Charlotte’s Web Holdings Inc. (TSX: CWEB) (OTCQX: CWBHF) grappled with regulatory headwinds and a crowded market in its third-quarter earnings report.
The Colorado-based CBD seller posted revenue of $14.3 million for the quarter ended Sept. 30, down from $17 million a year earlier. The company attributed the downturn to broader industry challenges, including unclear federal and state policies on CBD, consumer confusion, and a spike in competitive pricing tactics.
Yet, despite market adversities, the company notched a gross profit margin increase, up to 55.5% from 52.5% in the same quarter of the previous year, buoyed by improved supply chain efficiencies.
Online sales slumped, with direct-to-consumer revenue from the company’s webstore falling to $9.4 million from the $11.8 million reported in the third quarter of 2022. Charlotte’s Web attributed this decrease to reduced organic traffic and challenges in customer acquisition but expressed a commitment to enhancing digital engagement through a revamped e-commerce platform.
The business-to-business segment also saw a decline, with retail net revenue at $4.9 million compared to $5.2 million last year. Store closures and CBD category exits by retail partners were partially offset by the company’s expansion into more retail locations and a partnership with Presence brokerage to bolster its presence in the natural products sector.
Selling, general, and administrative costs ballooned by 31.8% to $19.9 million. A significant portion of this increase was attributed to the amortization of media rights and a licensing deal with Major League Baseball, absent from the prior year’s costs.
Net losses widened to $15.2 million, or $0.10 per share, including charges related to the MLB agreement. This was a stark rise from a net loss of $7.6 million, or $0.05 per share, a year ago. Adjusted EBITDA swung to a loss of $6.4 million from a positive $1.2 million in 2022’s third quarter.
Cash burn remained a concern, with the company reporting $10.7 million in net cash used during the quarter, although CFO Jessica Saxton highlighted efforts to curb expenditures.
Charlotte’s Web also welcomed Bill Morachnick as CEO in September. Under his leadership, the company will undertake an overhaul of its commercial and technological infrastructure to rekindle growth.
“Following less-than-satisfactory third-quarter revenue, we have quickly mobilized a decisive action plan aimed at streamlining the organization to restore growth,” newly minted Morachnick said in a statement.
He added, “Our ultimate goal with these initiatives is to elevate and fully monetize the consumer e-commerce experience, leading with data as a guidepost.”
Charlotte’s Web also threw its weight behind regulatory reform as a founding member of ONE HEMP, aiming to shape sensible dietary supplement regulation. The firm’s advocacy comes at a time when industry players anxiously wait for clarity from federal regulators.
Amid the challenges, Charlotte’s Web pressed on with its commitment to efficiency, moving the production of topicals and gummies in-house to leverage its existing production facilities better.