Charlotte's Web Holdings, Inc. (CWEB) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to the Charlotte's Web Holdings, Inc. Annual General Meeting. I would now like to turn the conference over to Cory Pala, Director of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for the virtual Annual General Shareholder Meeting for Charlotte's Web Holdings, Inc. My name is Cory Pala. I am the Director of Investor Relations and a shareholder of Charlotte's Web Holdings, Inc. Momentarily, we will commence with the formal portion of our annual shareholders' meeting. Following the close of the formal part of the meeting, we will host a brief informal part where CEO Deanie Elsner will share some prepared remarks on the business. Now to hold the formal portion of today's meeting, I will hand off the call to Lead Director John Held. John?

Thank you, Cory. Good morning. My name is John Held, and I am the Lead Director of the Board of Directors of Charlotte's Web Holdings, Inc., and I've been asked by the Chairman of the Board of Charlotte's Web, Joel Stanley, to act as the chairperson for this meeting. Let me take this opportunity to welcome those present to this Annual General Meeting of Shareholders of Charlotte's Web. In light of ongoing public health concerns regarding COVID-19, today's meeting is being held virtually to ensure the health and safety of our shareholders, our employees and our guests. I would like to acknowledge the shareholder -- we have directors, nominees for director and senior officers who are attending today's meeting virtually: Joel Stanley is our Chairman of the Board; Jacques Tortoroli and Jean Birch, both are members of our Board; Susan Vogt, who will be joining our Board today; Deanie Elsner, Director and our Chief Executive Officer; Jared Stanley, a Director and our Chief Cultivation Officer; and Russell Hammer, our Chief Financial Officer. Jarrod Isfeld of the law firm of DLA Piper Canada is counsel to the company and will act as the secretary for the meeting; and Frank Kailik of Odyssey Trust Company, the registrar and transfer agent for the company's shares, will act as the scrutineer of the meeting. I have received a copy of the affidavit from Odyssey confirming mailing of the notice of the meeting, instrument of proxy, management information circular dated July 23, 2020, which I refer to in this meeting as circular, and accompanying documents to the registered shareholders of the company as of the record date. I would direct that a copy of the notice, together with proof of delivery, be kept with the records of this meeting. The articles of the company provide that a quorum of shareholders is present if at least 2 persons are present who are -- or who are represented by proxy shareholders entitled to vote at the meeting who hold, in the aggregate, at least 25% of the votes attached to the outstanding voting shares entitled to be voted at the meeting. The scrutineer's report has now been received, and it shows that there is a quorum of shareholders present at the meeting. I direct that the scrutineer's report be kept by the secretary with the minutes of this meeting. I can declare that the meeting is regularly called and properly constituted for the transaction of business. Before we consider the business of the meeting, I'd like to outline the voting procedures to be used at today's meeting. We will conduct each vote by way of vote cast through the Lumi platform and those submitted by proxy. If you have already voted your shares by proxy prior to the start of the meeting, your vote has been received by the scrutineers, and there is no need to vote with those shares during the meeting, unless you wish to revoke or change your vote. We will now open the poll, and at any time during the meeting, registered shareholders who have not submitted a proxy and wish to vote their shares or who wish to change their vote may do so by clicking on the poll button on the screen. Duly appointed and registered proxy holders may also vote now using the same method. Voting will remain open until just before the conclusion of the meeting. Management of the company has received proxies from the holders of approximately 66% of the eligible votes attached to the outstanding voting shares of the company. Even if all registered holders present at this meeting were to vote against the matters to be considered today, all such matters will be approved as set forth in the circular. The first item of business is to receive and consider the audited financial statements of the company for the year ended December 31, 2019, and the report of the auditors thereon. Copies of the financial statements and the report of the auditors have been mailed to each registered shareholder of the company who has requested them. I also note that copies have been posted to the Lumi dashboard page. The next item of business is fixing the size of the Board of Directors to be elected at the meeting. The circular and instrument of proxy prepared for purposes of the meeting contemplated fixing the number of directors at 8 members. Following the mailing of the circular, Shane Hoyne resigned from the Board of Directors of the company and advised he would not stand for reelection as a director at this meeting. There are no proposed nominees to fill this vacancy. It is therefore proposed that the Board of Directors to be elected at the meeting will consist of 7 members. I will now request the motion to fix the size of the Board and the number of directors to be elected at this meeting at 7.

I so move.

I second.

Thank you. We will now proceed with the election of directors. The 7 directors will be elected to hold office until the annual meeting of shareholders or until their successors are elected or appointed. Deanie, may I ask you to read the nominations, please?

I nominate Jared Stanley, Joel Stanley, Jacques Tortoroli, Jean Birch, Susan Vogt, John Held and myself, Deanie Elsner, as directors of the company to hold office for the ensuing year unless his or her office is earlier vacated in accordance with the articles of the company.

I second the motion.

Thank you. In accordance with the articles of the company, shareholders are required to provide advance notice of their intent to nominate candidates for directors. No such notice was received, and therefore, I declare the nomination of director closed. The next item of business is the appointment of the auditor of the company. The circular and instrument of proxy prepared for the purposes of this meeting contemplate the appointment of Ernst & Young LLP as auditor for the company. May I have a motion with regard to the appointment of Ernst & Young LLP as auditor of the company until the next Annual General Meeting of Shareholders? And could this motion provide that the auditor's remuneration be fixed by the Board of Directors?

I so move.

Is there a second?

I second the motion.

Thank you. If a shareholder or proxy has not voted, we would ask that you please do so now. As a reminder, if you have previously voted by proxy, you're not required to vote online. We will close the polls in 1 minute to give anyone remaining a chance to cast their vote by the Lumi platform. So we'll take a very short 60-second break here to allow the final vote to come in. [Voting]

Okay. I see from the platform that we have not received any additional votes, so voting is now closed. I have been advised by the scrutineer that all of the resolutions have been approved by more than a requisite majority, and that those nominated have been duly elected as directors of Charlotte's Web. Accordingly, I declare the motions carried and the nominees for the Board of Directors elected. I direct the scrutineer's report on ballot be annexed to the minutes of the meeting. After the meeting, we will post the final voting results on SEDAR. This completes the formal business to be conducted at the meeting. I will call for a motion to terminate the meeting.

Thank you, John. I move that the meeting be terminated.

I second the motion.

Thank you. I declare that the formal portion of the meeting is terminated. I would like to thank everyone to -- for their attendance and interest today. And I would like to turn the presentation over to Cory, Director of Investor Relations; and Deanie, our Chief Executive Officer.

Thanks, John. Typically, we would utilize this informal part of the meeting to provide a company presentation and financial review. Unfortunately, this year, we are in a quiet period ahead of reporting our Q2 results on September 14. That's 11 days from now. In August, we delayed our Q2 reporting date, needing more time to consolidate the results of Abacus and Harmony Hemp with Charlotte's Web financials. This is due to the acquisition having closed later in the second quarter and some inefficiencies experienced due to the pandemic lockdown. So since we are in a quiet period, to best comply with disclosure rules, we will not host a presentation or a Q&A session at this time. However, we do have some high-level prepared remarks. We do look forward to providing a detailed operational review with you on September 14 on our Q2 conference call. I'll now hand off the call to Deanie for her prepared remarks.

Thanks, Cory. I want to thank the shareholders again for joining us today. I'd like to share some brief comments in a few areas. First, on the coronavirus and the safety of our employees. I'm pleased to report that we've not had any known cases of the coronavirus among our staff of over 300 people. From the beginning of the pandemic, we took action to structure our teams and shifts with redundancy protection. And from an operational standpoint, our internal production, quality, testing and warehousing continued to run smoothly. To date, we've had no disruptions to our supply chain due to COVID-19. Despite the near-term uncertainty around how long this pandemic lasts and its potential economic impacts, our long-term outlook for growth through increased consumption and household penetration has not changed. We closed the acquisition of Abacus in June. Our rapid operational integration is going well despite our remote working requirements. The Abacus acquisition brought Charlotte's Web significant value in topical products and future development. In the third quarter, we commenced initial operating expense synergies, which should increase throughout the remainder of the year and into 2021, as our new production and fulfillment center comes fully online, providing further cost reductions over time. You may have seen Abacus CBD topical products recently available through our leading e-commerce website at charlottesweb.com. We accomplished this quickly, with our respective teams working seamlessly together. This represents a meaningful new channel for the CBDMEDIC line of products. This is one example of many cross-channel and cross-product selling opportunities available to the combined business. Similarly, we have commenced cross-selling certain products across our respective channels and partners. The acquisition of Abacus Health greatly expanded our topical portfolio and was a strategic action to increase our presence and sales volumes within food, drug and mass retail channels, where only topical products are carried in most location as the channel awaits more definitive FDA regulatory framework. In the interim, as the FDA continues its forward movement, we anticipate some FDM channel partners may begin carrying some ingestible CBD products in certain stores under hemp-positive state regulations. The FDA continues to move forward with its stated efforts towards a regulatory pathway for hemp CBD products. In July, the FDA submitted draft enforcement policy for the industry to the Office of Management and Budget. This is the agency's enforcement policy, not the regulatory pathway policy, but a step forward nonetheless. The FDA is -- plays an important role in consumer safety and has accumulated data internally and externally. We are supporting this in a national clinical trial being led by ValidCare that measures potential liver effects in healthy adults ingesting various hemp CBD products. This study aims to provide the FDA with some of the data it is seeking to confidently determine the appropriate regulation path for hemp-derived CBD products. Results of the study will be shared with the FDA and are expected to be published in a peer-reviewed journal in early 2021. With a specific time line for a definitive regulatory framework has not yet been set by the FDA, industry observers expect that we may see actionable guidance from the FDA sometime in 2021, and we aim to be ready. We are now operational in our new manufacturing and fulfillment center. We are building out the facility in stages and expect to be fully operational in early 2021. We have commenced warehousing and fulfillment operations, and first production runs are scheduled for later this month. Consolidating disparate manufacturing operations into the new facility will enable the closing of 2 former locations, reducing certain operational expenses in the fourth quarter. Future milestones target additional expense optimizations within the overall infrastructure footprint as we balance operating expenses against expansion to support an eventual full portfolio launch into the food, drug and mass retail channel. Our CW Labs Science Division has multiple safety and clinical studies pending with leading universities. Currently, the clinical trials have been put on hold due to COVID-19. In due course, we anticipate these to result in publications and white papers and ultimately, the next-generation formulations and products. We look forward to sharing the supporting finance proof points with you going forward. Finally, I want to close with a comment on our recent B Corp certification. B Corp is the term used for any nonprofit entity that is certified by B Lab, a global nonprofit organization that certifies companies like ours that balance profit with purpose while exceeding industry standards for social and environmental performance, public transparency and legal accountability. Pursuing B Corp status was in alignment with the company's mission-based principles. Charlotte's Web has always operated with a socially conscious viewpoint, in addition to a heightened focus on sustainable and regenerative organic farming methods, water stewardship and a low carbon footprint. Our B Corp certification formalizes our commitment to fulsome corporate social responsibility and environmental, social and government issues in investing, more commonly known as ESG. While relatively few publicly traded companies have achieved B Corp certification, ESG is an increasing focus for many of today's investors who choose to invest in companies aligned with their personal values. For example, investment into European ESG funds more than doubled last year to EUR 120 billion. Charlotte's Web today is the only publicly traded CBD B Corp-certified company. In closing, I'd like to share a brief social media marketing video that we are currently launching to announce our B Corp status. I want to thank you for your attendance today. We are pleased that you could join us for our virtual AGM and appreciate your ongoing support. We look forward to speaking to you on September 14 with our Q2 results and conference call. Operator, you may now close with the B Corp video. [Presentation]