Full spectrum hemp extract wellness products maker Denver-based Charlotte’s Web Holdings Inc. last week reported financial results for the fourth quarter and year ended Dec. 31, 2021.
“At the beginning of 2022 we took organizational actions, better aligned leadership and employees with shareholder interests, and simplified our business for focus, speed, and executional excellence. Our organization is fully engaged and we intend to grow our business,” said Charlotte’s Web CEO Jacques Tortoroli. “We have substantially completed our multi-year investment in our production capacity to effectively service a sophisticated mass retail channel when federal regulations are set for the CBD wellness category in the U.S. In the interim, regardless of regulatory actions, we are focused on developing sustainable revenue growth with our current customers and through new customer acquisitions, and new channels, as well as selective innovation in new products, and international market expansion.”
2021 Revenue Growth
For the 12-month period ended Dec. 31, 2021, net revenue grew 1.0%, to $96.1 million. Growth for 2021 from increased unit sales volumes was largely offset by an industry-wide consumer shift to lower priced CBD products; primarily gummies and topical products, where Charlotte’s Web is the market share leader.
Direct-to-consumer (“DTC”) e-commerce revenue decreased 2.3% year-over-year to $62.3 million while business-to-business (“B2B”) revenue grew 7.5%, to $33.8 million, increasing the Company’s leading market share position in total food/drug/mass retail (“F/D/M”), and U.S. natural specialty retail. Charlotte’s Web maintains the largest e-commerce business in the CBD industry and outperformed the overall DTC category. Gummies and topical products represented 31% and 19% of gross sales for the Company in 2021 respectively, versus 22% and 14% in 2020. DTC sales contributed 65% of the Company’s total net revenue in 2021 and B2B retail contributed 35%, versus 67% and 33% in 2020.
Gross profit was $48.6M, or 50.6% of consolidated revenue, with gross profit excluding inventory provisions of $58.3 million, or 60.7% of consolidated revenue. A twelve-month net loss of $137.7 million for 2021 included $107.7 million of non-cash impairments in goodwill, customer relationships, trade names, inventory provisions, and other long-lived assets, compared to a net loss of $30.7 million in 2020. Adjusted EBITDA1 improved by $5.0 million versus 2020, resulting in a smaller adjusted EBITDA loss of $18.6 million*. The improvement reflects a $6.0 million reduction in selling, general and administrative (“SG&A”) expenses to $97.6 million, partially offset by lower gross profit due to channel and product mix shifts.
Charlotte’s Web continues to support federal and state legislative actions to help advance a comprehensive U.S. CBD regulatory framework, including the successful passing of state Assembly Bill 45 legalizing hemp CBD in California, and expanded bi-partisan sponsorship of Federal Bill H.R. 841. The Company also completed a clinical study reaffirming the liver health safety of Charlotte’s Web hemp derived CBD extracts and shared the quantitative data study results with the U.S. Food and Drug Administration.
Charlotte’s Web achieved USDA organic certification on select products and secured three new U.S. Patents for proprietary hemp cultivars, bringing its total to five. To secure future optionality to enter the U.S. cannabis wellness category, Charlotte’s Web purchased an option agreement to acquire Stanley Brothers cannabis business pending US federal legalization of cannabis.
International expansion initiatives progress in Canada where the Company completed the first international harvest of Charlotte’s Web’s proprietary patented hemp cultivars, with product planned for late 2022 availability. In the U.K., the Company’s applications were accepted and being processed for Novel Foods authorization. Charlotte’s Web recently appointed Savage Cabbage as the Company’s exclusive distributor in the U.K. The founder and CEO of Savage Cabbage, Jade Proudman, was also named the Company’s Global Brand Ambassador. In Israel Charlotte’s Web is preparing for product availability through its exclusive distribution partnership with Israel-based Intercure, pending Ministry of Health legalization of CBD.
“Internationally, our asset-light approach through partnerships provides efficient and cost-effective global expansion routes to market,” said Wes Booysen, Chief Financial Officer of Charlotte’s Web. “Additionally, as part of our recent reorganization, we believe we have right-sized our operating expenses to our current revenue.”
Balance Sheet and Cash Flow
Total cash use for 2021 was $33.3 million of which approximately $22 million was non-recurring payments including an $8 million strategic purchase option for Stanley Brothers USA Holdings, Inc.’s cannabis business. During the year, the Company added $8.3 million through its At-the-Market equity program. The Company’s cash and working capital at December 31, 2021 were $19.5 million and $75.6 million, respectively, compared to $52.8 million and $114.9 million at December 31, 2020. The current cash position does not reflect collection of an outstanding IRS tax refund of $10.8 million, which may be partially or fully collected in 2022. The Company maintains an unused $10 million line of credit with JPMorgan that has been put on hold due to the Company failing to meet required covenants in Q4 that were not waived.
Q4-2021 Financial Review
The Company recognized impairments of $76M related to goodwill and $22M related to customer relationships, trade names and other long-lived assets. The impairments were primarily triggered as result of the decrease in the Company’s market capitalization in the fourth quarter of 2021. This resulted in impairment charges of $98M which are factored into our net loss for Q4 and the full year. These are non-cash charges.
The following table sets forth selected financial information for the periods indicated.
Consolidated net revenue for the fourth quarter ended December 31, 2021 was $24.8 million, an increase of 4.7% versus Q3-2021, and a decrease of 7.8% versus Q4-2020, due to sales and channel mixes and competitive DTC pricing.
Fourth quarter DTC net revenue was 12.1% lower year-over-year due to product mix and lower-than-expected online sales during the December holiday season. New DTC subscriptions increased 116% year-over-year and ecommerce conversion rates were strong at 11.8%. DTC accounted for 62% of total revenue in the fourth quarter of 2021 versus 65% for the same period in 2020.
Fourth quarter B2B revenue growth was flat year-over-year at $9.5 million on higher unit sales volume of new pet, topicals, and gummy products which carry lower average unit pricing. During the fourth quarter of 2021, Charlotte’s Web expanded its retail B2B distribution by more than 1000 doors in grocery, natural, and pet retail following the passing of Assembly Bill 45 in California, including nearly 800 GNC locations in 24 states. B2B contributed 38% of revenue in Q4-2021.
Higher retail volumes and brand leadership produced market share gains at B2B retail across core retail channels. Charlotte’s Web holds the number one market share position across major retail channels including total U.S. F/D/M, total U.S. natural specialty retail, and e-commerce, based on market share data from leading third-party analysts such as Nielsen, SPINS, and Brightfield Group, respectively.
Gross profit of $4.2 million, or 16.9% of consolidated revenue, was negatively impacted by non-cash inventory provisions of $9.6 million for Q4-2021. Gross profit for Q4-2020 of $10.6 million was negatively impacted by non-cash inventory provisions of $5.8 million. Gross profit in the Q4-2020 quarter was also negatively impacted by lower net revenue and product and channel mixes.
Total SG&A expenses increased 4.7% to $24.4 million year-over-year from $23.3 million due to professional fees related to a transition to U.S. GAAP reporting and becoming an SEC registrant, as well as increased marketing spend including new retail displays and activations for recent large customer wins.
Net loss was $118.2 million for the fourth quarter as compared to net loss and comprehensive loss of $12.2 million in the fourth quarter of 2020. Adjusted EBITDA loss for the fourth quarter was $4.5 million, or 18.1% of net revenue, as compared to Adjusted EBITDA loss of $3.1 million, or 11.5% of consolidated revenue, for the fourth quarter of 2020. The higher loss is primarily due to lower gross profit as well as lower net revenue.*
Consolidated Financial Statements
The Company’s audited consolidated financial statements and accompanying notes for the year ended December 31, 2021 and 2020 and related management’s discussion and analysis of financial condition and results of operations (“MD&A”) are reported in the Company’s 10K filing on the Securities and Exchange Commission website at www.sec.gov and on SEDAR at www.sedar.com, and will be available on the Investor Relations section of the Company’s website at https://investors.charlottesweb.com.
Charlotte’s Web Holdings, Inc., a Certified B corporation, is a market leader in innovative hemp extract wellness products under a family of brands which includes Charlotte’s Web, CBD Medic, CBD Clinic and Harmony Hemp.
Charlotte’s Web branded premium quality products start with proprietary hemp genetics that are 100-percent American farm grown and manufactured into hemp extracts containing naturally occurring phytocannabinoids including cannabidiol (“CBD”), CBC, CBG, terpenes, flavonoids, and other beneficial hemp compounds.