Charlotte’s Web Reports a Loss in Q1 as Sales Dip and Expenses Rise

The CBD manufacturer recently reported a loss of $11M for Q1 versus a profit of $2.3M the same time last year as sales take a hit amid COVID-19 and operating expenses rise.

May 20, 2020

Declining sales coupled with a spike in operating expenses have resulted in a loss for Charlotte’s Web, the Denver-based cannabidiol (CBD) manufacturer, in the first quarter of 2020. 

The company recently released its Q1 earnings for 2020, reporting a loss of $11 million versus a profit of $2.3 million the first quarter of 2019.

CEO Deanie Elsner attributed the sharp decline in part to COVID-19. While the global pandemic hasn’t disrupted operations at the business, Elsner says it has disrupted sales.

The company’s sales in the food/drug/mass (FDM) channel saw a slight boost in the two weeks leading up to March 21, at which point nearly one in four Americans was under a shelter-in-place order, according to U.S. News and World Report. “Although there was some slight pantry-loading that occurred in the CBD category prior to the shelter-in-place, the FDM category takeaway remains 15% to 20% below the 2020 pre-COVID run rate,” Elsner said during a company earnings call.

He added that the company’s direct-to-consumer (DTC) channel experienced a similar increase in sales prior to shelter-in-place orders, but that channel didn’t experience the same contraction in sales as FDM. In fact, DTC sales grew 29% year-over-year through e-commerce sales and accounted for two-thirds of the company’s Q1 revenue in 2020. “For perspective, we believe that our DTC business alone is larger than any single competitor in the CBD category, which positions us well as the category growth accelerates,” Elsner said. 

Elsner said the growth in the DTC channel offset declines in the business-to-business (B2B) channel, which is down 32% versus a year ago. He attributed the decline to a dip in FDM and natural channel sales because of regulatory uncertainty and market overcrowding.

“As we move forward, we expect the FDM channels to return back to pre-COVID run rates. We anticipate that a portion of these sales will be realized online, which is confirmed with the continued strength of our DTC business,” Elsner said during the call.

Operating expenses in the first quarter of 2020 also spiked by nearly 77% year-over-year, rising from $13.2 million in the first quarter of 2019 to $23.3 million in Q1 2020. CFO Russ Hammer said the heightened expenses are temporary as the company grows. The heightened expenses were driven by investments into expanding the company’s management team and its DTC capabilities, as well as protecting the brand’s intellectual property and genetics.

Charlotte’s Web’s Q1 revenue of $21.5 million came in higher than the $20 million the company projected in March, and it’s only slightly down from revenue of $21.7 million the same time last year. 

Despite a dip in FDM sales amid COVID-19, the company anticipates DTC sales will continue covering the losses as the year goes on.

"The impact from the COVID-19 pandemic so far on the retail side of our business has been countered by the strong online sales of our DTC e-commerce business, so we are therefore maintaining our 2020 growth expectations for Charlotte's Web's business for 10% to 20% year-over-year growth. This provides for a top line range of approximately $105 million to $115 million for 2020," Hammer said. 

Elsner also provided a brief update on the company’s acquisition of Abacus Health Products Inc., saying the companies are currently working through “integration discussions” and anticipate finalizing the acquisition by Q3. The two combined are expected to represent nearly 35% of U.S. sales within the FDM channel.