10-K: Charlotte's Web Navigates CBD Market with Diversification

Charlotte's Web Holdings reports mixed 2025 results, showing slight revenue growth and reduced operating losses, driven by product diversification and cost-cutting, while facing significant regulatory uncertainty and a substantial capital raise from BAT.

Summary

• Total revenue for the year ended December 31, 2025, was $49.897 million, a 0.5% increase from $49.667 million in 2024.
• Product revenue increased by 1.2% to $49.597 million, while service revenue decreased by 53.7% to $0.300 million.
• Gross profit increased by 2.1% to $21.700 million in 2025, with a gross margin of 43.5% (up from 42.8% in 2024).
• Selling, general, and administrative (SG&A) expenses decreased by 21.2% to $41.968 million in 2025, primarily due to reduced amortization from the MLB Promotional Rights Agreement termination and cost-cutting measures.
• Operating loss improved to $(20.268) million in 2025 from $(31.987) million in 2024.
• Net loss remained significant at $(29.741) million in 2025, compared to $(29.846) million in 2024.
• Cash and cash equivalents decreased to $8.035 million at December 31, 2025, from $22.618 million at December 31, 2024.
• The company launched new product lines including functional mushroom gummies and Brightside low-dose THC gummies, featuring TiME INFUSION rapid-onset technology.
• DeFloria, a joint entity with AJNA BioSciences and BAT, received FDA notification to proceed with Phase 2 human clinical trials for AJA001 Oral Solution, a botanical drug for autism spectrum disorder.
• The company will participate as a CBD provider in a Medicare and Medicaid pilot program for senior oncology patients in early 2026.
• A significant transaction with BAT was announced on March 30, 2026, involving the conversion of BAT's C$75.3 million convertible debenture and accrued interest into common shares at C$0.94 per share, plus an additional $10 million equity investment, totaling approximately C$103 million ($75 million) and resulting in the issuance of approximately 110 million common shares to BAT.
• The federal definition of hemp was revised in November 2025, effective November 12, 2026, to limit total THC concentration (including THCA) to 0.3% on a dry weight basis for hemp and intermediate products, and 0.4 milligrams of total THC per container for final products, which could negatively impact a large percentage of existing full-spectrum hemp products.
• The company completed full internalization of Brightside gummy production, enhancing quality control and supply chain resilience.
• The SBH Purchase Option to acquire Stanley Brothers USA Holdings, Inc. expired unexercised on February 26, 2026.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a company in a challenging but transformative phase. While financial losses and cash burn persist, strategic diversification, cost reductions, and a significant capital injection from BAT provide a lifeline and potential for future growth, contingent on regulatory clarity and successful execution of new product lines and pharmaceutical development.

Positives

• Total revenue saw a slight increase of 0.5% in 2025, indicating some market traction despite challenges.
• Gross profit increased by 2.1% and gross margin improved to 43.5% in 2025, partly due to the absence of a large inventory provision from the prior year.
• Selling, general, and administrative expenses decreased significantly by 21.2% ($11.279 million reduction), reflecting successful cost-cutting measures and reduced amortization.
• The termination of the MLB Promotional Rights Agreement waived an $18 million aggregate rights fee, reducing future financial obligations.
• DeFloria, a joint venture, received FDA clearance to proceed with Phase 2 human clinical trials for AJA001 Oral Solution, a botanical drug for autism spectrum disorder, signaling progress in pharmaceutical development.
• The company's participation in a Medicare and Medicaid pilot program for senior oncology patients in early 2026 could open new, reimbursed market channels for CBD products.
• Successful product diversification into functional mushroom gummies and low-dose THC gummies (Brightside line) expands the company's wellness portfolio.
• Internalization of Brightside gummy production provides multi-million-unit manufacturing capacity, improved quality control, and supply chain resilience.
• A substantial equity commitment from BAT, totaling approximately C$103 million ($75 million), through debenture conversion and a new private placement, significantly strengthens the company's capital structure.

Negatives

• The company continues to incur significant net losses, with $(29.741) million in 2025, indicating ongoing profitability challenges.
• Cash and cash equivalents decreased substantially from $22.618 million in 2024 to $8.035 million in 2025, primarily due to cash used in operating activities.
• A significant loss of $7.269 million was recorded in the change in fair value of financial instruments in 2025, primarily from the revaluation of debt conversion options and interest rate features.
• B2B revenue decreased by 9.8% ($1.6 million) due to a deliberate restructuring, indicating challenges in this distribution channel.
• The unexercised SBH Purchase Option expired on February 26, 2026, after being purchased for $8 million, representing a loss on this strategic investment.
• The company loaned $750,000 to DeFloria in 2025, adding to related party receivables and potential credit risk.
• The new federal definition of hemp, effective November 12, 2026, limiting total THC to 0.3% and 0.4mg per container, is a significant, controversial provision that could negatively impact a large percentage of existing full-spectrum hemp products and the entire supply chain.
• The company's stock price has shown significant volatility, with TSX prices ranging from C$0.12 to C$0.56 in Q4 2025 and OTCQB prices from $0.09 to $0.41 in Q4 2025, reflecting market uncertainty.

Risks

• The regulatory environment surrounding hemp is uncertain, varies among jurisdictions, and is subject to change, including unclear future federal regulation.
• Products are subject to numerous and diverse regulatory requirements, and compliance costs may affect business and financial results.
• Changes in legal, regulatory, and industry standards may adversely affect the business.
• The company is subject to regulations that could impact its ability to sell products internationally, diverting management attention and requiring financial resources.
• The designation of cannabinoids as a New Dietary Ingredient (NDI) or as an impermissible adulterant is uncertain, and the FDA's IND Preclusion interpretation could disrupt product sales.
• FDA and FTC enforcement actions against the sale and marketing of CBD products could target the company and adversely impact its business.
• The DEA's interpretation of the 2018 Farm Bill could lead to enforcement action against intermediate hemp products.
• Inability to obtain required regulatory approval and permits could limit the company's ability to conduct its business.
• Compliance with environmental, health, and safety laws may be costly, and failure to comply could negatively impact results.
• Regulatory uncertainty with anti-money laundering laws and regulations may adversely affect the business.
• Violations of anti-bribery laws (e.g., FCPA) could adversely affect the company.
• Difficulty accessing banking services due to the illegality of marijuana under federal law, despite hemp's legal status.
• Difficulty accessing public and private capital and banking services could negatively impact financing operations.
• Liability for fraudulent or illegal activity by employees, contractors, and consultants could result in significant financial losses.
• Security risks related to physical facilities, including theft or vandalism.
• Dependence on product success and market acceptance, with no assurance products will achieve desired effects or sustained financial success.
• No assurance that cash flows and debt or other financing will be sufficient to fund operations, potentially forcing deceleration or curtailment of operations.
• Products have a stated shelf life, and inventory may expire prior to sale, leading to write-downs.
• Quality control systems may not prove successful, impacting product quality and business results.
• Dependence on various third parties for supply, manufacture, and testing, with no assurance these relationships will continue on favorable terms or at all.
• Manufacturers and suppliers must meet cGMP requirements, and failure to do so could have adverse consequences.
• Manufacturers and suppliers must remain in compliance with state hemp production and manufacturing laws.
• Product liability claims could result in substantial liabilities and reputational damage.
• Reputational risk due to inconsistent public opinion on CBD and potential negative media reports.
• Dependence on agricultural production of hemp, subject to seasonal and weather-related risks, pests, and contaminants.
• Adverse consequences to end-users testing positive for trace amounts of THC attributed to product use.
• Inability to obtain or maintain farming contracts sufficient for hemp cultivation needs.
• Climate change could exacerbate agricultural risks.
• Reliance on third parties for transportation of hemp and hemp-derived products, with potential delays or failures.
• Intense competition from existing and emerging companies, including those with greater resources or non-compliant operations.
• Changing consumer preferences could impact the ability to attract and retain customers.
• Dependence on the popularity and acceptance of its brand portfolio, requiring substantial and potentially unsuccessful investments in brand promotion.
• Supply chain issues, including price fluctuations or material shortages, and distribution challenges may increase costs and harm financial condition.
• Inability to successfully implement growth strategy on a timely basis or at all.
• Market for products and industry is difficult to forecast due to limited and unreliable market data.
• Dependence on key personnel and the ability to attract and retain employees.
• Reliance on debt financing, with no assurance of access to credit or compliance with terms.
• Difficulty obtaining insurance to cover operational risks.
• Growth-related risks, including capacity constraints and pressure on internal systems and controls.
• Acquisition of other companies could divert management attention, result in dilution, and disrupt operations.
• Intellectual property may be difficult to protect, and litigation to enforce rights could be expensive and time-consuming.
• Third parties may initiate legal proceedings alleging infringement of intellectual property rights.
• Involvement in litigation, including class action litigation, could have a material adverse effect.
• Trade secrets may be difficult to protect from disclosure or independent discovery.
• Status as a public benefit company may not result in anticipated benefits and could negatively impact shareholder value maximization.
• Increased legal proceedings concerning the duty to balance shareholder and public benefit interests as a public benefit company.
• Third-party insolvency or inability to perform obligations could negatively impact operations.
• Tariffs on imported packaging materials could increase costs.
• History of losses and potential for continued losses in the future.
• Debt and the Convertible Debenture Agreement may limit other future potential strategic investor interests.
• Discretion in the use of proceeds from securities issuances may not improve results or enhance value.
• Limited market for Common Shares and potential for volatility.
• No intention to pay dividends, relying solely on share price appreciation for investor returns.
• Holding company structure means earnings depend on subsidiaries' distributions.
• Future sales of Common Shares by shareholders, directors, or officers could create volatility.
• A small number of shareholders may exercise significant influence.
• Issuance of an unlimited number of shares could dilute shareholder holdings.
• Purchasers of Common Shares may experience immediate and substantial dilution.
• Elimination of monetary liability for directors, officers, and employees under British Columbia law and indemnification rights may result in substantial expenditures and discourage lawsuits.
• Forum selection provision in Articles conflicts with U.S. federal securities laws, potentially limiting favorable judicial forums.
• Subject to U.S., Canadian, and Israel income tax on worldwide income.
• Investment in Common Shares is speculative and involves a high degree of risk.
• Product recalls and returns could adversely affect operating results and financial condition.
• Impairment of intangible and long-lived assets could adversely impact financial results.
• Certain employees or directors may have interests that conflict with those of the company.
• Future growth depends on the effectiveness and efficiency of advertising and promotional expenditures.
• Use of customer information and other personal/confidential information creates compliance risks.
• Risks related to information technology systems and potential cyber-attacks and security/privacy breaches.
• Demand for products and services influenced by general economic and consumer trends beyond control.
• High costs of being a public company in both Canada and the United States.
• Internal controls over financial reporting may not be effective, and auditors may be unwilling or unable to provide attestation report.
• May have to amend prior financial reporting.
• If securities or industry analysts cease publishing research or publish unfavorable research, share price and trading volume could decline.
• Changes in tax laws could require additional tax payments, decreasing available capital.
• Recent macroeconomic trends, including inflation, recession, or slowed economic growth, may adversely affect the business.

Future Outlook

The company expects continued cost containment in overall selling, general, and administrative expenses into 2026. Management believes existing cash and cash equivalents will provide sufficient liquidity for the next 12 months, with long-term funding dependent on future operating performance, revenue growth, and expense management. The company is continually assessing fundraising opportunities through borrowings or issuances of additional equity/debt securities. The FDA's development and implementation of a new regulatory pathway for CBD is uncertain but likely to take several years, though legislative efforts are underway to amend or repeal new federal THC limits before November 2026. The administration's Executive Order signals support for changes to federal hemp policy, which could positively influence legislative efforts for full-spectrum CBD.

Management Comments

• Management is working to expand the Company's production capacity, and to find opportunities for continuous improvement in the supply chain, including in-sourcing production to reduce its dependence on third party contract manufacturers.
• The Company may consider expanding its product line beyond hemp-based products and functional mushrooms should the science and the Company's strategic vision support such expansion.
• The Company believes that socially oriented actions will ultimately have a positive impact on the Company, its employees, and its Shareholders.
• The Company's mission is to unearth the science of nature to revolutionize wellness.
• Management believes that the Charlotte's Web brand is among the strongest in the hemp-derived CBD industry.
• Management believes that the CBD industry (and the cannabis industry in general) is highly dependent upon consumer perception regarding the safety, efficacy and quality of the products.
• Management believes that the Company's existing cash and cash equivalents, and short-term investments will provide sufficient liquidity to fund operations and planned capital expenditures for the next 12 months.

Industry Context

StockSavvy.ai notes that Charlotte's Web's strategic shift towards product diversification, including functional mushrooms and low-dose THC gummies, aligns with broader industry trends seeking to expand beyond traditional CBD offerings amidst evolving regulatory landscapes. The FDA's continued stance on CBD as a dietary supplement and the new federal THC limits create significant headwinds for the hemp-derived product market, pushing companies to innovate and seek new regulatory pathways or product categories. The company's collaboration with BAT and AJNA BioSciences on a botanical drug for ASD positions it in the emerging pharmaceutical cannabis sector, a potentially high-value but long-term play. The Medicare/Medicaid pilot program for CBD in oncology patients could be a groundbreaking development, potentially legitimizing CBD in mainstream healthcare and opening new reimbursement models, a significant differentiator in a fragmented market. Competitors like Medterra and SUNMED, while strong in CBD, may not have the same diversified portfolio or pharmaceutical pipeline, giving Charlotte's Web a potential long-term advantage if its strategic bets pay off.

Comparison to Industry Standards

• Charlotte's Web's gross margin of 43.5% in 2025 is competitive within the consumer packaged goods (CPG) sector, though specific benchmarks for the nascent hemp-derived wellness industry are still evolving. For instance, established CPG companies like Procter & Gamble often report gross margins in the high 40s to low 50s, while some specialized wellness brands might achieve higher.
• The company's continued net losses, despite revenue growth, indicate ongoing challenges in achieving profitability, a common theme for many companies in the still-developing CBD and cannabis-adjacent markets. This contrasts with more mature CPG companies that typically demonstrate consistent profitability.
• The significant capital raise and strategic investment from BAT, a major global tobacco company, is a notable industry event, providing Charlotte's Web with substantial funding and a powerful strategic partner. This level of institutional investment is not universally available to all CBD companies, many of which struggle with access to traditional banking and capital markets due to regulatory ambiguities.
• The FDA's clearance for DeFloria's Phase 2 clinical trials for AJA001 Oral Solution positions Charlotte's Web in a more rigorous, science-backed segment compared to many competitors focused solely on dietary supplements. This move towards pharmaceutical development, while capital-intensive and long-term, could offer a significant competitive moat against companies like CBDfx or PlusCBD that primarily operate in the unregulated supplement space.
• The introduction of low-dose THC gummies with rapid-onset technology (Brightside line) demonstrates innovation in product formulation, potentially differentiating Charlotte's Web from competitors offering more traditional CBD or full-spectrum products. This aligns with a growing consumer interest in minor cannabinoids and specific effect profiles.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not a party to any material pending legal proceedings, other than ordinary routine litigation incidental to the business.
• The company or its property is not the subject of any legal proceedings, known or contemplated, that involve a claim for damages exclusive of interest and costs that meet or exceed 10% of its current assets.

Related Party Transactions

• A secured promissory note of $1,000, loaned to one of the Stanley Brothers in November 2020, had its maturity date extended to November 13, 2029. The note has been fully reserved for as of December 31, 2025.
• The SBH Purchase Option to acquire Stanley Brothers USA Holdings, Inc., purchased for $8,000, expired unexercised on February 26, 2026. Certain Stanley Brothers were majority shareholders of Stanley Brothers USA.
• The company jointly formed DeFloria, Inc. with AJNA BioSciences (partially owned and co-founded by a Stanley Brother) and BAT. The company and AJNA each hold 4,000,000 voting common units.
• The company entered into an 8% interest-bearing note receivable with DeFloria for $170,000 for lab equipment, with a remaining balance of $19,000 as of December 31, 2025.
• The company has a supply agreement with DeFloria to supply raw material at cost for new drug development, recognizing $904,000 in revenue and cost of goods sold in 2025.
• A master services agreement with DeFloria for certain services resulted in $300,000 in revenue and cost of goods sold in 2025.
• Accounts receivable balance due from DeFloria was $1,471,000 as of December 31, 2025.
• The company loaned $750,000 to DeFloria via a promissory note on July 15, 2025, due upon the later of December 31, 2026, or a $10 million qualified financing for DeFloria. The balance, including accrued interest, was $784,000 as of December 31, 2025.
• A consulting agreement was entered into with Jared Stanley, a former executive and current director, on June 21, 2024, for a bi-weekly fee of $6,000.

Stakeholder Impact

• Shareholders: Experience continued dilution from potential future share issuances and the recent BAT transaction. The company's history of losses and no dividend policy means returns depend on share price appreciation. The public benefit company status may lead to decisions that do not solely maximize shareholder value. The forum selection clause may increase litigation costs for shareholders.
• Employees: Benefit from the company's purpose-based mission and B-Corp status, which aids in attraction and retention. Cost-cutting measures and workforce adjustments may impact some employees. Share-based compensation is a significant component, making retention sensitive to share price.
• Customers: Benefit from product diversification into functional mushrooms and low-dose THC, expanding wellness options. Quality control systems (cGMP, ISO 17025) aim to ensure product safety and efficacy. Regulatory uncertainty could impact product availability or formulation.
• Suppliers and Creditors: Dependence on third-party suppliers and manufacturers creates risk if these parties face insolvency or non-compliance. The company's debt financing and liquidity position are critical for meeting obligations to creditors. The BAT capital raise improves the company's financial stability, benefiting creditors.
• Regulatory Authorities: The company operates in a highly regulated environment, subject to extensive federal, state, and international laws. Compliance efforts are significant, and ongoing regulatory changes (e.g., new federal THC limits, FDA's stance on CBD) require continuous adaptation and engagement.
• Community and Environment: As a benefit company, Charlotte's Web is committed to conducting business responsibly and sustainably, promoting public benefits like healthier lives and stronger communities, and supporting non-profit organizations. This commitment is assessed through annual benefit reports against third-party standards like B Lab.

Next Steps

• Shareholders will be asked to approve the BAT transaction at an annual general and special meeting around May 28, 2026.
• DeFloria will proceed with Phase 2 human clinical trials for AJA001 Oral Solution.
• The company will offer a set of CBD products to senior oncology patients through a secure online healthcare portal in early 2026 as part of a Medicare pilot program.
• The company will continue to assess and address the business and financial impacts of new state and federal regulations, including potential product reformulation and labeling adjustments.
• Ongoing efforts to repeal or amend the new federal THC limits before they take effect in November 2026.

Key Dates

Recommendation

Charlotte's Web Holdings presents a mixed bag for investors. While the company shows positive signs of strategic diversification into new product categories (functional mushrooms, low-dose THC) and has implemented significant cost-cutting measures leading to an improved operating loss, it continues to report substantial net losses and a declining cash position. The recent capital injection from BAT is a crucial lifeline, providing much-needed liquidity and a strong strategic partner, but it also comes with significant dilution. The regulatory environment remains highly uncertain, particularly with the impending federal THC limits, which could severely impact existing product lines. The long-term potential from pharmaceutical development (DeFloria) and the Medicare pilot program are promising but carry inherent risks and long timelines. Given the ongoing financial challenges, regulatory headwinds, and the dilutive nature of the capital raise, a 'hold' recommendation is appropriate. Investors should monitor the company's ability to achieve profitability, navigate regulatory changes, and successfully execute its diversification and pharmaceutical development strategies before considering further investment.

Keywords

CBD, Hemp Extract, Botanical Wellness, Functional Mushrooms, Low-Dose THC, Cannabinoids, SEC Filing, 10-K, Financial Results, Regulatory Risk, FDA, BAT Group, Convertible Debenture, Clinical Trials, Autism Spectrum Disorder, Medicare Pilot Program, Supply Chain, E-commerce, Corporate Governance, Charlotte's Web Holdings