Charlotte’s Web Reports 755% YoY Net Loss for Q2 Amid COVID-19 Pandemic

The net loss of $14.4 million for Q2 of 2020 comes from cooling retail sales in the B2B channel as well as an 82% increase in operating expenses year-over-year.

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September 15, 2020

CBD

As the novel coronavirus continues sweeping the nation, cannabidiol (CBD) product manufacturer Charlotte’s Web has reported a net loss of $14.4 million in Q2 of 2020, as compared with a net income of $2.2 million the same time last year.

That’s a whopping 755% decrease in a year’s time.

The stark decline comes from cooling retail sales amid the COVID-19 pandemic, particularly in the B2B channel, as well as an 82% jump in operating expenses from the same time last year.

Deanie Elsner, the CEO of Charlotte’s Web, said in an earnings call that temporary closures of brick and mortar retail locations contributed to the 54.5% decline in B2B sales in Q2 2020 from the same time last year.

In the B2B sector, the two channels most affected were the natural channel and healthcare practitioner channel, which are collectively down about 60% versus a year ago.

Revenue for Q2 of 2020, which was $21.6 million (as compared to $25 million in Q2 of 2019), was propped up by sales in the direct-to-consumer channel, which increased 34% year-over-year, Elsner said.

Elsner points out that the slight dip in revenue was a “strong relative performance” compared with other CBD players, according to estimates from Brightfield Group.

Abacus Acquisition

Charlotte’s Web closed on its acquisition of Abacus Health Products June 11, which added $610,000 in revenue for Q2, said Russ Hammer, the company's chief financial officer.

“The healthcare practitioner channel represents a substantial amount of Abacus's total revenue, and this channel has been particularly impacted by the COVID-19 with accounts closed temporarily in Q2 due to the pandemics,” Elsner said. 

Elsner said the acquisition nearly doubled Charlotte’s Web’s reach in terms of doors, “and it cemented our leadership in market share in the mass retail channels and healthcare practitioner channel representing about 16,000 customers.”

Despite the addition, Q2 gross revenue for topicals for the company was down almost 50% versus the year prior. However, gross sales of topicals increased 32% in Q2 versus a year ago. 

Operating Expenses Jump

Meanwhile, operating expenses in Q2 of 2020 were $29.5 million, up from $16.2 million the same time last year.

Hammer said this included $6 million in fees related to the company’s Abacus acquisition. 

“Our expense levels partly reflect the infrastructure and capabilities we've been building out ahead of revenue to support the growth of our e-commerce business and B2B business originally expected in the first half of the year, but had been temporarily impacted by the COVID-19 pandemic,” Hammer added. “Additionally, healthcare practitioner offices have been closed due to COVID-19, which has materially impacted Abacus channels and sales temporarily. While we believe these channels will recover in 2021, the infrastructure and associated costs remain today, and operating expenses have become a higher percentage of revenue than desired.”

Hammer said the company is taking action to reduce spending by 10% heading into 2021, including consolidating two manufacturing operations into a new facility that will come online by next year. He added that the company has also “identified significant synergies” within Abacus where the company will be looking to trim expenses.

Looking Ahead 

Despite this quarter’s loss, Charlotte’s Web leadership is predicting Q2 represents the company’s low for this year.

Even so, the quarter had its bright spots. In Q2 of this year, Charlotte’s Web became the No. 1 CBD product in terms of household penetration, increasing by 40% versus a year ago, Elsner pointed out.

“We continued our No. 1 position in awareness, purchase intent and loyalty and increased our lead across all three metrics [by] double digits. And we remain the No. 1 CBD product in terms of a trust rating increasing by almost 10 basis points,” Elsner said. “These brand health metrics are important indicators for long-term sustainable growth, and as the external operating environment settles, Charlotte's Web will emerge a stronger brand among consumers.”

With only two weeks remaining in Q3 of 2020, Hammer said the company is expecting to see growth for the second half of 2020 over the first half. Additionally, Hammer says the Abacus acquisition is expected to add $5 million to Charlotte’s Web revenue in the second half of 2020.

Elsner also said she expects to see CBD regulatory guidance emerge from the U.S. Food and Drug Administration (FDA) in 2021. Companies have cited the lack of regulations as a major stifling factor in sales.

When those regulations do come, Elsner said, “we aim to be ready."