Charlotte’s Web Holdings, Inc. (OTC:CWBHF) Q4 2025 Earnings Call Transcript

Charlotte’s Web Holdings, Inc. (OTC:CWBHF) Q4 2025 Earnings Call Transcript March 31, 2026

Charlotte’s Web Holdings, Inc. misses on earnings expectations. Reported EPS is $-0.072 EPS, expectations were $-0.03.

Operator: Good morning, ladies and gentlemen, and welcome to the Charlotte’s Web Holdings, Inc. 2025 Fourth Quarter Conference Call. [Operator Instructions] This call is being recorded on Tuesday, March 31, 2026. I would now like to turn the conference over to Cory Pala, Director of Investor Relations. Please go ahead.

Cory Pala: Thank you, and good morning, everyone. Thank you for joining us today for Charlotte’s Web Q4 2025 earnings conference call — provide some color around the recent developments around BAT transaction, the Medicare opportunity, regulatory momentum and other progress. Afterwards, we will take questions from our analysts. As always, before we begin, please note that certain statements made during this call, including those regarding our future financial performance, business strategy and plans, constitute forward-looking information within the meaning of applicable security laws. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause actual results to differ materially.

We direct you to review the cautionary language in this morning’s earnings release as well as the risk factors and other important considerations that are detailed in our regulatory filings, particularly in our most recent Form 10-K report. During the call, we will also refer to supplemental non-GAAP accounting measures, including adjusted EBITDA, which do not have standardized meanings prescribed by GAAP. Please refer to the earnings press release for descriptions of these measures and reconciliations to their most directly comparable GAAP financial measures. And with that, I’ll now hand over the call to Charlotte’s Web’s CEO, Bill Morachnick.

William Morachnick: Thanks, Cory. Good morning, and thank you for joining us today. I want to say right up front that this is not business as usual for Charlotte’s Web. We’ve had several key announcements that have tremendous positive impact on our business that I’m excited to share with you. So let me also add that this includes another quarter of demonstrated progress for our push towards achieving scalable profitability. But first, let me start with the most recent development. Last night, we announced a financial transaction with British American Tobacco in relation to its existing convertible loan note. This transaction has 2 primary components. First is the conversion of BAT’s outstanding $55 million convertible debenture, plus approximately $10 million in accrued interest in the common shares of Charlotte’s Web at a conversion price of CAD 0.94 per share.

This eliminates our largest balance sheet liability entirely and avoids approximately $3 million in future annual interest for the next 3.5 years. The second component is a new equity investment of $10 million through a private placement. This is fresh capital coming into the business to support the execution of our key strategic initiatives, including our upcoming participation as a leader in the CMMI Medicare pilot programs. So in total, BAT’s combined equity commitment under this transaction is approximately $75 million. And following completion, BAT will hold approximately 40% of the company on a non-diluted basis. Among other things, this transaction provides clarity and stability around BAT’s existing investment decision. Let me also provide some additional background on why we believe this is the right transaction at the right time and appropriate in the current circumstances.

The original debenture was issued in November 2022 at a conversion price of CAD 2 per share. Due to several issues, including the ongoing federal regulatory delays around consumable hemp, it was extremely unlikely that BAT would voluntarily convert its debt anytime soon. If this debt burden were left unaddressed and continued to accrue interest at 5% per year, the company would have faced an additional $12 million or more in aggregate interest from now through the maturity date in November 2029. This transaction eliminates all of that. The net effect is a dramatically simplified equity-based capital structure. We go from carrying significant debt obligations to a clean balance sheet with a well-capitalized long-term investor. The additional $10 million in fresh capital strengthens our working capital position and provides flexibility to pursue multiple exciting growth opportunities.

All right. So now let me turn to our most exciting recent growth opportunity the Center for Medicare & Medicaid Innovation pilot program, or CMMI. Under the CMMI pilot program, for the first time, seniors gained access to science-backed CBD products through a federally authorized Medicare pilot, and Charlotte’s Web is positioned to be a participant within this program. Just 10 days ago, CMS, which is the Center for Medicare and Medicaid Services issued additional guidance that significantly clarifies and strengthens this opportunity. CMS established the Substance Access Beneficiary Engagement Incentive or Substance Access BEI, which will be the specific mechanism through which the pilot will operate. Notably, the guidance confirmed that the hemp-derived CBD products, including nonintoxicating full-spectrum products containing up to 3 milligrams per serving of naturally occurring THC are eligible under the program.

This means our core portfolio of full-spectrum CBD wellness products qualifies under this federally authorized program. Under the Substance Access BEI, participating health care organizations primarily accountable care organizations, or ACOs, and oncology providers may purchase eligible hemp-derived CBD products for the Medicare patients with up to $500 per beneficiary annually available. To provide some clarity, it’s important to note that Medicare does not directly reimburse these products. Rather, the ACO purchases hemp CBD products directly and furnishes them to its patients. The economic rationale is that if these products contribute to lower utilization of higher-cost services, the ACO may benefit through reduced total cost of care. As a result of that, the ACO may have an incentive to support adoption of the Substance Access BEI.

Participants in the ACO REACH Model and the Enhancing Oncology Model are anticipated to begin offering the Substance Access BEI beginning April 1, which is tomorrow with the ACO LEAD Model expected to follow in January 2027. I want to be really clear about what this means. This represents an established health care integration pathway. It operates with CMS authorization, physician oversight, patient support through the program’s partner Realm of Caring and structured outcomes data collection. To facilitate the pilot, Charlotte’s Web will offer products intended to support eligible patients through a secure online health care portal. The initial phase is focused on senior patients receiving care through the ACO REACH provider. Over time, this type of model has the potential to be applied more broadly within the Medicare population, which currently includes approximately 67 million beneficiaries.

And looking ahead, there is a second potentially much larger Medicare pathway development. In November, CMS proposed for the first time, allowing Medicare Advantage plans to be included — to include hemp-derived CBD products in their benefit design. That is a separate program from the CMM pilot and it represents a potential expansion of CBD access into the broader Medicare Advantage system, which covers roughly half of all Medicare beneficiaries. The timing of additional details for this program are still being finalized, but we remain confident that our quality standards and compliance infrastructure position us well for this potential opportunity. All right. Let me take a moment now to talk about the federal regulatory status. Despite ongoing challenges, recent federal policy developments are showing progress for hemp-derived CBD.

Congressman Morgan Griffith, who’s the Chairman of the House Energy and Commerce Subcommittee on Health, which oversees the FDA, advanced the Hemp Enforcement, Modernization and Protection Act known as the Hemp Act. This proposed legislation would establish a science-based federal framework for hemp-derived products under the FDA oversight. We are actively working with our one hemp partners through the markup process. The Hemp Act is expected to proceed through regular order in the House Energy and Commerce Committee this year with potential pathways for advancements for broader legislative vehicles, including Congress’ continuing resolution in September. At the same time, we recognize that multiple legislative approaches to hemp regulation are under active consideration in Congress.

And we remain actively engaged with policymakers and stakeholders across these efforts and will support the most effective path forward to achieve a durable science-based federal framework. It’s clear that a broader federal solution is critical. Recently issued Substance Access BEI guidance explicitly permits hemp-derived CBD products containing up to 3 milligrams of THC per serving under the CMS program. This would certainly seem to be a direct signal from the federal government that full spectrum products are considered safe and appropriate. Okay. Now let me turn to DeFloria, which is one of our most compelling long-term potential opportunities outside of our core consumer business. This is our collaboration with Aragen Bioscience and British American Tobacco.

Last year, DeFloria received FDA clearance to proceed with Phase II clinical trials for its investigational new drug. This botanical IND is for the treatment of irritability associated with autism spectrum disorder. It represents a natural alternative to pharmaceuticals that are often poorly tolerated. It uses our proprietary full spectrum CBD extract derived from a patented hemp cultivars and we believe it represents the most advanced cannabinoid drug program utilizing the FDA’s botanical drug pathway. Building on favorable results from Phase I, which established the dosing parameters for the Phase II program, DeFloria has been actively preparing for entry into Phase II clinical trials. Preparations are substantially advanced, and the program is expected to initiate midyear, subject to the customary development activities and resource alignment.

Phase II consists of multiple studies across distinct patient populations. These studies will evaluate safety and tolerability and provide early signals of therapeutic effectiveness to inform a subsequent Phase III program. A reminder, as stated in this morning’s press release, the potential strategic value to Charlotte’s Web shareholders is significant. Clinical advancement through FDA regulated pathways validates the therapeutic potential of our proprietary genetics and strengthens the scientific foundation underlying our entire consumer business. We also hold exclusive commercial manufacturing rights to ultimately receive FDA approval which is clearly a significant long-term revenue opportunity. And we currently own approximately 1/3 of DeFloria, providing us with direct exposure to massive value creation as the program advances.

With that high-level update, I’ll now ask Erika to walk us through the Q4 and full year financials, and I’ll return after her remarks to discuss our business execution and outlook.

Erika Lind: Thank you, Bill, and good morning, everyone. As Bill noted, our 2025 financial results reflects 2 years of disciplined execution to stabilize the business return to growth and fundamentally restructure our cost base to drive to profitability. Let me walk through the key metrics, and I’ll keep this concise so we can focus the balance of our time on the strategic discussion. Consolidated net revenue for Q4 2025 was $13.3 million. Q4 delivered a strong sequential rebound of 15.8% recovering from the Q3 dip driven by the planned B2B restructuring. Q4 also came in up 4.7% versus the prior year’s $12.7 million in revenue. Growth was driven by continued direct-to-consumer momentum across our diversified botanical wellness portfolio, including expanded sleep and functional gummy mushroom offerings, the Brightside low-dose hemp THC gummy line and new minor cannabinoid formulations.

Gross profit for Q4 was $5 million with a gross margin of 37.5%, and I want to provide important context around this number. The reported margin was significantly impacted by a nonrecurring $1.3 million inventory charge related to the disposal of legacy gummy products that did not meet our quality standards, which alone reduced gross margin by about 10 percentage points. Excluding this item, the underlying gross margin performance improved meaningfully. In-house manufacturing, net of onetime inventory charges contributed approximately 400 basis points of margin benefit in the quarter, validating our vertical integration strategy. We also saw improvements in the B2B channel mix following our Q3 restructuring driven by a reduction in trade spend.

Our direct-to-consumer promotional efficiency improved as we shifted from broad discounting to targeted cohort-based campaigns. We expect gross margin to normalize toward our historical 50% range as we lap transitional items and as production efficiencies continue to scale. Total SG&A expenses were $10.6 million in Q4, consistent with the prior year and slightly higher than Q3. The quarter included several discrete nonrecurring items that impacted comparability, including a $600,000 state sales tax audit accruals and certain contract termination and timing adjustments. Excluding these items, our underlying operating expense base remained consistent with the structurally lower cost profile established throughout the year. Total net loss for the fourth quarter was $11.4 million or $0.07 per share compared to a net loss of $3.4 million or $0.02 per share in Q4 of 2024.

Looking at full year results. Consolidated net revenue of $49.9 million increased 0.5% year-over-year, modest but significant as it was our first annual revenue increase since 2021. Full year SG&A expenses were $42 million, a 21.2% decrease from $53.3 million in 2024. This reflects the successful execution of our comprehensive cost optimization strategy, which has now reduced annualized SG&A by approximately $33.6 million or 44.5% over the past 2 years. We believe our cost restructuring is now largely complete. Going forward, we expect quarterly SG&A for the core business to remain in a normalized range of approximately $10 million to $11 million. Excluding anticipated launch spend for the previously mentioned Medicare coverage program. Net loss for the full year was $29.7 million or $0.19 per share compared to $29.8 million or $0.19 per share in 2024.

This year, the full year net loss included a noncash change of $6.4 million in the fair value of the company’s debt derivative and our investment in DeFloria. However, notably, our operating loss for 2025 improved by more than 36% to $20.3 million, a significant improvement from the $32 million operating loss in the prior year further demonstrating the impact of our cost restructuring. Turning to our cash flow and liquidity. Fourth quarter net cash used in operating activities decreased to $1.9 million compared with $5.5 million in the prior quarter and $1.8 million in Q4 of 2024. For context, quarterly cash change reflects the timing of cash outlays relative to accrual-based expense recognition so there is a natural variability quarter-to-quarter.

In addition, our third quarter expenses always experienced a greater cash outlay than other quarters due to the timing of business insurance renewals. That said, the Q4 result demonstrates continued progress. Cash and working capital as of December 31, 2025, were $8 million and $21.7 million, respectively. It is important to note that this cash position does not reflect the BAT private placement, which adds $10 million in fresh capital, strengthening our liquidity and working capital position heading into this next critical phase. Before I hand it back to Bill, I do want to underscore the financial significance of the BAT transaction, which fundamentally changes our financial position. The transaction is transformational for our balance sheet eliminating material liabilities and adding fresh working capital.

We are evolving from a company carrying significant debt obligations into one with a clean equity-based capital structure and a highly aligned strategic partner with a stable operating base, improving gross margins from in-house manufacturing and the capital to pursue the growth opportunities now emerging, we are well positioned for the next chapter. With that, I’ll turn the call back to Bill to discuss our business execution and outlook.

William Morachnick: Thanks, Erika. All right. So let’s bring this all together. 2025 was a defining year for Charlotte’s Web. We stabilized the business. We returned to annual revenue growth for the first time in 4 years, reduced our cost base by 44% over 2 years. Launched our boldest product innovations to date and laid the operational groundwork for what comes next. And I want to share one more data point that speaks directly to operational readiness. This month Charlotte’s Web completed its annual NSF dietary supplement good manufacturing practices audit and received zero findings. For those unfamiliar, that’s the gold standard of manufacturing compliance for dietary supplements. And achieving zero findings is an exceptional result.

It reflects the discipline and the rigor of our quality team and validates the manufacturing infrastructure that underpins everything we do, from the products on our website to our qualification for federal health care programs. When we say Charlotte’s Web is built to meet the standards that regulated health care requires, this is exactly what we mean. Let me share with you quickly what excites me about what’s ahead. The CMMI Medicare pilot program, the presidential executive order, bipartisan legislative momentum for a rational federal framework, the advancement of DeFloria through FDA clinical trials and now a clean balance sheet with a well-capitalized strategic partner standing behind us. These are not speculative possibilities. They are real catalysts unfolding now that have the potential to fundamentally transform the scale and scope of our business.

We built Charlotte’s Web for moments exactly like this. Our brand, our science, our manufacturing capabilities and our regulatory engagement have positioned us to be at the forefront of the hemp industry’s integration into mainstream health care. I want to take a minute to thank all of our shareholders for your continued confidence and patience. I know this has not been an easy ride, but the work of the past 2 years is now converging with the most favorable external environment our industry has ever seen, and we intend to capitalize it. Operator, we’re now ready for questions from our analysts.

Q&A Session

Operator: [Operator Instructions] First question comes from Pablo Zuanic from Zuanic & Associates.

Pablo Zuanic: Good morning, everyone. Look, I obviously have a lot of questions that I want to ask here given all the very positive news and of course, positive performance. Let me start with the CMS program. A few questions there. Precisely, when we talk about participating centers, what are these participating centers in the CMMI program? Which type of companies, are these established doctor offices or are these new setups, can Charlotte’s Web own some of these participating centers. If you can give more color in terms of what are the participating centers in the CMMI program?

Mindy Garrison: Well, good morning, Cory. This is Mindy Garrison here with Charlotte’s Web, and thank you so much for your question. The participating centers are health care organizations that are already enrolled in specific CMS Innovation models. There are 3 actual models at play right now. The first 2 are ACO REACH and Enhanced Oncology Model or the EOM program, both of which can begin offering CBD, the Substance Access BEI hemp-derived products starting tomorrow, April 1. The third is an ACO LEAD Model, which is expected to launch in January of 2027. So these are not actually new facilities created for this program, they are established physician practices, health care systems, all combining together under an accountable care organization that are managed — managing Medicare patient populations.

The initial cohort under ACO REACH and the Enhanced Oncology Model, address approximately 2 million Medicare beneficiaries. Over time, as additional models come online, particularly the LEAD model and potentially the Medicare Advantage model, the addressable population will expand significantly towards a broader 67 million Medicare beneficiary base. And please excuse my mistake Pablo. Again, I really appreciate your question.

Pablo Zuanic: And then just a follow-up on the same subject. Who is going to fund the $500 per patient per year under the BEI. Is that Medicare? Or is someone else funding that? And as part of that question, I’m assuming that the participating center will issue a prescription and the patient will go on your portal and order the product from you. So if you can just clarify in terms of who funds the $500 and then the logistics in terms of how the patients can access the product.

Mindy Garrison: All right. Thank you, Pablo. Another really great question. And there’s an important distinction here in that Medicare is not directly reimbursing these products. The participating ACOs and EOMs that I just talked about a few moments ago, will purchase the eligible hemp-derived CBD products using its own funds and furnishing them to its Medicare beneficiaries as part of their broader care strategy. The economic rationale for an ACO to participate in the Substance Access BEI and the hemp-derived products is that it will contribute to better patient outcomes, lower total cost of care, reduced hospitalizations, fewer high-cost interventions and lower pharmaceutical utilization. So they benefit through the savings under the CMS model.

So the $500 per beneficiary annually represents a maximum of amount that the ACO can invest per patient, funded from the ACO’s own program economics, not from a Medicare fee-for-service system is a value-based care incentive, not a traditional reimbursement. To get to your second question about logistically how will this work? Charlotte’s Web has built a portal specifically for ACO and EOM programs to access the hemp-derived products that will be eligible under the Substance Access BEI program. They will order the products as if you were issuing a subscription to a pharmacy, except it would be through our portal. And those products would then be drop shipped to the patient’s home. So it is a little bit different in that it’s actually not a prescription.

It’s a recommendation from a health care provider to begin utilization of hemp in the service of helping their patients become healthier and live healthier lives.

Pablo Zuanic: That’s very helpful. And then on the same subject, what revenues does Charlotte’s Web will expect from CMMI pilots in 2026 and 2027. I’m not sure if you can talk about guidance here. And as I ask that question, I wonder whether the participating centers will be able to buy from other companies or is Charlotte’s Web were the only one pretty much in the pilot. But any guidance the company can give would be helpful.

William Morachnick: Yes, sure. Pablo. So I think the way to think about it without giving you a ton of specificity around modeling is this is really early days in the pilot program. So I think I mentioned earlier, it literally starts tomorrow. For that TAM that Mindy just referenced that 1.7 million, 1.8 million folks in the ACO, the patients in there and then another couple of hundred thousand in EOM. I don’t foresee massive revenue opportunity for, let’s say, the balance of this year. We have to build out the education for the participants. I’m going to frame it as the channel participants, which are these medical and health care practitioners and networks. So they’ve got to understand the value proposition that CBD represents.

They’ve got to get comfortable with it before they’re going to make the recommendations that Mindy referred to. So it’s going to be a gradual build over the next 12, 18 months. And we’re really positioning ourselves for how this program scales out. So we’ll see an uptick, say, in that 2 million TAM over coming quarters, not a whole lot initially. And then as the Medicare Advantage program progresses, then you’re talking about a very large number, I think I referenced it in my earlier talk there, Medicare Advantage is about half of the 67 million participants in overall Medicare so that turns into a very large TAM. But we’ve got to see the specifics around that program and how it’s going to flow and what the economics are. In terms of who else is participating, there is no exclusivity.

But presumably, there are going to be continuing standards that have to be followed for anyone participating in the program around quality, around safety, around efficacy. So we really like the way we’re positioned because we believe we’re at the highest standard as that goes. And we’ve got a really fulsome robust go-to-market strategy immediately to do the kind of training that I was referring to earlier as well as establishing the portal for both the consumer and the health care practitioner. So we feel very confident about the way it’s going to scale, but I think it’s just — it’s too premature to start modeling around that for your purposes.

Pablo Zuanic: No, that’s great color, Bill. And one last question on the CMS program. How is the CMS program going to be reconciled with the potential hemp ban that’s going to become effective November 12, 2026.

William Morachnick: Yes. You always ask the hard question, Pablo. So here’s where it stands at the moment, as you’re aware, but for all the folks listening. At this current time, we’ve got the “Hemp ban” that could trigger in November of this year. That’s the way that the language in the Ag [ Appropriations ] Bill that was inserted in the continuing resolution in the fourth quarter of last year [ reads ] such that if we’re capped — if the industry is capped at 0.4 milligrams of THC per container, it basically demolishes the CBD industry as we know it. At the same time, talk about cognitive dissidence that makes your head blow up. We are deploying a program for seniors that has a 3-milligram THC cap per serving. So dramatically different scenarios.

We’re working very closely through our resources in Washington, D.C. and beyond to come up with a very meaningful science-backed approach to where these things can get synchronized to where there is federal regulation that has a consistency that can operate across the country that can deliver the level of efficacy that’s required. So at this moment in time, it exists in a way that you framed it, if I may, that we have a potential ban on the horizon. At the same time, we’re deploying a program to address seniors that have dramatically different product components to it. So we have to see how the next several months play out but we’re feeling good and confident that the Griffith’s bill as well as the way the FDA is looking at things is going to land in a place that is much more like the Substance Access BEI is trending as opposed to the language that we saw at the end of last year.

Pablo Zuanic: I guess, Bill, before I move on, maybe just a quick follow-up. I mean, would there be a concern that maybe the participating centers will wait to have clarity on the ban before they start getting involved or not necessarily?

William Morachnick: It’s a fair concern and I can only share with you in the conversations that we’ve had thus far because we’ve already done our outreach to potential participants. So ACOs and EOM practices, we’re seeing — I would categorize it as a reasonably high level of enthusiasm for what we have to offer. They’re very intrigued by the power that CBD brings to their patients for those need states that we talked about, that their patients suffer to a large degree from. So lack of sleep, anxiety and pain, and they’re looking at CBD with a very high level of curiosity and open mind in this of how this can be a phenomenal alternative, both from a cost perspective and an efficacy perspective. So again, I think it’s too early to know if I was to say, I don’t have a big enough sample set to say where that will go directionally.

But early indicators are leaning much more towards we want to get on board with this now because we want to provide these solutions to our patients as soon as possible.

Pablo Zuanic: That’s good. Look, I’ll just move on to some questions about the quarter. Obviously, congratulations on the 16% quarter-on-quarter sales growth. Give more color in terms of what drove that. I know you had something in the prepared remarks, but more color in terms of what drove that? And is that sustainable?

Erika Lind: Pablo, this is Erika. Thanks for the good question there. So obviously, for the increase that we had, there were several factors. We have had continued D2C momentum because our portfolio continues to diversify, and we’re doing much more targeted campaigns to broaden the top of the funnel. We also purposely restructured our B2B channel so that we removed a lot of the underperforming accounts. And we also think because of that, we’ve got some retail customers who transitioned to our D2C portal, which has been very positive for us. And then Q4 also benefits from a strong holiday season as with many companies. So it’s really the combination of those things that produce really the strongest growth we’ve had in quite some time.

Pablo Zuanic: And then just in terms of your balance sheet, obviously, I’m looking here at the year-end ’25, right, $8 million cash, you still have negative — I mean, negative operating losses. But you do have the BAT transaction now. Maybe just to address on a pro forma basis, the state of the balance sheet and your path forward on cash management and also cash flow generation, specifically I’m asking CapEx there.

Erika Lind: Sure. And I appreciate the question, and I — and the chance to really provide context because I know it’s something that people are really sensitive about right now. So obviously, we had $8 million in cash to end the year, but it does not reflect that $10 million in fresh equity through the private placement. That placement clearly significantly strengthens our liquidity and cash position. So — but I think it’s really as important to note that this conversion eliminates our $55 million in the debt principle plus the $10 million in interest and prevents us from having to pay another $12 million for the balance of the note. So that really gives us a lot of optionality. On the operating side, as you know, we worked really hard to rightsize this business.

Over the past few years, we’ve reduced OpEx by 44.5%. That’s significant. And obviously, we’re going to maintain that cost discipline because that’s the norm for us now. We will have some launch costs related to the Medicare pilot program, but our leaner cost structure, improved margins, the steady consumer demand that we’re seeing and the additional working capital for the BAT transaction, really strengthens everything for us. And I do want to stress to shareholders that the completion of this transaction requires approval from the majority of the shareholders. BAT obviously does not vote on it. So the decision rests entirely with the independent shareholders. And I strongly want to remind everyone that their vote matters. I encourage you to enter your vote as soon as you receive your proxy, it only takes a minute online.

And that would make a huge difference for us and our consumers.

Pablo Zuanic: Right. And on the same subject, in terms of the BAT transaction, why did management and the Board think this was the right time to do it at this point?

Erika Lind: I’ll expand a little bit on Bill’s commentary on that. Obviously, we have some extraordinary opportunities ahead of us. And the Medicare pilot programs DeFloria FDA pathway require us to be properly capitalized. We have to be unencumbered by debt, and we have to be positioned to execute. In this case, the opportunity drives the transaction. I — to talk numbers a little bit, I do recognize that the conversion price is lower than the original CAD 2. But the implied enterprise value per dollar of revenue is actually higher today than it was in ’22 and I think it’s important for people to understand that. The lower share price reflects the company’s reduced revenue base and the industry headwinds. It does not give preferential treatment to BAT.

The current transaction is struck at a higher implied EV to revenue multiple at about 3.5x compared to the original ’22 deal, which was at about 2.1 to 2.5x. Even though the share price is lower, the enterprise value per dollar of revenue is actually higher today. BAT is paying more per dollar of revenue and not less. And I think that’s a reflection of CMMI and the DeFloria catalyst that didn’t exist back then. I also know that there are some dilution realities to this. The debenture reduces the debt but it’s — the conversion reduces the debt, but that’s not new money. And in terms of enterprise value, that’s approximately neutral. The market capitalization increase while debt decreases by the same amount. And what fundamentally changes is the company’s risk profile.

The debenture overhang, the interest burden and the refinancing risks are all eliminated. This clean balance sheet all else being equal, justifies a lower risk premium, which means the same enterprise value translate to a higher fair value for equity holders over time. And the private placement represents the incremental dilution from new capital, which is approximately 5% of post-conversion shares. We believe that is a modest cost for meaningful working capital at a critical time to capitalize on our growth opportunities.

Pablo Zuanic: Yes. And the only comment I would make is that, obviously, I agree that this was a source of overhang, right? I mean the stock — your stock is up 14% up today. So seems that it was an overhang. So the clarity is helping and investors are responding positively to that. The last question on the subject. BAT now is going to own around 40% of Charlotte’s Web, right? We know that BAT also own stakes in Organigram. They own stake in Sanity Group, which was acquired by Organigram. Can BAT own more than 50% of Charlotte’s Web at some point or are there restrictions given that they are U.K.-based.

Erika Lind: So a couple of important points on that. There are no restrictions based on the fact that they’re U.K.-based. The investment is made through BT DE investments or what we call BDI. And that’s a Delaware incorporated subsidiary. They will be the direct holder of the shares. However, in the agreement, there is a part 49% cap of ownership and anything beyond that would have — would be a subject to the applicable securities laws, TSX rules and also potentially shareholder approval depending on the circumstances. So we did build into the agreement of 49% cap that protects us from that. Anything else would have to go through some measures. BAT has been very supportive. They’re a noncontrolling strategic partner. And there’s a governance framework in the investment rights agreement that’s designed to preserve the Board independence and the management autonomy regardless of BAT’s ownership.

Pablo Zuanic: Right. Understood. Look at the very last question. There were some headlines this week about the FDA submitting a CBD Compliance and Enforcement policy to the White House for review. What do you expect from this week’s OIRA meetings?

William Morachnick: It’s — I haven’t been successful thus far, Pablo speculating where these things are going to land. I want to give this a little bit of time to see how it plays out. We’re really head down focused on this transaction was just completed and how we ramp up our readiness for the CMMI program. There’s just so much noise in the system right now between federal regulatory, state regulatory, CMMI versus the other things that you brought up. I want to give this a beat to play out a little bit. We’ve got contingency plans under any potential outcome. But I think it’s just — it’s too early and too speculative right now.

Pablo Zuanic: Right. And if I may just ask a quick follow-up, right? So I mean, given the way the headline reads, CBD compliance and enforcement policy, is this something to make it consistent with the CMS program? Or is this something to address this hemp ban in November because I guess, I’m confused in terms of the timing and what does it relate to specifically? Because it has repercussions for both, right, in theory, for the CMS program and for what the ban may be in November. And I know maybe it’s too early to say, but thank you.

William Morachnick: Yes. I mean you’re raising the root of why I have an upset stomach most mornings trying…

Cory Pala: Bill, your line is disconnected or muted. I’m in a different office, so I can’t tell if they’ve completely disconnected. Pablo, are you still there?

Pablo Zuanic: Yes, I am, but we can leave it for a separate follow-up call if you want, Cory. Yes.

Cory Pala: Yes. At the end of the day, it’s too soon to know exactly where these meetings are going to go in the next few days. We are encouraged that they’re occurring but too soon to speculate on exactly where that’s going to go. But at the end of the day, we are seeing a convergence of policy. So that’s encouraging. Okay. Well, then with that, we seem to have technical difficulties on our end, but that was your final question, I think. So we’ll close it off here. I would like to thank everybody for participating on the call today. Pablo, thanks as always for your in-depth questions. And we will look forward to speaking to you all again in the coming months. 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.