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 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 thank you, everyone, for joining us for the Virtual Annual General and Special Shareholder Meeting for Charlotte's Web Holdings, Inc. My name is Cory Pala. I'm the Director of Investor Relations and a shareholder of Charlotte's Web Holdings, Inc. Momentarily, we will commence the formal portion of our Annual Shareholders' Meeting. Following the close of the formal part of the meeting, we will host a brief informal portion 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 to Chairman of the Board, John Held. John?

Thanks, Cory. Good morning, everyone. My name is John Held, and I am the Chairman of the Board of Directors of Charlotte's Web Holdings, Inc., and I will act as the Chairperson for this meeting. Let me take this opportunity to welcome those present for this Annual General and Special Meeting of the Shareholders of Charlotte's Web. I'd like to acknowledge the Charlotte's Web directors and senior officers who are attending today's meeting virtually: Jack Tortoroli, Jean Birch and Susan Vogt, all of whom are members of our Board; Deanie Elsner, a director and our Chief Executive Officer; Jared Stanley, our Chief Cultivation Officer; and Russell Hammer, our Chief Financial Officer. Jarrod Isfeld of DLA Piper Canada LLP, counsel to the company, will act as secretary of the meeting; and Jacquie Fisher of Odyssey Trust Company, the registrar and transfer agent of the company's shares, will act as scrutineer of the meeting. I have received a copy of the affidavit from Odyssey confirming mailing of the notice of meeting, instrument of proxy, management information circular dated April 30, 2021, which I will refer to at this meeting as the 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 will represent 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 would direct that the scrutineer's report be kept by the secretary with the minutes of this meeting. I can now declare that the meeting is regularly called and properly constituted for the transaction of business. Before we consider the business of the meeting, I would like to outline the voting procedure to be used at the meeting today. We will conduct each vote by way of vote cast through the Lumi platform and those submitted by proxy. If you have voted your shares by proxy prior to the start of this meeting, your vote has been received by the scrutineers, and there is no need to vote your 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 wish to change their vote may do so by clicking on the poll button on the screen. Duly appointed and registered proxyholders may also vote now using the same method. Voting will remain open until just before the conclusion of the meeting. Management has received proxies from the holders of a total of approximately 36.4% of the outstanding voting shares of the company. The first item of business is to receive and consider the audited financial statements of the company for the year ended December 31, 2020, and the report of the auditors thereon. Copies of the financial statements and the auditor's report have been mailed to each registered shareholder of the company who has requested them. Copies have also 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 this meeting. The circular and instrument of proxy contemplate fixing the number of directors for the ensuing year at 5. May I please have a motion to fix the size of the Board and number of directors to be elected at this meeting at 5?

I so move.

I second the motion.

Thank you. We will now proceed with the election of directors. Five directors will be elected to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed. Deanie, may ask you to read the nominations, please?

I nominate John Held; Jack Tortoroli; Jean Birch; Susan Vogt; and myself, Deanie Elsner, as directors of the company to hold office for the ensuing year.

I second the motion.

Thank you. In accordance with the articles of the company, shareholders are required to provide advanced notice of their intent to nominate candidates for directors. No such notice was received. Therefore, I declare the nomination for directors closed. The next item of business is the appointment of the auditor of the company. The circular and instrument of proxy contemplate the appointment of Ernst & Young LLP as auditor of the company. May I have a motion with regards 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.

I second the motion.

Thank you. The next item of business is the approval of the amended 2018 long-term incentive plan of the company, a copy of which is attached as Appendix B to the circular. In order to be effective, the ordinary resolution approving the amended plan must be approved by a simple majority of the shareholder votes cast at this meeting in person or by proxy. May I have a motion that the ordinary resolution approving the amended long-term incentive plan in the form set out in the circular be approved and adopted?

I so move.

I second the motion.

Thank you. If a shareholder or proxyholder has not voted yet, we would ask that you please do so now. As a reminder, again, if you have previously voted by proxy, you're not required to vote online. We will hold the polls open for an additional minute to give anyone time to vote, and then we will announce the results. [Voting]

I think enough time has passed now, so I can declare that voting is now closed. And I have now been advised by the scrutineer that all of the resolutions have been approved by more than the requisite majority and that those nominated have been duly elected as the directors of Charlotte's Web. Accordingly, I declare the motions carried and the nominees for the Board of Directors elected. I direct that 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, and I will call for a motion to terminate the meeting.

I so move.

I second the motion.

Thank you. I declare that the formal portion of this meeting is terminated. I'd like to take the opportunity to thank everyone for their attendance and interest. And I will now like to turn the presentation over to Cory Pala, Director of Investor Relations; and Deanie Elsner, our Chief Executive Officer.

With the conclusion of the formal portion of the shareholder meeting, we will now provide a brief update on the business. It has only been a month since we held our Q1 quarterly results conference call. So we'll aim to not be overly repetitive, but we'll speak to some of the higher-level business direction and our forward strategies. With that, I'll hand off to Deanie for her prepared remarks.

Thanks, Cory, and thanks, John. I want to thank the shareholders, again, for joining us today. And like -- would like to now share some brief comments on the current business and outlook. My first 2 years at Charlotte's Web have been characterized by a dynamically evolving market and the lack of an established regulatory landscape both domestically and internationally for hemp CBD and cannabis. In addition, for the past 15 months, we've been further challenged by the global pandemic. Despite this uncertainty, we've advanced the Charlotte's Web agenda with active and measured responses to these headwinds, and we've pursued opportunities to strengthen and extend our leadership position in the U.S. hemp CBD wellness category. Importantly, we've initiated the first steps of our international and sector expansion plans. Our focus has always been to maintain optionality, enabling us to address unexpected shifts in the category or the regulatory environment. We have built this business to deliver long-term sustainable growth behind the 3-part plan. First, we strengthened our talent and expanded our advantage capabilities. We've been focused on putting the right management team in place, expanding our public company depth of talent and building the capabilities to sustainably grow Charlotte's Web across all channels: e-commerce, food, drug and mass, natural, health care practitioners and pet and across all segments. We successfully built on our strengths and identified gaps to establish a foundation for the future. Second, we built our infrastructure and addressed our portfolio gaps. This required us to establish a scalable supply chain infrastructure across extraction, manufacturing and distribution, in addition to launching CW Labs to establish a science background for data, research and innovation. We protected our genetics and processes by securing 5 U.S. patents and addressed our competitive price gaps with the successful execution of a price deal realignment across our entire portfolio. We filled our topical product portfolio gap with the acquisition and integration of the Abacus Health Company, a leading OTC topical company, in addition to achieving B Corp certification and securing organic certification. Our successful actions over the last 2 years have resulted in Charlotte's Web securing market share leadership position across all 3 channels: food, drug and mass, natural and e-commerce. In addition, Charlotte web has secured the #1 position across key consumer brand health metrics, including brand awareness, trust, consideration, purchase intent and loyalty. Charlotte's Web remains the most recognized cannabinoid brand in the U.S. and arguably is the most recognized brand across the sector globally. Now as we enter the third phase, our focus shifts to expanding our global footprint. Our intent is to expand our category footprint globally and to extend our brand across adjacencies within the sector where Charlotte's Web is positioned to compete. Geographic expansion will anchor the Charlotte's Web brand within new and emerging markets, including Canada, Israel, Europe and the U.K. We are participating now in Canada having cleared the regulatory hurdle of securing approval for 3 Charlotte's Web cultivars. We began planting these cultivars this month and anticipate product sales in Q1 of 2022. We are employing an asset-light model in the Canadian market, benefiting from a well-established but underutilized infrastructure. We are finalizing strategic partnerships for extraction, production and distribution, and we'll share more information as contracts are finalized. In Israel, a strategic partnership with Canndoc, a division of InterCure, is our strategic plan. Canndoc is the largest and most profitable cannabis company in Israel and position to lead the anticipated new Israeli CBD market going forward. This is an excellent partner for Charlotte's Web. Entering Israel with Canndoc was a strategically important decision for Charlotte's Web. Israel is one of the most advanced countries within the cannabis sector in terms of clinicals and research. In addition, InterCure also has potential access and distribution into Europe. We are closely monitoring the regulatory environment in Israel as we map our plans to strategically expand our portfolio footprint. We are also actively engaging in the novel food registration for Charlotte's Web in the U.K. and in Europe. In the EU, we have successfully tackled the first regulatory hurdle, and we will continue to manage this process over the next 10 to 12 months. In the U.K., we have also submitted a novel food application for the Charlotte's Web products currently being distributed. We will update you on our progress with our international expansion as it develops. In addition to the geographic expansions, we are extending Charlotte's Web brand within the sector. Earlier this year, we disclosed our intent to enter the cannabis wellness space with the announcement of an option purchase agreement for the Stanley Brothers cannabis business when federally permissible. We define cannabis wellness as our whole plant hemp extract with THC modestly above 0.3%. Cannabis wellness is different from recreational cannabis because the consumer focus is not to get intoxicated. It is also different from medical cannabis because it offers wellness solutions, which are more accessible and do not require a prescription. These modestly higher concentrations of THC are natural alternatives to pharmaceuticals, and we know that 30% of consumers enter cannabis in search of these wellness products and not intoxication. Our science indicates that slightly higher levels of THC for certain need states can be beneficial for some people, and the need states for CBD and cannabis wellness are very similar. As one of the most recognized brands in cannabis today with similar need states between CBD and cannabis wellness, Charlotte's Web has a clear opportunity to extend into cannabis wellness solutions. This move into cannabis wellness expands our total available market by 2 to 3x, from $10 billion to $15 billion to $30 billion to $40 billion. This is -- there is significant activity happening at the state and federal levels, and we are keeping a close pulse on how the landscape may evolve towards federal legalization. Between the SAFE Banking Act, the STATES Act, the MORE Act and the push for federal legalization, there is clearly momentum. With regard to the regulatory landscape surrounding hemp CBD, federal regulatory oversight for the CBD sector remains pending. We believe regulatory oversight will come in 1 of 2 ways. First, the FDA continues its proactive data collection and investigation regarding hemp CBD and other derivatives. We continue to partner with the FDA to advance their learning, and we're optimistic that they are committed to establishing regulatory direction later this year. Second, from a legislative perspective. We're encouraged by the congressional legislative advances being made by the House of Representatives with Bill Number 841 and a similar bill recently submitted to the Senate, which would legislate hemp and its derivative products as dietary supplements. This illustrates the support of both the House and Senate to establish a legislative framework within which the FDA would regulate hemp and its derivatives. We look forward to the progress ahead. So to close, we have built the necessary leadership and infrastructure capabilities. We have addressed the gaps in our portfolio. And we continue to advance the science as the backbone of our business. Although the CBD category has grown slower than expected due primarily to the lack of regulatory oversight, we are confident that the regulatory environment will be established. Thank you very much for your attendance today. We're pleased you could join us for our virtual AGM and appreciate your ongoing support. We look forward to speaking to you on August 12 with our Q2 results and conference call. With that, I'll turn the call back over to Cory Pala.

That concludes our Annual General and Special Meeting for 2021, and we look forward to communicating with you on our next quarterly results.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.