Charlotte's Web Holdings, Inc.
Q1 2022 Earnings Call Transcript

Published: 17 May 2022

[Operator:]

Good morning, ladies and gentlemen and welcome to Charlotte’s Web Holdings, Inc. First Quarter Conference Call. Also note that the call is being recorded on Tuesday, May 17, 2022. And I would like to turn the conference over to Cory Pala, Director of Investor Relations. Please go ahead.

[Cory Pala:]

Thanks, Sylvie. Good morning, everyone. Thank you for joining us for our 2022 first quarter earnings conference call for Charlotte’s Web Holdings, Inc. Our earnings press release and financial statements for the first quarter have been posted on the Investor Relations section of our website and filed on sedar.com in Canada as well as in the U.S. with the SEC as a Form 8-K, including exhibits. Our 10-K has been filed in the U.S. on EDGAR, which maybe accessed on the SEC’s website. On today’s call, we will share some high level comments on the quarter and an update on the business initiatives for 2022 and beyond. We will take our questions from our analysts at the end of our prepared remarks. A replay of this call will be available through the next week, accessible for the details provided in our earnings release and a webcast replay of this call will be available for an extended period of time, accessible through the IR section on our website at charlottesweb.com. And finally, a reminder to our listeners that certain statements made on today’s call, including some answers we may provide to certain questions, may include content that is forward-looking in nature, and therefore, subject to risks and uncertainties and factors, which could cause actual future results or company performance to differ materially from implied expectations. Such risks surrounding forward-looking statements are outlined in detail within the company’s regulatory filings on sedar.com in Canada and sec.gov in the United States. In addition, during the call, we will refer to supplemental non-GAAP accounting measures, including adjusted EBITDA, which does not have any standardized meaning prescribed by GAAP. Please refer to the earnings release contained in the Form 8-K that we filed yesterday for a description of adjusted EBITDA and other non-GAAP accounting measures as well as a reconciliation of such measures to their respective most directly comparable GAAP financial measures. With that, I will now hand over the call to Charlotte’s Web’s Chief Executive Officer, Jacques Tortoroli. Jacques?

[Jacques Tortoroli:]

Good morning from Colorado and thank you all for joining our call this morning. I am pleased to be joined this morning by Lindsey Jensen, who joined the company in 2019 and was recently promoted to Chief Financial Officer. Also on the call is Jared Stanley, one of the company’s Co-Founders, who was recently appointed Chief Operating Officer after previously serving as Chief Cultivation and Innovation Officer. I know it’s been hard for shareholders this past week with market volatility trading and the price of our stock. Last week, it appears we had a large institutional investor exit their position as part of a full portfolio rebalancing. It was done in a disorderly manner. We were not given notice and we are confused by the trading last Thursday and Friday. While the CBD sector has ongoing headwinds, we don’t believe the fund’s decision or our recent share price accurately reflects our long-term opportunity and value. On today’s call, Lindsey will go into more detail on our financial results and Jared will share some insights on why Charlotte’s Web is uniquely positioned for growth over the long-term with our vertical integration, science credentials, innovation pipeline and select international market penetration. I will close on our progress against key initiatives we outlined in our last earnings call before opening up for your questions. Before handing the call to Lindsey and Jared, let me set the context for our Q1 results. Q1 was not the quarter we had planned for, but I do want to be clear, it will be our worst quarter of the year. Why? In January, we had to close our production fulfillment facility in Louisville after a wildfire occurred in the area. It was Colorado’s most destructive fire on record in terms of property loss, destroying more than 1,000 homes. Thankfully, our facility was not directly harmed, but we weren’t able to properly run the facility for nearly 2 weeks, negatively impacting revenues by more than $1 billion in the quarter. Also in January, we pulled back on the frequency and depth of promotions, particularly in e-commerce, but we didn’t fully offset the resulting volume loss in the month with higher value sales. The cost corrected in February and March to better results. In April, we made changes to our B2B retail sales organization, obviously not impacting Q1. These changes, including new leadership and the implementation of a motivating sales incentive plan rewarding growth beginning in July, we expect will contribute to subsequent sequential improvements in B2B revenue over the balance of the year and beyond. Reversing the traffic declines to any e-commerce site takes some time. However, in March, we saw record revenue on Pi Day due to more compelling content and effective paid and earned media marketing. March subsequently demonstrated the highest gains in customer acquisition metrics since December of ‘21 and a 9% gain in revenues during the primary promotional period in the month. So importantly, consolidated monthly revenues recovered sequentially through February and March with the March quarterly revenue run-rate consistent with last year’s quarter. Considering the slow start that we had in Q1 due to the aforementioned items, we will have some ground to make up for the full year. We recognize everything we are doing to grow the top line takes time, but we do expect it to show up on the top line this year. Where we land for the full year is likely going to be somewhere between flat to modest growth. Most importantly though we stabilized cash flow to be neutral or positive for the year. The actions implemented in early January lowered our cash operating costs by more than $20 million or 20% on an annualized basis. However, the impact wasn’t fully realized in the first quarter given the timing of some headcount reductions and related severance charges. In the quarter, we used $4.7 million in cash from operations, almost all of it in January. The use of cash from operations for the quarter reflects improvements of $4 million versus last year’s quarter and $9 million compared to the recent 2021 December quarter. Since the quarter ended, we have essentially been cash-neutral and have collected approximately $2.7 million from an IRS tax refund, with another approximately $7 million expected to be collected during the balance of the year. Before turning the call over to Lindsey, I want to make an important point. Lindsey is exactly what we need in the CFO in these times. She understands our economics. She has the experience and respect of our extended leadership team and throughout the company. I am delighted to work more closely with Lindsey in her new expanded role. And importantly, Lindsey is but one of the many women in leadership roles in this organization. So with that, I will turn it over to Lindsey.

[Lindsey Jensen:]

Thank you, Jacques. Good morning. I trust you have had a chance to review our first quarter financial results. As Jacques stated, we had a slow start to the quarter, partly due to a wildfire in January and we experienced the delayed reopening of our production and fulfillment center for nearly 2 weeks. Total D2C was $13.1 million, down 18.5% year-over-year and B2B revenue of $6.2 million decreased by 14.6%. Q1 consolidated net revenue of $19.4 million decreased 17.3% versus $23.4 million year ago. In our e-commerce business, revenues were $3 million below last year attributable to lower traffic, the shipping delays and reduced promotional offerings, particularly in January. This was partially offset by stronger subscriptions and higher conversion rates. In fact, subscriptions increased 107% year-over-year and e-commerce conversion rates were a strong 14.2%. The highest online sales day in the quarter was tied to promotions for Pi Day on March 14. Charlotte’s Web maintains the largest e-commerce business in the CBD industry and increasing our online traffic and conversions are key priorities for us. This is our largest revenue channel, contributing 68% of the company’s total net revenue in the quarter. In our B2B business, revenues were $1.1 million below last year, reflecting lower sales to some of our larger customers. These customers were impacted by the slower reopening of our shipping facility as well as supply challenges affecting some of our best selling products in the CBD clinic portfolio. These items were back in stock by the end of the quarter. These temporary setbacks were partially offset by lower spoils and returns versus last year and distribution gains, including some doors in California following the passing of Assembly Bill 45 last December. We anticipate further expansion in California over the balance of the year. We added approximately 564 new doors within the grocery, natural and pet channels during the first quarter. In addition, we welcomed GNC as a customer, contributing over 800 new doors in 24 states after the initial shipment in the last week of December 2021. Importantly, the balance of the year will benefit from reorders and more doors in additional markets. These gains were partially offset by distribution losses at CVS following their Q4 announcement to close 900 locations. We maintain our leading market share position in total food and drug and natural specialty retail. Revenues in our B2B channel contributed 32% of total revenue in the quarter. As of March 20, Charlotte’s Web market share in food/drug/mass retail was 14.9%, up 1.3 share points versus Q1 2021. We also made share gains in the natural specialty channel, gaining just over 1 percentage point to 20.3% according to SPINS data. Gross margin in the quarter was 60.5%. This was an increase of 22 basis points from Q1 of last year. As a result of our organizational and cost actions mentioned earlier, SG&A expenses were $20 million for the quarter, a $3.4 million or 14% reduction from a year ago. At an implied $80 million full year run-rate, we are confident that our actual full year OpEx will be below that. Despite lower revenues, net loss for the quarter was reduced to $8.6 million versus $10.1 million a year ago. Adjusted EBITDA was a loss of $5.3 million. This represents an improvement of approximately $1 million or 15% year-over-year. Total cash used in the first quarter of 2022 was $5 million, of which approximately $4.8 million was in January. February and March were essentially cash neutral, reflecting sequentially higher collections and lower SG&A cash costs. Cash and working capital at March 31 were $14.5 million and $69.9 million respectively compared with $19.5 million and $76 million at December end. We have no long-term debt and subsequent to March 31 collected $2.7 million from the IRS. We still have a remaining balance of $7.6 million, which we expect to fully receive in the balance of the year. I will now turn the call back over to Jacques.

[Operator:]

Jacques, are you on mute?

[Jacques Tortoroli:]

Thank you, Lindsey. I want to say a few things about Jared. He is a Co-Founder of this company and has been a key part of the company ever since. Jared has played an enormous role in our vertical integration, seed-to-shelf product quality and standing up our Louisville facility with its over $40 million multiyear investment now completed. From our first cultivation in Canada last year to operations, quality and regulatory, Jared has done and have seen it all. Everyday, Jared brings a unique founder’s energy with him and no one cares more deeply about the company’s purpose and its future. More than that, he has a keen business sense and led our recent work on our strategy. We are fortunate to have him at our side. With that, I will turn the call over to Jared.

[Jared Stanley:]

Thanks, Jacques. I want to touch a little on Canada, discuss some key initiatives we will be focusing on and give an overview on our vertical integration and how it bodes well to our regulatory advantage. First, in Canada, we are close to finalizing our Canadian partnership, having harvested more than 5,000 kilos of quality hemp biomass. We plan to execute with the right partner, aligned vision of where Charlotte’s Web portfolio plays. The mature Canadian rec and medical market are much different than the U.S. CBD category and it has been essential for us to build a portfolio more tailored for retail stores in Canada. To transition a little to product innovation, beverages and cosmeceuticals are currently the two fastest growing CBD segments. Combined, these segments will represent about $500 million to $700 million in industry sales for 2022. Charlotte’s Web’s vast experience in topical formulations and aligning our focused and incentivized driven sales team make cosmoceuticals an easy target for CW to execute against. Just 3% share in cosmoceuticals alone would add $10 million to our top line in 2023. But I want to talk a little bit about our foundation of consistency. I also want to add some comments around the direction we can take our business forward by leveraging the assets we have built. When we founded Charlotte’s Web in 2013, we launched the company on a mission to end a 15,000 client waiting list to access Charlotte’s Web products. We ended that waiting list with our first crop and still today serve thousands of consumers like Charlotte. For this reason, our product not only has to be safe, but most importantly, it has to be consistent year after year, bottle after bottle. We compete in an industry that consists of more than 2,000 competitors, the vast majority of which are very small and none of these businesses have what we have in terms of quality, consistency and efficacy. There is no other hemp CBD company like Charlotte’s Web. With a fully integrated breeding program, 5 U.S. hemp patents, 1 Canadian patent, full traceability and control across our supply chain is likely our greatest asset. And this is important because creating consistent consumer experience is not only the right thing to do for our consumers who rely on Charlotte’s Web products, but it has become the foundation to our regulatory advantage. It is this capability that resulted in successfully having our novel foods application validated in the UK this year, one of only a few who have done so for full-spectrum extracts. It is also why we can take the FDA through multiple meetings. We have 5 years and shared with them 5 years of consistency data from cultivation, extract and finished products. Keep in mind, and expect – we expect that H.R. 841, the hemp-derived CBD consumer protection and Market Stabilization Act, will regulate hemp as a dietary supplement through the FDA’s new dietary ingredient notification process or NDI. Charlotte’s Web would not be able to achieve the required level of safety consistency and depth of our NDI application if not for our strategic vertical integration advantage. In addition to our flagship cultivar, charlotte’s Web uses two other patented cultivars in its supply chain. Once regulations are set, we will be preparing additional NDI applications to be prepared for FDM mass retail with a diversification of brands, including private and white label opportunities with partners. Large FDM retailers require full traceability of the supply chain, and there is no other company that can offer the level or transparency and trust that we do at our seed-to-shelf model. Beyond trust is our ability to use our patented cultivars to create differentiated NDI FDA-approved ingredients upon a regulated CBD category. And it goes further. To build upon CW’s regulatory advantage, we have the best infrastructure in our category capable of supporting $1 billion in annual sales. We have invested nearly $40 million in CapEx to date in our state-of-the-art extraction, manufacturing and order fulfillment facility. And most importantly, that investment is behind us. Charlotte’s Web has the brand trust, science credentials and necessary production capacity in place to truly leverage a regulated environment. But the opportunity in a regulated market extends far beyond our current business and customers today. We have built the company for an FDA-ready business upon a clear regulatory pathway, but it is imperative we extend our internal capabilities to an innovative cannabinoid company. Our mission statement says to – that to unlock the healing powers of botanicals, and we are compelled to discover formulations and ratios of minor cannabinoids to support more Charlottes of the world. Our commitment is not to launch me-too minor cannabinoid products but to do preclinical work using minor cannabinoid formulations to determine the most efficacious products to meet specific consumer need states. CBN, CBDA, CBG, CBGA, and others, we believe, will align the right cannabinoid to the right need state. These can be leveraged to support innovations in our current portfolio and new industry verticals. We spent the past 3 years and significant investment to be able to support an eventual regulated mass retail market, which hasn’t happened yet. We believe we will see regulations land within 12 to 18 months, potentially through legislation with H.R. 841 or in the 2023 farm bill. We do not see a world where CBD would remain a $4 billion to $5 billion unregulated category with more than 2,000 brands and manufacturers in perpetuity. We are a company built on intellectual property at every step of our process. We did this in protection of and commitment to our first waiting list of consumers who built the foundation of this company. We are here for the long haul. We will stay loyal to the consumers that depend on us. We will be ready for FDA regulation, and we will innovate and find more Charlottes of the world to support their wellness journey. I look forward to joining you all again on the Q2 call, and I’ll hand the call back over to Jacques.

[Jacques Tortoroli:]

Thanks, Jared. This leadership team and all the work for us are focused on what I call the long game. In our quarterly calls, we look forward to updating you on our progress against milestones that are reflective of the most important priorities. In the near-term, our 2022 goals are simple

[Operator:]

Thank you, sir. And your first question will be from Harrison Vivas at Cowen. Please go ahead.

[Harrison Vivas:]

Great. Thanks so much for taking the questions and congratulations, Lindsey, on the new role. First, I just wanted to touch on H.R. 841. On your last call, it seemed like there was some more movement or momentum in the house. I guess, what are you seeing now? And are there any levers under your control that you can maybe use to coax Congress people to maybe move more quickly? Or how are you viewing the movement of H.R. 841? Thanks.

[Jacques Tortoroli:]

Harrison, thanks for the call. I think, Beth, I’ll turn it over to Jared to give you an update and some thoughts in that regard.

[Jared Stanley:]

Yes. Look, it feels like it’s kind of sitting and waiting at the moment. What we believe is that consumers that’s going to take consumers’ voices to act and push. So what we are starting is a – we’re going to be engaging our consumers in each state to contact their constituents to start picking up cosponsors on H.R. 841. As of now, it’s still sitting at the same position that it was on our last call.

[Harrison Vivas:]

Understood. Okay. That’s helpful. And then just turning to DTC, one quick clarifier, can you quantify how much of that $1 million impact from the Boulder wildfire impacted DTC? And then more specifically, within – understanding that there is the industry-wide shift towards lower-priced products, just within gummies and topicals, what are you seeing in terms of pricing in those two categories? And kind of – how is the competitive dynamic playing out currently? Thanks.

[Jacques Tortoroli:]

Yes. Harrison thanks for the question. I’ll answer the pricing point, and I’ll let Lindsey answer the Q1 impact to DTC. The reality is this industry has trained consumers to buy on promotions. And across the industry players, you see on average of something between 45% to 65% of their volume – all volume done on deal. So for us, as a premium brand and premium price positioning, we’re constantly looking at our index – our premium index to our closest competitors both in terms of milligrams as well as in absolute dollars. And for us, it comes down to what I’ve been saying internally and externally is that we have to have strategies that ensure we have the right product at the right account and at the right pricing, right? And by that, I mean we need to be conscious of the consumer shopping basket in a particular customer. And having tinctures and smoke shops is not the way to drive volume. So we’re really focused on making sure that we’re working on our pricing. We’re working on pricing by channel, by customer and by SKU. And we think that’s the best way to optimize pricing, and ultimately, take the consumers off of price promotion as a trigger for purchase. And that’s where our D2C platform comes in because we can effectively and efficiently test and learn different elasticity points with our consumers on our – the effectiveness of our promotions both in terms of frequency and depth. And ultimately, as we continue to build relevance, as we continue to build awareness and bring people into our brand, those consumers are less subject, obviously, to having promotional pricing be how they act. And so as we bring new customers on to e-commerce, we will be able to adjust pricing accordingly. And I’ll let Lindsey answer the question on Q1.

[Lindsey Jensen:]

Sure. Thanks, Jacques, and thanks, Harrison, for the question. In D2C, we would estimate approximately $0.5 million right around there that was impacted for the wildfires, B2B absorbing the remainder of that as we kind of missed that one cycle at the beginning of January that was difficult to make it back up in the quarter versus absorbing some of those orders that were just shipped out a little bit later in D2C.

[Jacques Tortoroli:]

Harrison, I’d come back and add one other point on pricing. One of the things with the new sales team and our new focus on customer relationships and joint business planning with customers as we move forward is that really – and we’re probably the only company that can do this efficiently is to make sure that we’re activating in retail. And so it’s just not using price promotion as a lever, but we’re working with customers on how best to educate and articulate the reasons why our brand is premium and the reasons why that price point is deserved.

[Harrison Vivas:]

Great. That’s very helpful. I appreciate the color. I will pass it on. Thank you.

[Operator:]

Thank you. Next question will be from Scott Fortune at ROTH Capital Partners. Please go ahead.

[Scott Fortune:]

Good morning and thanks for the questions. Real quick one, I’ll focus on the top line. Obviously, given Q1 is obviously usually seasonally slower, too, and you mentioned the $1 million kind of hit from the fire side of things. But can you unpack seemingly the little bit softer 1Q here with regard to different product mix shift and channels you’re selling into, kind of the biggest drop there? And a follow-on on that is now that we are halfway through 2Q, you mentioned March metrics being a lot stronger. How are revenues trending and generally kind of a stronger 2Q historically from a seasonality standpoint kind of can provide a little more color on 2Q, the recovery there? That would be great. Thanks.

[Jacques Tortoroli:]

Yes. Thanks Scott for the question. I did say I didn’t want to focus on quarters. And what we are going to continually do is guide against the full year objectives that we set out. Having said that, as we said in the prepared remarks, we believe the first quarter will be our worst-performing quarter, including top line growth. And what we are seeing and expecting is sequential improvement in revenues in each of our quarters, particularly in the back half of the year. I will tell you that our expectation is that Q2 revenues will be better than they were in Q1. I will let Lindsey talk about sort of the mix shift on products in the quarter.

[Lindsey Jensen:]

Yes. Absolutely. So, within the quarter, Scott, we actually – versus the fourth quarter, our mix held relatively constant and consistent with the – and we did not see versus the fourth quarter large drop from tinctures to gummies. It was relatively held flat. However, versus last year Q1, we did see that decline that we have consistently talked about, where tinctures declined and gummies kind of increased. And so far as channels, we had a strong quarter in pet, and we have some continued expansion that we expect to see in doors in pet with those products. We also continue to see really strong medical channel. It was impacted a bit in Q1 with those clinic out-of-stocks that we discussed earlier. And then the other channels, FDM and natural, are kind of where we have seen a little bit slower growth than we would like. And the reality is, though, is that while we are growing market share with some of those kind of mix shifts year-over-year, it’s not translating to the dollar growth even though we are gaining market share.

[Jacques Tortoroli:]

And Scott – sorry, Scott, I was just going to say, I think to amplify on your question, what we talked about before, which is in B2B, we have specific initiatives. And we expect to see growth in the kind of number of doors we have in California, particularly across Petco and Pet Warehouse, for example. And keep in mind, one of the things that we are doing beyond trying to grow our existing velocity in our existing customer base is really start to penetrate some new verticals, be those travel, be those leisure and massage, the salons and gyms, be they sports-related. And of course, the other thing we think we have a big opportunity in is to expand our distributor base, particularly with distributors that are servicing channels and customers that we are not really tackling today or taking advantage of today. So, we think each of those initiatives will take some time, but we do expect to have some impact from that in Q2 and certainly over the balance of the year from there.

[Scott Fortune:]

I appreciate the color – detail there. And just a real quick follow-up on that. How are you looking around the gross margins given the mix shift we just talked about? The consumers in a challenging environment, trading products away from the higher price and I think it serves from that thing, but how are you looking kind of long-term, you said gross margins around 60%. How should we kind of look out – as we look out to the year, I guess from a revenue standpoint, that growth, but from – how does it translate on the gross margins side? Can you help unpack kind of your thoughts around longer term gross margins here?

[Jacques Tortoroli:]

Yes. I will start and then let Lindsey give you her perspective, Scott, on margins. And I have said this to you, I have said it to others, what I am most focused on is driving incremental dollars to gross profit. And the percentage will take care of itself in two ways or three ways. One is as we continue to see mix shift to lower individual profit SKUs, we believe we have enough initiatives in how we are approaching our manufacturing and distribution where we could offset some of that margin compression with incremental savings on our cost of goods. The other thing we are doing, and we have touched on it in the remarks, is focusing on the SKUs that really matter. So, less is more. And we think by focusing on the SKUs that have the highest velocity, ultimately, that will allow us to reexamine our price points, certainly within the index to competitive set, but also on an absolute basis with consumers. So, again, I am more focused on growing top line and growing dollars, and I believe the margin will be in and around where it is today for certainly the medium-term and then we go from there. I don’t know, Lindsey, if you want to add any color on your own thoughts.

[Lindsey Jensen:]

Yes. Absolutely. So as we mentioned as well, as – with kind of some of the price compression that we had seen, we have gotten much smarter about our promotional effectiveness, which is allowing us to kind of hold strong on that margin in our largest channel of D2C. And while we do see increased volume opportunities in B2B, that actually helps margin in some ways through volume leverage. At the same time, with the loss that we have online, we have other efficiencies available and capabilities. So, we continue, to Jacques’ point, focus on savings and leveraging those efficiencies and continue to see that in the year, we are holding to the high-50s, low-60s for a full year gross margin.

[Scott Fortune:]

I appreciate it. Thanks. That’s it for me. I will pass it on.

[Operator:]

Thank you. Next question will be from Derek Dley at Canaccord Capital. Please go ahead Derek.

[Derek Dley:]

Yes. Hi. Just wondering, are you guys seeing any incremental movement from perhaps some of the new retailers that you signed on to sell more than what is predominantly the topical product? Like are you seeing more movement to sell some of the ingestible products?

[Jacques Tortoroli:]

Yes. Derek, thanks for the question. So, we have a customer – a new customer that we will be announcing sometime in the next few weeks. And interesting there, we led with topicals and we now have interest from that customer to take ingestibles as well, whether it’s in a display for purchase or through their own influencers in their own locations. So, we do see that that’s becoming an opportunity for certain retailers and different B2B businesses to start with topicals and then potentially have an opportunity to come behind that with ingestibles.

[Derek Dley:]

Okay. Great. And just in terms of CapEx, I suppose, for the remainder of this year, should we expect a similar run rate to what we saw this quarter or – given that many of your larger projects are behind you, like you mentioned?

[Jacques Tortoroli:]

Yes, Derek. We are – our CapEx is really maintenance CapEx at this point. We don’t have plans for significant capital expenditures in the year. As we move forward, you should expect that we are at about the same run rate, but it will be relatively immaterial to the cash we use for the full year.

[Derek Dley:]

Okay. Great. Thank you very much.

[Jacques Tortoroli:]

You’re welcome.

[Operator:]

And your next question will be from Pablo Zuanic at Cantor Fitzgerald. Please go ahead.

[Matthew Baker:]

Hi. This is Matthew Baker on for Pablo. We have two questions. In our view, given the need for promos online and in brick-and-mortar and a fragmented market, we have started to wonder about the true brand strength of Charlotte’s Web, any comments on this? And then for our second question, of the untapped channels, which ones have you realistically make a push in the year ahead? We assume smoke shops do not make sense for your brand. Thank you.

[Jacques Tortoroli:]

Yes. Thanks for the question, Matthew. And you might recall, I had this question from Pablo in your conference, a few, I guess, a month or so back. I think it’s most important that brand equity is – that’s what’s going to ultimately drive sustainable growth, and that’s what’s ultimately going to drive consumers to coalesce around brands that have real credentials, right, and have science behind them. And we are the only brand in the industry, as Jared had mentioned earlier, that has that brand equity. I mean we are number one in all key brand metrics, not only in the U.S., but as I mentioned earlier, in certain international markets where we are not actually selling product today. So, we think particularly in a fragmented industry, brand recognition, brand value is what is ultimately going to win an increasing amount of market share. And these other CBD brands that are out there, some of which say they are CBD, but aren’t actually CBD, are going to disappear, right. And so brands that matter, brands that have an opportunity to be global as CW is and will, those are the ones that are going to win. And it’s not going to be Martha Stewart CBD that’s going to carry the category over the long-term. So, we are excited about our brand position, our brand awareness and the loyalty that we get from consumers once they are into the brand. And ultimately, that will drive pricing ability, and that will drive so-called competitors out of the market.

[Jared Stanley:]

And Jacques, can I add just a little bit of color on that?

[Jacques Tortoroli:]

Please.

[Jared Stanley:]

It’s really – it’s a great question. And an example here is whenever we decided to pull the promotions in the month of January, and our sales dipped significantly. So, we brought them back up in February and March. And from our perspective, that’s not something we want to do. We don’t want to continually sell our brand on promotion and potentially tarnish the value of the brand. But that’s where the category is today. And what we see in our marketing is that we see that we have to go back to becoming a brand. Charlotte’s Web was always a brand that was a conversation starter. It was in front of problems, and then it got press recognition and earned media by fixing problems within just our story, for example. What we have to do with the brand is be that conversation starter again, and we can’t do marketing that just allows us to go out and say things for what they were. So, you will see a shift in our brand and in our content. And once we change that content and change the marketing of our branding, then we can slowly pull back on promotions. But it’s not going to happen in one quarter.

[Matthew Baker:]

Thanks for the color. And we have two follow-up questions. Firstly, what is your best estimate of the total CBD industry growth in 2021 and your forecast for 2022, assuming no regulatory changes? And then lastly, sorry to ask this, but is there a search for a permanent CEO, or has Jacques been appointed on a permanent basis? Thank you.

[Jacques Tortoroli:]

Well, there isn’t a search for a CEO. I have been appointed on a permanent basis, and I m happy to be the CEO of the company. I am happy to be able to change the trajectory of our company and the valuation and the implications of that on our investors. So, I am here. On – what was the second part of your question? Sorry.

[Matthew Baker:]

Just regarding the estimate – your best estimate for the total CBD industry in 2021 and forecast for ‘22.

[Jacques Tortoroli:]

Here is my view on it. I will let Lindsey or Jared add in their own view. I really don’t care what the industry prognosticators say about growth. At the end of the day, we have a single-digit market share in the category we have today. And I think the opportunity to take share from CBD players that are going to basically disappear over the next months and year is going to provide us a real opportunity to step into that volume. So, I think – I don’t really care what the market does. I believe we have an opportunity to grow, similarly to what I said earlier, which is our plan is to grow notwithstanding the regulatory environment we are in today. I think when that clears, then we will see real growth in the category. But right now, I think the category is large enough. There is enough disintermediation to be had in sort of low-value, low-product, low-quality brands. But our job is to take share and grow this business, notwithstanding what prognosticators talk about in industry growth. That being said, we went back and looked at what Brightfield thought the growth was last year and the implied revenues for Charlotte’s Web. And they were pretty close. So, I think they do a good job of looking in the rearview mirror. I am not so sure that they do a great job in forward-looking sort of expectations around growth for the industry. But I am confirmed in my thinking that we can grow this company over time, obviously, to start and then significantly more on timeline as FDA regulations open up, as more international opportunities open up as well, and we are prepared to take advantage of those in smart, asset-light, low investment ways. So, we are focused on ourselves and executing against our plans. And that execution will deliver our expectations around the financial outlook for the company going forward. And it doesn’t impact me very much in terms of what people think the category is going to do.

[Jared Stanley:]

And Jacques, a couple of things to that real quick, Brightfield stated that we had 2.3% market share in 2021 in topicals and 5.1% market share in gummies. So, when you sum out all the categories that we are playing in, that we are around a 3% market share. And to think that if we grow each category that we play in today and if we assume in 2023 that we are in beverages and cosmeceuticals, just one point of market share in the categories that we will be in 2023 adds $35 million to our top line. So, to think that we can’t grow this business based off of building the brand and being present to consumers in really just the authenticity of our brand and being cultural again without e-mail promos in that part being our marketing, we have tremendous upside, and that’s the upside that Jacques is pointing to.

[Matthew Baker:]

Okay, got it. And congratulations on being appointed, Jacques and thank you for the color on that. I just wanted to follow-up on part of our first question, because I got skips over. Of the untapped channels, which ones can you realistically make a push in the year ahead? We assume smoke shops don’t really make sense for your brand. Thank you.

[Jacques Tortoroli:]

Well, as I said before, we are focused on three new verticals, travel, leisure and sports. We are having conversations with customers – potential customers, marketing and strategic partners in all of those verticals. And we are also having conversations about new distributors and new distributor reach in terms of, again, some of the verticals that we are not in today. So, again, new business takes a little bit longer than growing existing business, but we are optimistic that we will see penetration into these new channels, some this year and in the years to go.

[Matthew Baker:]

Alright. Thank you.

[Jacques Tortoroli:]

You’re welcome.

[Operator:]

Thank you. And at this time, I would like to turn the call back over to Cory Pala.

[Cory Pala:]

Well, thank you everyone, for participating in today’s call and for your ongoing questions, and we will look forward to speaking to you again in August following the report of our second quarter results.

[Operator:]

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.