(TSX: CWEB) (OTCQX: CWBHF), Charlotte’s Web Holdings, Inc. (“Charlotte’s Web” or the “Company”) the market share leader in full spectrum cannabidiol (CBD) hemp extract wellness products, today reported financial results for the first quarter ended March 31, 2021. All amounts are expressed in United States’ dollars, unless otherwise noted. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures.
Q1-2021 Financial Highlights
- Consolidated revenue increased 9.1% to $23.4 million vs. $21.5 million in Q1-2020
- DTC eCommerce sales increased 14.5% year-over-year and contributed 68.9% of Q1 revenue
- B2B net revenue decreased 1.4% year-over-year. Excluding non-retail B2B hemp drying services, comparable B2B retail sales increased 11.0% and expanded market share
- Gross profit of $13.7 million, or 58.4% of consolidated revenue
- Operating expenses were 2.9% higher year-over-year and 15.2% lower from Q3-2020 in line with the cost reduction plan implemented Q4-2020
- Adjusted EBITDA loss of $4.7 million vs. loss of $5.7 million in Q1-2020
- $35.0 million cash (plus $10.8 million pending IRS tax receivable) and $95.6 million working capital on March 31, 2021
- $10 million unused line of credit with JPMorgan extendable to $20 million
Business Highlights
- Expanded its number one market share position across major retail channels including total food/drug/mass retail (“F/D/M”) and US natural specialty retail
- Completed clinical study reaffirming the liver health safety of Charlotte’s Web™ hemp derived CBD extracts and shared quantitative data study’s results with the U.S. FDA
- Secured future optionality to enter the US cannabis wellness category through a purchase option agreement to acquire Stanley Brothers cannabis business pending US federal legalization of cannabis
- Three proprietary hemp cultivars approved for cultivation in Canada in 2021
- Secured three U.S. Patents for proprietary hemp cultivars bringing total patents to five
- Successfully enforced its Charlotte’s Web trademark
- CW Labs announced a scientific collaboration researching hemp CBD efficacy with Harvard Medical School’s Dr. Staci Gruber, Ph.D.
- Invested $1.6 million capex to substantially complete phase III expansion of new 137,000 sq. ft. facility with extraction infrastructure and R&D expansion
- Launched Charlotte’s Web first THC-free broad spectrum extract tinctures and topicals
- Supported federal and state legislative actions to help develop comprehensive regulatory framework with Federal Bill H.R. 841 and proposed regulations in CA and NY
“Despite reduced retail activity due to the pandemic, our directly comparable B2B retail sales showed year-over-year growth. Our B2B retail sales and velocities further strengthened in March and April as US vaccination programs support reopening of the economy, and our DTC sales continued to grow demonstrating long-term secular strength for our products in the e-commerce channel,” said Deanie Elsner, CEO of Charlotte’s Web. “We continued to expand our leading market position with quarterly market share gains across all of our channels. Internationally we have made our first moves into Israel and Canada with initial product sales planned for early 2022. We are pleased with our progress and believe that Charlotte’s Web is well positioned to drive continued growth in the US and new growth in key international markets as we expand outside of the US.”
Q1-2021 Financial Review
The following table sets forth selected financial information for the periods indicated.
The following information sets forth selected quarterly revenue information for the Company’s recent fiscal quarters.
Consolidated net revenue for the three months ended March 31, 2021 increased 9.1% year-over-year to $23.4 million. DTC ecommerce net sales increased 14.5% reflecting increased marketing, targeted promotions as well as incremental demand for the Company’s new topical and THC-free ingestible products. Year-over-year new consumer acquisitions increased 51% and conversion rates increased 27%. DTC accounted for 68.9% of total revenue in the first quarter of 2021 versus 65.6% for the same period in 2020.
Consolidated B2B revenue was consistent with the same period in 2020, however prior year B2B revenue included hemp drying services revenue which was not repeated in Q1-2021. In addition, during Q1-2021 the Company accepted product returns from a retail partner due to reduced shelf life as a result of extended time on shelves with the pandemic reducing retail traffic. Excluding these items, comparable net B2B retail sales increased 11.0% year-over-year. Higher volumes are primarily the result of the Company’s expanding retail footprint and a successful competitive pricing realignment implemented in the second quarter of 2020, which together have somewhat offset COVID-19 related headwinds.
Higher retail volumes have been producing incremental quarterly gains in retail market share and Charlotte’s Web holds the number one market share position across major retail channels including total US food/drug/mass retail, total US natural specialty retail, and ecommerce.
Gross profit of $13.7 million was 58.4% of revenue compared to $15.1 million, or 70.3% of revenue last year. Lower gross profit primarily reflects product mix and a competitive pricing realignment implemented across the Company’s product portfolio beginning in Q2-2020. The Company’s leading gummy product line carries lower gross margins and contributed a larger portion of total revenue in Q1-2021. The Company anticipates gross profit improvements through pending production cost reductions in 2021.
Operating expenses were $24.0 million, a 2.9% year-over-year increase from $23.3 million. In response to lower B2B retail sales during the pandemic, in Q4-2020 management took actions to better align operating expenses through an expense optimization program targeting reductions of more than 10% of the Q3-2020 consolidated expense run rate. Q1-2021 operating expenses were 15.2% lower compared to Q3-2020, ahead of plan, and were achieved despite the additional expenses in Q1-2021 from the CW Labs R&D division and the acquisition of Abacus Health, which were not present for the full quarter in Q1-2020.
Adjusted EBITDA for the quarter was negative $4.7 million, or (19.9)% of consolidated revenue, compared to negative EBITDA of $5.7 million, or (26.5)% of revenue, for the first quarter of 2020.
Balance Sheet and Cash Flow
The Company used $7.7 million of cash in operations during the first quarter of 2021 compared to $14.9 million of cash used in operations during the first quarter of 2020. During the quarter the Company paid total consideration of $8.0 million cash for an Option Purchase Agreement with Stanley Brothers USA Holdings, Inc. providing the optionality to acquire or own warrants Stanley Brothers USA upon federal legalization of cannabis in the United States. The Company’s cash and working capital at March 31, 2021 were $35.0 million and $95.6 million, respectively, compared to $52.8 million and $113.6 million at December 31, 2020.
Consolidated Financial Statements and Management’s Discussion and Analysis
The Company’s unaudited financial statements and accompanying notes for the periods ended March 31, 2021 and 2020 and related management’s discussion and analysis of financial condition and results of operations (“MD&A”) are available under the Company’s profile on SEDAR at www.sedar.com and on the Investor Relations section of the Company’s website at https://investors.charlottesweb.com.
Conference Call
Management will host a conference call to discuss the Company’s first quarter 2021 results at 8:30a.m. ET on May 11, 2021. To participate in the call, please dial 1-647-427-7450 or 1-888-231-8191 approximately 10 minutes before the conference call and provide conference ID 5365736. A recording of the call will be available through May 18, 2021. To listen to the rebroadcast please dial 1-416-849-0833 and provide the same conference ID.
A webcast of the call can be accessed through the investor relations section of the Charlotte’s Web website.
