Charlotte’s Web Holdings, Inc. (OTC:CWBHF) Q2 2025 Earnings Call Transcript

Charlotte’s Web Holdings, Inc. (OTC:CWBHF) Q2 2025 Earnings Call Transcript August 13, 2025

Charlotte’s Web Holdings, Inc. misses on earnings expectations. Reported EPS is $-0.04 EPS, expectations were $-0.03.

Operator: Good morning, ladies and gentlemen, and welcome to the Charlotte’s Web Holdings, Inc. 2025 Second Quarter Conference Call. [Operator Instructions] This call is being recorded on Wednesday, August 13, 2025. I would now like to turn the conference over to Cory Pala, Investor Relations. Please go ahead.

Cory Pala: Thank you, and good morning, everyone. Welcome to Charlotte’s Web Second Quarter 2025 Earnings Conference Call. On the call with me today are Bill Morachnick, our Chief Executive Officer; and Erika Lind, our Chief Financial Officer. This morning, we will review our financial results and provide commentary on the business performance and outlook. Following our prepared remarks, we’ll answer questions from our covering analysts. Before we begin, I need to remind you that certain statements made during this call may constitute forward-looking statements within the meaning of applicable securities laws. These forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties, which could cause actual future results to differ materially from those expressed or implied.

We direct you to review the cautionary language in this morning’s earnings press release as well as the risk factors and other important considerations detailed in our filings with the Securities and Exchange Commission and in Canada on SEDAR Plus, particularly our most recent Form 10-K and 10-Q reports. We undertake no obligation to update these forward-looking statements, except as required by law. During today’s call, we will also reference non-GAAP measures, including adjusted EBITDA and adjusted gross profit. Reconciliations to comparable GAAP measures can be found within our earnings press release. A replay of this call will be available for 1 week via the instructions contained within this morning’s earnings press release, and a webcast replay will be accessible for an extended period through our Investor Relations website.

And with that, I’ll now turn over the call to Bill Morachnick, Charlotte’s Web Chief Executive Officer.

William J. Morachnick: Good morning, everyone, and thank you for joining us today. So let’s jump right in. I’m pleased to report that Q2 marked another meaningful step forward in our transformation journey. We delivered our second consecutive quarter of year-over-year revenue growth, building on the momentum established in Q1 when we achieved our first year-over-year increase since 2021. This sustained improvement validates our strategic initiatives and demonstrates that Charlotte’s Web is successfully navigating through industry headwinds while positioning for accelerated growth. For the second quarter, we reported net revenue of $12.8 million, representing 4.2% year-over-year growth and sequential improvement from Q1. While these growth rates remain modest, it represent a fundamental inflection point in our trajectory.

After several challenging years, we’ve stabilized the business, returned to growth and are now building sustainable momentum. So let me highlight some critical areas of progress that are driving our transformation. Our Q2 top line performance was fueled by enhanced e-commerce capabilities and innovative product launches. Our direct-to- consumer channels remain a cornerstone of our revenue architecture, powered by the enhanced e-commerce platform deployed in 2024. These investments are yielding measurable returns through improved conversion rates, reduced cart abandonment and just an overall better consumer experience. Our subscription programs continue to reflect the loyalty and trust consumers place in the Charlotte’s Web brand. In addition, our strategic expansion across Amazon, TikTok Shop and Faire is delivering incremental revenue while broadening our addressable market.

Each of these platforms serves distinct consumer segments, allowing us to meet wellness seekers wherever they shop. Now it is important to mention that innovation remains at the heart of our growth. The launch of Brightside during the second quarter represents perhaps our boldest innovation to date. These precision formulated low-dose hemp-derived Delta-9 THC gummies have exceeded our projections with initial SKUs selling out during Memorial Day weekend. What sets Brightside apart is our proprietary TiME INFUSION technology, which delivers effects in 5 to 15 minutes versus the typical 1- to 2-hour onset time for traditional edibles. This fast-acting formulation, combined with our need state-based approach really differentiates us in the marketplace.

Our fast-acting gummies outperformed most competitive offerings in onset time and efficacy due to our precision dosing and unique cannabinoid blends. Brightside collection addresses the multibillion-dollar hemp-delivered THC market, which is one of the fastest- growing segments in the botanical wellness industry. Now following the success of our CBN Stay Sleep Gummies, which is now our second best-selling gummy, we recently launched our new CBG Focus & Attention Gummies. The U.S. CBG market grew 47% year-over-year in 2023, and we are really well positioned to capture share with our science-backed formulations and brand trust. Our diversification beyond hemp is also gaining momentum to expand our omnichannel footprint. Our 4 functional mushroom gummies, including a new muscle recovery product, are now available across multiple platforms, including walmart.com, Amazon and our direct-to-consumer website.

This new product line is tapping into a rapidly growing wellness category with fewer regulatory constraints. Our portfolio expansion into non-hemp botanical products create strong opportunities for nationwide omnichannel distribution as these products face fewer regulatory restrictions than hemp-derived offerings. We have several innovative products pending launch in the second half of 2025, which will further strengthen our position as a leading botanical wellness innovation company. All right. Turning to our key operational updates. We have made major strides in in-house manufacturing, which is a critical component of our cost optimization efforts. I’m particularly pleased to report that our new Brightside gummy line is entirely produced in-house, which not only enhances our control over quality and supply chain, but also positions us for meaningful cost savings.

This milestone represents an important achievement in our manufacturing optimization strategy. By next year, we anticipate that our in- house manufacturing could yield up to $3 million in annual savings, improving our margins and our cash flow profile. Looking at the broader market, we’re still operating in a complex hemp-regulatory environment. However, lately, we’ve seen some of the most promising developments in years for establishing clear federal pathways for hemp-derived products. Coalition for Access Now, a group that we support, is actively engaged with both Congress and the new administration on advancing comprehensive CBD regulations. The appointment of representative Morgan Griffith as Chair of the House Energy and Commerce Healthcare Subcommittee is particularly significant as he now has direct jurisdiction over the FDA and has been a long-time champion of hemp regulation.

Both Chairman Griffith and Senator Wyden have indicated their intention to introduce legislation this year that would provide the FDA with clear authority to regulate CBD as a dietary supplement and food ingredient. This represents a fundamental shift from the regulatory stalemate we faced since 2018. While the administration’s position continues to evolve, we’re encouraged by the growing recognition that a regulated market better serves public health than the current patchwork of state approaches. The U.S. CBD market, despite challenges, was still $2.9 billion in 2024, with potential growth to $3.8 billion by 2030 under favorable regulatory scenarios, according to latest estimates from the Brightfield Group. We view eventual FDA regulation as a potential catalyst that could consolidate the market in favor of established, compliant brands like Charlotte’s Web.

Let me touch quickly on the clinical development front. Our DeFloria joint venture was clear to commence FDA Phase II clinical trials for AJA001, an investigational new drug, or IND as it’s known, for potential treatment of irritability associated with autism spectrum disorder. This represents a significant long-term opportunity with Charlotte’s Web retaining exclusive manufacturing rights for commercial supply. While we maintain focus on our core consumer business, this pharmaceutical pathway provides material upside potential in a multibillion-dollar addressable market. Quickly before I turn the call over to Erika to discuss our financial results in detail, I just want to emphasize what excites me most about Charlotte’s Web’s position today.

As I’ve noted earlier, we stabilized the business, we’ve returned to growth, we’ve dramatically improved our cost structure and launched innovative products that are resonating with consumers. We’re not simply navigating market challenges, but we’re helping to define the future of botanical wellness with a combination of brand trust, scientific rigor and operational excellence. With that, I’ll turn the call over to our CFO, Erika Lind, to walk through our Q2 financial performance.

Erika Lind: Thank you, Bill, and good morning, everyone. Our Q2 financial results reflect the operational momentum Bill described with progress across key metrics. Net revenue for the quarter reached $12.8 million, marking our second consecutive quarter of year-over-year expansion, up 4.2% compared to Q2 of last year. This performance is particularly noteworthy given the continued headwinds in the broader CBD category. Our ability to grow while the category contracts, underscores the strength of our brand, the effectiveness of our innovation strategy and the success of our omnichannel expansion. Gross profit for the quarter was $6 million, representing a gross margin of 46.8% compared to $2.6 million or 21% of revenue in Q2 of 2024.

It’s important to note that last year’s second quarter included a substantial $3.8 million noncash inventory provision related to a onetime wholesale biomass transaction. Excluding this provision, Q2 of last year adjusted gross profit was $6.4 million or 52.2% of revenue. The current quarter’s margin of 46.8% reflects several temporary factors that we expect to normalize in coming months. These include start-up costs associated with transitioning gummy production in-house, promotional activities during our successful Memorial Day campaign and approximately 300 basis points of margin impact from 0 margin DeFloria extract sales to support their Phase II clinical trials. Excluding the DeFloria component, our underlying gross margin would have been approximately 50% for the quarter.

As Bill mentioned, the transition to in-house manufacturing will drive meaningful margin expansion over time. We modeled gross margins returning to the low to mid-50s as we achieve full run rate savings from internalized production and as we optimize our product mix. As you’ve seen in our Q2 results, we lowered SG&A expenses to $10.1 million, down from $14.7 million a year ago. This $4.6 million decrease is a substantial 31.7% improvement, driven partly by a $1.9 million reduction in amortization expense related to the termination of our MLB promotional rights agreement during the quarter. In total, that change has eliminated over $18 million in future cash outlays, preserving that cash for future growth. The results also reflected decreased personnel costs between comparable periods as part of our focus on operational efficiency.

Our disciplined approach to cost management has fundamentally restructured our expense base. Building on this momentum, this month, we implemented additional expense reduction measures that are expected to bring our annualized operating expenses down by an additional $6 million next year. Looking ahead to 2026, we expect to achieve approximately $9 million in annualized cost savings with $6 million from the operational efficiencies implemented post quarter and an additional $3 million from our transition to in-house manufacturing as we complete the internalization of our gummy portfolio and evaluate topical production. These combined initiatives significantly accelerate our path to positive cash flow while maintaining our innovative growth capabilities.

Net loss for the quarter improved to $6.3 million or $0.04 per share compared to a net loss of $11.1 million or $0.07 per share in the prior year. This 43% improvement in net loss demonstrates the combined impact of our growth initiatives and the cost discipline. To provide greater visibility into our operational performance, our second quarter 2025 adjusted EBITDA was negative $3.5 million, representing a 37.1% improvement over the second quarter adjusted EBITDA loss of $5.2 million last year. We ended Q2 with $15.3 million in cash and the working capital position of $29.3 million, which provides adequate flexibility to execute our growth initiatives while maintaining financial discipline. While cash utilization remains a focus area, we remain confident in a significant reduction in cash burn as we approach cash flow positive in 2026 based on modest growth and effective cost management.

So in summary, our reengineered cost structure, strategic expanded margins and targeted revenue momentum create a path to positive cash flow. To get there, we’re targeting steady quarter-over-quarter revenue growth, gross margins in the low to mid-50s range, continued SG&A discipline and approaching cash flow positive in 2026. With that, I’ll turn the call back to Bill for closing remarks.

William J. Morachnick: Thank you, Erika. All right. So as I’ve indicated before, we’re going through a pivotal inflection point in our transformation story. We’ve demonstrated consistent improvement in our financial performance and are focusing on accelerating strategic initiatives that can drive us towards profitability. Following the close of the second quarter, we implemented additional cost optimization measures to shorten our path to positive cash flow. These initiatives, which were not reflected in our Q2 results, position us for reduced cash burn and better cash preservation throughout the remainder of 2025 and beyond. First, the substantial SG&A reductions already implemented in Q2, including eliminating over $18 million in future cash outlays were followed by a comprehensive operational review to identify additional efficiency opportunities without compromising our growth trajectory or innovation pipeline.

Second, we are further refining channel strategies to ensure capital allocation toward our most profitable opportunities. Our omnichannel expansion across Amazon, TikTok Shop and Faire has validated the diversification strategy, and we’re now applying rigorous ROI metrics to optimize our channel mix. Direct-to-consumer remains our highest margin channel, and we’re implementing targeted initiatives to enhance customer lifetime value and subscription program penetration. Third, we’re building on our Brightside success. The Memorial Day weekend sellout exceeded our projections, confirming significant market demand for precision formulated low-dose Delta-9 THC. We’re evaluating addressable areas of market expansion for our Brightside portfolio.

So in closing, the transformation we began 2 years ago is now delivering tangible results. We’ve returned to growth. We’re targeting positive cash flow, which is just on the horizon. And we’re building a platform for sustained success in the expanding mechanical wellness market. I want to thank you all for your continued confidence and patience in Charlotte’s Web. We look forward to updating you on our continued progress. And operator, we’re now ready for questions from our analysts.

Q&A Session

Operator: [Operator Instructions] The first question comes from Pablo Zuanic at Zuanic & Associates.

Pablo Ernesto Zuanic: Bill and Erika, congratulations on all the progress you are making. Look, I have a few questions. My first one regarding cost savings. You have outlined $9 million in annualized cost savings for ’26, split $6 million in SG&A, $3 million through manufacturing. Can you walk us through the timing of when those savings will begin to show in the P&L? And how much impact we should expect in 3Q and 4Q? And as part of that, can you give us more color on the transition to in-house manufacturing and how that is influencing your gross margin?

Erika Lind: Pablo, thank you for the question. On SG&A, most of the $6 million in savings comes from actions we implemented 2 weeks ago, so the benefit will phase in over time. We expect meaningful savings beginning in Q4 with the full run rate realized in ’26. These savings represent structural changes that further align our cost base with our revenue to stem the cash burn. On manufacturing, we’ve always produced our tincture oil extracts in-house. Over the past several quarters, we’ve transitioned gummy production internally and later this year, we’ll begin bringing topicals in-house as well. Last year, 100% of Brightside gummies were produced on-site — sorry, last quarter. By year-end, approximately 75% of all gummies will be made in-house.

And we’re leaving about 25% intentionally kept with our co-manufacturer for capacity flexibility and risk management. We’re also evaluating topicals for in-house production in ’26, furthering the vertical integration, which is a critical milestone for both margin expansion and quality control, as Bill mentioned. When the transition is complete, we do expect annualized cost savings — COGS savings of roughly $3 million, which will contribute meaningfully to that path towards positive cash flow.

Pablo Ernesto Zuanic: Understood. That’s great color. Look, I have a few more questions. I don’t know if there’s other people on the queue here. So apologies to them if they’re on the queue. My next question is regarding cash flow. You’ve been clear about targeting positive cash flow for ’26. For the remainder of ’25, can you give us more granularity on the quarterly progression again you expect through 3Q and 4Q and the key operational milestones you need to hit to support that trajectory on cash flow?

Erika Lind: Sure, Pablo. Our focus remains squarely on positioning the business for positive cash flow in ’26. That said, we do expect sequential improvements in cash flow in the second half of this year, most visibly in Q4. Q3 will be a transitional quarter as these initiatives take hold. But by Q4, we do expect material improvement from both SG&A savings and internal manufacturing benefits. Two milestones are critical. First, the manufacturing transition I just outlined, which will be substantially completed by year-end and generate that $3 million in annual cash savings. And second, the SG&A reductions, which really start contributing in Q4, but have their full impact in 2026. Together, those initiatives, along with the continued revenue growth, put us on the trajectory we’ve communicated.

With the full $9 million in annual savings, modest revenue growth and improved margins from vertical integration, we have multiple paths to achieving our 2026 target, which gives us confidence in our outlook. For the first half of ’25, we did reduce our cash burn by 52% year-over-year. So our current cash position of $15.3 million and working capital of $29.4 million provide adequate runway.

Pablo Ernesto Zuanic: Got it. Now moving on to your channel mix evolution. You expanded as you outlined into new digital and specialty channels, such as Amazon, TikTok Shop, Faire, alongside your existing retail and medical distribution. My question is, how is your overall channel mix evolving? And what does this mean for margin profile and long-term channel strategy?

William J. Morachnick: Yes. Thanks, Pablo. Good to hear your voice wherever you are in the world right now. So the whole channel strategy has been a really big deal for us, certainly since I got here to figure out ways how we can improve and optimize it. So we’ve done a really deep dive into our channel performance. And for the most part, it’s reinforced what we’ve known for a while. Our direct-to-consumer remains our strongest performer, both in terms of engagement and profit margins, as you would expect. What is new is the emergence of channels that give us kind of a nice combination of reach and margin over the typical traditional retail channels. And some of that includes retail.com with folks like walmart.com, Amazon and others.

I think what’s important to highlight as well is it’s not just optimizing for margin, but we’re doing a deep dive into understanding the channels that we work within that allow us to engage with consumers where we can effectively execute educated trial at scale, meaning an informed consumer who understands our product proposition and the unique elements of our products, have a higher inclination towards repeat purchase and to share the story with others. A good example of this is our medical channel. This is one of those where it really enables whether it’s a health care practitioner or a peer-to-peer support kind of recommendation that presents a higher return on investment value because the cost of acquisition comes down there and the peer-to-peer element allows this somewhat flywheel effect to kick in at scale.

So we’ll continue to refine our channel mix, but we’re feeling really good about the broadening of it that we’ve experienced in the last 9 months in earnest. And now it’s a matter of how do we optimize that and put the dollars against the best performing ones. Does that address your question, Pablo?

Pablo Ernesto Zuanic: Yes, of course. That’s good color. Look, before I ask my last question, I guess I’ll answer your question. I’m actually in Australia at a conference here, and I have to say that Stanley Brothers brand is quite visible here in the market. So congratulations to them. Look, my last question is regarding — it’s a 2-part question regarding Brightside. First, on category outlook. There seems to be a strong consumer enthusiasm for your Brightside hemp-derived Delta-9 gummies, including a sell-out over the Memorial Day weekend, as you indicated. Can you share your perspective on the categories potential and how Brightside fits into your broader growth category, especially given the fluid regulatory environment around hemp?

And the second part of your question, it’s more on product expansion, right? Right now, Brightside is primarily a gummy product line. Do you see opportunities to expand the format, for example, into beverages or introduce other unique formulations that build on the brand’s early momentum?

William J. Morachnick: Yes. Thanks, Pablo. So let me address — I’m going to address your first question and then hit the second one. I’m balancing my excitement and enthusiasm for what we’ve seen so far with a bit of caution. So we’re a long way from spiking the ball as it were on our D-9 entry, but we feel really, really good about the early signal. We — obviously, we wouldn’t have sold out if we had anticipated the demand that we received when we launched it. It’s encouraging to put a smile on it to sell out on a new introduction. I wish we had more, we didn’t, but here we are. It’s early days. So let me frame it that way. We do believe that our current D-9 portfolio in its gummy format is addressing an underserved segment of the market.

And by that, I mean we’re not targeting super-high THC concentrations. We’re really providing a curated experience to address a number of specific need states where a higher concentration of THC can be advantageous for the consumer. We believe that segment of the market is underserved. And with our brand, with our quality, with our innovative science, we’ve got a really strong potential to win big in this segment. That being said, as you alluded to, the regulatory environment is — I’ll euphemistically categorize it as fluid. But we’re playing to win. So we’re not playing to hedge. We’re going to address it in the markets that are open to us with the intention of grabbing as much share as we possibly can. In terms of, I think what you were asking, are there different formats beyond gummies, we are very actively evaluating opportunities, both formats, formulations, et cetera.

It would still play to the unique approach that Charlotte’s Web has historically done. So we believe there’s really compelling white space within other formats where we could be highly successful and significantly differentiated. I’m not in a position at this moment to get into those specifics, so stay tuned. But that is something that I’m looking forward to sharing in the not-too-distant future, and we’re really pumped about it. So hopefully, it’s not too much of a nonanswer, and I got to what you were seeking there, Pablo.

Pablo Ernesto Zuanic: No, that’s good.

Operator: We have no further questions. I will turn the call back over to Cory Pala for closing comments.

Cory Pala: Okay. Well, thank you, everyone, for participating in our call today, and we will look forward to speaking to you on our next earnings call. Thank you.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.