Charlottes Web Holdings Inc

Previous wording

Charlotte's Web Holdings, Inc., is a Certified B Corp headquartered in Louisville, Colorado, which conducts the majority of its business in the United States. The Company is a market leader in innovative hemp extract wellness products under a family of brands which includes Charlotte's Web™, CBD Medic™, and CBD Clinic™. Charlotte's Web premium quality products start with proprietary hemp genetics that are 100% North American farm grown and are then manufactured into hemp extracts containing naturally occurring phytocannabinoids including CBD, cannabichromene ("CBC"), cannabigerol ("CBG"), terpenes, flavonoids and other cannabinoids and beneficial hemp compounds. The Company is headquartered in a cGMP compliant facility in Louisville, Colorado, where the Company conducts its production of tinctures, distribution, and quality control activities, as well as research and development ("R&D"). Charlotte's Web product categories include full spectrum hemp extract oil tinctures (liquid products), gummies, capsules, CBD topical creams and lotions, and pet products. The Company also offers NSF Certified for Sports® broad spectrum tincture and gummy products. Charlotte's Web products are distributed to retailers and health care practitioners, and online through the Company's website at www.CharlottesWeb.com. The information provided on the website is not part of this MD&A.

Current wording

Charlotte's Web Holdings, Inc., is a Certified B Corp headquartered in Louisville, Colorado, which conducts the majority of its business in the United States. The Company is a market leader in innovative hemp extract wellness products under a family of brands which includes Charlotte's Web™, CBD Medic™, and CBD Clinic™. Charlotte's Web premium quality products start with proprietary hemp genetics that are 100% North American farm grown and are then manufactured into hemp extracts containing naturally occurring phytocannabinoids including Cannabidiol ("CBD"), cannabichromene ("CBC"), cannabigerol ("CBG"), terpenes, flavonoids and other cannabinoids and beneficial hemp compounds. The Company is headquartered in a cGMP compliant facility in Louisville, Colorado, where the Company conducts its production of tinctures, distribution, and quality control activities, as well as research and development ("R&D"). Charlotte's Web product categories include full spectrum hemp extract oil tinctures (liquid products), gummies, capsules, CBD topical creams and lotions, broad spectrum botanical CBD, mushrooms, and pet products. The Company also offers NSF Certified for Sport® broad spectrum tincture and gummy products. Charlotte's Web products are distributed to retailers and health care practitioners, and online through the Company's website at www.CharlottesWeb.com. The information provided on the website is not part of this MD&A.

Previous wording

The Company's business consists of the farming, manufacturing, marketing, and sales of hemp-derived CBD wellness products. As of June 30, 2024, the Company operated in a single operating and reportable segment, hemp-derived CBD wellness products. The executive officers reviewed overall operating results in order to assess financial performance and to make resource allocation decisions, rather than to assess a lower-level unit of operations in isolation.

Current wording

The Company's business consists of the farming, manufacturing, marketing, and sales of hemp-derived CBD and botanical wellness products. As of September 30, 2024, the Company operated in a single operating and reportable segment, hemp-derived CBD wellness products. The executive officers reviewed overall operating results in order to assess financial performance and to make resource allocation decisions, rather than to assess a lower-level unit of operations in isolation.

Previous wording

The Company grows its proprietary hemp domestically in the United States on farms leased in northeastern Colorado and sources hemp through contract farming operations in Arizona, Colorado, Kentucky, Oregon, and Canada. The Hemp grown in Canada is utilized exclusively in the Canadian markets or for research purposes and not in the Company's products sold within the United States.

Current wording

The Company grows its proprietary hemp domestically in the United States on farms leased in northeastern Colorado and sources hemp through contract farming operations in Arizona, Colorado, Kentucky, and Canada. The hemp grown in Canada is utilized exclusively in the Canadian markets or for research purposes and not in the Company's products sold within the United States.

Previous wording

With an increased commitment to innovation, Charlotte's Web has refreshed its mission to "Unearth the Science of Nature to Revolutionize Wellness," and is evolving its wellness offerings both to strengthen our core leadership in CBD, and extend beyond CBD to include a broader range of botanical wellness solutions, including minor cannabinoids. A testament to this expansion is the launch of Charlotte's Web Stay Asleep Cannabinol ("CBN") gummies. Similar to Cannabidiol ("CBD"), CBN is a non-intoxicating cannabinoid found in the hemp plant. At the cutting edge of innovative natural sleep solutions, these new melatonin free gummies could offer distinct benefits for the approximately 67% of adults who report waking up during the night (Phillips Global Sleep Survey, 2019). This is the first CBN sleep product supported by placebo-controlled peer-reviewed research study, offering a 20 mg dose of CBN. The Stay Asleep gummy demonstrates Charlotte's Web's commitment to science-backed products, providing an effective alternative to more traditional sleep supplements and medications. Charlotte's Web believes expanding beyond CBD leverages the Company's brand recognition, intellectual property, and partnerships, including an ongoing collaboration with DeFloria LLC ("DeFloria") for botanical drug development.

Current wording

With an increased commitment to innovation, Charlotte's Web has refreshed its mission to "Unearth the Science of Nature to Revolutionize Wellness," and is evolving its wellness offerings both to strengthen our core leadership in CBD, and extend beyond CBD to include a broader range of botanical wellness solutions, including minor cannabinoids. A testament to this expansion is the launch of Charlotte's Web Stay Asleep Cannabinol ("CBN") gummies. Similar to CBD, CBN is a non-intoxicating cannabinoid found in the hemp plant. At the cutting edge of innovative natural sleep solutions, these new melatonin free gummies could offer distinct benefits for the approximately 67% of adults who report waking up during the night (Phillips Global Sleep Survey, 2019). This is the first CBN sleep product supported by placebo-controlled peer-reviewed research study, offering a 20 mg dose of CBN. The Stay Asleep gummy demonstrates Charlotte's Web's commitment to science-backed products, providing an effective alternative to more traditional sleep supplements and medications. Charlotte's Web believes expanding beyond CBD leverages the Company's brand recognition, intellectual property, and partnerships, including an ongoing collaboration with DeFloria LLC ("DeFloria") for botanical drug development.

Previous wording

To better leverage its leading brand equity, the Company consolidated its CBD Medic and CBD Clinic brands under a unified Charlotte’s Web brand architecture. Additionally, the Company's ReCreate brand has been absorbed under the recognized Charlotte’s Web brand to better penetrate the lifestyles category. Charlotte’s Web NSF Certified for Sport® will benefit from the Company’s valuable professional sports partnerships, including the Angel City Football Club, U.S. Premier Lacrosse League, and Major League Baseball©.

Current wording

To better leverage its leading brand equity, the Company consolidated its CBD Medic and CBD Clinic brands under a unified Charlotte’s Web brand architecture. Additionally, the Company's ReCreate brand has been absorbed under the recognized Charlotte’s Web brand to better penetrate the lifestyles category. Charlotte’s Web NSF Certified for Sport® will benefit from the Company’s valuable professional sports partnerships, including with the U.S. Premier Lacrosse League and Major League Baseball©.

Previous wording

As of June 30, 2024, several states have adopted new regulations that will impact the Company's ability to sell certain products as currently formulated or packaged in these states. Many of these states have also implemented new THC/CBD limits, age verification, labeling and packaging requirements. The Company continues to assess the business and financial impacts of the new regulations, including steps that can be taken to address the new product formulation,packaging, and labeling requirements, as well as costs and potential revenue impacts and anticipated timing for such impacts to the Company in these states.

Current wording

As of September 30, 2024, several states have adopted new regulations that will impact the Company's ability to sell certain products as currently formulated or packaged in these states, including the emergency regulations enacted in September 2024 in the State of California. Many of these states have also implemented new THC/CBD limits, age verification, testing, labeling and packaging requirements. The Company continues to assess the business and financial impacts of the new regulations, including steps that can be taken to address the new product formulation, packaging, and labeling requirements, as well as costs and potential revenue impacts and anticipated timing for such impacts to the Company in these states.

Previous wording

DTC net revenue decreased 27.1% year-over-year, primarily due to lower comparable online traffic to the Company’s web store. On a quarter-over-quarter basis DTC net revenue increased 0.6% compared to the first quarter of 2024. In June 2024, the Company transitioned to a new e-commerce platform which provides improved software integrations, advanced target marketing tools, and superior customer relationship management software.

Current wording

DTC net revenue decreased 13.4% year-over-year, primarily due to lower comparable online traffic to the Company’s web store. At the end of the second quarter, the Company transitioned to a new e-commerce platform which provides improved software integrations, advanced target marketing tools, and superior customer relationship management software. On a quarter-over-quarter basis DTC net revenue increased 4.4% compared to the second quarter of 2024.

Previous wording

B2B net revenue decreased 16.6% year-over-year, primarily due to reductions or removals of shelf space allocations to CBD products by certain retailers. Inflationary impact on discretionary consumer spending activity and product mix shift away from higher-priced tinctures were additional contributing factors. B2B net revenue increased 8.8% quarter-over-quarter compared to the first quarter of 2024. During the second quarter of 2024, Charlotte’s Web rolled out its new CBN 'Stay Asleep' gummies to retailers. The Company also added Walmart as a retail partner with the launch of a new CBD isolate topicals, now available at 827 Walmart stores across five states; California, Illinois, Florida, Texas, and Pennsylvania.

Current wording

B2B net revenue decreased 10.7% year-over-year, primarily due to reductions or removals of shelf space allocations to CBD products by certain retailers over the past 12 months. Inflationary impact on discretionary consumer spending activity and product mix shift away from higher-priced tinctures were additional contributing factors. B2B net revenue decreased 1.1% quarter-over-quarter compared to the second quarter of 2024. The Company added Walmart as a retail partner in the second quarter of 2024 with the launch of a new CBD isolate topical products, including product rollout to 827 Walmart stores across five states; California, Illinois, Florida, Texas, and Pennsylvania. For the third quarter the Company saw continued sales growth in its gummy product line.

Previous wording

Cost of goods sold increased 36.9% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily due to a $3.7 million increase in inventory provisions during the period. The increase in the provision was due to the revaluation on aged hemp based on current market conditions. The decrease was partially offset by lower inventory expense associated with lower revenue in 2024, as well as production cost improvements.

Current wording

Cost of goods sold decreased 7.1% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily due to lower inventory expense associated with lower revenue in 2024.

Previous wording

Depreciation and amortization expense for the three months ended June 30, 2024 and June 30, 2023 was $2,489 and $3,977, respectively, of which $849 and $897, respectively, was expensed to cost of goods sold. The remaining depreciation and amortization expenses of $1,640 and $3,080, respectively, was expensed to Selling, general, and administrative expenses.

Current wording

Depreciation and amortization expense for the three months ended September 30, 2024 and September 30, 2023 was $2,523 and $3,741, respectively, of which $844 and $893, respectively, was expensed to cost of goods sold. The remaining depreciation and amortization expenses of $1,679 and $2,848, respectively, was expensed to Selling, general, and administrative expenses.

Previous wording

Gross profit decreased 71.0% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease is primarily related to the increase in inventory provision of $3.7 million for the three month ending June 30, 2024. Additionally the decrease is directly related to the revenue decrease of 23.2%, primarily due to lower blended margin following price reductions on oil tincture products initiated in the first quarter of 2024.

Current wording

Gross profit decreased to 53.0% for the three months ended September 30, 2024 compared to 55.5% for the three months ended September 30, 2023. The decrease is primarily related to the revenue decrease of 11.9% impacting fixed cost absorption, and lower blended margin following price reductions on oil tincture products initiated in the first quarter of 2024.

Previous wording

Total Selling, general, and administrative expenses for the three months ended June 30, 2024 and June 30, 2023 were $14,727 and $19,627, respectively. The amended MLB Promotional Rights Agreement resulted in a decrease in amortization expense related to MLB assets of approximately $1 million compared to the three months ended June 30, 2023. Additionally, the decrease is due to a reduction in personnel, share based compensation, and consulting costs compared to the prior period.

Current wording

Total Selling, general, and administrative expenses for the three months ended September 30, 2024 and September 30, 2023 were $12,693 and $19,889, respectively. The amended MLB Promotional Rights Agreement resulted in a decrease in amortization expense related to MLB assets of approximately $1.2 million compared to the three months ended September 30, 2023. Additionally, the decrease is due to operating expense reductions. The Company made additional cost cutting measures in the third quarter to further align with current revenue levels.

Previous wording

Depreciation and amortization expensed to Selling, general, and administrative expenses for the three months ended June 30, 2024 and June 30, 2023 were $1,640 and $3,080, respectively.

Current wording

Depreciation and amortization expensed to Selling, general, and administrative expenses for the three months ended September 30, 2024 and September 30, 2023 were $1,679 and $2,848, respectively.

Previous wording

Total research and development costs expensed to Selling, general, and administrative expense for the three months ended June 30, 2024 and June 30, 2023 were $648 and $916, 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.

Current wording

Total research and development costs expensed to Selling, general, and administrative expense for the three months ended September 30, 2024 and September 30, 2023 were $556 and $733, 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.

Previous wording

For the six month ending June 30, 2023, the gain in fair value of financial instruments was due to the revaluation of the fair value of the Company's debt conversion option and debt interest rate conversion feature resulting in a net gain of approximately $9.6 million, compared to a net gain of $65 for the six months ended June 30, 2023. The fair value of the Company's embedded derivatives and options are revalued at each reporting date, with changes impacted by variability in the Company's share price and implied debt yields.

Current wording

Total change in fair value of financial instruments for the three months ended September 30, 2024 and September 30, 2023 was a net gain of $1,422 and a net loss of $4,024, respectively. For the three months ended September 30, 2024, primarily due to the revaluation of the fair value of the Company's debt conversion option and debt interest rate conversion feature resulting in a gain of $1.6 million, compared to a net loss of $4.7 million for the three months ended September 30, 2023. The fair value of the Company's embedded derivatives and options are revalued at each reporting date with changes impacted by variability in the Company's share price and implied debt yields.

Previous wording

Total revenue for the three months ended June 30, 2024 was$12,289, a decrease of 23.2% compared to the three months ended June 30, 2023.

Current wording

Total revenue for the nine months ended September 30, 2024 was $37,000, a decrease of 21.8% compared to the nine months ended September 30, 2023.

Previous wording

DTC revenue decreased 29.1%, driven by lower comparable online traffic and associated sales volume through the Company’s web store. Inflationary impact on discretionary consumer spending activity and product mix shift away from higher-priced tinctures were additional contributing factors.

Current wording

DTC revenue decreased 24.4%, driven by lower comparable online traffic and associated sales volume through the Company’s web store. Inflationary impact on discretionary consumer spending activity and product mix shift away from higher-priced tinctures were additional contributing factors.

Previous wording

B2B revenue decreased 23.4% compared to the six months ended June 30, 2023. The decrease was primarily due to the reduced retailer shelf allocations to the CBD category and inflationary impacts on consumer spending.

Current wording

B2B revenue decreased 19.5% compared to the nine months ended September 30, 2023. The decrease was primarily due to the reduced retailer shelf allocations to the CBD category and inflationary impacts on consumer spending.

Previous wording

Cost of goods sold increased 5.2% for the six months ended June 30, 2024, despite lower revenue compared to the six months ended June 30, 2023. The increase was primarily due to a $3.7 million increase in inventory provisions taken as of June 30, 2024. The increase in the provision was due to the revaluation on aged hemp based on current market conditions. The increase was partially offset by lower inventory expense associated with lower revenue in 2024, as well as production cost improvements.

Current wording

Cost of goods sold increased 1.4% for the nine months ended September 30, 2024, despite lower revenue compared to the nine months ended September 30, 2023. The increase was primarily due to a $3.7 million increase in inventory provisions during the three months ended June 30, 2024 due to the revaluation on aged hemp based on current market conditions. The increase was partially offset by lower inventory expense and other variable costs associated with lower revenue in 2024.

Previous wording

Depreciation and amortization expense for the six months ended June 30, 2024 and June 30, 2023 was $4,982 and $7,769, respectively, of which $1,705 and $1,796, respectively, was expensed to cost of goods sold. The remaining depreciation and amortization expenses of $3,277 and $5,973, respectively, was expensed to Selling, general, and administrative expenses.

Current wording

Depreciation and amortization expense for the nine months ended September 30, 2024 and September 30, 2023 was $7,505 and $11,509, respectively, of which $2,549 and $2,689, respectively, was expensed to cost of goods sold. The remaining depreciation and amortization expenses of $4,956 and $8,820, respectively, was expensed to Selling, general, and administrative expenses.

Previous wording

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.

Current wording

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, manufacturing spend, transportation costs, and changes in inventory provisions.

Previous wording

Gross profit for the six months ended June 30, 2024 and June 30, 2023 is as follows:

Current wording

Gross profit for the nine months ended September 30, 2024 and September 30, 2023 is as follows:

Previous wording

Total selling, general, and administrative expenses for the six months ended June 30, 2024 and June 30, 2023 were $30,007 and $37,140, respectively. The amended MLB Promotional Rights Agreement resulted in a decrease in amortization expense related to MLB assets of approximately $2 million compared the prior period. Additionally, the decrease is due to a reduction in personnel and consulting costs compared to the prior period.

Current wording

Total selling, general, and administrative expenses for the nine months ended September 30, 2024 and September 30, 2023 were $42,700 and $57,029, respectively. The amended MLB Promotional Rights Agreement resulted in a decrease in amortization and media expense related to MLB assets of approximately $3.1 million compared the prior period. Additionally, the decrease is due to operating expense reductions. For the nine months ended, the Company has made cost cutting measures to further align with current revenue levels.

Previous wording

Depreciation and amortization expensed to Selling, general, and administrative expenses for the six months ended June 30, 2024 and June 30, 2023 were $3,277 and $5,973, respectively.

Current wording

Depreciation and amortization expensed to Selling, general, and administrative expenses for the nine months ended September 30, 2024 and September 30, 2023 were $4,956 and $8,820, respectively.

Previous wording

Total research and development costs expensed to Selling, general, and administrative expense for the six months ended June 30, 2024 and June 30, 2023 were $1,399 and $1,462, 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.

Current wording

Total research and development costs expensed to Selling, general, and administrative expense for the nine months ended September 30, 2024 and September 30, 2023 were $1,955 and $2,194, 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.

Previous wording

The gain on investment in unconsolidated entity for the three months ended June 30, 2024 and June 30, 2023 was $0 and $10,700, respectively. For the six months ended June 30, 2023, the gain was due to the Company jointly forming an entity, DeFloria, with AJNA, and BAT. DeFloria was established to pursue FDA approval for a novel botanical drug to target a neurological condition, with the botanical drug being developed from certain proprietary hemp genetics of the Company. The initial investment was measured at fair value and is remeasured at each reporting date, with changes recognized in changes in fair value of financial instruments.

Current wording

Total change in gain on investment in unconsolidated entity for the nine months ended September 30, 2024 and September 30, 2023 was $0 and $10,700, respectively. For the nine months ended September 30, 2023, the gain was due to the Company jointly forming an entity, DeFloria, with AJNA, and BAT. DeFloria was established to pursue FDA approval for a novel botanical drug to target a neurological condition, with the botanical drug being developed from certain proprietary hemp genetics of the Company. The initial investment was measured at fair value and is remeasured at each reporting date, with changes recognized in changes in fair value of financial instruments.

Previous wording

For the three months ended June 30, 2023, the gain in fair value of financial instruments was due to the Company's debt conversion option and debt interest rate conversion feature resulting in a net gain of approximately $4.2 million, compared to a net gain of $175 for the three months ended June 30, 2024. The fair value of the Company's embedded derivatives and options are revalued at each reporting date with changes impacted by variability in the Company's share price and implied debt yields.

Current wording

Total change in fair value of financial instruments for the nine months ended September 30, 2024 and September 30, 2023 was a gain of $702 and a gain of $5,588, respectively. For the nine months ended September 30, 2024, the gain in fair value of financial instruments was primarily due to the revaluation of the fair value of the Company's debt conversion option and debt interest rate conversion feature, compared to a net gain of $5.6 million for the nine months ended September 30, 2023. The fair value of the Company's embedded derivatives and options are revalued at each reporting date, with changes impacted by variability in the Company's share price and implied debt yields.

Previous wording

As of June 30, 2024 and December 31, 2023, the Company had total current liabilities of $18,467 and $23,646, respectively, and cash and cash equivalents of $32,531 and $47,820, respectively, to meet its current obligations.

Current wording

As of September 30, 2024 and December 31, 2023, the Company had total current liabilities of $16,483 and $23,646, respectively, and cash and cash equivalents of $24,620 and $47,820, respectively, to meet its current obligations.

Previous wording

The Company expects to meet our liquidity requirements for at least the next twelve months through various sources of capital, including cash on hand and provided by 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.

Current wording

The Company expects to meet our liquidity requirements for at least the next twelve months through various sources of capital, including cash on hand and provided by 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 those funds are raised privately or publicly, that such funds will be available to the Company when needed or on terms which are acceptable.

Previous wording

Net cash used in operating activities for the six months ended June 30, 2024 and June 30, 2023 were as follows:

Current wording

Net cash used in operating activities for the nine months ended September 30, 2024 and September 30, 2023 were as follows:

Previous wording

For the six months ended June 30, 2024, the decrease in cash used in operations is primarily due to a decrease in sales and working capital, resulting in a decrease of net cash inflow. Additionally, for the six months ended June 30, 2023, the Company collected $4,261 from income tax refunds due.

Current wording

For the nine months ended September 30, 2024, the $6,620 increase in cash used in operations were primarily due to the Company's collection of $4,261 from income tax refunds due during the nine months ended September 30, 2023. Additionally, the increase in cash used was due to decrease in sales and working capital, resulting in a decrease of net cash inflow.

Previous wording

Net cash used in investing activities for the six months ended June 30, 2024 and June 30, 2023 were as follows:

Current wording

Net cash used in investing activities for the nine months ended September 30, 2024 and September 30, 2023 were as follows:

Previous wording

For the six months ended June 30, 2024, the increase in cash used in investing activities was driven primarily by machinery purchases as part of the Company's plan to in-source topical and gummy production..

Current wording

For the nine months ended September 30, 2024 and September 30, 2023, the cash used in investing activities was driven primarily by machinery purchases as part of the Company's plan to in-source topical and gummy production.

Previous wording

For the six months ended June 30, 2024, the change was primarily due to the vesting of restricted stock units.

Current wording

For the nine months ended September 30, 2024, the change was primarily due to the vesting of restricted stock units.

Previous wording

Effective November 2020, the Company issued a secured promissory note, where$1,000 was loaned to one of the Company's founders. The note receivable was secured by equity instruments with certain founders of the Company, bore interest at 3.25% per annum, and required the unpaid principal and unpaid interest balances to be paid on or before the maturity date of November 13, 2021. Effective December 28, 2023, the Company entered into a second amendment of the promissory note to extend the maturity date until November 13, 2024. According to the terms of the agreement, no additional interest will accrue through the payment date. The note has been fully reserved for as of December 31, 2023.

Current wording

Effective November 2020, the Company issued a secured promissory note, where$1,000 was loaned to one of the Company's founders. The note receivable was secured by equity instruments with certain founders of the Company, bore interest at 3.25% per annum, and required the unpaid principal and unpaid interest balances to be paid on or before the maturity date of November 13, 2021. Effective November 13, 2024, the Company entered into a third amendment of the promissory note to extend the maturity date until November 13, 2029. According to the terms of the agreement, no additional interest will accrue through the payment date. The note has been fully reserved for as of December 31, 2023.

Previous wording

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 initial 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 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, 2024, the remaining note receivable of$99, is presented in other assets in the condensed consolidated balance sheets. In 2024, BAT and AJNA invested an additional $5 million and $2 million, respectively, in DeFloria in the form of convertible debt (refer to Note 3). Additionally, on February 12, 2024, the Company and DeFloria entered into a separate master services agreement pursuant to which the Company will be compensated for the provision of certain services to DeFloria. For the three and six months ended June 30, 2024, the Company recognized $74 and $385, respectively, in revenue and cost of goods sold, respectively, related to the service agreement with DeFloria. Additionally, the Company has an accounts receivable balance due from DeFloria of $74, respectively, for the three and six months ended June 30, 2024.

Current wording

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 initial 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 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 September 30, 2024, the remaining note receivable of$85, is presented in other assets in the condensed consolidated balance sheets. In 2024, BAT and AJNA invested an additional $5 million and $2 million, respectively, in DeFloria in the form of convertible debt (refer to Note 3). Additionally, on February 12, 2024, the Company and DeFloria entered into a separate master services agreement pursuant to which the Company will be compensated for the provision of certain services to DeFloria. For the three and nine months ended September 30, 2024, the Company recognized $74 and $459, respectively, in revenue and cost of goods sold, respectively, related to the service agreement with DeFloria. Additionally, the Company has an accounts receivable balance due from DeFloria of $74, respectively, as of September 30, 2024.

Previous wording

There are no new recent accounting pronouncements that have been issued by the Financial Accounting Standards Board ("FASB") and adopted by the Company had or may have a material impact on the accompanying unaudited interim condensed consolidated financial statements.

Current wording

There are no new recent accounting pronouncements that have been issued by the Financial Accounting Standards Board ("FASB") and adopted by the Company that had or may have a material impact on the accompanying unaudited interim condensed consolidated financial statements.

Previous wording

Listed below are the accounting policies and estimates we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being reported. Please also refer to Note 2 of our notes to condensed consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements.

Current wording

Listed below are the accounting policies and estimates we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue or expense being reported. Please also refer to Note 2 of our notes to the condensed consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements.

Previous wording

The Company has a variable interest in the investment in DeFloria; however, the Company is not the primary beneficiary of DeFloria as it lacks the power to direct DeFloria's key activities. The Company concluded that the investment in DeFloria should not be consolidated. 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 was not required to consolidate the investment and does not meet any of the other scope exceptions, the Company had the ability to adopt the fair value option for the investment at inception. The investment was remeasured at fair value after each reporting date, with changes recognized in condensed consolidated statements of operations, as changes in fair value of financial instruments for the period.

Current wording

The Company has a variable interest in the investment in DeFloria; however, the Company is not the primary beneficiary of DeFloria as it lacks the power to direct DeFloria's key activities. The Company concluded that the investment in DeFloria should not be consolidated. 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 was not required to consolidate the investment and does not meet any of the other scope exceptions, the Company had the ability to adopt the fair value option for the investment at inception. The investment was remeasured at fair value after each reporting date, with changes recognized in the condensed consolidated statements of operations, as changes in fair value of financial instruments for the period.

Previous wording

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. There were no impairment losses recognized for the three months ended June 30, 2024 and 2023, respectively.

Current wording

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. There were no impairment losses recognized for the three and nine months ended September 30, 2024 and 2023, respectively.