Charlotte’s Web stays afloat with Walmart deal, cost cuts

Charlotte’s Web has brokered a major new distribution deal and launched a new e-commerce platform. The company said both initiatives will help it return to growth and eventually profitability as it contends with continued losses.

The company recently reported its second-quarter financial results, which showed sales had contracted significantly compared to the same period a year previously.

For the second quarter, net revenue was $12.3 million, down from $16 million during the second quarter of 2023.

Net revenue in both the direct to consumer (DTC) and business to business (B2B) channels fell on a year-over-year basis. The company reported a net loss of $11.1 million in the quarter, compared to a profit of $2.3 million in the same period in 2023.

First sequential revenue improvement in years

However, the company highlighted overall net revenue, DTC and B2B results were up slightly compared to the first quarter of fiscal 2024. That is the first sequential improvement for the company since before the Covid-19 pandemic hit.
Charlotte’s Web CEO Bill Morachnick said the new e-commerce platform is performing well. However, he said the outlook for the entire sector is still clouded. A lack of federal regulatory oversight has created a convoluted market that includes some lower quality offerings.

“In general, the ongoing headwinds in the CBD market remain for 2024. And it’s hindered by a lack of federal regulatory action and the related emergence of inconsistent competitive alternatives, which creates ongoing consumer confusion,” he said. He made his remarks as part of an earnings call with analysts that was posted on the site seekingalpha.com.

Good news with Walmart

Another part of the good news for Charlotte’s Web was the launch of new topical products into Walmart locations during the second quarter. Charlotte’s Web is now selling a topical CBD isolate product in 827 Walmarts in five states, which is about 17% of the retailer’s overall footprint.

“Sales of these products are performing well, and we’re very excited about the significant growth potential they represent,” Morachnick said.

Like many retailers interested in the CBD space, Walmart has chosen not to feature ingestible products — including CBD-containing dietary supplements — until the federal government creates a regulatory pathway. Reportedly the only major retail chain featuring ingestible products has been Wegmans.

“It’s not a mystery of what they’re looking for when they decide to work with a new partner and list new products,” Morachnick said of Walmart. “This isn’t a comprehensive list, but you can imagine as a Walmart shopper, they’re looking for high-quality products at attractive prices, good gross margins for them, partners that they can trust, which is a really critical component, and they want to see a high rate of turnover or consumer offtake or velocity. We check all those boxes in spades.”

Cutting costs to keep ship afloat

Charlotte’s Web does not provide full-year revenue projections. But Morachnick shared that in the tough CBD market the company has been on a stringent cost-cutting path to remain viable.  He said the goal is to get the company to the point where it can break even at about $65 million in annual net revenue. At the beginning of 2024, that number was closer to $85 million.