Charlotte’s Web Shows Modest Revenue Recovery Amid COVID-19

Despite a $6.6 million net loss for Q3 2020, company leaders are hopeful for a comeback in the coming quarters.

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November 17, 2020

Cannabidiol (CBD) giant Charlotte’s Web is continuing to feel the effects of the coronavirus pandemic, as the company reported a $6.6 million net loss for Q3 2020, which ended Sept. 30. That’s down from a $1.3 million net loss for Q3 2019.

However, the company is beginning to bounce back from its even steeper losses reported earlier this year. Net revenue of $25.2 million for Q3 2020 was up modestly compared to the same time period last year and up 17% from Q2 of this year. This quarter’s revenue marks the company’s first return to consecutive quarterly growth since the pandemic began.

Charlotte’s Web CEO Deanie Elsner said during an earnings call Nov. 12 that the company has been tracking other data that indicates a recovery in the business. One of those data points includes consecutive quarter-over-quarter net revenue growth across both direct-to-consumer (DTC) and business-to-business (B2B) channels, indicating an “increase in consumer momentum coming out of Q2.” Elsner said the company continues to hold brand recognition among consumers, which is helping it succeed among its competitors.

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Digging Deeper

The B2B channel continued to be a pain point for Charlotte’s Web in Q3 as retailers are still grappling with stay-at-home orders, as well as consumers choosing not to venture out to stores. Elsner said lower foot traffic to stores resulted in a 29% decrease of B2B revenue versus Q3 2019. 

In addition to the pandemic, Elsner added that B2B sales have been further stifled by competitive overcrowding and uncertainty in the CBD regulatory environment.

Declining B2B sales were offset, however, by a year-over-year increase of 28% in the company’s DTC e-commerce business as consumers continue shopping for CBD online. 

Elsner said Charlotte’s Web has been focusing more on e-commerce DTC sales, which represent 66% of its total revenue, with “effective online marketing, targeted segmentation of customers and personalized messaging.” As a result, DTC e-commerce revenues for the company grew 28% from Q3 2019 to Q3 2020. Also, new customer acquisitions grew 52%, retention grew 65% and subscriptions grew 139% year-over-year.

“We feel very good about our strategy and the capabilities in DTC, and we are confident in our ability to drive growth in this channel going forward,” Elsner said during the call.

Charlotte’s Web’s acquisition of Abacus Health Products, which was finalized in September, also gave Q3 revenue a boost of $2.5 million. The acquisition also bolstered the company’s quarter-over-quarter gross revenue sales of topicals, which were up 169%. (Meanwhile, tincture sales were up 2%, capsule sales were up 9%, pet sales were up 12% and gummies were up 41%.)

With the Abacus acquisition, Charlotte’s Web now has distribution to nearly 22,000 unique retailers nationwide.

“Within a difficult business environment, Charlotte’s Web continued to perform,” Elsner said during the call.

Looking Ahead

The Charlotte’s Web team anticipates revenue will continue its ascent into Q4 as well as year-over-year growth in the coming quarters. The company is working to consolidate its business into its new production and fulfillment center, which will provide “significant future cost saving opportunities starting in 2021,” said Chief Financial Officer Russ Hammer during the earnings call. 

However, with uncertainty still strong amid the pandemic, Hammer declined to provide more specific projections for 2021.

Meanwhile, Elsner has been attempting to quell at least some uncertainty in the CBD space by working with the U.S. Food and Drug Administration (FDA) on regulations for the cannabinoid. Elsner has been providing the FDA with Charlotte’s Web data in the hopes of helping the agency set standards for the industry.

“With the regulatory framework in place, the hemp industry can provide a needed financial jolt to the nation emerging from an economic recovery,” Elsner said. “Independent surveys predict, with the regulatory pathway, sales of CBD products would grow from approximately $1.2 billion in 2019 to anywhere from $10 billion to $16 billion in market size by 2025. And our intent is for Charlotte’s Web to be at the forefront of this industry.”

Elsner also showed enthusiasm for support on H.R. 8179, a bill moving through Congress that would legalize CBD in dietary supplements.

“H.R. 8179 is widely supported and now has 16 bipartisan co-sponsors in the house,” Elsner said. “This will help stabilize the hemp markets and open up the promising economic opportunity for U.S. agriculture.”