creams, and lotions, as well as CBD pet products for dogs. Through its substantially vertically integrated business model, Charlotte’s Web maintains stringent control over product quality and consistency with analytic testing from soil to shelf for quality assurance.
