Hemp extract specialist Charlotte’s Web Holdings, Inc. continues to project revenue growth of 10% to 20% in fiscal 2020, driven by its expanding presence in the US food, drug and mass channel, a rising pet platform and continued direct-to-consumer dominance.
The Boulder, CO-based cannabidiol (CBD) product manufacturer reported a 1% slip in fiscal 2020 first-quarter sales to $21.5m, driven by a roughly 32% drop in business-to-business sales due largely to competitive overcrowding in the natural retail channel, according to its 14 May announcement.
However, the firm is weathering the COVID-19 crisis well and believes it is positioned for an explosive pickup in the second half of 2020.
According to company leadership, Charlotte’s Web is growing its distribution in the US food, drug and mass channel, recently adding 1,100 new doors to its FDM retail base through an existing partner.
Overall, Charlotte’s Web will have a presence in nearly 12,000 doors across channels by the end of the second quarter, the firm says.
“We would expect to see a future where we'll be able to be a little bit more progressive in some of the structure and function claims that we make."
However, the company continues to face resistance from FDM retailers when it comes to CBD dietary supplements, whose uncertain regulatory status in the US has retailers taking a wait-and-see approach before stocking their shelves with the products. (Also see "CV Sciences Eagerly Anticipating FDA Rulemaking On CBD In Dietary Supplements
" - HBW Insight, 30 Apr, 2020.)
As cosmetics do not represent the same regulatory hurdles, Charlotte’s Web has answered with a flurry of topical CBD product innovation. New offerings include Hemp-Infused Cooling Gel with CBD, as well as balms for “specific areas of the body that need a little extra care,” peppermint and lavender roll-ons, and a cream designed to “revitalize, restore and rejuvenate your skin,” all launched in April.
Prices range from $14.99 to $39.99.
“Our new topicals offer some of the highest full spectrum CBD concentrations available in the market today, making them more efficacious, and our new formats are getting positive consumer feedback,” said president and CEO Adrienne Elsner during a same-day call.
Topical products currently account for just roughly 6% of Charlotte’s Web’s net sales, a smaller slice even than pet products, which now constitute around 8% of its business and are poised for rapid growth under the firm’s recently inked distribution deal with its first national pet product retailer.
Shipments of Charlotte’s Web Calming Chews, Hip & Joint Chews and other CBD products for dogs began at the end of March under the new partnership, according to company leadership.
Already, Charlotte’s Web pet product sales increased 163% in the first quarter (compared with a 27% decline in topicals and 10% dietary supplement growth). “That [pet] channel basically was nonexistent for us last year. That volume is all upside to us this year,” noted Elsner.
Human ingestibles account for the vast bulk of Charlotte’s Web’s business, around 86%. Until the US Food and Drug Administration provides a clear legal pathway for CBD-containing dietary supplements, the company will continue to rely heavily on channels outside of FDM for ingestible product sales.
DTC Sales Outsized And Growing
Competitor CV Sciences, Inc. has noted the same brick-and-mortar challenges that are hampering Charlotte’s Web – namely, difficulty penetrating the FDM market with supplements and oversaturation of the natural retail sector, along with COVID-19 related impacts. (Also see "CV Sciences’ Q1 Sales Tumble, And COVID-19’s Only Part Of The Problem" - HBW Insight, 12 May, 2020.)
Charlotte’s Web has an advantage amid COVID-19 store closures and FDM obstacles in that 66% of its business is already DTC, compared with 24% of CV Sciences’, and while the latter is investing heavily in digital at the moment, so is Charlotte’s Web.
According to Elsner, the firm’s DTC net sales grew more than 29% in the first quarter, compared with the prior-year period, reflecting increases in online traffic and conversion rates, driven by ramped-up marketing and social media programs.
“Online sales remain the largest channel in the CBD category today, and it will remain the largest channel in the CBD category going forward,” the CEO said, citing Brightfield Group. She added, “For perspective, we believe that our DTC business alone is larger than any single competitor in the CBD category.”
Meanwhile, Charlotte’s Web is taking measures to address competitive pressures in natural retail and online, recently reducing prices 15% to 20% across its portfolio and introducing trial formats at accessible price points to draw new customers.
Driving New Science, Claims
The firm also is bulking up its R&D with the creation of a new division in March, CW Labs, that placed the company’s internal experts as well as external research specialists under the leadership of Tim Orr, brought on board as senior vice president of innovation.
Orr has previous executive and management experience in commercial and product development capacities at Johnson & Johnson and Abbott Laboratories Inc..
CW Labs is headquartered on the State University of New York’s Buffalo Niagara Medical Campus and will pursue collaborations with the rest of SUNY’s network of academic and medical institutions, Charlotte’s Web says. The division currently is engaged in double-blinded, placebo-controlled clinical trials investigating hemp-based solutions for different needs, according to the firm’s 13 March release.
Elsner said that in addition to strengthening and organizing the science behind Charlotte’s Web products, CW Labs aims to generate clinical evidence to support new product benefit claims.
“We would expect to see a future where we'll be able to be a little bit more progressive in some of the structure and function claims that we make,” the CEO said during the Q1 call.
“The combination of Charlotte's Web and Abacus creates a formidable company in the CBD category, leading the market with brands, science and quality.”
Further, CW Labs is expected to help enhance the company’s CBD product portfolio with new formats that “are more consumer-friendly, are more acceptable and more appropriate by consumer segment.”
Elsner noted, “The reason why we brought CW Labs to the forefront is we need to continue to fuel breakthrough innovation in this category while we build the science and the data that reinforces what makes us different.”
CV Sciences also touts its strong scientific underpinning as a competitive differentiator that will become more pronounced and materially meaningful if and when the FDA clarifies regulatory requirements for CBD products. (Also see "FDA's CBD Enforcement Policy Report To Congress May Have Offered More Questions Than Answers" - HBW Insight, 16 Mar, 2020.)
Charlotte’s Web completed a GRAS (generally recognized as safe) self-affirmation for full-spectrum hemp extract during the first quarter, following a similar play by CV Sciences in September 2018.
Counting On Abacus For FDM Expansion
The 10% to 20% full-year growth forecasted by Charlotte’s Web does not include prospective additional revenues from Abacus Health Products, Inc., which Charlotte’s Web intends to acquire via an all-stock transaction announced in late March.
Abacus develops and markets topical formulations under its CBD Clinic and CBDMedic brands that combine hemp-derived CBD extract with active pharmaceutical ingredients approved for OTC pain relief and skin care. (Also see "Wellness Market Executive Decisions: Beckham For Pedialyte, 'Gronk' For CBD, Honderd Out At Mary's, Appointments At GB Sciences, Nature's Bounty" - HBW Insight, 10 Sep, 2019.)
According to Charlotte’s Web, “Abacus distributes the industry's widest portfolio of topical CBD SKUs through more than 12,000 doors including the three largest US pharmacy chains, and also reaches 16,500 health care practitioners.”
Following the deal’s projected close by the late second or early third quarter – assuming that Abacus shareholders vote in favor of the transaction on 4 June – the combined Charlotte’s Web will boast a 35% share of the FDM channel for CBD products, according to the company.
Elsner stated during the Q1 briefing with analysts, “The combination of Charlotte's Web and Abacus creates a formidable company in the CBD category, leading the market with brands, science and quality. Combined, we represent the deepest and broadest CBD company in the world with the most developed portfolio offer across all channels and all segments.”
Abacus’ approach – coupling active ingredients listed in the FDA’s tentative final monograph for OTC external analgesic drugs, such as camphor and menthol, with “natural emollients,” including CBD extracted from hemp – does not appear to have met with any objections from the FDA to date.
Notably, however, the agency stresses on its website that “CBD was not an ingredient considered under the OTC drug review. An unapproved new drug cannot be distributed or sold in interstate commerce.”
Manufacturers of cosmetic products are frequently warned by the FDA about making pain-relief claims, which according to the agency identifies their products as unapproved new drugs.
Advertising for topical CBD pain-relief products has been subject to BBB National Programs, Inc. inquiries, resulting in voluntarily modified claims in the spirit of supporting industry self-regulation. (Also see "Direct-Selling Sector Ad Claim Monitor Snares Supplement, Personal Care Product Firms" - HBW Insight, 23 Apr, 2020.)
Close Watch On Unemployment
While awaiting FDA rulemaking on CBD products, Charlotte’s Web is closely monitoring unemployment trends as a result of the global shutdown in response to COVID-19.
So far, the crisis has weighed on Charlotte’s Web’s FDM channel sales, but otherwise disruptions to its business have been minimal, according to the company.
That said, Elsner acknowledged that “with unemployment comes a reduction in discretionary spending. For us, that is something in a category like this that becomes very important.”
At the same time, she suggested that the anxiety, stress and lack of sleep that consumers are experiencing during the crisis “feeds right into this category and wellness. So we feel like the consumer trends are well-positioned for this category,” Elsner said.
The CEO also pointed again to the more accessible price points that Charlotte’s Web has implemented across its portfolio.
She concluded, “For us, the CBD category remains as exciting as ever, as we believe that Charlotte's Web is the best-positioned company to lead the category growth going forward.”