Charlotte's Web Holdings Release Third Quarter 2020 Financial Results

Will an increase in investment activities be the catalyst to move away from stagnant revenue?

Charlotte's Web Holdings, Inc.  (TSX: CWEB) the market share leader in full-spectrum cannabidiol (CBD) hemp extract wellness products, today reported financial results for the third quarter ended September 30, 2020. All amounts are expressed in United States' dollars unless otherwise noted. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures.

Q3-2020 Financial Highlights  

  • Consolidated revenue increased 0.4% to $25.2 million vs. Q3-2019 and increased 17% vs. Q2-2020, marking a return to consecutive quarter growth
  • Direct-to-Consumer ("DTC") eCommerce sales increased 27.5% year-over-year and contributed 66.3% of Q3 revenue
  • Gross profit of $15.2 million, or 60.3% of consolidated revenue (prior to biological asset adjustments)
  • Adjusted EBITDA loss of $6.7 million
  • $65.9 million cash and $128.6 million working capital on September 30, 2020

Business Highlights

  • Increased revenue vs prior quarter for both DTC +8% and B2B +39%
  • B2B quarter on quarter growth led by natural retail +20% and healthcare practitioner (HCP) +101% channels following portfolio repricing and expanded product offering
  • Increased doors by ~ 1000 for 22,000 total unique retail doors carrying our portfolio of brands including Charlotte's Web™, CBD Medic, CBD Clinic, and Harmony Hemp
  • Completed 100-day integration of Abacus Health Products acquisition contributing revenue of approximately $2.5 million to Q3-2020
  • Completed $11.5M phase 2 investment in new 137,000 sq ft facility to build out production. Phase 3 extraction and R&D expansion planned to be in operational by the end of Q1 2021 ahead of anticipated growth
  • Launched CBD liver health study with ValidCare, progressing for publication early 2021
  • Advanced regulatory definition at the federal and state levels including acceptance of federal bill H.R. 8179 to legislate hemp derivative products as dietary supplements
  • Achieved official B Corp certification on August 28 indicating excellence in ESG. Charlotte's Web is the world's largest and only publicly-traded CBD B Corp
  • Strengthened the Company's board with the additions of Jean Birch and Susan Vogt as new directors. John Held appointed Chairman of the Board

"The strength of our leading ecommerce sales continued to offset slower B2B retail sales during the pandemic," said Deanie Elsner, CEO of Charlotte's Web. "Within our B2B business, we are seeing signs of improvement with a return to consecutive quarterly revenue growth of +36%, led by the natural channel +20%, and the health care practitioner channel +101% quarter-over-quarter.  In addition, we continued to expand our footprint in terms of distribution in Q3 by adding nearly 1000 new doors to our retail footprint, including natural retailers, nearly 300 independent pet stores and approximately 500 new F/D/M retail doors."

Q3-2020 Financial Review
The following table sets forth selected financial information for the periods indicated.

Consolidated third quarter revenue increased to $25.2 million, as compared to $25.1 million in 2019. Lower B2B sales were offset by strong DTC sales as B2B sales were 29.2% lower year-over-year, accounting for 33.7% of total revenue in the quarter. DTC net sales grew by 27.5% year-over-year as online traffic and high conversion rates increased through ongoing marketing and social media programs. Year-over-year new consumer acquisitions increased 52% and conversion rates increased 98%. DTC net revenue accounted for 66.3% of total revenue in the third quarter compared to 52.2% for the same period in the prior year.

The following information sets forth selected quarterly revenue information for the Company's recent fiscal quarters.

Gross margin (prior to biological asset adjustments) was 60.3%, compared to 71.3% last year.

Operating expenses were $28.3 million, a 44.4% year-over-year increase from $19.6 million. The increase reflects the Company's investments in capacity expansion and transition to a consumer-packaged goods ("CPG") operating company capable of supporting mass retail channel growth.

Lower than expected revenue due to the pandemic has resulted in an increase in operating expenses as a percent of revenue. In response, management has taken actions to better align operating expenses and initiated an expense optimization program targeting reductions of more than 10% of the consolidated expense run rate by the end of 2020.

Adjusted EBITDA for the quarter was negative $6.7 million, or (26.6)% of consolidated revenue, compared to positive EBITDA of $0.8 million, or 3.2% of revenue, for the third quarter of 2019. The Adjusted EBITDA ratio during the third quarter reflects the substantial personnel, R&D  and infrastructure investments made to support expected future revenue growth from the F/D/M channel, contrasted with lower sales due to the COVID -19 impact on both bricks & mortar retail traffic and closed health practitioners.

Balance Sheet and Cash Flow
The Company used $21.5 million of cash in operations during the third quarter of 2020 compared to $9.6 million of cash used in operations during the third quarter of 2019, primarily due to the increase in changes in working capital. The Company's cash and working capital at September 30, 2020 were $65.9 million and $128.6 million, respectively, compared to $68.6 million and $116.9 million at December 31, 2019.

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Disclaimer: Past performance is not an indicator of future performance.

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Mark Page
Mark Page

Mark is a UK born investing enthusiast based in Sydney. He has a keen eye for technical analysis and is paying close attention to the ongoing legalisation of cannabis for the health benefits, opportunities, and emergent industries that will follow.