Charlie's Holdings, Inc.

As used in this Annual Report, unless otherwise stated or the context otherwise requires, references to the “Company”, “we”, “us”, “our” or similar references mean Charlie’s Holdings, Inc. (formerly True Drinks Holdings, Inc.), its subsidiaries and consolidated variable interest entity on a consolidated basis. References to “Charlie’s” and “CCD” refer to Charlie’s Chalk Dust, LLC, a California limited liability company and wholly-owned subsidiary of the Company, and “Don Polly” refers to Don Polly, LLC, a Nevada limited liability company that is owned by an entity controlled by Ryan Stump, the Company’s current Chief Operating Officer, and a consolidated variable interest for which the Company is the primary beneficiary.

Overview

The Company’s objective is to become a leader in three broad product categories: (i) non-combustible nicotine-related products and (ii) alternative alkaloid vapor products. Through our Charlie’s subsidiary, we formulate, market, and distribute premium, nicotine-based and alternative alkaloid vapor products. Charlie’s products are produced through contract manufacturers for sale through select distributors, specialty retailers, and third-party online resellers throughout the United States, and in select international markets.

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Our Products

Charlie’s Product Line

Our business efforts consist primarily of formulating, marketing and distributing our portfolio of premium non-combustible nicotine-related and alternative alkaloid vapor products, which we collectively refer to as the “Charlie’s Product Line” or “Charlie’s Products”.

Alternative Alkaloid Products

Metatine™ (“Metatine” or “Alternative Alkaloid”) is a synthetically derived molecule that is structurally similar to, but chemically different from, other vaping alkaloids. Notably, even though Metatine is a nicotine salt analogue (a non-nicotine compound), vape devices that contain Metatine provide adult users with a strong sense of satisfaction, pleasure and enjoyment that is largely indistinguishable from traditional nicotine-based vape products. Metatine is currently sold in the Company’s SBX Disposable device (“SBX”) and in bulk supply to contract manufacturers and third-party alternative products brands.

SBX Disposables, with Metatine, are available in 5-Packs, featuring a 17-25K puff delivery, 3 firing modes, and active battery and eliquid monitoring. The current portfolio of ten unique flavors offers more value to consumers at a competitive retail price. Unlike the tens of thousands of flavored nicotine vapes that may not legally be sold in the United States, SBX contains Metatine and is not, therefore, subject to regulatory restrictions that apply to most other flavored vapes. Metatine is not a tobacco product as defined in the Food, Drug and Cosmetic Act (“FDCA”), as amended by the Tobacco Control Act. Accordingly, neither Metatine nor e-liquids and vape products made with Metatine are subject to the Tobacco Control Act and the various restrictions that apply to new tobacco products.

Similarly, SBX is not subject to sales restrictions in some states that have implemented “flavor bans” on electronic nicotine delivery devices*(*“ENDS”). Notably, SBX is not subject to the New York State vapor product flavor ban because it is not a “flavored vapor product” as defined in Article 13-F of New York State’s Public Health Law. According to NYS Public Health Law § 1399-mm-1, a “flavored” vapor product is defined, in pertinent part, as “any vapor product intended or reasonably expected to be used with or for the consumption of nicotine ….” As such, because SBX is a closed, non-refillable zero-nicotine product and is not intended or reasonably expected to be used with or for the consumption of nicotine, it is not subject to the flavored vapor product ban in New York State.

On December 23, 2024, the New York State Department of Health*(“NYSDOH”) issued a field memorandum to all of its local health departments confirming that NYSDOH has determined that flavored vaping products containing non-nicotine ingredients, such as Metatine™ in the case of SBX, are not prohibited by Public Health Law Article 13-F. This determination confirms that SBX flavored vapes are legal to sell in New York State. Due to local ordinances, however, the sale of the SBX isnot* permitted in New York City (including all five boroughs, e.g., the Bronx, Brooklyn, Manhattan, Queens, and Staten Island).

Nicotine-Based Disposables

Disposable vapes, also referred to as (“Disposables”), are pre-filled and pre-charged vapor delivery systems. These single-use electronic vaporizers offer a draw-activated mouthpiece and are infused with e-liquid, making them ready to use immediately after purchase. Our Disposables are available in a variety of sizes (2ml, 4ml, 8ml and 12ml) and flavors, including some of our award-winning proprietary blends.

Charlie’s disposable products are produced under three brand names (Pacha, PACHAMAMA and SBX) distinguished by their size and intended market, and offer users a variety of premium flavors containing synthetic nicotine (not derived from tobacco), tobacco derived nicotine, or alternative alkaloids in a compact, discrete format. All disposables are shipped in flavor-specific consumer display units (“CDU”) which hold five-ten individually packaged disposables for quick and convenient retail sales.

E-Liquids

E-liquids used to produce vapor in vaping devices are sold separately for use in refillable tanks of open system vaporizers. Liquids are available in variable nicotine concentrations (0 mg, 3 mg, and 6 mg per milliliter) to suit user preferences. Liquids are available in a variety of our proprietary-blended flavors. The liquid solution consists of flavoring and/or nicotine dissolved in one or several hygroscopic components, which turns the water in the solution into the smoke-like vapor when heated. The most commonly used hygroscopic components are propylene glycol (“PG”), vegetable glycerin (“VG”) or polyethylene glycol 400. VG imparts sweetness and produces vapor clouds, while PG produces more “throat hit,” which simulates the feeling of smoking. Our proprietary e-liquid brands are manufactured by ISO Class 7 certified manufacturers in the United States, which helps ensure their purity and quality.

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Charlie’s e-liquid products are primarily sold under the Pacha (domestic) and Pachamama (international)™ brand names, distinguished by their flavor profiles, packaging art and ingredient transparency. These products were launched in 2016 consisting of eclectic mixes of natural fruit flavors such as passion fruit raspberry yuzu, blood orange banana gooseberry, and huckleberry pear acai.

In 2024, using our proprietary nicotine salt analog, we launched our PACHAMAMA PLUS+ e-liquid line. Combining the smoothness of an open pod system and the vibrant flavor profiles of disposable vape products, PACHAMAMA PLUS+ provides boosted flavor with an ultra-smooth, uniquely satisfying experience. In addition, PACHAMAMA PLUS+ e-liquids are not subject to sales restrictions in some states that have implemented “flavor bans” on nicotine products.

Nicotine Salt Products

Nicotine salt e-liquids (“NIC salts”) are formulated for use in lower wattage open, semi-open and closed system vaporizers and are available in higher nicotine concentrations (25mg and 50mg per milliliter) than traditional e-liquids. Nicotine salts consist of nicotine dissolved in an acid that results in a lower PH level than other e-liquids. This form of nicotine has a higher bioavailability resulting in faster blood stream absorption and more closely mimics the effects of combustible tobacco products. We broadly released Pachamama™ Salts, an extension of the Pachamama™ line, which now includes 17 flavors domestically and 31 internationally, packaged in 10ml, 30ml, 50ml 60ml, and 100ml bottles. We will continue to evaluate our product offering in this category as demand continues to evolve.

Don Polly

Don Polly is a company under common ownership with the Company, and was established in April 2019 for the specific purpose of developing, marketing, and distributing proprietary and innovative offerings for the alternative products category. The Company is not currently developing new products in this category.

Don Polly is owned by one limited liability company, wholly-owned by Ryan Stump, the Company’s Chief Operating Officer. Pursuant to the Licensing Agreement, Charlie’s granted Don Polly a limited right and license to use certain of Charlie’s trademarks, copyrights, and original artwork, in connection with Don Polly’s branded alternative products, as well as a Services Agreement pursuant to which Charlie’s provides certain services to Don Polly related to the sales, marketing, and brand development of Don Polly products.

Manufacturing and Distribution

Manufacturing

Charlie’s Product Line. We work closely with contract manufacturing partners in the United States and China to manufacture our products. Our e-liquid and NIC salts products are manufactured to meet our proprietary formula specifications in facilities that are ISO Class 7 certified, which helps ensure their purity and quality. In 2020, we added an additional supplier and sourced over 90% of our e-liquid finished goods from three manufacturers in the United States. During 2021, we launched our Pacha line of synthetic nicotine disposable vapor products, which required expansion of our vendor network. Our SBX line of products is produced through a contract manufacturing arrangement in China. The Company closely monitors the supply-chain process for SBX to ensure amble supply and quality. While we have developed long-standing relationships with our manufacturing sources and take great care to ensure that they share our commitment to quality, we do not have any long-term term contracts with these parties for the production of our product lines. We maintain redundancies in our supply chain and are aware of several alternative sources for our products.

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Distribution

Charlie’s Product Line. Once manufactured, Charlie’s Products are directly distributed throughout the United States and in select countries internationally including, United Kingdom, Italy, Spain, New Zealand, Australia, and Canada. The products are carried by more than 3,000 specialty retailers that are serviced through direct sales and through distributors and wholesalers both in the United States and internationally. While growing the base of specialty retailers, the Company has also increased distribution of products in convenience stores, liquor stores, and gas stations. With respect to products that Charlie’s sells through third-party distributors and wholesalers, the Company typically sells its products to these customers for their re-sale. In select markets Charlie’s maintains exclusive arrangements with distributors and, when warranted, will memorialize these agreements contractually.

Online Sales

Charlie’s Product Line. We do not currently sell our Charlie’s Products on an e-commerce platform. However, we market Charlie’s Products and sell branded merchandise through our websites, charlieschalkdust.com, sbxvape.com, enjoypachamama.com,and pacha.co.

Sales and Marketing

Charlie’s Line. We have an experienced, nine-person sales team, based in the United States, that promotes our Charlie’s Line globally. Salespeople seek to form long-term “360 degree” collaborative relationships with their clients, partnering with them on sell-through efforts, providing access to our marketing and creative teams, and advising and educating them on not only the Charlie’s Line but also on industry-related issues. Currently, we advertise our products primarily through customer engagement through social media channels, print media, directed internet marketing, industry tradeshows and, collaborative events with retail partners. Participation at industry-specific tradeshows has traditionally played a large role in our marketing and distribution strategy. In addition, we have allocated resources to collaborative events; our marketing team is now focusing its efforts on fostering relationships with key distributors and retailers by launching customer-specific marketing campaigns, in-person visits to new customer accounts, and other forms of direct customer engagement. In 2024, approximately 10% of our sales were made to customers outside of the United States.

Source and Availability of Raw Materials

Charlie’s Product Line. Our manufacturing partners source the ingredients for our proprietary vapor products from a variety of sources, in accordance with our formulations and quality specifications. The Company’s SBX line of products is manufactured in China through collaboration with a contract manufacturer. The proprietary ingredient Metatine™ (an alkaloid that is patented in the United States and in China by the Company’s chemical supplier), is procured through a domestic supply and distribution agreement and shipped to China to be used in the manufacturing process. We source our proprietary e-liquids from multiple ISO Class 7 certified manufacturers in the United States, which helps ensure their purity and quality. Our disposable vapor products are designed in collaboration with our Chinese manufacturer; however, the manufacturer is responsible for procurement of all raw materials necessary to complete our purchase orders. In an effort to maintain consistency across our supply chain, we purchase directly certain product packaging and are responsible for managing various third-party supplier relationships.

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Although we own the formulas for Charlie’s Products, we obtain certain components, such as packaging, flavors and certain raw materials, from third party suppliers. None of the third-party suppliers are considered to be material to the business on a standalone basis and the components are readily available from other suppliers on the market. However, given the rapid growth of the vaping, e-cigarette industries, there may be fluctuations in the availability of certain of the materials we obtain from third-parties due to high demand from our competitors. If any given supplier or distributor is lost or unavailable in a specific region, and we are unable to contract with alternative suppliers or distributors to provide the requisite service(s) and product(s), we may be unable to fulfill customer orders and our business could be materially harmed. Charlie’s SBX line of products depends on its ability to maintain a steady supply of Metatine™. Currently, the Company holds a supply and distribution agreement for the alkaloid that is Metatine™ in vapor products meant for resale in the United States. Should the availability of the alkaloid that is Metatine™ become constrained, or the Company’s supply and distribution agreement be terminated, it would significantly affect Charlie’s ability to continue selling the SBX line of products in their current form.

Competition

The industries in which we operate are highly competitive.

Charlie’s Product Line. Our Charlie’s Product Line competes in a highly-fragmented and rapidly evolving industry. Some identifiable competitors of Charlie’s include Coastal Clouds, Juice Head, Breeze, Flum, Lost Mary, Geek Bar, and Raz. Other brands such as Juul, Vuse, Njoy, Logic, Blu, Vaporfi, Group Mark Ten, and Green Smoke all participate in a different but related segment of the electronic cigarette market which focuses heavily on distribution in national and regional chain stores (primarily convenience, gas, and grocery stores).

In the vapor products space, due to low barriers to entry, and despite FDA regulations for many products, new brands and products emerge frequently. The market is highly fragmented and the barriers to entry are relatively low. Recently, the rapid emergence of disposable vapor products from companies such as Heaven Gifts / Elf Bar have become popular in the market. Charlie’s new line of SBX vapor products does not contain compounds that meet the definition of nicotine set forth in 21 U.S.C. § 387(12) and therefore does not require FDA approval for sale in the United States. Currently, there are no known competitors with significant market share for this product category.

Part of our business strategy focuses on the establishment of relationships with distributors and prominent branding focused on performance and quality. We are aware that e-cigarette competitors in the industry are also seeking to enter into such relationships to try and create brand loyalty. In many cases, competitors for such relationships may have greater management, human, and financial resources than we do for attracting and maintaining distributor accounts. Furthermore, certain of our electronic cigarette competitors may have better control of their supply and distribution, and are more established, larger, and better financed than our Company.

We compete primarily on the basis of innovation, product quality, brand recognition, brand loyalty, service, marketing, and the development of intellectual property. We are subject to highly competitive conditions in all aspects of our business. The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors’ introduction of low-priced products or innovative products, excise taxes, higher absolute costs, larger gaps between price categories, and product regulation that diminishes a company’s ability to differentiate its products.

We also compete against “Big Tobacco” – U.S. cigarette manufacturers of both conventional tobacco cigarettes and electronic cigarettes like Altria Group, Inc., Lorillard, Inc. and Reynolds American, Inc. We compete with Big Tobacco companies that offer not only conventional tobacco cigarettes and electronic cigarettes but also smokeless tobacco products such as “snus” (a form of moist ground smokeless tobacco that is usually sold in sachet form that resembles small tea bags), chewing tobacco and snuff. Big tobacco has virtually limitless resources, existing global distribution networks, and a customer base that is fiercely loyal to their brands. Furthermore, we believe that Big Tobacco will devote more attention and resources to developing and offering electronic cigarettes as the market for electronic cigarettes continues to grow. Because of their well-established sales and distribution channels, marketing expertise, and significant resources, Big Tobacco companies may be better positioned than small competitors like Charlie’s to capture a larger share of the electronic cigarette market.

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Intellectual Property

Patents and Trademarks

We are the registered owner of a several federal trademarks for our Charlie’s lines. We also maintain registrations in several international markets and will work with our international distributors to manage intellectual property and trademark registrations when necessary.

We plan to continue to expand our brand names and our proprietary trademarks and designs worldwide as our business grows and plan to seek patent and/or trademark protection as we deem appropriate.

Licensing Agreements

Don Polly. On April 25, 2019, the Company and Charlie’s entered into a Licensing Agreement with Don Polly. Don Polly is classified as a variable interest entity for which the Company is the primary beneficiary and is owned by an entity controlled by Ryan Stump, the Company’s Chief Operating Officer. Pursuant to the Licensing Agreement, Charlie’s provides Don Polly with a limited right and license to use certain of Charlie’s intellectual property rights, including certain trademarks, copyrights and original artwork, in connection with certain of Don Polly’s branded products. In exchange for such license, Don Polly (i) pays Charlie’s monthly royalties amounting to 75% of its net profits, (ii) uses its best efforts to market, promote and advertise its products, (iii) provides Charlie’s with most favored nations pricing in the event that Charlie’s wishes to sell products sold by Don Polly, (iv) provide Charlie’s with the exclusive right of first refusal to purchase Don Polly, including all of its assets and liabilities, for a purchase price of $111,618 on or before December 31, 2025, and (v) will not license any intellectual property from any other source other than Charlie’s in connection with its design, manufacture, advertisement, promotion distribution, and sale of certain products within the agreed upon territory. The Licensing Agreement will continue in perpetuity unless terminated in accordance with its terms.

Concurrently with the execution of the Licensing Agreement, Charlie’s and Don Polly also entered into a Services Agreement (the “Services Agreement”), pursuant to which Charlie’s provides certain services to Don Polly, including, without limitation, (i) the development and creation of Don Polly’s sales, marketing, brand development, and customer service strategies and (ii) performing sales, branding, marketing, and other business functions at the request of Don Polly. Charlie’s will perform such services in the capacity of a contractor, and all materials and work product created by Charlie’s in its capacity as such will be the property of Don Polly. As consideration for the Services provided by Charlie’s, Don Polly (i) pays Charlie’s 25% of its net profits on a quarterly basis, and (ii) reimburse Charlie’s for all out-of-pocket business expenses that are preapproved in writing by Don Polly. The Services Agreement will continue in perpetuity unless terminated in accordance with its terms.

Government Regulations

Nicotine Products

The U.S. tobacco industry faces a number of business and legal challenges that have materially adversely affected and may continue to materially adversely affect our business and results of operations, including:

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FSPTCA and FDA Regulation

The FSPTCA, its implementing regulations and its 2016 deeming regulations establish broad FDA regulatory authority over all tobacco products and, among other provisions:

The FSPTCA also bans descriptors such as “light,” “low” or “mild” when used as descriptors of modified risk, unless expressly authorized by the FDA.

In March 2022, the U.S. Congress expanded the statutory definition of tobacco products to include products containing nicotine derived from any source, including synthetic nicotine. The amendment became effective in April 2022.

Final Tobacco Marketing Rule: As required by the FSPTCA, in March 2010, the FDA promulgated a wide range of advertising and promotion restrictions for cigarettes and smokeless tobacco products (the “Final Tobacco Marketing Rule”). The May 2016 deeming regulations amended the Final Tobacco Marketing Rule to expand specific provisions to all tobacco products, including cigars, pipe tobacco, and e-vapor and oral nicotine products containing tobacco-derived nicotine or other tobacco derivatives.

The Final Tobacco Marketing Rule, as amended, among other things:

Subject to certain limitations arising from legal challenges, the Final Tobacco Marketing Rule took effect in June 2010 for cigarettes and smokeless tobacco products, in August 2016 for all other tobacco products, including e-vapor and oral nicotine pouch products containing tobacco-derived nicotine, and in April 2022 for tobacco products, including e-vapor and oral nicotine pouch products, that contain synthetic nicotine.

Rulemaking and Guidance: From time to time, the FDA issues proposed regulations and guidance, which may be issued in draft or final form, generally involve public comment, and may include scientific review. The FDA’s implementation of the FSPTCA and related regulations and guidance also may have an impact on enforcement efforts by states, territories and localities of their laws and regulations. Such enforcement efforts may adversely affect our operating companies’ ability to market and sell regulated tobacco products in those states, territories and localities.

FDA’s Comprehensive Plan for Tobacco and Nicotine Regulation: In July 2017, the FDA announced a “Comprehensive Plan for Tobacco and Nicotine Regulation” (“Comprehensive Plan”) designed to strike a balance between regulation and encouraging the development of innovative tobacco products that may be less risky than cigarettes. Since then, the FDA has issued additional information about its Comprehensive Plan in response to concerns associated with the rise in the use of e-vapor products by youth and the potential youth appeal of flavored tobacco.

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Pre-Market Review Pathways for Tobacco Products and Market Authorization Enforcement: The FSPTCA permits the sale of tobacco products on the market as of February 15, 2007 and not subsequently modified (“Pre-existing Tobacco Products”) and new or modified products authorized through the pre-market tobacco application (“PMTA”), Substantial Equivalence (“SE”) or SE Exemption pathways. Subsequent FDA rules also provide a Supplemental PMTA pathway designed to increase the efficiency of submission and review for modified versions of previously authorized products. Through these processes, a manufacturer could receive (i) a “not substantially equivalent” determination, (ii) a denial of a PMTA or (iii) a marketing order withdrawal by the FDA on one or more products, which would require the removal of the product or products from the market.

Since there were virtually no e-liquid, e-cigarettes or other vaping products on the market as of February 15, 2007, there is no way to utilize the less onerous substantial equivalence or substantial equivalence exemption pathways that traditional tobacco corporations can utilize for conventional tobacco products. In order to obtain premarket approval, practically all e-liquid, e-cigarettes or other vaping products would have to follow the PMTA pathway which would cost hundreds of thousands of dollars per application. Upon submission of a PMTA, such products would be permitted to be sold pending the FDA’s review of the submitted PMTAs.

During the quarter ended September 30, 2020, the FDA’s Center for Tobacco Products informed us that our PMTA received a valid submission tracking number, passed the FDA’s filing review phase, and entered the substantive review phase.

On March 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine. These regulations make synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products. As such, the Company was required to file a PMTA for its existing synthetic nicotine products marketed under the Pacha brands by May 14, 2022 or be subject to FDA enforcement. The Company filed new PMTAs for its synthetic Pacha products, on May 13, 2022, prior to the May 14, 2022, deadline. On November 3, 2022, FDA accepted for scientific review certain of our PMTAs for synthetic nicotine products and, on November 4, 2022, FDA refused to accept (“RTA”)* *certain other PMTAs for these products, rendering the latter products subject to FDA enforcement. On March 6, 2023, the Company filed a request for supervisory review with FDA's Center for Tobacco Products and resubmitted PMTAs for the affected synthetic nicotine products. On October 30, 2023, the Company received notification from the FDA that its supervisory review appeal had been granted. Accordingly, the FDA rescinded the RTAs, notified the Company that Acceptance Letters for the PMTAs would be issued, and placed our applications into filing review. The Company continues to sell the affected products while we wait for the FDA to grant marketing orders for our numerous PMTAs.

To date, the FDA has received PMTAs for nearly 27million Electronic Nicotine Delivery System*(“ENDS”1) products and has made determinations on more than 99% of the applications. However, the FDA has authorized fewer than three dozen tobacco- and menthol-flavored e-cigarette products and devices. At present, no company in the world has received an FDA marketing order for a flavored (non-tobacco or non-menthol) disposable vape product. *

As of December 31, 2024, Charlie’s has received Acceptance Filings for more than 650 of its PMTA submissions. Since 2020 the Company has invested more than $6.5MM on a team of more than 200 professionals, including doctors, scientists, biostatisticians, data analysts, and numerous contract research organizations to create Charlie’s PMTA submissions. Charlie’s believes its applications are among the most robust and comprehensive in the entire industry. As recently as December 2024, Charlie’s invested more than $1MM to amend and further strengthen certain of the Company’s applications.

During the fourth quarter of 2024 the Company began to introduce to stores in select markets a new disposable vape line, under the “SBX™” brand. The Company and its attorneys believe SBX products are not subject to FDA review. Based on the information provided by the Company’s contracted chemical suppliers and its consultants, the proprietary Metatine™ (patented in the United States and in China by the Company’s chemical supplier) in the Company’s SBX products does not meet the definition of nicotine set forth in 21 U.S.C. § 387(12) and therefore its products containing Metatine, as their active ingredient, are not subject to regulation as “tobacco products” under 21 U.S.C. § 321(rr). Further, according to information verified by the Company’s chemists, the other ingredients in the Company’s SBX vape liquid are not made or derived from tobacco, nor do they contain nicotine from any source.

Because the product does not contain nicotine, SBX is also not subject to sales restrictions in some states that have implemented “flavor bans” on ENDS products. Notably, SBX is currently not subject to the New York State vapor product flavor ban because it is not a “flavored vapor product” as defined in Article 13-F of New York State’s Public Health Law. According to NYS Public Health Law § 1399-mm-1, a “flavored” vapor product is defined, in pertinent part, as “any vapor product intended or reasonably expected to be used with or for the consumption of nicotine ….” As such, because SBX is a closed, non-refillable zero-nicotine product and is not intended or reasonably expected to be used with or for the consumption of nicotine, it is not subject to the flavored vapor product ban in New York State.

1 ENDS are defined as battery-powered devices, also known as an e-cigarettes or “vapes,” that deliver nicotine to users through aerosolized solutions. In order for ENDS to be sold legally in the United States, the products must receive marketing authorization through the FDA’s PMTA pathway; FDA marketing authorizations require that PMTAs provide sufficient evidence that new products offer greater benefits to population health than risks.

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FDA Regulatory Actions

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Excise Taxes

Tobacco products are subject to substantial excise taxes in the United States. Significant increases in tobacco-related taxes or fees have been proposed or enacted (including with respect to e-vapor products) and are likely to continue to be proposed or enacted at the federal, state and local levels within the United States. The frequency and magnitude of excise tax increases can be influenced by various factors, including the composition of executive and legislative bodies.

International Treaty on Tobacco Control

The World Health Organization’s Framework Convention on Tobacco Control (the “FCTC”) entered into force in February 2005. The FCTC is the first international public health treaty and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. The treaty recommends (and in certain instances, requires) signatory nations to enact legislation that would address various tobacco-related issues. There are a number of proposals currently under consideration by the governing body of the FCTC, some of which call for substantial restrictions on the manufacture, marketing, distribution and sale of tobacco products.

Other International, Federal, State and Local Regulation

Various states and localities have enacted or proposed legislation that imposes restrictions on tobacco products (including cigarettes, smokeless tobacco, cigars, e-vapor products and oral nicotine pouches), such as legislation that (i) prohibits the sale of all tobacco products or certain tobacco categories, such as e-vapor, (ii) prohibits the sale of tobacco products with characterizing flavors, such as menthol cigarettes and flavored e-vapor products, (iii) requires the disclosure of health information separate from or in addition to federally mandated health warnings and (iv) restricts commercial speech or imposes additional restrictions on the marketing or sale of tobacco products. The legislation varies in terms of the type of tobacco products, the conditions under which such products are or would be restricted or prohibited, and exceptions to the restrictions or prohibitions. For example, a number of proposals involving characterizing flavors would prohibit smokeless tobacco products with characterizing flavors. The legislation in California, which became effective in December 2022, bans the sale of most tobacco products with characterizing flavors. Massachusetts passed legislation capping the amount of nicotine in e-vapor products. Similar legislation is pending in other states.

It is not possible to predict what, if any, additional legislation, regulation, or other governmental action will be enacted or implemented (and, if challenged, upheld) relating to the manufacturing, design, packaging, marketing, advertising, sale or use of tobacco products, or the tobacco industry generally. Any such legislation, regulation or other governmental action could have a material adverse impact on our business, results of operations, cash flows or financial position.

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Company’s efforts to mitigate risks associated with new and evolving regulation

The Company is consistent in its efforts to remain in compliance with all existing and reasonably expected future regulations. The Company, through its internal compliance team, market consultants, technicians, and testing labs plans to stay in accordance with all standards whether set forth in the New Tobacco Products Directive or the Deeming Regulations. Making sure that all vapor products meet and exceed the standards set forth by each market’s regulatory body is of the highest concern for the Company. Staying in compliance with all marketing and packaging directives is imperative to maintaining access to the markets. Although these processes are costly and time consuming, it is imperative for the Company’s success that these steps are taken and kept up to date. These regulations may limit our ability to enter certain markets outside the U.S. Similar to the costs of regulatory compliance in the U.S., foreign regulations require significant financial and operational resources to ensure compliance, and we cannot assure that we will always be in compliance despite our best efforts to do so. Failure to comply in a timely fashion to any particular directive or regulation could have material adverse effects on the results of business operations.

Research and Development

Our research and development activities consist of development and testing of new flavors, formulations, formats, and delivery methods for our existing products, as well as development of new products for the Charlie’s Product Line. Costs related to the completion and submission of PMTAs to the FDA also constitute research and development activities. For the years ended December 31, 2024, and 2023, respectively, research and development costs primarily consisted of product development and testing fees.

For the years ended December 31, 2024 and 2023, Charlie’s recorded research and development income of $68,000 and expense of $169,000, respectively.

Employees

We had 26 full-time employees across Charlie’s Holdings Inc., Charlie’s Chalk Dust LLC and Don Polly LLC as of March 31, 2025. We believe that we maintain a good working relationship with our employees, and we have not experienced any labor disputes. None of our employees are represented by labor unions.

Cost of Compliance with Environmental Laws

We have not incurred any costs associated with compliance with environmental regulations, nor do we anticipate any future costs associated with environmental compliance; however, no assurances can be given that we will not incur such costs in the future.

Available Information

As a public company, we are required to file our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements on Schedule 14A and other information (including any amendments) with the SEC. You can also find the Company’s SEC filings at the SEC’s website atwww.sec.gov.

We are a Nevada corporation originally incorporated in 2001. Our principal executive offices are located at 1007 Brioso Drive, Costa Mesa, CA 92627 and our phone number is (949) 531-6855. Our Internet address iswww.charliesholdings.com. Information contained on our website is not part of this Annual Report on Form 10-K. Our SEC filings (including any amendments) will be made available free of charge onwww.charliesholdings.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

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