Adam Jackson, Author at Green Market Report

Despite inking major deals, Charlotte’s Web Holdings, Inc. (TSX: CWEB) (OTCQX: CWBHF) saw falling revenue in 2022 due in part to waning demand in an increasingly saturated cannabidiol (CBD) industry.

The hemp extract wellness company, which is the largest in the world, reported financial results for the fourth quarter and year ending December 31, 2022.

Net revenue for the fourth quarter of 2022 was $18.9 million, a downtick of 23.8% versus $24.8 million in the fourth quarter of 2021. The decline was mostly due to lower retail and online sales, it said. Earnings were for a loss of $0.23 cents.

For the entire year of 2022, the company reported a net revenue of $74.1 million, a 22.8% decrease from $96.1 million in 2021.

The company posted a fourth quarter net loss of $35.2 million, meaningful progress from the $118.2 million net loss in the same period in 2021. The net loss for 2022 was $59.3 million, also a marked improvement from the $137.7 million net loss in 2021.

The CBD industry has witnessed a shift towards lower-priced CBD products, primarily gummies and topical products.

Still, Charlotte’s Web in 2022 held the number one share position across the food, drug, mass (FDM), and natural retail channels. It also maintained its position as the market leader in e-commerce sales, according to cannabis research firm Brightfield Group.

CEO Jacques Tortoroli said that the company has focused on strategic initiatives and partnerships outside of lobbying regulatory action, which he said “has created uncertainty and confusion for the CBD industry overall.”

Charlotte’s Web received a $56.8 million investment from British American Tobacco (BAT), which strengthened its financial position, though the exact value and cost of that debt will play out over the next few years.

The company also became the “official CBD of Major League Baseball,” which will help it tap the sports industry and expand brand recognition, in addition to obtaining a certification from quality assurance firm NSF.

Charlotte’s Web gained new distributor partnerships to expand retail opportunities across new industry verticals – inking a distribution deal with Southern Glazer’s Wine & Spirits, along with new partnerships in Canada and other regions as part of its asset-light international strategy.

However, business-to-business (B2B) net revenue dropped 32.6% year-over-year from $9.5 million to $6.4 million. The decrease was mainly attributed to lower comparable shipments to retail customers, some of which reduced total shelf space for CBD products. However, B2B net revenue did increase by 20.8% sequentially, reflecting seasonal holiday sales demand.

Direct-to-consumer (DTC) net revenue saw an 18.3% drop over the year from $15.3 million to $12.5 million, due to lower traffic to the company’s online webstore and competitive discounting. Sequentially, DTC net revenue increased by 6.0%, again reflecting seasonal holiday sales demand.

Brightfield Group released a mid-year CBD report in July, which stated that growth in the CBD industry is “heavily dependent” on Food and Drug Administration (FDA) regulation. However, there has been little progress on federal regulation for CBD since the provisions legalizing hemp and hemp derivatives were passed in the Farm Bill of 2018.

The lack of regulations has led to a competitive market with a constantly-changing product mix. Still, companies are finding ways to integrate CBD into the broader wellness market, creating non-CBD products to sell through mainstream outlets, and partnering with retailers that don’t sell CBD to reach new customers.

According to the Brightfield Group, if federal regulation were implemented by 2024, sales could reach $11 billion by 2027, driven by accelerated growth of ingestible products like capsules and gummies and increased acceptance by mainstream retailers. Without such guidance, the CBD market is expected to remain decidedly lower.

Charlotte’s Web said it has been active in supporting federal and state legislative pushes for a comprehensive CBD regulatory framework. The company is part of a coalition in Washington D.C. to support Congressional legislation, and has shared quantitative safety data study results with the FDA, it said.

CFO Jessica Saxton said that the company made its business operations simpler and more efficient, resulting in a cost reduction of nearly $30 million. The fall in total cash usage from $29.6 million in 2021 to $5.3 million in 2022 more than compensated for the decrease in revenue, she said.

Thanks to the investment from BAT, the company was able to finish 2022 with a cash balance of $67 million.

“We remain committed to being good stewards of capital through prudent expense and cash management. Our strong liquidity position enables us to be choiceful when investing in our growth initiatives,” Saxton added. “Moreover, our key strategic partners – MLB and BAT – have become important stakeholders in the company.”

Adjusted EBITDA losses showed a positive trend, with a 45.8% improvement in the fourth quarter and a 42.5% improvement over 2022.