UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended ~~September~~June 30, ~~2022~~2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-56364

Charlotte's Web Holdings, Inc.

(Exact name of registrant as specified in its charter)


British Columbia									98-1508633
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

700 Tech Court

Louisville, CO 80027

(Address of principal executive offices and zip code)

(720) ~~617-7303~~484-8930

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

Securities registered pursuant to section 12(g) of the Act:

Common stock, no par value

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	x
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The registrant had outstanding ~~151,628,652~~152,951,994 shares of common shares as of ~~November 11, 2022.~~August 8, 2023.

CHARLOTTE'S WEB HOLDINGS, INC.

FORM 10-Q

For the Quarter Ended ~~September~~June 30, ~~2022~~2023

TABLE OF CONTENTS

PART I

Item 1. Financial Statements

CHARLOTTE’S WEB HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


		September 30,		December 31,			June 30,		December 31,
		2022 (unaudited)		2021			2023 (unaudited)		2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	16,513	$	19,494	Cash and cash equivalents	$	61,728	$	66,963
Accounts receivable, net	Accounts receivable, net	2,044		4,882		Accounts receivable, net	2,479		1,847
Notes receivable - current		495		495
Inventories, net	Inventories, net	50,599		52,077		Inventories, net	23,755		26,953
Prepaid expenses and other current assets	Prepaid expenses and other current assets	4,530		8,095		Prepaid expenses and other current assets	6,900		7,998
Income taxes receivable		—		10,764
Total current assets	Total current assets	74,181		95,807		Total current assets	94,862		103,761
Property and equipment, net	Property and equipment, net	31,087		36,085		Property and equipment, net	26,608		29,330
License and media rights						License and media rights	22,968		26,871
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	17,079		20,679		Operating lease right-of-use assets, net	15,543		16,519
Investment in unconsolidated entity						Investment in unconsolidated entity	10,700		—
SBH purchase option and other derivative assets						SBH purchase option and other derivative assets	2,893		3,620
Intangible assets, net	Intangible assets, net	2,018		2,843		Intangible assets, net	1,500		1,771
Stanley Brothers USA Holdings purchase option		9,100		13,000
Notes receivable - noncurrent		1,037		1,037
Other long-term assets	Other long-term assets	6,016		2,062		Other long-term assets	1,515		5,770
Total assets	Total assets	$	140,518	$	171,513	Total assets	$	176,589	$	187,642
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	2,584	$	5,049	Accounts payable	$	3,193	$	4,018
License and media rights payable - current						License and media rights payable - current	8,833		7,759
Accrued and other current liabilities	Accrued and other current liabilities	7,435		9,570		Accrued and other current liabilities	8,336		7,344

Cultivation liabilities – current		812		3,448
Lease obligations – current	Lease obligations – current	2,316		2,103		Lease obligations – current	2,247		2,306
Total current liabilities	Total current liabilities	13,147		20,170		Total current liabilities	22,609		21,427
Cultivation liabilities – noncurrent		—		385
Lease obligations – noncurrent		18,507		20,500
Other long-term liabilities		2		12
Convertible debenture						Convertible debenture	40,307		37,421
Lease obligations						Lease obligations	16,529		17,905
License and media rights payable						License and media rights payable	15,869		20,383
Derivatives and other long-term liabilities						Derivatives and other long-term liabilities	2,914		13,001
Total liabilities	Total liabilities	31,656		41,067		Total liabilities	98,228		110,137
Commitments and contingencies (note 6)
Commitments and contingencies (note 7)						Commitments and contingencies (note 7)
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common shares, nil par value; unlimited shares authorized as of September 30, 2022 and December 31, 2021, respectively; 145,509,372 and 144,659,964 shares issued and outstanding as of September 30, 2022 and December 31, 2021		1		1
Proportionate voting shares, nil par value; nil shares authorized as of September 30, 2022 and December 31, 2021, respectively; nil shares issued and outstanding as of September 30, 2022 and December 31, 2021		—		—
Common shares, nil par value; unlimited shares authorized as of June 30, 2023 and December 31, 2022, respectively; 152,825,118 and 152,135,026 shares issued and outstanding as of June 30, 2023 and December 31, 2022						Common shares, nil par value; unlimited shares authorized as of June 30, 2023 and December 31, 2022, respectively; 152,825,118 and 152,135,026 shares issued and outstanding as of June 30, 2023 and December 31, 2022	1		1
Additional paid-in capital	Additional paid-in capital	321,559		319,059		Additional paid-in capital	326,355		325,431
Accumulated deficit	Accumulated deficit	(212,698)		(188,614)		Accumulated deficit	(247,995)		(247,927)
Total shareholders’ equity	Total shareholders’ equity	108,862		130,446		Total shareholders’ equity	78,361		77,505
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	140,518	$	171,513	Total liabilities and shareholders’ equity	$	176,589	$	187,642

See Notes to Unaudited Condensed Consolidated Financial Statements

CHARLOTTE’S WEB HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

Three Months Ended September 30,
(unaudited) Nine months ended September 30,
(unaudited)
2022 2021 2022 2021
Revenue $ 17,037 $ 23,704 $ 55,271 $ 71,263
Cost of goods sold 8,092 8,789 25,291 26,884
Gross profit 8,945 14,915 29,980 44,379
Selling, general and administrative expenses 11,032 24,299 48,646 73,263
Asset impairment 1,822 — 1,822 —
Operating loss (3,909) (9,384) (20,488) (28,884)
Other income, net 321 110 304 320
Change in fair value of financial instruments and other (4,000) 8,459 (3,900) 9,082
Loss before provision for income taxes (7,588) (815) (24,084) (19,482)
Income tax benefit — 38 — 8
Net loss $ (7,588) $ (777) $ (24,084) $ (19,474)
Net loss per common share, basic and diluted $ (0.05) $ (0.01) $ (0.17) $ (0.14)
Weighted-average shares used in computing net loss per share, basic and diluted 145,334,992 140,521,244 145,203,515 140,054,738


	Three Months Ended June 30, (unaudited)				Six Months Ended June 30, (unaudited)
	2023		2022		2023		2022

Revenue	$	16,006	$	18,877	$	33,016	$	38,234
Cost of goods sold	7,088		9,556		14,181		17,199
Gross profit	8,918		9,321		18,835		21,035

Selling, general and administrative expenses	19,627		17,259		37,140		37,614
Operating loss	(10,709)		(7,938)		(18,305)		(16,579)

Gain on investment in unconsolidated entity	10,700		—		10,700		—
Change in fair value of financial instruments and other	4,229		—		9,612		100
Other income (expense), net	(1,376)		68		(2,074)		(17)
Income (loss) before provision for income taxes	2,844		(7,870)		(67)		(16,496)
Income tax benefit (expense)	—		—		—		—
Net income (loss)	$	2,844	$	(7,870)	$	(67)	$	(16,496)

Per common share amounts (note 10)
Net income (loss) per common share, basic	$	0.02	$	(0.05)	$	—	$	(0.11)
Net income (loss) per common share, diluted	$	0.02	$	(0.05)	$	—	$	(0.11)

See Notes to Unaudited Condensed Consolidated Financial Statements

CHARLOTTE’S WEB HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

Proportionate Voting Shares Common Shares Additional
Paid-in
Capital

Accumulated Deficit

Total
Shareholders’
Equity
Shares Shares Amount
Balance—December 31, 2021 — 144,659,964 $ 1 $ 319,059 $ (188,614) $ 130,446
Common shares issued upon vesting of restricted share units, net of withholding — 77,193 — (45) — (45)
Harmony Hemp contingent equity compensation — 169,045 — 165 — 165
ATM program issuance costs — 239,500 — (2) — (2)
Share-based compensation — — — 1,214 — 1,214
Net loss — — — — (8,626) (8,626)
Balance— March 31, 2022 — 145,145,702 $ 1 $ 320,391 $ (197,240) $ 123,152
Common shares issued upon vesting of restricted share units, net of withholding — 132,463 — (13) — (13)
Share-based compensation — — — 643 — 643
Net loss — — — — (7,870) (7,870)
Balance—June 30, 2022 — 145,278,165 $ 1 $ 321,021 $ (205,110) $ 115,912
Common shares issued upon vesting of restricted share units, net of withholding — 231,207 — (67) — (67)
ATM program issuance costs — — — (59) — (59)
Share-based compensation — — — 664 — 664
Net loss — — — — (7,588) (7,588)
Balance—September 30, 2022 — 145,509,372 $ 1 $ 321,559 $ (212,698) $ 108,862


	Common Shares			Additional Paid-in Capital		Accumulated Deficit		Total Shareholders’ Equity
	Shares	Amount
Balance—December 31, 2022	152,135,026	$	1	$	325,431	$	(247,927)	$	77,505
Common shares issued upon vesting of restricted share units, net of withholding	297,888	—		(69)		—		(69)
Share-based compensation	—	—		375		—		375
Net income (loss)		—				(2,912)		(2,912)
Balance— March 31, 2023	152,432,914	$	1	$	325,737	$	(250,839)	$	74,899
Common shares issued upon vesting of restricted share units, net of withholding	392,204	—		(6)		—		(6)
Share-based compensation	—	—		624		—		624
Net income (loss)	—	—		—		2,844		2,844
Balance—June 30, 2023	152,825,118	$	1	$	326,355	$	(247,995)	$	78,361

See Notes to Unaudited Condensed Consolidated Financial Statements

CHARLOTTE’S WEB HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

Proportionate Voting Shares Common Shares Additional
Paid-in
Capital

Accumulated Deficit

Total
Shareholders’
Equity
Shares Shares Amount
Balance—December 31, 2020 81,177 107,060,237 $ 1 $ 305,133 $ (50,892) $ 254,242
Exercise of stock options — 8,261 — 30 — 30
Conversion to common shares (3,961) 1,584,410 — — — —
Common shares issued upon vesting of restricted share units, net of withholding — 61,548 — (112) — (112)
Exercise of common stock warrants — 98,788 — 441 — 441
Share-based compensation — — — 832 — 832
Harmony Hemp contingent equity compensation — 169,046 — 360 — 360
Net loss — — — — (12,774) (12,774)
Balance—March 31, 2021 77,216 108,982,290 $ 1 $ 306,684 $ (63,666) $ 243,019
Conversion to common shares (1,327) 530,900 — — — —
Withholding of common stock upon vesting of restricted share awards — 16,559 — (26) — (26)
Harmony Hemp contingent equity compensation — — — 363 — 363
ATM Offering, net of share issuance costs — 278,200 — 839 — 839
Share-based compensation — — — 994 — 994
Net loss — — — — (5,923) (5,923)
Balance—June 30, 2021 75,889 109,807,949 $ 1 $ 308,854 $ (69,589) $ 239,266
Conversion to common shares (38,675) 15,469,990 — — — —
Withholding of common stock upon vesting of restricted share awards — 103,074 — (5) — (5)
Harmony Hemp contingent equity compensation — 169,045 — 196 — 196
ATM Offering, net of share issuance costs — 740,000 — 1,918 — 1,918
Share-based compensation — — — 1,383 — 1,383
Net loss — — — — (777) (777)
Balance—September 30, 2021 37,214 126,290,058 $ 1 $ 312,346 $ (70,366) $ 241,981


	Common Shares			Additional Paid-in Capital		Accumulated Deficit		Total Shareholders’ Equity
	Shares	Amount
Balance—December 31, 2021	144,659,964	$	1	$	319,059	$	(188,614)	$	130,446
Common shares issued upon vesting of restricted share units, net of withholding	77,193	—		(45)		—		(45)
Harmony Hemp contingent equity compensation	169,045	—		165		—		165
ATM program issuance costs	239,500	—		(2)		—		(2)
Share-based compensation	—	—		1,214		—		1,214
Net income (loss)	—	—		—		(8,626)		(8,626)
Balance—March 31, 2022	145,145,702	$	1	$	320,391	$	(197,240)	$	123,152
Common shares issued upon vesting of restricted share units, net of withholding	132,463	—		(13)		—		(13)
Share-based compensation	—	—		643		—		643
Net income (loss)	—	—		—		(7,870)		(7,870)
Balance—June 30, 2022	145,278,165	$	1	$	321,021	$	(205,110)	$	115,912

See Notes to Unaudited Condensed Consolidated Financial Statements

CHARLOTTE’S WEB HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


							Six Months Ended June 30, (unaudited)
		Nine months ended September 30, (unaudited)					2023		2022
		2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(24,084)	$	(19,474)	Net loss	$	(67)	$	(16,496)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	5,762		8,228		Depreciation and amortization	7,769		3,940
Asset impairment		1,822		—
Change in fair value of financial instruments		3,900		(9,082)
Allowance for credit losses		(89)		590
Change in fair value of financial instruments and other						Change in fair value of financial instruments and other	(9,612)		(100)
Gain on investment in unconsolidated entity						Gain on investment in unconsolidated entity	(10,700)		—
Convertible debenture accrued interest						Convertible debenture accrued interest	1,954		—
Share-based compensation						Share-based compensation	999		2,022
Loss on foreign currency translation						Loss on foreign currency translation	979		—
Changes in right-of-use assets						Changes in right-of-use assets	976		1,236
Inventory provision	Inventory provision	1,857		178		Inventory provision	320		1,857
Share-based compensation		2,686		4,128
(Gain)/Loss on disposal of assets		(97)		267
Cultivation settlement reduction		(582)		—
Changes in right-of-use assets		1,877		—
Other						Other	957		(434)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable, net	Accounts receivable, net	2,928		(226)		Accounts receivable, net	(1,104)		2,430
Inventories, net	Inventories, net	112		(876)		Inventories, net	2,878		(2,411)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	3,086		112		Prepaid expenses and other current assets	764		3,706
Accounts payable, accrued and other liabilities						Accounts payable, accrued and other liabilities	183		(2,194)
Operating lease obligations	Operating lease obligations	(1,665)		(81)		Operating lease obligations	(1,436)		(896)
Accounts payable, accrued and other liabilities		(4,238)		(439)
License and media rights						License and media rights	(4,000)		—
Income taxes receivable	Income taxes receivable	10,764		523		Income taxes receivable	4,261		3,185
Cultivation liabilities		(2,471)		(7,166)
Other operating assets and liabilities, net	Other operating assets and liabilities, net	(4,167)		(6)		Other operating assets and liabilities, net	(130)		(129)
Net cash used in operating activities	Net cash used in operating activities	(2,599)		(23,324)		Net cash used in operating activities	(5,009)		(4,284)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment and intangible assets	Purchases of property and equipment and intangible assets	(411)		(4,088)		Purchases of property and equipment and intangible assets	(187)		(333)
Proceeds from sale of assets	Proceeds from sale of assets	354		9		Proceeds from sale of assets	36		—
Issuance of notes receivable, net of collections		—		468
Investment in Stanley Brothers USA Holdings purchase option		—		(8,000)
Other investing activities		—		521
Net cash used in investing activities	Net cash used in investing activities	(57)		(11,090)		Net cash used in investing activities	(151)		(333)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from sale of public offering, net of issuance costs		(61)		2,896
Proceeds from stock option exercises		—		30
Other financing activities	Other financing activities	(264)		(246)		Other financing activities	(75)		(60)
Net cash (used) provided in financing activities		(325)		2,680
Net cash used in financing activities						Net cash used in financing activities	(75)		(60)
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(2,981)		(31,734)		Net decrease in cash and cash equivalents	(5,235)		(4,677)
Cash and cash equivalents —beginning of period	Cash and cash equivalents —beginning of period	19,494		52,803		Cash and cash equivalents —beginning of period	66,963		19,494
Cash and cash equivalents —end of period	Cash and cash equivalents —end of period	$	16,513	$	21,069	Cash and cash equivalents —end of period	$	61,728	$	14,817
Non-cash activities:	Non-cash activities:					Non-cash activities:
Non-cash purchases of property and equipment		$	—	$	(2,490)
Non-cash purchase of intangible asset						Non-cash purchase of intangible asset	(163)		—
Non-cash issuance of note receivable						Non-cash issuance of note receivable	(156)		—

See Notes to Unaudited Condensed Consolidated Financial Statements

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 ~~publicly traded~~public company incorporated pursuant to the laws of the Province of British Columbia and a Certified B Corp. The Company’s common shares are publicly listed on the Toronto Stock Exchange (“TSX”) under the symbol “CWEB” and quoted on the OTCQX under the symbol "CWBHF." The Company’s corporate headquarters is located in Louisville, Colorado in the United States of America. The majority of the Company's business is conducted in the United States of America.

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. Hemp extracts are produced from the plant Cannabis sativa L. (“Cannabis”), and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol ("THC") concentration of not more than 0.3% on a dry weight basis ("Hemp"). The Company is engaged in research involving the effectiveness of a broad variety of compounds derived from Hemp. 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 such high THC products in the near future.

The Company’s current product categories include human ingestible products: tinctures (liquid product), capsules, gummies, ~~sprays,~~ topicals, and pet products. The Company’s products are distributed through its e-commerce website, third-party e-commerce websites, select distributors, health practitioners, and a variety of brick-and-mortar specialty retailers.

The Company does not currently produce or sell medicinal or recreational marijuana or products derived from high-THC cannabis plants. On March 2, 2021, Charlotte’s Web executed an Option Purchase Agreement (the "SBH Purchase Option") pursuant to which the Company has the option to acquire Stanley Brothers USA Holdings, Inc. (“Stanley Brothers USA”), a cannabis wellness incubator. Until the SBH Purchase Option is exercised, both Charlotte’s Web and Stanley Brothers USA will continue to operate as standalone entities in the US. Internationally, the companies are able to explore opportunities where Cannabis is federally permissible. The Company does not currently have any plans to expand into high-THC products in the near future.

~~The Company~~ grows its proprietary ~~Hemp~~hemp domestically in the United States on farms leased in northeastern ~~Colorado. Additionally, Hemp is sourced~~Colorado and sources hemp through contract farming operations in Arizona, Kentucky, Oregon, and Canada. The Hemp grown in Canada is utilized exclusively in the Canadian market and not in products sold in the United States.

In furtherance of the Company’s ~~research~~Research and ~~development~~Development ("R&D") efforts, the Company established CW Labs, an internal division for R&D, to substantially expand the Company’s efforts around the science of ~~Hemp~~hemp derived compounds. CW Labs is currently engaged in clinical trials addressing ~~safe~~ Hemp-based health solutions. CW Labs is located in Louisville, Colorado at the Company’s current good manufacturing practice ("cGMP") production and distribution facility. In November 2019, the Company announced a collaboration between CW Labs and the University at Buffalo’s Center for Integrated Global Biomedical Sciences to advance hemp cannabinoid science through a research program that provides a better understanding of the therapeutic uses and safety of cannabinoids.

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 (“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

~~CHARLOTTE’S WEB HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~(unaudited)~~

meant to refer to 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 ~~September~~June 30, ~~2022~~2023 and its results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, and stockholders’ equity for the three and ~~nine~~six months ended ~~September~~

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

June 30, ~~2022~~2023 and ~~2021.~~2022. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2022.~~2023. The unaudited interim condensed consolidated financial statements presented herein do not contain the required disclosures under 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 consolidated financial statements and related notes as of and for the year ended December 31, ~~2021~~2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March ~~24, 2022.~~23, 2023.

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. ~~Because of~~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 e-commerce website, and distributors, retail and wholesale business-to-business customers. The following table sets forth the disaggregation of the Company’s revenue:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Direct-to-consumer	Direct-to-consumer	$	11,759	$	15,175	$	38,174	$	46,988	Direct-to-consumer	$	10,734	$	13,277	$	22,002	$	26,415
Business-to-business	Business-to-business	5,278		8,529		17,097		24,275		Business-to-business	5,272		5,600		11,014		11,819
Total	Total	$	17,037	$	23,704	$	55,271	$	71,263	Total	$	16,006	$	18,877	$	33,016	$	38,234

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

Recently Adopted Accounting Pronouncements

~~Other than described below,~~As of June 30, 2023, there are no new accounting pronouncements adopted or issued by the FASB that had or may have a material impact on the Company’s condensed consolidated financial statements.

~~In December 2019, the FASB issued ASU No. 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~ (“ASU 2019-12”), which aims to reduce complexity in accounting standards by improving certain areas of U.S. GAAP without compromising information provided to users of financial statements. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, and interim periods within those

~~CHARLOTTE’S WEB HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~(unaudited)~~

fiscal years. For all other entities, the standard is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. There was an immaterial impact upon adoption on the condensed consolidated financial statements.

~~In November 2021, the FASB issued ASU 2021-10,~~ ~~Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance~~, which addresses that Current GAAP has no specific authoritative guidance on the accounting for, or the disclosure of, government assistance received by business entities. The pronouncement and subsequent amendments require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy: 1) Information about the nature of the transactions and the related accounting policy used to account for the transactions; 2) The line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item, 3) Significant terms and conditions of the transactions, including commitments and contingencies. ASU 2021-10 is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company evaluated the impact of the pronouncement, see further discussion within the Notes to Condensed Consolidated Financial Statements section "Income and Other Taxes".

~~Recently Issued Accounting Pronouncements~~

~~In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2020-04,~~ ~~Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~. This standard provides optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this standard apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The Company is currently evaluating the impact, if any, that the updated standard will have on the condensed consolidated financial statements.

~~In August 2020, the FASB issued ASU 2020-06,~~ Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for convertible instruments by removing the separation 8 models for convertible debt instruments and convertible preferred stock with (1) cash conversion features, and (2) beneficial conversion features. In addition, ASU 2020-06 enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance and amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 is effective for emerging growth companies for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company will evaluate the impact of the pronouncement and determined if there is any impact to the condensed consolidated financial statements if preferred shares are issued in future periods.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

3. FAIR VALUE MEASUREMENT

The following table sets forth the Company’s financial instruments and other that were measured at fair value on a recurring basis at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, by level within the fair value hierarchy:


		September 30, 2022									June 30, 2023
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Financial assets:	Financial assets:									Financial assets:
Stanley Brothers USA Purchase Option		$	—	$	—	$	9,100	$	9,100
Stanley Brothers USA Holdings Purchase Option										Stanley Brothers USA Holdings Purchase Option	$	—	$	—	$	2,057	$	2,057
Debt interest rate conversion feature										Debt interest rate conversion feature	—		—		836		836
Total Financial Assets										Total Financial Assets	$	—	$	—	$	2,893	$	2,893

Investment in unconsolidated entity:										Investment in unconsolidated entity:	$	—	$	—	$	10,700	$	10,700

Financial liabilities:										Financial liabilities:
Debt conversion option										Debt conversion option	$	—	$	2,815	$	—	$	2,815


		December 31, 2021									December 31, 2022
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Financial assets:	Financial assets:									Financial assets:
Stanley Brothers USA Purchase Option		$	—	$	—	$	13,000	$	13,000
Stanley Brothers USA Holdings Purchase Option										Stanley Brothers USA Holdings Purchase Option	$	—	$	—	$	2,300	$	2,300
Debt interest rate conversion feature										Debt interest rate conversion feature	—		—		1,320		1,320
Total Financial Assets										Total Financial Assets	$	—	$	—	$	3,620	$	3,620

Financial liabilities:										Financial liabilities:
Debt conversion option										Debt conversion option	$	—	$	12,995	$	—	$	12,995

There were no transfers between levels of the hierarchy during the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2022~~2023 and the year ended December 31, ~~2021.~~2022.

Investment in Unconsolidated Entity

On April 6, 2023, the Company jointly formed an entity, DeFloria LLC ("DeFloria"), with AJNA BioSciences PBC (“AJNA”), and a subsidiary of British American Tobacco PLC (LSE: BATS and NYSE: BTI) (“BAT”). AJNA is a botanical drug development company. AJNA is partially owned and was co-founded by a co-founder of Charlotte's Web. The entity was established to pursue FDA-approval for a botanical drug to target a neurological condition.

BAT holds an equity interest in the entity in the form of 200,000 or 100% preferred units following its $10 million investment and has the right to participate in future equity issuances to maintain its pro rata equity position. The Company and AJNA each hold 400,000 or 50%, respectively, of the entity’s voting common units. The Company’s contribution to DeFloria is a license permitting the use of certain proprietary hemp intellectual property, including clinical and consumer data. Additionally, the Company has a Supply Agreement with DeFloria, under which the Company supplies the oils at cost used to produce and develop the new drug. AJNA's contribution to the entity is laboratory and regulatory services, clinical expertise, and the provision of clinical services. DeFloria is expected to

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

use the initial $10 million cash investment for the clinical development of a hemp botanical Investigational New Drug application and to commence Phase I clinical development in 2024.

Concurrently with the formation of the DeFloria entity, the Company entered into a warrant agreement with AJNA to purchase 865,052 of Class A Common Stock of AJNA for an exercise price of $2.89 per share. Management determined the warrant should be accounted for in accordance with ASC 321, which requires the warrant to be measured at fair value at issuance and subsequently remeasured at fair value each reporting period. All changes from the remeasurement of the warrant will be recorded as a change in fair value of financial instruments and other in the statements of operations. The Company determined the fair value of the AJNA warrants to be de minimis and as such no value was recorded as of June 30, 2023.

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. Therefore, 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 has the ability to adopt the fair value option for the investment at inception. The Company elected the fair value option because it allows the investment to be valued based on current market conditions. As such the investment is remeasured at fair value at each reporting date, with changes recognized in consolidated statements of operations as changes in fair value of financial instruments and other for the period. For the three and six months ended June 30, 2023, a gain of $— , respectively, related to the investment in DeFloria was recognized as a change in fair value of financial instruments and other in the statements of operations. As of June 30, 2023, the DeFloria investment represents an investment of $10,700 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,
			2023
Expected term (years)			6.77
Volatility			66.0%
Risk-free interest rate			4.0%
Expected dividend yield			—%
Discount for lack of marketability			20.0%

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"),

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

providing for the issuance of a $56.8 million (C$75.3 million) convertible debenture (the “debenture”). The debenture is convertible into 19.9% ownership of the Company’s common shares at a conversion price of C$2.00 per common share of the Company on the TSX. The debenture will accrue interest at a stated annualized rate of 5% until such time that there is federal regulation permitting the use of cannabidiol, a phytocannabinoid derived from the plant Cannabis sativa L. (“CBD”) as an ingredient in food products and dietary supplements in the United States. 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 is November 14, 2029 (the “Maturity Date”).

Debt Interest Rate Conversion Feature

The debt interest rate conversion feature is classified as a financial asset and is remeasured at fair value at each reporting date, with changes recognized in consolidated statements of operations as changes in fair value of financial instruments and other for the period. 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. The debt interest rate conversion feature, if triggered, reduces the stated interest rate of the debenture to 1.5% upon federal regulation of CBD in the United States.

For the three and six months ended June 30, 2023, a gain of $106 and a loss $506, respectively, related to the debt interest rate conversion feature was recognized as a change in fair value of financial instruments and other in the statements of operations. As of June 30, 2023 and December 31, 2022, the debt interest rate conversion feature represents a financial asset of $836 and $1,320, respectively, within SBH purchase option and other derivative assets in the condensed consolidated balance sheets.

To determine the value of the option, the Company utilizes a probability weighted income approach. This method calculates the present value of the reduced interest accrued on the 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 are used in the model:


	June 30,	December 31,
	2023	2022
Stated interest rate	5.0%	5.0%
Adjusted interest rate	1.5%	1.5%
Implied debt yield	10.8%	8.6%
Federal regulation probability	various	15.0%
Year of event	various	2025

Debt Conversion Option

Per the debenture, the Lender has 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 assessed this conversion feature and determined that the debt conversion option is an embedded derivative that requires bifurcation and is classified as a financial liability. The debt conversion option is initially measured at fair value and is revalued at each reporting period using the Black-Scholes option pricing model based on Level 2 observable inputs. The assumptions used by the Company are the quoted price of the Company’s common shares in an active market, risk-free interest rate, volatility and expected life, and assumes no dividends. Volatility is based on the actual historical market activity of the Company’s shares. The expected life is based on the remaining

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

contractual term of the debenture and the risk-free interest rate is based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the expected maturity of the debenture.

For the three and six months ended June 30, 2023, a $4,066 and $10,361 gain, respectively, related to the debt conversion option was recognized as a change in fair value of financial instruments and other in the statements of operations. As of June 30, 2023 and December 31, 2022, the debt conversion option represents a financial liability of $2,815 and $12,995, respectively, within derivative and other long-term liabilities in the condensed consolidated balance sheets.

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


	June 30,	December 31,
	2023	2022
Expected volatility	87.4%	86.7%
Expected term (years)	6.3	6.9
Risk-free interest rate	4.0%	4.0%
Expected dividend yield	—%	—%
Value of underlying share	C$0.23	C$0.73
Exercise price	C$2.00	C$2.00

Stanley Brothers USA Holdings Purchase Option

InOn March 2, 2021, the Company ~~entered into~~executed an Option Purchase Agreement pursuant to which the Company has the option ~~purchase agreement with~~to acquire Stanley Brothers ~~USA.~~ USA Holdings, Inc. (“Stanley Brothers USA”), a Cannabis wellness incubator. Until the Stanley Brothers USA Holdings Purchase Option ("SBH Purchase Option") is exercised, both the Company and Stanley Brothers USA will continue to operate as standalone entities in the US. Internationally, the companies are able to explore opportunities where Cannabis is federally permissible. The Company does not currently have any plans to expand into high THC Cannabis products in the near future.

The SBH Purchase Option was purchased for total consideration of $8,000 and has a term of five ~~year term~~ years (extendable for an additional two years upon payment of additional consideration). The SBH Purchase Option provides the Company the option to acquire all or substantially all the shares of Stanley Brothers USA on the earlier of February 26, 2025 and federal legalization of cannabis in the United States, or such earlier time as Stanley Brothers USA and the Company agree, at a purchase price to be determined at the time of exercise of the SBH Purchase Option. Upon exercise of the SBH Purchase Option, the purchase price will be determined based on application of predetermined multiples of Stanley Brothers USA revenue and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) measures. The Company is not obligated to exercise 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 is 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 expires 60 days after the expiration of the option.

The Company has elected the fair value option in accordance with ASC 825-10 guidance to record its SBH Purchase Option. Under ASC 825-10, a business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The SBH Purchase Option is classified as a financial asset and is remeasured at fair value at each reporting date, with changes to fair value recognized in the statements of operations for the period. 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

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

estimation uncertainty. Changes in assumptions that reasonably could have been different at the reporting date may result in a higher or lower determination of fair value. Changes in fair value measurements, if significant, may affect performance of cash flows. For the three ~~and nine~~ months ended ~~September~~June 30, 2023 and 2022, a ~~$4,000~~gain of $57 and ~~$3,900 loss,~~$0, respectively, related to the SBH Purchase Option was recognized as change in fair value of financial instruments and other in the statements of operations. For the ~~three and nine~~six months ended ~~September~~June 30, ~~2021,~~2023 and 2022, a ~~$5,730~~loss of $243 and ~~$4,900~~a gain $100, respectively, related to the SBH Purchase Option was recognized as change in fair value of financial instruments and other in the statements of operations. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the SBH

~~CHARLOTTE’S WEB HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~(unaudited)~~

Purchase Option represents a financial asset of ~~$9,100~~$2,057 and ~~$13,000,~~$2,300, respectively, within SBH purchase option and other derivative assets in the condensed consolidated balance sheets.

The Monte Carlo valuation model considers multiple revenue and Earnings Before Interest Taxes Depreciation and Amortization ("EBITDA") outcomes for Stanley Brothers USA and other probabilities in assigning a fair value. Primary assumptions utilized include financial projections of Stanley Brothers USA and the probability and timing of exercise. The following additional assumptions are used in the model of the SBH Purchase Option:

September 30, December 31,
2022 2021
Expected volatility 87.5% 92.5%
Expected term (years) 2.9 3.7
Risk-free interest rate 4.2% 1.1%
Weighted average cost of capital 45.0% 40%

~~Warrant Liabilities~~

The warrants offered during 2020 (the "2020 Share Offering Warrants") did not meet all of the criteria for equity classification as the warrants were denominated in Canadian dollars, which differs from the Company's functional currency. As a result, the 2020 Share Offering Warrants were initially measured at fair value and were 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 assumes 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 warrants 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 life of the warrants. ~~On June 18, 2022, the 2020 Share Offering Warrants expired, totaling 5,750,000 common shares, with a weighted average exercise price per warrant of $6.27.~~

For the three months ended September 30, 2022 no gain or loss was recognized, and for the three months ended September 30, 2021, a $2,638 gain related to the warrant liabilities was recognized as change in fair value of financial instruments and other in the condensed consolidated statements of operations and net loss. For the nine months ended September 30, 2022 no gain or loss was recognized, and for the nine months ended September30, 2021, a $4,081 gain related to the warrant liabilities was recognized as change in fair value of financial instruments and other in the condensed consolidated statements of operations and net loss.


	June 30,	December 31,
	2023	2022
Expected volatility	120.0%	115.0%
Expected term (years)	2.7	2.7
Risk-free interest rate	4.6%	4.3%
Weighted average cost of capital	45.0%	40.0%

4. INVENTORIES

Inventories consist of the following:


		September 30,		December 31,			June 30,		December 31,
		2022		2021			2023		2022
Harvested hemp and seeds	Harvested hemp and seeds	$	37,444	$	38,249	Harvested hemp and seeds	$	20,991	$	34,763
Raw materials	Raw materials	12,617		15,189		Raw materials	10,440		10,960
Finished goods	Finished goods	14,865		13,974		Finished goods	10,071		13,237
		64,926		67,412			41,502		58,960
Less: inventory provision	Less: inventory provision	(14,327)		(15,335)		Less: inventory provision	(17,747)		(32,007)
Total inventory	Total inventory	$	50,599	$	52,077	Total inventory	$	23,755	$	26,953

In May 2023, the Company sold harvested hemp that had a full inventory provision as of December 31, 2022. The sale of hemp resulted in a $12,899 reduction to the inventory provision as of June 30, 2023.

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

1113

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

5.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.

As consideration under the MLB promotional rights agreement, the Company has paid and is committed to pay 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.

As of June 30, 2023 and December 31, 2022, the carrying value of the licensed properties was $18,235 and $23,399, respectively, recorded as a license and media rights asset within the condensed consolidated balance sheets. As of June 30, 2023 and December 31, 2022, the carrying value of the media rights was $7,232 and $7,482 recorded as a prepaid asset and a license and media rights asset within the condensed consolidated balance sheets. For the three and six months ended June 30, 2023, the Company paid MLB $2,000 and $4,000, respectively, as part of the committed cash payments, and recognized $2,074 and $3,897, respectively, in amortization expense related to the license and media right assets. Licensed properties are amortized straight line and media rights are amortized as incurred.

Maturities of the MLB license and media rights payable as of June 30, 2023 are as follows:


Year Ending December 31:
2023 (6 months remaining)	$	4,000
2024	10,000
2025	12,000
Total payments	$	26,000
Less: Imputed interest	(1,298)
Total license and media rights payable	$	24,702
Less: Current license liabilities	(8,833)
Total non-current license and media rights payable	$	15,869

As of June 30, 2023, expected amortization of licensed properties are as follows:


Year Ending December 31:
2023 (6 months remaining)	$	3,647
2024	7,294
2025	7,294
Total future amortization	$	18,235

6. DEBT

~~Line~~Convertible Debenture

As of ~~Credit~~

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$75.3 million) convertible debenture. The ~~Company terminated~~debenture was denominated in Canadian Dollars ("CAD" or "C$"). The debenture is convertible into 19.9% ownership of the ~~asset backed line of credit ("ABL") for $10,000 with J.P. Morgan on July 27, 2022. Borrowings under the ABL bore interest~~Company’s common shares at a ~~variable rate based on (A) CB Floating Rate defined as Prime Rate plus 1.0% or (B) monthly LIBOR rate plus 2.50%. Borrowings under the ABL were secured by all~~conversion price of ~~the assets of the Company and guaranteed by other subsidiaries~~C$2.00 per common share of the Company. The ~~line~~debenture will accrue interest at a stated annualized rate of ~~credit~~5% until such time that there is federal regulation permitting the use of CBD as an ingredient in food products and dietary supplements in the United States. Following federal regulation of

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

CBD, the stated annualized rate of interest shall reduce to 1.5%. The maturity date for the debenture is November 14, 2029.

The following is a summary of the Company's convertible debenture as of June 30, 2023:


	As of June 30, 2023
	Principal Amount		Unamortized Debt Discount and Costs		Net Carrying Amount
Convertible Debenture	Principal Amount		Unamortized Debt Discount and Costs		Net Carrying Amount
Convertible debenture due November 2029	$	58,677	$	(18,370)	$	40,307

The following is a summary of the Company's convertible debenture as of December 31, 2022:


	As of December 31, 2022
	Principal Amount		Unamortized Debt Discount and Costs		Net Carrying Amount
Convertible Debenture	Principal Amount		Unamortized Debt Discount and Costs		Net Carrying Amount
Convertible debenture due November 2029	$	56,080	$	(18,659)	$	37,421

The debenture was C$75.3 million per the subscription agreement ~~required compliance by~~and translated to USD on the transaction date. For the three and six months ended June 30, 2023, the Company recognized a foreign currency loss of $831 and $820, respectively, related to the net carrying value of the debenture within the statement of operations.

Interest is accrued annually and payable on the maturity date or date of earlier conversion. On conversion, accrued interest will either be converted into common shares equal to the amount of accrued interest or will be paid in cash if agreed with ~~certain debt covenants.~~the Lender. As of June 30, 2023, the ~~termination date~~principal amount of the debenture includes $1,777 of accrued interest expense. The following is a summary of the interest expense and ~~December 31, 2021,~~amortization expense, recorded within the ~~Company was not in compliance with~~statement of operation, of the ~~debt covenants~~Company's convertible debenture for the three and ~~had not drawn on the line of credit.~~six months ended June 30, 2023:


	Three Months Ended		Six Months Ended
	June 30,		June 30,
Interest and Amortization Expense	2023		2023
Interest expense	$	701	$	1,398
Amortization of debt discounts and costs	349		668
Total	$	1,050	$	2,066

6.7. 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 ~~September~~June 30, ~~2022~~2023 there ~~are~~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.

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

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 ~~a year~~5 months to 1211.67 years, some of which include options to extend the leases for up to 5 years. Generally, the lease agreements do not include options to terminate the lease.

Maturities of operating lease liabilities as of ~~September~~June 30, ~~2022~~2023 are as follows:

Operating Leases
Year Ending December 31:
2022 (3 months remaining) $ 867
2023 3,415
2024 3,205
2025 2,896
2026 2,172
Thereafter 15,595
Total lease obligation 28,150
Less: Imputed interest (7,327)
Total lease liabilities 20,823
Less: Current lease liabilities 2,316
Total non-current lease liabilities $ 18,507

~~CHARLOTTE’S WEB HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~(unaudited)~~

~~potential sublease arrangement, the Company evaluated the recoverability of the assets associated with the subleased space, including, the right-of-use asset and concluded the asset was impaired.~~

The Company recorded an impairment charge of $1,822 in the consolidated statements of operations for the three and nine months ended September 30, 2022. There were no such impairments for the three and nine months ended September 30, 2021.

~~8. CULTIVATION LIABILITIES~~

~~Future payments due under cultivation contract obligations are as follows:~~

Short-term Long-term Total
December 31, 2021 $ 3,448 $ 385 $ 3,833
Crop costs incurred 169 — 169
Payments (2,640) — (2,640)
Settlement reductions (582) — (582)
Interest 32 — 32
Conversion to short-term borrowings 385 (385) —
September 30, 2022 $ 812 $ — $ 812


	Operating Leases
Year Ending December 31:
2023 (6 months remaining)	$	1,710
2024	3,201
2025	2,892
2026	2,169
2027	1,844
Thereafter	13,647
Total lease obligation	25,463
Less: Imputed interest	(6,687)
Total lease liabilities	18,776
Less: Current lease liabilities	(2,247)
Total non-current lease liabilities	$	16,529

9. SHAREHOLDERS’ EQUITY

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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.

On November 3, 2021, all outstanding proportionate voting shares ("PVS") of the Company were converted by way of mandatory conversion in accordance with the Company’s articles and at the discretion of the Company, into common shares. Following this conversion, and as of the close of business on November 3, 2021, 142,335,464 common shares were issued and outstanding, nil PVS were issued and outstanding and nil preferred shares were issued and outstanding. Pursuant to the Company’s Articles, the Company is no longer authorized to issue additional PVS. As of September 30, 2022 and December 31, 2021, the Company had no PVS issued and outstanding.

Common Shares

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company was authorized to issue an unlimited number of common shares, which have no par value.

~~Preferred Shares~~

As10. INCOME (LOSS) PER SHARE

The Company computes income (loss) per share of ~~September 30, 2022 and December 31, 2021,~~common shares. Basic net income (loss) per common share is computed by dividing the ~~Company was authorized to issue an unlimited~~net income (loss) by the weighted-average number of ~~preferred~~common shares ~~which have no par value.~~

~~Share Offering Warrants – Liability Classified~~

~~The following summarizes~~outstanding. Diluted income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common shares together with the number of ~~warrants~~additional common shares that would have been outstanding ~~as of September 30, 2022:~~if all potentially dilutive common shares had been issued, unless anti-dilutive.

1316

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

Number of Warrants Weighted-Average Exercise Price per Warrant
Outstanding as of December 31, 2021 6,983,140 $ 7.86
Granted — —
Exercised — —
Expired (6,983,140) $ 7.86
Outstanding as of September 30, 2022 — —

As of September 30, 2022, there are no outstanding warrants. On May 8, 2022, warrants, pursuant to the Abacus acquisition, totaling 1,233,140, with a weighted average exercise price per warrant of $15.29 expired. ~~In addition, on June 18, 2022, the 2020 Share Offering Warrants , totaling 5,750,000 common shares, with a weighted average exercise price per warrant of $6.27 expired.~~

~~10. LOSS PER SHARE~~

The Company computes loss per share of common shares and PVS under the two-class method required for multiple classes of common shares and participating securities. The rights, including the liquidation and dividend rights, of the two classes of shares are similar except for the 400:1 conversion ratio between the common shares and PVS shares. Accordingly, the loss per share attributable to common shareholders will be the same for common shares and PVS, on either an individual or combined basis. Basic net loss per common share and PVS is computed by dividing the allocated net loss by the weighted-average number of common shares outstanding and weighted average number of PVS outstanding during the period. Diluted loss per common share is computed by dividing the allocated 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. Diluted loss per PVS is computed by dividing the allocated net loss by the weighted-average number of PVS outstanding during the period.

The following table sets forth the computation of basic and dilutive net ~~loss~~income (loss) per share attributable to common shareholders:

~~CHARLOTTE’S WEB HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~(unaudited)~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Net loss $ (7,588) $ (777) $ (24,084) $ (19,474)
Weighted-average number of common shares - basic 145,334,992 120,270,444 145,203,515 112,688,338
Dilutive effect of stock options and awards — — — —
Weighted-average number of proportionate voting shares - basic — 50,627 — 68,416
Weighted-average number of common shares - diluted 145,334,992 120,270,444 145,203,515 112,688,338
Weighted-average number of proportionate voting shares - diluted — 50,627 — 68,416
Loss per common share – basic and diluted $ (0.05) $ (0.01) $ (0.17) $ (0.14)
Loss per proportionate voting share – basic and diluted $ — $ (2.21) $ — $ (55.62)

On October 12, 2022, the Company issued 6,119,121 common shares as part of the MLB Subscription Agreement. Additionally, on November 14, 2022, as part of the BAT Subscription Agreement, the Company issued 37,670,540 shares. Refer to additional disclosure within the Subsequent Events section of the Notes to Condensed Consolidated ~~Financial Statements.~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income (loss)	$	2,844	$	(7,870)	$	(67)	$	(16,496)
Weighted-average number of common shares - basic	152,481,470		145,168,510		152,398,273		145,079,859
Dilutive effect of securities	278,618		—		—		—
Weighted-average number of common shares - diluted	152,760,088		145,168,510		152,398,273		145,079,859
Income (loss) per common share – basic	$	0.02	$	(0.05)	$	—	$	(0.11)
Income (loss) per common share – diluted	$	0.02	$	(0.05)	$	—	$	(0.11)

As of ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, potentially dilutive securities include stock options, restricted share units, ~~broker warrants,~~ and convertible debenture conversion. The Company computes the effect of dilutive securities using the treasury stock method and average market prices during the period. The number of shares issuable upon the exercise of share-based awards excluded from the calculation of diluted EPS because the effect of their inclusion would have been anti-dilutive totaled 9,411,551 for the three months ended June 30, 2023.

The Company's debenture is convertible into 19.9% ownership of the Company’s common shares at a conversion price of C$2.00 per common share ~~warrants.~~ of the Company. The Company can settle the convertible debenture in shares. If the convertible debenture in diluted EPS is anti-dilutive, or if the conversion value of the debenture does not exceed their conversion price for a reporting period, then the shares underlying the notes will not be reflected in the Company’s calculation of diluted EPS. For the three months ended June 30, 2023, the price of the Company’s Shares did not exceed the conversion price and therefore there was no impact to diluted EPS during those periods.

When the Company recognizes a net loss, 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 year are presented in the table below:~~

September 30,

2022 2021
Outstanding options 4,625,261 3,881,721
Outstanding restricted share units 2,843,470 872,311
Outstanding common share warrants — 9,483,140
Total 7,468,731 14,237,172

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 having a shorter vesting period or 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.

The fair values of options granted during the period were determined using a Black-Scholes model. The following principal inputs were used in the valuation of awards issued for the nine months ended September 30, 2022 and 2021:

1517

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

Nine Months Ended September 30,
2022 2021
Expected volatility 85.8% 82.5%
Expected term (years) 6.0 6.0
Risk-free interest rate 3.3% 1.3%
Expected dividend yield 0% 0%
Value of underlying share $0.43 $2.18
The fair values of options granted during the period were determined using a Black-Scholes model. The following principal inputs were used in the valuation of awards issued for the six months ended June 30, 2023 and 2022:


	Six Months Ended June 30,
	2023	2022
Expected volatility	88.8%	83.4%
Expected term (years)	5.5-6.5	5.5-6.5
Risk-free interest rate	3.4%	3.3%
Expected dividend yield	0%	0%
Value of underlying share	$0.36	$0.31

Detail of the number of stock options outstanding for the ~~three~~six months ended ~~September~~June 30, ~~2022~~2023 under the Company's 2015 legacy option plan and the Company's amended 2018 long term incentive plan (collectively, the "Plans") is as follows:


		Number of Options	Weighted- Avg. Exercise Price per Option		Weighted- Avg. Remaining Contract Term (in years)	Aggregate Intrinsic Value			Number of Options	Weighted- Average Exercise Price per Option		Weighted- Average Remaining Contract Term (in years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2021		3,343,883	$	3.16	7.54	$	1,039,229
Outstanding as of December 31, 2022								Outstanding as of December 31, 2022	3,957,027	$	1.52	8.37	$	46,800
Granted	Granted	3,813,579	1.11					Granted	3,748,671	0.38
Exercised	Exercised	—	—					Exercised	—	—
Forfeited (and expired)	Forfeited (and expired)	(2,532,201)	3.32					Forfeited (and expired)	(692,991)	2.28
Outstanding as of September 30, 2022		4,625,261	$	1.41	8.78	$	170,184
Outstanding as of June 30, 2023								Outstanding as of June 30, 2023	7,012,707	$	0.83	8.99	$	—

Exercisable/vested as of September 30, 2022		1,579,296	$	1.59	6.16	$	14,184
Exercisable/vested as of June 30, 2023								Exercisable/vested as of June 30, 2023	2,554,000	$	1.21	7.53	$	—

The weighted average grant-date fair value of options granted during the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 was ~~$1.11. The weighted average grant-date fair value of options granted during the nine months ended September 30, 2021 was $4.63.~~$0.38 and $1.14, respectively.

The weighted average share price at the date of exercise of options exercised during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 was $0, ~~and $3.64,~~ respectively.

Restricted share units

The Company has issued time-based restricted share units to certain employees as permitted under the 2018 Plan. The restricted share units granted vest in accordance with the board-approved agreement, typically over equal installments ~~over~~ 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. The fair value of shares vested during the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 was $872 and ~~September 30, 2021 was $881 and $354,~~$625, respectively.

~~Details of the number of restricted share units outstanding under the 2018 Plan is as follows:~~

1618

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

Number of Shares
Weighted-
Average
Grant Date Fair Value
Outstanding as of December 31, 2021 1,816,851 $ 2.28
Granted 3,380,777 $ 0.91
Forfeited (1,748,387) $ 1.85
Vested (440,863) $ 2.00
Shares withheld upon vesting (164,908) $ 1.58
Outstanding as of September 30, 2022 2,843,470 $ 0.99
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, 2022	2,569,574	$	0.98
Granted	1,249,548	$	0.38
Forfeited	(299,370)	$	1.42
Vested	(690,092)	$	1.26
Shares withheld upon vesting	(152,198)	$	0.85
Outstanding as of June 30, 2023	2,677,462	$	0.67

Share-based Compensation Expense

Share-based compensation expense for all equity arrangements for the three months ended ~~September~~June 30, 2023 and 2022 was $624 and ~~September 30, 2021 was $664 and $1,579,~~$643, respectively, included in selling, general and administrative expense in the condensed consolidated statements of ~~operations and comprehensive loss.~~operations. Share-based compensation expense for all equity arrangements for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 was $999 and ~~September 30, 2021 was $2,686 and $4,128,~~$2,022, respectively, included in selling, general and administrative expense in the condensed consolidated statements of ~~operations and comprehensive loss.~~operations.

As of ~~September~~June 30, ~~2022, $6,114~~2023, $4,074 of total unrecognized share-based compensation expense related to unvested options and restricted stock units granted to employees is expected to be recognized over a weighted-average period of ~~2.50~~2.49 years.

12. INCOME ~~AND OTHER~~ TAXES

The Company’s effective tax rate ~~during~~in the ~~nine~~three and six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 was 0%~~, respectively.~~. The Company’s effective tax rates differ from the U.S. federal statutory rate of ~~21%~~21.0% for the ~~nine~~three and six months ~~ended September~~end June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, primarily due to the valuation allowance. The effective tax rate for the three and six months ended June 30, 2023 is consistent with the three and six months ended June 30, 2022, as the Company ~~being~~has been in a full valuation ~~allowance.~~allowance for both periods.

As of ~~September 30,~~December 31, 2022,, the ~~Company has received $10,841 from the Internal Revenue Service ("IRS") which was the remaining amount of the income taxes receivable and interest.~~

~~The~~ Company qualified for federal government assistance through employee retention credit (“ERC”) provisions of the Consolidated Appropriations Act of 2021. As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, we account for grants provided by the government, including accounting for certain refundable tax credits, by analogy to International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, management determined it has reasonable assurance for receipt of the ERC andManagement recorded the ERC benefit of $4,106 for the ~~period~~year ended ~~September 30,~~December 31, 2022 as an offset to Selling, general and administrative ~~expenses~~ expense. ~~Due~~During the three months ending June 30, 2023, the company received $4,261, which includes $155 of interest income, related to the ~~expected timing of receipt of the ERC, a corresponding receivable was recognized within other long-term assets as of September 30, 2022.~~ERC.

13. RELATED PARTY TRANSACTIONS

Aidance Scientific, Inc. (“Aidance”) is the manufacturer of nearly all Abacus Health products. The former Chief Executive Officer of Abacus Products, Inc. ("Abacus"), and a former officer of the Company, also serves on Aidance’s Board of Directors. For the three and nine months ended September 30, 2022 and 2021, the Company made purchases of $1,254 and $947 and $2,943 and $3,133, respectively from Aidance. Payment terms on purchases are due 30 days after receipt. As of September 30, 2022, the Company had a liability of $258 due to Aidance

~~CHARLOTTE’S WEB HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~(unaudited)~~

presented in accounts payable in the condensed consolidated balance sheets. As of December 31, 2021, the Company had a liability of $119 due to Aidance presented in accounts payable in the consolidated balance sheets.

Effective November 2020, the Company entered into ~~a note receivable with certain founders of the Company ("founders") to negotiate a future binding transaction in good faith. This agreement included~~ a secured promissory note, where $1,000 was loaned to one of the founders. The note receivable iswas secured by equity instruments with certain founders of the Company, ~~is carried at amortized cost,~~and bore interest at 3.25% per ~~year,~~annum, and required the unpaid principal and unpaid interest balances to be paid on or before the maturity date of November 13, 2021. ~~The~~On March 22, 2022, the founders requested an extension of the maturity date, as allowed under the terms of the promissory note, resulting in an extension of the maturity date to November 13, 2023. According to the terms of the agreement, no additional interest will accrue through the payment date. The founders' equity instruments securing the promissory note remained in place. Interest income is recognized based upon the contractual interest rate and unpaid principal balance of the promissory note. As of ~~September~~June 30, 2022 ~~and December 31, 2021,~~, the ~~founders owed the Company~~ ~~$1,037~~ ~~consisting~~note receivable of $1,037 consisted of principal and interest. ~~On March 22,~~As of December 31, 2022, the Company ~~and the founders amended the agreement to increase the equity instruments securing the promissory note and to extend the maturity date to November 13, 2023. As~~established a ~~result of this amendment, the Company does not believe there is an estimated credit loss on~~reserve against the note receivable asdue to decline in collateral and risk associated with collectability and therefore, expensed the outstanding balance of ~~September 30, 2022 and December 31, 2021. The Company will continue to evaluate the note receivable for changes to credit loss estimates through the extended maturity date.~~$1,037.

On March 2, 2021, the Company entered into the SBH Purchase Option with Stanley Brothers USA as discussed above (Note 3). The SBH Purchase Option was purchased for total consideration of $8,000. Certain founders of the Company, who are or were employees at the time, are the majority shareholders of Stanley Brothers USA.

On September 30, 2022, pursuant to an amendment to the Name and Likeness and License Agreement between the Company and Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, agreement was extended to December 31, 2022. The Name and Likeness Agreement was amended to provide the payment of a nominal per diem fee for each Stanley brother that participates in certain events. In addition, on April 16, 2021, the Company executed a separate consulting agreement which extended the services agreements of the seven Stanley brothers for a period of one year, expiring July 31, 2022. Upon execution of the consulting agreement in 2021, the Company paid $2,081 to Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, on behalf of the seven Stanley brothers, as consideration for the consulting services to be provided to the Company over the term of the agreement and certain restrictive covenants. For the three and nine months ended September 30, 2022, the Company recognized $150 and $1,025, respectively in sales and marketing expenses in the condensed consolidated statements of operations and net loss related to this agreement. For the three and nine months ended September 30, 2021, the Company recognized $167 of selling, general and administrative expenses in the condensed consolidated statements of operations and net loss related to this agreement. As ~~September 30, 2022 there is~~ no ~~remaining balance.~~

~~14. SUBSEQUENT EVENTS~~

~~MLB Promotion Rights Agreement~~

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

In consideration for the MLB Promotional Rights Agreement, which expires on December 31, 2025, the Company shall pay the MLB over the term of the MLB Promotional Rights Agreement, an aggregate rights fee of $30.5 million and a 10% royalty on the Company’s gross revenue from the MLB branded products of the Company sold after sales of all such branded products exceed $18.0 million. The Company has also entered into a subscription

1819

CHARLOTTE’S WEB HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

~~agreement (the “Subscription Agreement”) pursuant to which~~On March 2, 2021, the Company ~~agreed to issue to~~entered into the ~~MLB, subject to customary closing conditions, common shares equal to 4%~~SBH Purchase Option with Stanley Brothers USA as discussed above (Note 3). The SBH Purchase Option was purchased for a total consideration of ~~the Company’s fully diluted outstanding common shares as of the day prior to the date of issue. The total number of shares issued to the MLB was 6,119,121 common shares~~$8,000. Certain founders of the Company, ~~which~~who are or were ~~issued pursuant to an exemption from registration under Section 4(a)(2)~~employees at the time, are the majority shareholders of ~~the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D promulgated under the Securities Act. The Company did not receive any proceeds in respect of the shares.~~Stanley Brothers USA.

~~Tilray Agreement~~

~~On November 1, 2022,~~Effective January 5, 2023, the Company entered into a ~~Manufacturing~~Brand License and ~~Sales~~Option Agreement with JMS Brands LLC (the “Brand License and Option Agreement”), an entity owned by one of the Company’s founders. Pursuant to the Brand License and Option Agreement, the Company licenses certain intellectual property from JMS Brands LLC, for an annual license fee of $500. Pursuant to the terms of the agreement, the Company has the option to purchase the intellectual property rights for $2,000.

On April 6, 2023, the Company jointly formed an entity, DeFloria, with AJNA and BAT. AJNA is a botanical drug development company. AJNA is partially owned and was co-founded by a co-founder of Charlotte's Web. BAT holds an equity interest in the entity in the form of 200,000 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 400,000 of the entity’s voting common units (Note 3). Effective May 1, 2023, the Company entered into an 8% interest bearing note receivable with DeFloria for the bill of 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, 2023, the remaining note receivable of $156 is presented in other assets in the condensed consolidated balance sheets.

Pursuant to an amendment to the Name and Likeness and License Agreement ~~(the “Agreement”) with Aphria, Inc., an Ontario corporation, an affiliate~~between the Company and Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, the agreement was extended to December 31, 2023. The agreement includes the payment of ~~Tilray Brands, Inc. (“Tilray”), pursuant~~a nominal per diem fee for specifically requested activities as brand ambassadors for the Company. In addition, on April 16, 2021, the Company executed a separate consulting agreement which extended the services agreements of the Stanley Brothers for a period of one year, expiring July 31, 2022. Upon execution of the consulting agreement, the Company paid $2,081 to ~~which~~Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, on behalf of the ~~parties entered into a strategic alliance by which Tilray will have the rights to licensing, manufacturing, quality, marketing and distribution of extract products in Canada. In~~Stanley Brothers, as consideration for the ~~Agreement, Tilray has agreed~~consulting services to ~~spend in each calendar year during~~be provided to the Company over the term of the ~~Agreement (other than 2022) a minimum of 5% of net sales per year on advertising, retail marketing, direct to consumer advertising,~~agreement and ~~similar third-party marketing expenditures for~~certain restrictive covenants. For the Company’s products. In addition, Tilray will spend an additional C$250 (Canadian Dollars) on marketing in the first contract year following 2022 to launch the Company’s brand into the Canadian market. Tilray will also pay the Company a monthly royalty of 10% of all net sales revenue received by Tilray from sales to third-party entities during the prior month. The Agreement expires on October 31, 2026, unless earlier terminated by either party in accordance with the terms of the Agreement. The Agreement is also subject to termination for convenience by either party upon 6 months’ notice given on or after October 31, 2024.

~~BAT Subscription Agreement~~

~~Effective as of November 14,~~three and six months ended June 30, 2022, the Company ~~entered into a subscription agreement (the “Subscription Agreement”) with BT DE Investments, Inc. a wholly-owned subsidiary~~recognized $454 and $875, respectively, of ~~BAT Group (LSE: BATS~~sales and NYSE: BTI), providing for the issuance of an approximately $56.8 million (C$75.3 million) convertible debenture (the “Debenture”) convertible into 19.9% ownership of the Company’s common shares at a conversion price of C$2.00 per common share of the Company on the Toronto Stock Exchange (TSX). The Debenture will accrue interest at an annualized rate of 5% until such time that there is federal regulation permitting the use of ~~cannabidiol, a phytocannabinoid derived from the plant Cannabis sativa L. (“CBD”) as an ingredient in food products and dietary supplements~~marketing expenses 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~~condensed consolidated statements of ~~CBD as an ingredient in food products and dietary supplements). Following federal regulation of CBD, the annualized rate of interest shall reduce~~operations related to 1.5%. The maturity date for the Debenture shall be November 2029. The Subscription Agreement contains customary representations and warranties and covenants. The funds from this Debenture can be used for operating purposes to fund the Company, as approved by the board of directors or in accordance with the Company’s board-approved budget.these agreements.

1920

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements that are, or may be considered to be, “forward-looking ~~statements.”~~statements” under Canadian securities laws and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be subject to the "safe harbor" created by those sections and other applicable laws. Forward-looking statements are neither historical facts nor assurances of future performance. 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. 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. Furthermore, forward-looking statements may be included in various filings that the Company makes with the SEC or press releases or oral statements made by or with the approval of one of the Company’s authorized executive officers. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. ~~All~~(All capitalized and undefined terms used in this section shall have the same meanings hereafter defined in this Quarterly Report on Form 10-Q.)

The following discussion and analysis of financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the unaudited condensed consolidated financial statements and the accompanying notes in this Form 10-Q and the sections entitled “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. Except for historical information, the discussion in this section contains forward-looking statements that involve risks and uncertainties, as discussed in the “Cautionary Note Regarding Forward Looking Statements.” Future results could differ materially from those discussed below for many reasons, including the risks described in Item 1A—“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and in Part II, Item 1A—Risk Factors” of this Form 10-Q.

Management's Discussion & Analysis of Charlotte's Web Holdings, Inc.

For purposes of this discussion, “Charlotte’s Web,” “CW,” “we,” ~~"our", "us",~~ or the “Company” refers to Charlotte’s Web Holdings, Inc. and its subsidiaries: Charlotte’s Web, Inc. and Abacus Products, Inc., and its wholly-owned subsidiaries; Abacus Health Products, Inc., Abacus Wellness, Inc. and CBD Pharmaceuticals Ltd. The results herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Amounts are presented in thousands of United States dollars, unless otherwise indicated.

BUSINESS OVERVIEW

Charlotte’s Web Holdings, Inc., is a Certified B Corp headquartered in Louisville, Colorado, ~~and~~that does 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™, ReCreateTM, CBD Medic™, CBD Clinic™, and Harmony Hemp™. Charlotte’s Web branded premium quality products start with proprietary hemp genetics that are 100% North American farm grown and manufactured into hemp extracts containing naturally occurring

phytocannabinoids including CBD, cannabichromene ("CBC"), cannabigerol ("CBG"), terpenes, flavonoids and other beneficial hemp compounds. The Company moved into its new cGMP facility in Louisville, Colorado during the second quarter of 2020 at which the Company conducts its production of tinctures, distribution, and quality control activities, and has expanded its

research and development ("R&D"). Charlotte’s Web product categories include full spectrum hemp extract oil tinctures (liquid products), gummies, ~~(sleep, stress, immunity, exercise recovery),~~ capsules, CBD topical creams and lotions, as well as products for pets. As of October 2022, the Company produces NSF Certified for Sports® broad spectrum tincture products. Charlotte’s Web products are distributed to retailers and health care practitioners, and online through the Company’s website at ~~www.CharlottesWeb.com.~~www.CharlottesWeb.com and recreateyou.com. The information provided on ~~the Charlotte’s Web website~~such websites is not part of this MD&A.

The business of the Company consists of the farming, manufacturing, sales, and marketing of products of hemp-derived CBD wellness products. As of ~~September~~June 30, ~~2022,~~2023, the Company operated in a single operating and reportable segment, hemp-derived CBD wellness products, as its 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.

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. The Company believes the presence of these various compounds work synergistically to heighten the effects of the products, making them superior to single-compound isolates.

Hemp extracts are produced from Cannabis and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a THC concentration of not more than 0.3% on a dry weight basis. The Company is engaged in research involving a broad variety of compounds derived from Hemp. Where ~~such~~ research ~~evidences~~provides evidence that a greater than 0.3% THC level may have a potential therapeutic use, the Company may consider pursuing development of that use in jurisdictions where it is legal to do so in accordance with applicable regulations and if consistent with the Company’s founding principles.

The Company does not currently produce or sell medicinal or recreational marijuana or products derived from high-THC Cannabis plants. On March 2, 2021, Charlotte’s Web executed the SBH Purchase Option pursuant to which the Company has the option to acquire Stanley Brothers USA, a Cannabis wellness incubator. Until the SBH Purchase Option is exercised, both Charlotte’s Web and Stanley Brothers USA will continue to operate as standalone entities in the US. Outside the US, the companies are able to explore opportunities where Cannabis is federally permissible. At this time, however, the Company does not have any plans to expand into ~~high-THC~~high THC products in the near future.

~~The~~In the US, the Company holds the number one market share position in ~~food/drug/mass~~the CBD market relative to retail ~~natural/ vitamin specialty and e-commerce,~~dollars, this is based on market share data from leading third-party analysts such as ~~The~~ Nielsen Company ~~(total xAOC)~~(US), LLC (“Nielsen”), SPINS, ~~(SPINS Total US)~~LLC (“Spins”), and Brightfield Group (“Brightfield”), respectively.

The Company grows its proprietary ~~Hemp~~hemp domestically in the United States on farms leased in northeastern ~~Colorado. Additionally, high quality Hemp is sourced~~Colorado and sources hemp through contract farming operations in Arizona, Kentucky, Oregon, and Canada. The Hemp grown in Canada is utilized exclusively in the Canadian market and not in products sold in the United States.

Recent Developments

On ~~October 12, 2022,~~April 6, 2023, the Company ~~announced~~jointly formed an entity, DeFloria LLC ("DeFloria"), with AJNA BioSciences PBC (“AJNA”), and a ~~partnership~~subsidiary of British American Tobacco PLC (LSE: BATS and NYSE: BTI) (“BAT”). BAT holds an equity interest in the entity in the form of 200,000 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 400,000 of the entity’s voting common units.

The Company’s contribution to DeFloria is a license permitting the use of certain proprietary hemp intellectual property, including clinical and consumer data. Additionally, the Company has a Supply Agreement with ~~Major League Baseball (MLB) along~~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. The entity is expected to use the initial $10 million cash investment for the clinical development of a novel hemp botanical Investigational New Drug application and to commence Phase I clinical development in 2024.

On July 11, 2023, the Company expanded its product footprint with the launch of ~~Charlotte's Web~~TM SPORT – Daily Edge, the first broad-spectrum hemp-derived tincture to be Certified for Sport® by NSF, the highly respected global third-party organization that establishes standards for safety, quality, sustainability, and performance and certifies manufacturers and products against them. Leveraging our scientific research, Current Good Manufacturing Practices (cGMP), and Certified B Corp principles, Daily Edge underwent strict independent testing to uniquely meet MLB's scientific benchmarks and no-banned substances policy. Our products, which receive the NSF Certified for ~~Sport® designation, have met~~Sports® broad spectrum gummy products under the ~~highest safety standards~~ReCreate™ brand, the Company's lifestyle and ~~can be promoted across MLB events and media platforms.~~

Effective as of November 14, 2022, we entered into a subscription agreement (the “Subscription Agreement”) with BT DE Investments, Inc. a wholly-owned subsidiary of BAT Group (LSE: BATS and NYSE: BTI), providing for the issuance of an approximately $56.8 million (C$75.3 million) convertible debenture (the “Debenture”) is convertible into 19.9% ownership of the Company’s common shares at a conversion price of C$2.00 per common share of the Company on the Toronto Stock Exchange (TSX). The Debenture will accrue interest at an annualizedbotanical wellness brand

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~~rate~~focused on the combination of ~~5% until such~~organic broad-spectrum CBD and functional botanicals. At the same time, ~~that there is a federal regulation permitting~~ the ~~use of CBD. Federal regulation is defined~~Company announced its partnership as the ~~date~~Official CBD of the Premier Lacrosse League ("PLL").

As of June 30, 2023, several states, including, but not limited to, Florida, Maryland, Minnesota, New York, Utah and Virginia, have adopted new regulations that ~~federal laws~~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, labeling and packaging requirements. The Company is assessing the ~~United States permit, authorize or do not prohibit~~business and financial impacts of the ~~use of CBD~~new regulations, including steps that can be taken to address the new product formulation and labeling requirements, as ~~an ingredient~~well as costs and potential revenue impacts and anticipated timing for such impacts to the Company 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 shall be November 2029. The Subscription Agreement contains customary representations and warranties and covenants.these states.

The Company continues to invest in R&D e~~fforts~~efforts to identify new product opportunities. The Company ~~plans~~is working to capitalize on the rapidly emerging botanical wellness products industry by driving customer acquisition and retention, as well as accelerating national and international retail ~~expansion primarily through distributors,~~expansion. In addition, the Company may consider expanding its product line beyond Hemp-based products should the science and ~~growing its international market penetration.~~

~~In furtherance of~~ the Company’s 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 safe Hemp-based health solutions. CW Labs is located in Louisville, Colorado at the Company’s cGMP production and distribution facility. In November 2019, the Company announced a collaboration between CW Labs and the University at Buffalo’s Center for Integrated Global Biomedical Sciences to advance hemp cannabinoid science through a research program that provides a better understanding of the therapeutic uses and safety of cannabinoids.founding principles support such expansion.

Selected Financial Information


		Three Months Ended September 30,				Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Total revenues	Total revenues	$	17,037	$	23,704	$	55,271	$	71,263	Total revenues	$	16,006	$	18,877	$	33,016	$	38,234
Cost of goods sold	Cost of goods sold	8,092		8,789		25,291		26,884		Cost of goods sold	7,088		9,556		14,181		17,199
Gross profit	Gross profit	8,945		14,915		29,980		44,379		Gross profit	8,918		9,321		18,835		21,035
Selling, general, and administrative expenses	Selling, general, and administrative expenses	11,032		24,299		48,646		73,263		Selling, general, and administrative expenses	19,627		17,259		37,140		37,614
Asset Impairment		1,822		—		1,822		—
Operating loss	Operating loss	(3,909)		(9,384)		(20,488)		(28,884)		Operating loss	(10,709)		(7,938)		(18,305)		(16,579)
Other income, net		321		110		304		320
Gain on investment in unconsolidated entity										Gain on investment in unconsolidated entity	10,700		—		10,700		—
Change in fair value of financial instruments and other	Change in fair value of financial instruments and other	(4,000)		8,459		(3,900)		9,082		Change in fair value of financial instruments and other	4,229		—		9,612		100
Income tax benefit		—		38		—		8
Net loss		$	(7,588)	$	(777)	$	(24,084)	$	(19,474)
Other income (expense), net										Other income (expense), net	(1,376)		68		(2,074)		(17)
Net income (loss)										Net income (loss)	$	2,844	$	(7,870)	$	(67)	$	(16,496)
Total assets	Total assets					$	140,518	$	286,781	Total assets					$	176,589	$	153,014
Total liabilities	Total liabilities					$	31,656	$	44,800	Total liabilities					$	98,228	$	37,102

For The Three Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

Revenue

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, retail and wholesale B2B customers. DTC sales contributed 66% of the Company’s total net revenue in Q2 2023 with B2B sales contributing 34%.


													Three Months Ended
		Three Months Ended September 30,				% (Decrease)						June 30,		% (Decrease)
			2022				2021								% (Decrease)		2022
Direct-to-consumer ("DTC") revenue	Direct-to-consumer ("DTC") revenue			$	11,759		$	15,175	(22.5)	%	Direct-to-consumer ("DTC") revenue							$	13,277	(19.2)	%
Business-to-business ("B2B") revenue	Business-to-business ("B2B") revenue			5,278			8,529		(38.1)	%	Business-to-business ("B2B") revenue				5,272			5,600		(5.9)	%
Total revenue	Total revenue			$	17,037		$	23,704	(28.1)	%	Total revenue				$	16,006		$	18,877	(15.2)	%

Total revenue for the three months ended ~~September~~June 30, ~~2022~~2023 was ~~$17,037,~~$16,006, a decrease of ~~28.1%~~15.2% compared to the three months ended ~~September~~June 30, ~~2021.~~2022.

DTC ~~e-commerce~~net revenue ~~decreased 22.5% compared to the three months ended September 30, 2021.~~from online sales was $10.7 million, a decrease of 19.2% year-over-year from $13.3 million in Q2 2022. The decrease was primarily ~~attributable~~due to lower traffic ~~at our~~to the Company’s webstore as well as a shift in product mix, specifically tinctures. Charlotte’s Web maintains the largest e-commerce business in the CBD industry according to the Brightfield Group. E-commerce is the CBD industry’s largest sales channel representing approximately 37% of total annual industry sales. Charlotte’s Web recently launched initiatives to increase online ~~store~~traffic to broaden demographic exposure, including upcoming promotions with MLB, and improving the online consumer experience.

B2B net revenue of $5.3 million decreased 5.9% year-over-year from $5.6 million in Q2 2022, primarily due to lower organic searches, less paid media and less effective earned and affiliate traffic generation. Additional drivers include increased depth and frequency of competitor price promotions. The decreaseproduct mix. In May 2023, B2B distribution was ~~partially offset by higher customer subscription orders~~expanded in pet retail through ~~its loyalty program.~~

B2B revenue decreased 38.1% compared to the three months ended September 30, 2021, due to an unfavorable product mix as lower priced gummies, increased 11.6 points in share representing 38%, compared to higher priced tinctures which declined 3.3 points in share representing 11.1%a new partnership with Phillips Pet Food & Supplies, America’s largest distributor in the ~~similar prior year period. Additionally, B2B revenue decreased as the Food Drug Mass~~pet specialty retail and Natural channels reduced CBD products shelf space. Higher depth and frequency of price promotions has also unfavorably impacted year over year revenues. To a lesser extent, product returns reserve during the current period of $270 contributed to the decrease during the three months ended September 30, 2022. This was partially offset by newchannel, covering more than 6,000 retailers representing more than 14,000 retail distribution following the passing of Assembly Bill 45 in California. This law allows for the inclusion of hemp and CBD, extracts, or derivatives of hemp in food and beverages, dietary supplements, cosmetics, and processed pet food.locations.

Cost of Goods Sold

Cost of goods sold includes the cost of inventory sold, changes in inventory provisions, and other production costs expensed. 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, ~~the~~ mix of product sold, third-party ~~co-manufacturer~~quality costs, transportation, overhead allocations and changes in inventory provisions.

The components of cost of goods sold are as follows:


													Three Months Ended
		Three Months Ended September 30,					% (Decrease)					June 30,		% (Decrease)
			2022			2021							2023			% (Decrease)
Inventory expensed to cost of goods sold	Inventory expensed to cost of goods sold			$	5,407		$	6,684	(19.1)	%	Inventory expensed to cost of goods sold			4,979			6,100		(18.4)	%
Inventory provision, net	Inventory provision, net			—			—		—	%	Inventory provision, net			127			1,857		(93.2)	%
Other production costs	Other production costs			1,842			1,208		52.5	%	Other production costs			1,085			753		44.1	%
Depreciation and amortization	Depreciation and amortization			843			897		(6.0)	%	Depreciation and amortization			897			846		6.0	%
Cost of goods sold	Cost of goods sold			$	8,092		$	8,789	(7.9)	%	Cost of goods sold			$	7,088		$	9,556	(25.8)	%

Cost of goods sold decreased ~~by 7.9%~~25.8% for the three months ended ~~September~~June 30, ~~2022~~2023 compared to the three months ended ~~September~~June 30, ~~2021,~~2022. The improvement was primarily due to lower comparable inventory provisions recorded during the reporting quarter as well as a decrease in inventory expensed to cost of goods sold as a result of lower ~~unit volume sold. Lower cost gummies unit volume was down 2% compared to higher cost tinctures unit volume down 42% period over period. The decrease is partially offset by under leveraged fixed costs.~~

sales volume.

Depreciation and amortization expense for the three months ended ~~September~~June 30, 2023 and June 30, 2022 was $3,977 and ~~September 30, 2021 was $1,822 and $2,763,~~$1,862, respectively, of which ~~$843~~$897 and ~~$897,~~$846, respectively, was expensed to cost of goods sold. The remaining depreciation and amortization expenses of $3,080 and $1,016, respectively, was expensed to Selling, general, and administrative expenses.

Gross Profit

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, the mix of products sold, the promotional and sales discount rate, third-party quality costs, transportation costs, and changes in inventory ~~provisions and levels of customer product returns.~~provisions.

Gross profit for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021~~2022 is as follows:


															Three Months Ended
		Three Months Ended September 30,						% (Decrease)						June 30,		% (Decrease)
			2022				2021								2023				% (Decrease)
Gross profit	Gross profit			$	8,945			$	14,915		(40.0)	%	Gross profit			$	8,918			$	9,321		(4.3)	%
Percentage of revenue				52.5		%		62.9		%	(10.4)	%
Gross margin													Gross margin			55.7		%		49.4		%	12.8	%

Gross profit decreased ~~40.0%~~4.3% for the three months ended ~~September~~June 30, ~~2022,~~2023 compared to the three months ended ~~September~~June 30, ~~2021.~~2022. The decrease is ~~primarily~~directly related to ~~lower~~the revenue ~~in both the DTC and B2B channels, as discussed above, due to a decrease in online traffic, competitor price pressure, and rising inflation in the macro economy. This is~~drop of 15.2%, partially offset by improvements in cost of goods sold. On a rate basis, gross margin increased 12.8% despite lower ~~period expenses and changes~~revenue due to the year-over-year reduction in ~~product mix.~~inventory provision.

Selling, General, and Administrative Expenses

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

Three Months Ended September 30, % (Decrease)
2022 2021
Selling, general, and administrative expenses $ 11,032 $ 24,299 (54.6) %


	Three Months Ended
	June 30,					% (Decrease)
		2023			2022
Selling, general, and administrative expenses			$	19,627		$	17,259	13.7	%

Total Selling, general, and administrative expenses for the three months ended ~~September~~June 30, 2023 and June 30, 2022 were $19,627 and ~~September 30, 2021 were $11,032 and $24,299,~~$17,259, respectively. The ~~54.6% decrease was~~increase is primarily ~~attributable~~due to ~~restructuring activities earlier this year lowering personnel costs; an Employee Retention Credit ("ERC") tax benefit~~the amortization of ~~$4,106, a decrease in~~MLB license and media ~~marketing spend, along with lower depreciation and amortization.~~ rights assets of $2,074.

Depreciation and amortization expensed to Selling, general, and administrative expenses for the three months ended ~~September~~June 30, 2023 and June 30, 2022 were $3,080 and ~~September 30, 2021 were $979~~$1,016, respectively.

Total research and ~~$1,866, respectively. The overall decrease in depreciation~~development costs expensed to Selling, general, and ~~amortization resulted from the write off of intangible assets in December 2021.~~

~~Asset Impairment~~

During the quarter, the Company made the decision to cease utilizing the Denver office space and plans to sublease the office space at current market rents. Based on an analysis of the estimated undiscounted cash flows relative to a potential sublease arrangement, the Company evaluated the recoverability of the assets associated with the subleased space, including, the right-of-use asset and concluded the asset was impaired.

~~The Company recorded an impairment charge of $1,822 in the consolidated statements of operations~~administrative expense for the three ~~and nine~~ months ended ~~September~~June 30, ~~2022. There~~2023 and June 30, 2022 were ~~no such impairments~~$916 and $1,018, 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 Change in Gain on Investment in Unconsolidated Entity

Total change in gain on investment in unconsolidated entity is as follows:


	Three Months Ended
	June 30,				% (Decrease)
	2023		2022
Change in gain on investment in unconsolidated entity	$	10,700	$	—	100	%

Total change in gain on investment in unconsolidated entity for the three ~~and nine~~ months ended ~~September~~June 30, ~~2021.~~2023 and June 30, 2022 was $10,700 and $0, respectively. For the three months ended June 30, 2023, the increase in the gain on investment in unconsolidated entity was due to the Company jointly forming an entity, DeFloria, with AJNA, and BAT. The entity was established to pursue FDA-approval for a novel botanical drug to target a neurological condition. The botanical drug will be developed from certain proprietary hemp genetics of the Company. The Company has the ability and elected the fair value option for the investment in DeFloria. As such the investment is measured at fair value and remeasure at each reporting date, with changes recognized in changes in fair value of financial instruments and other.

Total Change in Fair Value of Financial Instruments and Other

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

Three Months Ended September 30, % (Decrease)
2022 2021
Change in fair value of financial instruments and other $ (4,000) $ 8,459 (147.3) %


	Three Months Ended
	June 30,				% (Decrease)
	2023		2022
Change in fair value of financial instruments and other	$	4,229	$	—	100	%

Total change in fair value of financial instruments and other for the three months ended ~~September~~June 30, 2023 and June 30, 2022 was $4,229 and ~~September 30, 2021 was a loss of $4,000 and a gain of $8,459,~~$0, respectively. For the three months ended ~~September~~June 30, ~~2022, there was a loss~~2023, the increase in the fair value of the Company's SBH Purchase Option of $4,000 compared to a gain of $5,730 as of September 30, 2021. The fair value of the Company's SBH Purchase Option is revalued at each reporting date based on changes in financial projections of Stanley Brothers USA and the probability and timing of exercise. Additionally, for the three months ended September 30, 2021, the change in fair value of financial instruments and other was ~~also driven by~~primarily due to the revaluation of the fair value of the Company's ~~warrant liabilities~~debt conversion option and debt interest rate conversion feature resulting in a net gain of ~~$2,638.~~$4,173. The fair value of the Company's ~~warrant liabilities was~~embedded derivatives and options are revalued at each reporting date with changes ~~primarily based on changes to~~impacted by variability in the Company's share price ~~input to the Black-Scholes option pricing model. As of September 30, 2022, all outstanding warrants have expired.~~and implied debt yields.

For ~~The Nine~~the Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

Revenue

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, retail and wholesale B2B customers.


													Six Months Ended
		Nine Months Ended September 30,				% (Decrease)						June 30,		% (Decrease)
			2022				2021								% (Decrease)		2022
Direct-to-consumer ("DTC") revenue	Direct-to-consumer ("DTC") revenue			$	38,174		$	46,988	(18.8)	%	Direct-to-consumer ("DTC") revenue							$	26,415	(16.7)	%
Business-to-business ("B2B") revenue	Business-to-business ("B2B") revenue			17,097			24,275		(29.6)	%	Business-to-business ("B2B") revenue				11,014			11,819		(6.8)	%
Total revenue	Total revenue			55,271			71,263		(22.4)	%	Total revenue				$	33,016		$	38,234	(13.6)	%

Total revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$55,271,~~$33,016, a decrease of ~~22.4%~~13.6% compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~

DTC e-commerce revenue decreased 18.8% compared to the nine months ended September 30, 2021. The decrease was primarily due to lower traffic at our online store due to lower organic search, less paid media and less effective earned and affiliate traffic generation. Additional drivers include increased depth and frequency of competitor price promotions. The decrease was partially offset by higher customer subscription orders through its loyalty program.

B2B revenue decreased 29.6% compared to the nine months ended September 30, 2021, due to an unfavorable product mix as lower priced gummies, increased 7.9 points in share representing 46.4%, compared to higher priced tinctures which declined 4.5 points in share representing 11.7% in the similar prior year period. Additionally, B2B revenue decreased as the Food Drug Mass retail and Natural channels reduced CBD products shelf space. Higher depth and frequency of price promotions has also unfavorably impacted year over year revenues. To a lesser extent, product returns reserve during the current period of $1,145 contributed to the decrease for nine months ended September 30, 2022. ~~This was partially offset by new retail distribution following the passing of Assembly Bill 45 in California.~~

~~Cost of Goods Sold~~

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DTC revenue decreased 16.7%, driven by lower tincture, gummy and capsule volume. Promotional activity and product mix shift away from tinctures were additional contributing factors.

B2B revenue decreased 6.8% compared to the six months ended June 30, 2023. This decrease resulted from topicals portfolio rationalization and a negative product mix shift to smaller count pack sizes. The topicals revenue decline was partially offset by increased sales of pet chews. The Company remains #1 in FDM and Natural retail channels according to Neilsen and Spins, respectively

Cost of Goods Sold

Cost of goods sold includes the cost of inventory sold, changes in inventory provisions, and other production costs expensed. 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, ~~the~~ mix of product sold, third-party quality costs, transportation, overhead allocations and changes in inventory provisions.

The components of cost of goods sold are as follows:


													Six Months Ended
		Nine Months Ended September 30,					% (Decrease)					June 30,		% (Decrease)
			2022			2021							2023			% (Decrease)
Inventory expensed to cost of goods sold	Inventory expensed to cost of goods sold			$	17,373		$	20,801	(16.5)	%	Inventory expensed to cost of goods sold			10,188			11,966		(14.9)	%
Inventory provision, net	Inventory provision, net			1,857			177		949.2	%	Inventory provision, net			320			1,857		(82.8)	%
Other production costs	Other production costs			3,518			3,319		6.0	%	Other production costs			1,877			1,676		12.0	%
Depreciation and amortization	Depreciation and amortization			2,543			2,587		(1.7)	%	Depreciation and amortization			1,796			1,700		5.6	%
Cost of goods sold	Cost of goods sold			$	25,291		$	26,884	(5.9)	%	Cost of goods sold			$	14,181		$	17,199	(17.5)	%

Cost of goods sold decreased ~~5.9%~~17.5% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021, primarily due to lower unit volume sold. Lower~~2022. Variable cost ~~gummies unit volume decreased 2.6% compared to higher cost tinctures which decreased 41.6% year over year The decrease is partially offset by an increase in~~of goods declined proportionately with revenue, with a further reduction on the improvement of inventory ~~provision as well as under leveraged fixed costs.~~provisions.

Depreciation and amortization expense for the ~~nine~~six months ended ~~September~~June 30, 2023 and June 30, 2022 was $7,769 and ~~September 30, 2021 was $5,762 and $8,228,~~$3,940, respectively, of which ~~$2,543~~$1,796 and ~~$2,587,~~$1,700, respectively, was expensed to cost of goods sold. The remaining depreciation and amortization expenses of ~~$3,219~~$5,973 and ~~$5,641,~~$3,776, respectively, was expensed to Selling, general, and administrative expenses.

Gross Profit

Gross profit for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021~~2022 is as follows:


															Six Months Ended
		Nine Months Ended September 30,						% (Decrease)						June 30,		% (Decrease)
			2022				2021								2023				% (Decrease)
Gross profit	Gross profit			$	29,980			$	44,379		(32.4)	%	Gross profit			$	18,835			$	21,035		(10.5)	%
Percentage of revenue				54.2		%		62.3		%	(8.1)	%
Gross margin													Gross margin			57.0		%		55.0		%	3.6	%

Gross profit decreased ~~32.4%~~10.5% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021. The decrease is primarily related~~2022, due to the lower net revenue ~~in both~~for the ~~DTC and B2B channels which we discussed above, and an increase to inventory provisions. The decrease is partially offset by lower inventory expenses.~~first six months of 2023. However gross margin improved 3.6% year-over-year as a result of improved costs of goods sold.

Selling, General, and Administrative Expenses

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

Nine Months Ended September 30, % (Decrease)
2022 2021
Selling, general, and administrative expenses $ 48,646 $ 73,263 (33.6) %


	Six Months Ended
	June 30,					% (Decrease)
		2023			2022
Selling, general, and administrative expenses			$	37,140		$	37,614	(1.3)	%

Total selling, general, and administrative expenses for the ~~nine~~six months ended ~~September~~June 30, 2023 and June 30, 2022 were $37,140 and ~~September 30, 2021 were $48,646 and $73,263,~~$37,614, respectively. The ~~33.6%~~ decrease ~~was~~is primarily ~~attributable~~due to ~~restructuring activities~~a reduction in personnel and consulting costs compared to the ~~first nine months~~prior period. The decrease is partially offset by an increase in amortization related to the MLB license and media rights assets of ~~the year lowering personnel costs, an Employee Retention Credit ("ERC") tax benefit of $4,106, a decrease in media marketing spend, along with lower depreciation and amortization.~~ $3,897.

Depreciation and amortization expensed to Selling, general, and administrative expenses for the ~~nine~~six months ended ~~September~~June 30, 2023 and June 30, 2022 were $5,973 and ~~September 30, 2021 were $3,219 and $5,641,~~$3,776, respectively.

Total research and development costs expensed to Selling, general, and administrative expense for the ~~nine~~six months ended ~~September~~June 30, 2023 and June 30, 2022 were $1,462 and ~~September 30, 2021 were $2,835 and $4,434,~~$2,188, 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 Gain on Investment in Unconsolidated Entity

Total change in gain on investment in unconsolidated entity is as follows:


	Six Months Ended
	June 30,				% (Decrease)
	2023		2022
Change in gain on investment in unconsolidated entity	$	10,700	$	—	100	%

Total change in gain on investment in unconsolidated entity for the three months ended June 30, 2023 and June 30, 2022 was $10,700 and $0, respectively. For the six months ended June 30, 2023, the increase in the gain on investment in unconsolidated entity was due to the Company jointly forming an entity, DeFloria, with AJNA, and BAT. The entity was established to pursue FDA-approval for a novel botanical drug to target a neurological condition. The botanical drug will be developed from certain proprietary hemp genetics of the Company. The Company has the ability and elected the fair value option for the investment in DeFloria. As such the investment is measured at fair value and remeasure at each reporting date, with changes recognized in changes in fair value of financial instruments and other.

Total Change in Fair Value of Financial Instruments and Other

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

Nine Months Ended September 30, % (Decrease)
2022 2021
Change in fair value of financial instruments and other $ (3,900) $ 9,082 (142.9) %


	Six Months Ended
	June 30,				% (Decrease)
	2023		2022
Change in fair value of financial instruments and other	$	9,612	$	100	9512	%

Total change in fair value of financial instruments and other for the ~~nine~~six months ended ~~September~~June 30, 2023 and June 30, 2022 was $9,612 and ~~September 30, 2021 was a loss of $3,900 and a gain of $9,082,~~$100, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the increase in the change in fair value of financial instruments and other was primarily driven by a loss of $3,900 in the fair value of the Company's SBH Purchase Option . The fair value of the Company's SBH Purchase Option is revalued at each reporting date based on changes in the financial projections of Stanley Brothers USA and the probability and timing of exercise. Similarly, for the nine months ended September 30, 2021, the change in fair value of financial instruments and other was driven bydue to the revaluation of the fair value of the Company's ~~SBH Purchase Option~~debt conversion option and debt interest rate conversion feature resulting in a net gain of ~~$4,900, as well as, the revaluation of the Company's warrant liabilities resulting in a gain of $4,081.~~$9,855, respectively. The fair value of the Company's ~~warrant liabilities was~~embedded derivatives and options are revalued at each reporting date ~~based on~~with changes toimpacted by variability in the Company's share price ~~input to the Black-Scholes option pricing model. As of September 30, 2022, all outstanding warrants have expired.~~

and implied debt yields.

Liquidity and Capital Resources

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had total current liabilities of ~~$13,147~~$22,609 and ~~$20,170,~~$21,427, respectively, and cash and cash equivalents of ~~$16,513~~$61,728 and ~~$19,494,~~$66,963, respectively, to meet its current obligations. For the first nine months of 2022, the Company used approximately $3,000 in net cash, in which $4,997 was used in the first quarter, as such the Company was cash flow positive in the remaining quarters in which net cash provided was $1,997. Despite lower revenues than 2021, the Company has taken actions to reduce operating costs by approximately $30,000 annualized including eliminating positions and lowering employee costs substantially in January and July 2022, simplifying the business by rationalizing the number of products produced and sold, reducing the number of third-party co-manufacturers, and lowering spend on paid media. The Company collected the outstanding IRS receivable of approximately $10,841, partially offset by cultivation payments of $2,600 which benefited cash flow year to date.

Effective as of November 14, 2022, we entered into a subscription agreement with BT DE Investments, Inc. a wholly-owned subsidiary of BAT Group (LSE: BATS and NYSE: BTI), providing for the issuance of an approximately $56.8 million convertible debenture (the “Debenture”) is convertible into 19.9% ownership of the Company’s common shares at a conversion price of C$2.00 per common share of the Company on the Toronto Stock Exchange (TSX). The Debenture will accrue interest at an annualized rate of 5% until such time that there is 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 annualized rate of interest shall reduce to 1.5%. The maturity date for the Debenture shall be November 2029. The Subscription Agreement contains customary representations and warranties and covenants. The funds from this Debenture can be used for operating purposes to fund the Company, as approved by the board of directors or in accordance with the Company’s board-approved budget.

The Company expects its selling, general and administrative expenses in 2023 to be ~~generally~~slightly higher than 2022 reflecting the incremental costs of the MLB Promotional Rights Agreement and related marketing activations. The investments in ~~line with 2022~~paid license and media rights as ~~MLB related rights fees is expected~~well as the launch of the new NSF Certified for Sport® brand products are intended to be ~~materially funded for through other expense savings.~~offset by increases in online traffic, channel sales and net revenue over the long term.

The Company’s primary sources of liquidity are its net cash on hand from operations and sales of its securities from time to time. The Company is currently in discussions with several parties related to potential new credit facilities. The Company’s ability to fund ~~operating expenses and capital expenditures~~its operations for the next twelve months and thereafter will depend on its future operating performance, particularly revenue growth, which ~~will~~can be affected by general economic conditions, ~~financial,~~industry regulatory ~~FDA,~~changes, and other ~~factors including~~ factors beyond the Company’s control. ~~From time-to-time, management reviews acquisition opportunities and if suitable opportunities arise, may make selected acquisitions to implement the Company’s business strategy.~~

Management continually assesses liquidity in terms of the ability to generate sufficient cash flow to fund the business. Net cash flow is affected by the following items: (i) operating activities, including the cash impacts from the statements of operations, ~~and net loss,~~ the level of accounts ~~receivable,~~receivables, accounts payable, accrued liabilities and unearned revenue and deposits; (ii) investing activities, including the purchase of property and equipment; and (iii) financing activities, including ~~debt financing and~~ the issuance of capital shares.

The Company filed the final short-form base shelf prospectus on May 5, 2021 with Canadian regulators, with a term of 25-months, which allowed the Company to qualify the distribution by way of prospectus in Canada of up to C$350,000 of common shares, preferred shares, warrants, subscription receipts, units, or any combination thereof. The final short form base prospectus expires on June 6, 2023. The Company filed a prospectus supplement to distribute up to C$60,000 of common shares of the Company (the "Offered Shares") under the at-the-market equity program ("ATM Program"). As of January 4, 2022, the ATM Program ceased to be available to the Company. The Company could reestablish this ATM once it becomes eligible for short-form registration on Form S-3, which could be as early as January 2023.

The Company expects to meet our long-term liquidity requirements through various sources of capital, including cash on hand and provided by ~~operations.~~operations over time. The Company regularly considers fundraising opportunities and may decide, from time to time, to raise capital through borrowings or issuances of additional equity and/or debt securities. The Company's ability to incur additional debt is dependent upon a number of factors, including the state of the credit markets, our

degree of leverage, the value of our unencumbered assets and borrowing restrictions imposed by lenders, including restrictions on the industry. The Company's ability to raise funds through the issuance of additional equity and/or debt securities is also dependent on a number of factors including the current state of the capital markets, investor sentiment and intended use of proceeds. The Company's ability to raise funds through the issuance of equity securities depends on, among other things, general market conditions for companies in the Hemp industry and market perceptions about us. There can be no assurance the Company will have the ability to raise additional funds and, if raised privately or publicly, will be available to the Company when needed or on terms which are acceptable.

Cash Flows

Cash from Operating Activities

Net cash used in operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021~~2022 were as follows:

Nine Months Ended September 30,
2022 2021
Net cash used in operating activities $ (2,599) $ (23,324)


	Six Months Ended June 30,
	2023		2022
Net cash used in operating activities	$	(5,009)	$	(4,284)

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the ~~decrease~~increase in cash used in op~~erations~~operations is primarily due ~~lower revenues, collection~~to cash outflows of ~~$10,841~~$4,000 associated with the MLB Promotional Rights Agreement which was entered into in October 2022. Additionally, the increase is due to escalating rent payments compared to the prior period. For the six months ended June 30, 2022, the Company collected $3,185 from income tax refunds ~~and its related interest, partially offset by cultivation payments.~~due.

Cash from Investing Activities

Net cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021~~2022 were as follows:

Nine Months Ended September 30,
2022 2021
Net cash used in investing activities $ (57) $ (11,090)


	Six Months Ended June 30,
	2023		2022
Net cash used in investing activities	$	(151)	$	(333)

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the decrease in cash used in investing activities was driven by lower ~~purchases of~~ capital expenditures, partially offset by proceeds of sale of assets. For the nine months ended September 30, 2021 the outflow related to the SBH Purchase Option executed for total consideration of $8,000 and the purchase of $4,088 in capital expenditures, partially offset by other investing activities.expenditures.

Cash from Financing Activities

Net cash ~~used or~~ provided by financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021~~2022 were as follows:

Nine Months Ended September 30,
2022 2021
Net cash (used) provided in financing activities $ (325) $ 2,680


	Six Months Ended June 30,
	2023		2022
Net cash used in financing activities	$	(75)	$	(60)

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the ~~net~~ change was primarily due to ~~cash payment of taxes on~~ the vesting of shares, as well as fees paid related to the termination of the asset backed line of credit with J.P. Morgan. For the nine months ended September 30, 2021, the net cash provided by financing activities during the period ended September 30, 2021 resulted primarily from ATM Program proceeds of $3,234, offset by payments on lease obligations and notes payable.

restricted stock units.

Off-Balance Sheet Arrangements

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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.

Related party transactions

2022, the Company ~~and the founders amended the agreement to increase the equity instruments securing the promissory note and to extend the maturity date to November 13, 2023. As~~established a ~~result of this amendment, the Company does not believe there is an estimated credit loss on~~reserve against the note receivable asdue to decline in collateral and risk associated with collectability and therefore, expensed the outstanding balance of ~~September 30, 2022 and December 31, 2021. The Company will continue to evaluate the note receivable for changes to credit loss estimates through the extended maturity date.~~$1,037.

On March 2, 2021, the Company entered into the SBH Purchase Option with Stanley Brothers USA as discussed above (Note 3). The SBH Purchase Option was purchased for a total consideration of $8,000. Certain founders of the Company, who are or were employees at the time, are the majority shareholders of Stanley Brothers USA.

Effective January 5, 2023, the Company entered into a Brand License and Option Agreement with JMS Brands LLC (the “Brand License and Option Agreement”), an entity owned by one of the Company’s founders. Pursuant to the Brand License and Option Agreement, the Company licenses certain intellectual property from JMS Brands LLC, for an annual license fee of $500. Pursuant to the terms of the agreement, the Company has the option to purchase the intellectual property rights for $2,000.

On ~~September~~April 6, 2023, the Company jointly formed an entity, DeFloria, with AJNA and BAT. AJNA is a botanical drug development company. AJNA is partially owned and was co-founded by a co-founder of Charlotte's Web. BAT holds an equity interest in the entity in the form of 200,000 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 400,000 of the entity’s voting common units. Effective May 1, 2023 the Company entered into an 8% interest bearing note receivable with DeFloria for the bill of sale of machine 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, ~~2022, pursuant~~2023, the remaining note receivable of $156 is presented in other assets in the condensed consolidated balance sheets.

Pursuant to an amendment to the Name and Likeness and License Agreement between the Company and Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, the agreement was extended to December 31, ~~2022.~~2023. The ~~Name and Likeness Agreement was amended to provide~~agreement includes the payment of a nominal per diem fee for ~~each Stanley brother that participates in certain events.~~specifically requested activities as brand ambassadors for the Company. In addition, on April 16, 2021, the Company executed a separate consulting agreement which extended the services agreements of the ~~seven~~ Stanley ~~brothers~~Brothers for a period of one year, expiring July 31, 2022. Upon execution of the consulting agreement, ~~in 2021,~~ the Company paid $2,081 to Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, on behalf of the ~~seven~~ Stanley ~~brothers,~~Brothers, as consideration for the consulting services to be provided to the Company over the term of the agreement and certain restrictive covenants. For the three and ~~nine~~six months ended ~~September~~June 30, 2022, the Company recognized ~~$150~~$454 and ~~$1,025,~~$875, respectively, inof sales and marketing expenses in the condensed consolidated statements of operations ~~and net loss~~ related to this agreement. For the three and nine months ended September 30, 2021, the Company recognized $167 of selling, general and administrative expenses in the condensed consolidated statements of operations and net loss related to this agreement. As ~~September 30, 2022 there is no remaining balance.~~these agreements.

Recently Adopted Accounting Principles

Refer to ~~footnote~~note 2 of the audited consolidated financial statements ~~filed~~included in the ~~Company~~Company's Annual Report on Form ~~10K~~10-K filed with the SEC on March ~~24, 2022~~23, 2023 for more information on the recently adopted accounting principles.

Critical Accounting Estimates

Listed below are the accounting policies 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 condensed consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements.

Fair Value Option

The Company has elected the fair value option in accordance with ASC 825-10 guidance to record its SBH Purchase ~~Option.~~Option and the Investment in unconsolidated entity. Under ASC 825-10, a business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. ~~The SBH Purchase Option is classified as a financial asset in the condensed consolidated balance sheets and is~~These assets are remeasured at fair value at each reporting date, with changes to fair value recognized in the statements of operations ~~and net loss~~ for the period. 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. Changes in assumptions that reasonably could have been different at the reporting date may result in a higher or lower determination of fair value. The Monte Carlo valuation model considers multiple revenue and EBITDA outcomes for Stanley Brothers USA and other probabilities in assigning a fair value. Primary assumptions utilized include financial projections of Stanley Brothers USA and the probability and timing of exercise asserted by the Company.

Inventories

Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. Cost includes all expenses for direct raw materials inputs, as well as costs directly attributable to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. 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. The Company’s inventories of harvested ~~Hemp~~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. ~~Our~~The Company's inventory production process for ~~our~~ cannabinoid products includes the cultivation of botanical raw material. Because of the duration of the cultivation process, a portion of ~~our~~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.

Impairment of Long-Lived Assets

The Company reviews intangible assets with indefinite useful lives for impairment at least annually and reviews all intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Long-lived assets, such as property and equipment and intangible assets subject to depreciation and amortization, as well as indefinite lived intangibles and goodwill are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than the Company had originally estimated. Recoverability of these assets is measured by comparison of the carrying amount of each asset or asset group to the future undiscounted cash flows the asset or asset group is expected to generate over their remaining lives. If the asset or asset group is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset or asset group. If the useful life is shorter than originally estimated, the Company amortizes the remaining carrying value over the new shorter useful life. Impairment losses are recorded in selling, general, and administrative expense in the ~~condensed~~ consolidated statements of ~~operations and comprehensive loss.~~operations. There were no impairment losses recognized for the three ~~and nine~~ months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

Convertible Debenture

The Company determined that the debenture is a freestanding financial instrument, which includes embedded derivatives. The embedded derivatives have been 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 and separate accounting pursuant to the provisions of 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 is classified as a derivative asset and measured at fair value using a probability weighted income approach. The debt conversion option is classified as a derivative liability and measured at fair value using a Black-Scholes option pricing model. The Company allocated proceeds first to the derivatives measured at fair value and the residual amount is allocated to the debenture. Debt issuance costs are allocated to the debenture. The debt issuance costs are presented as a direct reduction from the face value of the debenture and amortized over the stated term of the debenture.

Income ~~and Other~~ Taxes

The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets or liabilities are computed based on the temporary difference between the financial statement and

income tax basis of assets and liabilities using the enacted marginal income tax rate in effect for the year in which the differences are expected to reverse. Deferred income tax expense or benefit is based on the changes in the deferred income tax assets or liabilities from period to period. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized.

Significant judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets. The Company assesses the likelihood that deferred tax assets will be recovered as deductions from future taxable income. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis and includes a review of all available positive and negative evidence. Factors reviewed include projections of pre-tax book income for the foreseeable future, determination of cumulative pre-tax book income or loss, earnings history, and reliability of forecasting. It is the Company's policy to offset indefinite lived deferred tax assets with indefinite lived deferred tax liabilities. The Company provided a full valuation allowance on deferred tax assets because it is more likely than not that deferred tax assets will not be realized.

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. 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 2018. The Company has recorded an uncertain tax position as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022. The Company’s policy is to recognize interest and penalties on taxes, if any, within operations as income tax expense.

The Company qualified for federal government assistance through employee retention credit (“ERC”) provisions of the Consolidated Appropriations Act of 2021. As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, we account for grants provided by the government, including accounting for certain refundable tax credits, by analogy to International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, management determined it has reasonable assurance for receipt of the ERC and recorded the ERC benefit of $4,106 for the period ended September 30, 2022 as an offset to payroll tax expense. Due to the expected timing of receipt of the ERC, a corresponding receivable was recognized within other long-term assets as of September 30, 2022.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customer (“ASC 606”). The Company elected to early adopt ASC 606 as of January 1, 2018, as permitted by the standard. The Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company applies the five-step model to arrangements that meet the definition of a contract under the standard, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of revenue accounting, the Company evaluates the goods or services promised within each contract related performance obligation and assesses whether each promised good or service is distinct. 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 consolidated statements of operations, and ~~comprehensive loss, 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 consolidated statements of ~~operations and comprehensive loss.~~operations. Contracts are written to include standard discounts and allowances. Contracts are not written to include advertising allowances, tiered discounts or any other performance obligation. 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 Charlotte’s Web Loyalty Program offers customers rewards points for every dollar spent through the Company website to earn store credit for future purchases. The Company defers recognition of revenue for unredeemed awards until the following occurs: (1) rewards are redeemed by the consumer, (2) points or certificates expire, or (3) an estimate of the expected unused portion of points or certificates is applied, which is based on historical redemption patterns.

Any product that ~~doesn’t~~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 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information under this item is not required to be provided by smaller reporting companies.

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of ~~September~~June 30, ~~2022,~~2023, our disclosure controls and procedures were effective to ensure the timely disclosure of required information in our SEC filings.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ending ~~September~~June 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

3334

PART II

Item 1. Legal Proceedings

From time to time, the Company may be involved in various regulatory issues, claims and lawsuits arising in the ordinary course of business, none of which, in the opinion of management, is expected to have a material adverse effect on the Company’s results of operations or financial condition.

At present, the Company is not a party to any material pending legal proceedings, other than ordinary routine litigation incidental to the business. Nor is the Company or its property the subject of any legal proceedings, known or contemplated, that involve a claim for damages exclusive of interest and costs that meet or exceed 10% of its current assets.

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 includes a detailed discussion of our risk factors under the heading “Part I, Item 1A—Risk Factors.” Except as set forth below, there have been no material changes from such risk factors during the quarter ended ~~September~~June 30, ~~2022.~~2023. You should consider carefully the risk factors set forth in this Form 10-Q and discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and all other information contained in or incorporated by reference in this Form 10-Q before making an investment decision. If any of the risks discussed herein or in the Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 actually occur, they may materially harm our business, financial condition, operating results, cash flows or growth prospects. As a result, the market price of our common shares could decline, and you could lose all or part of your investment. Additional risks and uncertainties that are not yet identified or that we think are immaterial may also materially harm our business, financial condition, operating results, cash flows or growth prospects and could result in a complete loss of your investment.

~~The Company depends on key personnel~~Compliance with changes in legal, regulatory and ~~its ability to attract and retain employees.~~industry standards may adversely affect the Company’s business.

The ~~Company’s success~~formulation, manufacturing, packaging, labelling, handling, distribution, importation, exportation, licensing, sale and ~~future growth will depend, to a significant degree, on the continued efforts~~storage of the Company’s ~~directors~~products are affected by extensive laws, governmental regulations, administrative determinations, court decisions and ~~officers~~similar constraints. Such laws, regulations and other constraints may exist at the federal, state, provincial or local levels. There is currently no uniform regulation applicable to develop the business and manage operations, and on their ability to attract and retain key technical, scientific, sales, and marketing staff or consultants. The loss of any key person or the inability to attract and retain new key personnel could have a material adverse effect on the business and financial results from operations. The U.S. hemp and Cannabis industries may have more stringent requirements for personnel, including but not limited to, requirements that they complete criminal background checks, submit financial information, and demonstrate proof of residency, which may make it more challenging for the Company to hire and retain employees. Competition for qualified technical, scientific, sales, and marketing staff, as well as officers and directorsnatural health products worldwide. There can be ~~intense, and~~ no assurance ~~can be provided~~ that the Company ~~will be able to attract or retain key personnel~~is in the future. From time to time, share-based compensation may comprise a significant component of the Company’s compensation for key personnel, and if the price of the common shares declines, it may be difficult to recruit and retain such individuals.

~~In addition, COVID-19 poses a risk to~~compliance with all of ~~the Company’s activities, including the potential that a member of management~~these laws, regulations and other constraints, and changes to such laws, regulations and other constraints may contract the virus and the Company’s ability to continue to rely on its key personnel throughout the pandemic. The Company is diligently monitoring developments relating to COVID-19 and its impact on the Company’s personnel, and make operational adjustments as necessary. Any of the foregoing risks or actions could disrupt the Company’s operations and have a material adverse effect on the Company’s ~~results~~operations. Through June 30, 2023, several states, including, but not limited to Florida, Maryland, Minnesota, New York, Utah and Virginia, have adopted new regulations that may impact the Company's ability to sell certain of its products as currently formulated or packaged in these states.

There is substantial uncertainty and different interpretations among federal, state and local regulatory agencies, legislators, academics and businesses as to the importation of derivatives from ~~operations~~exempted portions of the Cannabis plant and ~~financial condition.~~the emerging regulation of cannabinoids. These different opinions include, but are not limited to, the regulation of cannabinoids by the FDA and the extent to which manufacturers of products containing imported raw materials and/or 2018 Farm Bill compliant cultivators and processors may engage in interstate commerce. The uncertainties cannot be resolved without further federal, and potentially state-level, legislation, regulation or a definitive judicial interpretation of existing legislation and rules. If these uncertainties continue, they may have an adverse effect upon the introduction of the Company's products in different markets.

A small number of Shareholders may exercise significant influence on matters submitted to Shareholders for approval.

The Company has ~~experienced significant changes in our management team in 2022. In particular,~~ ~~Lindsey Jensen was appointed as~~a small number of Shareholders who, to the ~~Chief Financial Officer and Chief Accounting Officer, following the departure~~knowledge of the Company’s former Chief Financial Officer, Wessel Booysen, and former Chief Accounting Officer, Andres De Gortari. Additionally, Gregory Gould was subsequently appointed as our Chief Financial Officer and ChiefCompany, own, in the aggregate, in excess of 5.0% equity interest in the Company. Although such Shareholders may not have an agreement to act in

3435

~~Accounting Officer following~~concert, such Shareholders may have the ~~resignation~~ability to exercise significant influence over matters submitted to Shareholders for approval, whether subject to approval by a majority of ~~Ms. Jensen.~~ ~~Executive~~the Shareholders or special resolution. In addition, on June 16, 2023, a group of three shareholders filed a statement on Schedule 13D with the SEC indicating that they, collectively, held over 5% interest in the Company and had taken certain steps with the objective of replacing certain members of the Company’s Board of Directors.

The costs of being a public company are high and may strain the Company’s resources.

The Company incurs significant legal, accounting, insurance and other ~~management transitions can be inherently difficult to manage,~~expenses as a result of being a public company, which may ~~cause significant and costly disruption to our business, might lead to additional departures of existing personnel,~~negatively impact its performance and could ~~have a material adverse effect on our business, operating~~cause its results of operations and financial condition to suffer. Compliance with applicable securities laws in Canada and ~~internal controls over financial reporting.~~

~~Recent macroeconomic trends, including inflation, a recession or slowed economic growth, may adversely affect our business, financial condition and results of operations.~~

~~During the nine months ended September 30, 2022, inflation in~~ the United States ~~has accelerated~~ and ~~is currently expected~~the rules of the TSX and the U.S. Securities and Exchange Commission ("SEC") (including, but not limited to, ~~continue at an elevated level for the near-term. Rising inflation could have an adverse impact on expenses, as these~~preparation and delivery of prescribed continuous disclosure forms, payment of listing fees, potential costs ~~could increase at a higher rate than revenues. Our~~associated with shareholder actions or dissenting shareholder activity, costs ~~are subject to fluctuations, particularly due to~~associated with regulatory reviews and costs associated with changes in ~~the prices of raw product~~laws or regulations) constitutes a significant expense, including legal and ~~packaging materials~~accounting costs, and makes some activities more time-consuming and costly. Reporting and other obligations as a public company and the ~~costs of labor, transportation~~Company’s anticipated growth may place a strain on the Company’s financial and ~~energy. Inflation pressures could also result in increases in these input costs. Therefore, our business results depend, in part,~~management systems, processes and controls, as well as on our continued ability to manage these fluctuations through pricing actions, cost saving projects and sourcing decisions, while maintaining and improving margins and market share. Failure to manage these fluctuations could adversely impact our results of operations or cash flows. In addition, unfavorable macroeconomic conditions, such as a recession or continued slowed economic growth, could negatively affect consumer demand for cannabis products, which consequently, may negatively affect the results of operations. Under difficult economic conditions, consumers may seek to reduce discretionary spending by forgoing purchases of cannabis products, negatively impacting our net sales and margins. Softer consumer demand for cannabis products could reduce our profitability and could negatively affect our overall financial performance.personnel.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Documents filed as part of this report

Exhibit No.

Description

Location

~~10.1†∔~~10.3

Extension and ~~Second~~Sixth Amending Agreement to Name and Likeness and License Agreement, effective as of ~~July 31, 2022,~~June 30, 2023, by and between Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, a Colorado limited liability company, Charlotte's Web, Inc., and Charlotte's Web Holdings, Inc.

~~Incorporated by reference to~~ Exhibit 10.1 to the ~~Company’s~~ Current Report on Form 8-K (File No. 000-56364) filed with the ~~U.S. Securities and Exchange Commission~~SEC on ~~August 4, 2022.~~

~~10.2†∔~~

Extension and Third Amending Agreement to Name and Likeness and License Agreement, effective as of August 31, 2022, by and between Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, a Colorado limited liability company, Charlotte's Web, Inc., and Charlotte's Web Holdings, Inc.

~~Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-56364) filed with the U.S. Securities and Exchange Commission on September2, 2022.~~July 3, 2023

~~10.3†∔~~31.1

~~Letter dated as of August 2, 2022 to Jacques Tortoroli re: Amendment to Offer of Employment with Charlotte’s Web Holdings, Inc.~~

~~Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-56364) filed with the U.S. Securities and Exchange Commission on August 4, 2022.~~

~~10.4†∔~~

~~Termination of Credit Agreement, effective as of July 27, 2022, with J.P. Morgan Chase Bank, N.A.~~

~~Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-56364) filed with the U.S. Securities and Exchange Commission on July 27, 2022.~~

~~31.1~~

Certification of Periodic Report by Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith

31.2

Certification of Periodic Report by Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

Filed herewith

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Filed herewith

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Filed herewith

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

Filed herewith

101.SCH

Inline XBRL Taxonomy Extension Schema Document

Filed herewith

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Filed herewith

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

Filed herewith

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

Filed herewith

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed herewith

~~† Indicates a management contract or compensatory plan or arrangement.~~

~~∔ Certain identified information has been excluded from the exhibit pursuant to Item 601(a)(6) and/or Item 601(b)(10)(iv) of Regulation S-K.~~

3637

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		CHARLOTTE'S WEB HOLDINGS, INC.

~~November 14, 2022~~August 10, 2023	By:	/s/ ~~Gregory A. Gould~~Jessica Saxton
(Date)		~~Gregory A. Gould~~Jessica Saxton
		(Chief Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signatures

Title

Date

/s/ Jacques Tortoroli

Chief Executive Officer (Principal Executive Officer)

~~November 14, 2022~~August 10, 2023

Jacques Tortoroli

/s/ ~~Gregory A. Gould~~Jessica Saxton

Chief Financial Officer (Principal Financial and Accounting Officer)

~~November 14, 2022~~August 10, 2023

~~Gregory A. Gould~~Jessica Saxton

3738




Part I	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	2
	- Condensed Consolidated Balance Sheets	3
	- Condensed Consolidated Statements of Operations	4
	- Condensed Statements of Changes in ~~Stockholder's~~S hareholder s ' Equity	5
	- Condensed Consolidated Statements of Cash Flows	6
	- Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures about Market Risk
Item 4.	Controls and Procedures

Part II	OTHER INFORMATION
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Mine Safety Disclosures
Item 5.	Other Information
Item 6.	Exhibits

	SIGNATURES


	Proportionate Voting Shares	Common Shares			Additional Paid-in Capital		Accumulated Deficit		Total Shareholders’ Equity
	Shares	Shares	Amount
Balance—December 31, 2021	—	144,659,964	$	1	$	319,059	$	(188,614)	$	130,446
Common shares issued upon vesting of restricted share units, net of withholding	—	77,193	—		(45)		—		(45)
Harmony Hemp contingent equity compensation	—	169,045	—		165		—		165
ATM program issuance costs	—	239,500	—		(2)		—		(2)
Share-based compensation	—	—	—		1,214		—		1,214
Net loss	—	—	—		—		(8,626)		(8,626)
Balance— March 31, 2022	—	145,145,702	$	1	$	320,391	$	(197,240)	$	123,152
Common shares issued upon vesting of restricted share units, net of withholding	—	132,463	—		(13)		—		(13)
Share-based compensation	—	—	—		643		—		643
Net loss	—	—	—		—		(7,870)		(7,870)
Balance—June 30, 2022	—	145,278,165	$	1	$	321,021	$	(205,110)	$	115,912
Common shares issued upon vesting of restricted share units, net of withholding	—	231,207	—		(67)		—		(67)
ATM program issuance costs	—	—	—		(59)		—		(59)
Share-based compensation	—	—	—		664		—		664
Net loss	—	—	—		—		(7,588)		(7,588)
Balance—September 30, 2022	—	145,509,372	$	1	$	321,559	$	(212,698)	$	108,862


	Operating Leases
Year Ending December 31:
2022 (3 months remaining)	$	867
2023	3,415
2024	3,205
2025	2,896
2026	2,172
Thereafter	15,595
Total lease obligation	28,150
Less: Imputed interest	(7,327)
Total lease liabilities	20,823
Less: Current lease liabilities	2,316
Total non-current lease liabilities	$	18,507


	Short-term		Long-term		Total
December 31, 2021	$	3,448	$	385	$	3,833
Crop costs incurred	169		—		169
Payments	(2,640)		—		(2,640)
Settlement reductions	(582)		—		(582)
Interest	32		—		32
Conversion to short-term borrowings	385		(385)		—
September 30, 2022	$	812	$	—	$	812


	Number of Warrants	Weighted-Average Exercise Price per Warrant
Outstanding as of December 31, 2021	6,983,140	$	7.86
Granted	—	—
Exercised	—	—
Expired	(6,983,140)	$	7.86
Outstanding as of September 30, 2022	—	—