Charlotte’s Web posts ‘less-than-satisfactory’ third quarter amid exec shakeup

LOUISVILLE — It was a tumultuous third quarter for Charlotte’s Web Holdings Inc. (TSX: CWEB) (OTCQX: CWBHF) as the Louisville-based CBD company shook up its executive team amid declining financial performance and a shareholder revolt.

Charlotte’s Web’s net losses grew to $15.2 million on sales of $14.3 million in the recent period. That’s compared to a net loss of $7.6 million on sales of $17 million in the same period last year.  

“CBD product sales year-to-date remain below expectations due to ongoing headwinds in the overall CBD category, including regulatory ambiguities at the federal and state levels, associated customer and consumer confusion, and competitive crowding and pricing pressures,” the company said. 

The third quarter saw a top-level shakeup as William Morachnick was installed in September as CW’s new CEO, replacing Jacques Tortoroli, who resigned. Morachnick was president of Santa Fe Reynolds Tobacco International GmbH in Zurich, Switzerland, from 2006 to 2016. That company was acquired by Japan Tobacco Group in 2016 for $5 billion. Morachnick then led the integration of the two companies as CEO and chairman, based in Tokyo, for two years before returning to the U.S. in 2018.

The c-suite change came as a result of maneuvering from CW founders Jesse Stanley and Joel Stanley, who had been sidelined from day-to-day management of the company in recent years.

In June, the Stanley brothers began publicly pressuring shareholders to oust board members and executives. The revolt coincided with a prolonged period of financial struggle for the Boulder-born hemp-derivatives producer. 

The Stanleys accused company leadership of “uncontrolled spending without consequences,” “failure to maximize potential,” “poor hiring practices” and “lack of accountability.”

Among the “concerned shareholders,” the Stanleys said, was Major League Baseball, with which CW inked a sponsorship deal, making it the first CBD company to partner with a professional sports league. Simultaneously, the company launched a line of sports products starting with Daily Edge, a CBD tincture that underwent strict testing and was uniquely designed to adhere to MLB’s banned substances policy.

“Since I joined Charlotte’s Web in the late third quarter, I have been truly impressed by the talent, passion and scientific expertise within the company,” Morachnick said in a statement this week. “Following less-than-satisfactory third-quarter revenue, we have quickly mobilized a decisive action plan aimed at streamlining the organization to restore growth. We have revamped both our commercial and IT departments and are in the process of upgrading our operational platforms. Our ultimate goal with these initiatives is to elevate and fully monetize the consumer e-commerce experience, leading with data as a guidepost.”

CW leadership, the company said, has “identified three specific areas of opportunity to simplify, focus and sharpen the corporate strategy for long-term growth. First, rapid improvement of the company’s e-commerce platform and performance; second, a holistic integration of the company’s information technology infrastructure to support the company’s goals; and third, refreshing the brand and integrated consumer marketing strategies.”

Additionally, the company decided this year to bring production of gummies and topicals in house. “On-site manufacturing better utilizes the company’s existing Louisville production facility, improving gross margins through increased fixed cost operating leverage,” CW said. “The initiative aligns with the company’s ongoing efforts to improve overall operating efficiencies.”

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