Charlie’s Holdings Reports Record Year-to-Date Financial Results with 46% Growth to $21.9 Million Revenue for the Nine Months Ended September 30, 2022

Rhea-AI Summary

Charlie's Holdings (OTCQB: CHUC) reported strong financial results for the nine months ending September 30, 2022, with a 46% revenue growth to $21.9 million. Gross profit also rose 16% to $9.2 million, while operating expenses decreased as a percentage of revenue from 53% to 43%. However, net income fell to $0.3 million from $2.7 million, reflecting lower gains in derivative liabilities. The company announced the national launch of PINWEEL, a new alternative cannabis product line derived from hemp, aiming to reduce regulatory risks associated with its nicotine products.

Positive

• Revenue increased 46% to $21.9 million for the nine months ended September 30, 2022.
• Gross profit rose 16% to $9.2 million for the same period.
• Operating expenses, as a percentage of revenue, decreased from 53% to 43%.
• Launch of PINWEEL alternative cannabis product line mitigates regulatory risks.

Negative

• Net income decreased 89% to $0.3 million compared to $2.7 million last year.
• Operating loss increased by $0.1 million to $0.1 million for the nine months.
• Gross profit margin declined from 53.1% to 42.2%.

Company Invests in Game-Changing PINWEEL™ "Alternative Cannabis" Product Line

COSTA MESA, CA / ACCESSWIRE / November 18, 2022 / Charlie's Holdings, Inc. (OTCQB:CHUC) ("Charlie's" or the "Company"), an industry leader in the premium, nicotine-based, vapor products space, today reported results for the three and nine months ended September 30, 2022, and provided an update on recent business highlights.

Key Financial Highlights for the Nine Months Ended September 30, 2022 (compared with the Nine Months Ended September 30, 2021)

• Revenue increased 46% to $21.9 million
• Gross profit increased 16% to $9.2 million
• Operating expenses, as a percentage of revenue, decreased from 53% to 43%
• Operating loss increased by $0.1 million to $0.1 million
• Net income was $0.3 million compared to net income of $2.7 million. (Net income for the nine months ended September 30, 2022 and 2021 included a gain in fair value of derivative liabilities of $0.6 million and $1.9 million, respectively)

Key Financial Highlights for Q3 2022 (compared with Q3 2021)

• Revenue increased 23% to $6.4 million
• Gross profit decreased 5% to $2.8 million
• Operating expenses, as a percentage of revenue, decreased from 48% to 42%
• Operating income decreased by $0.3 million to $0.0 million
• Net income was $0.2 million compared to net income of $3.1 million. (Net income for Q3 2022 and Q4 2021 included a gain in fair value of derivative liabilities of $0.2 million and $2.7 million, respectively)

Key Business Highlight subsequent to Q3 2022

After months of preparation and investment, in November 2022 Charlie's announced the Company's national launch of PINWEEL, an alternative cannabis brand derived from 100% hemp extract. Incorporating proprietary live resin blends that include Delta 8, Delta 11, THC-O, THC-P and HHC, the PINWEEL product line offers adult consumers an exceptionally enjoyable alternative to alcohol and traditional cannabis products.

Alternative cannabis is a high-demand category that has grown rapidly in recent years. Importantly, PINWEEL hemp-derived products mitigate the current PMTA regulatory risk that is related to the Company's nicotine products. Because Charlie's PINWEEL product line contains only cannabinoids that are derived from the hemp plant, PINWEEL products are not subject to the Controlled Substances Act and are legal throughout most of the United States. Further, PINWEEL alternative cannabis products are not currently subject to FDA review. The rapidly growing category represents a unique opportunity for Charlie's to market and advertise directly to adult consumers.

Management Commentary

"Charlie's financial trends continued to improve in the third quarter and through the first nine months of 2022, highlighted by our 23% and 46% year-over-year revenue growth," reported Matt Montesano, Chief Financial Officer of Charlie's Holdings. "Domestically we are pleased with the early traction and significant growth opportunity represented by our new 12ml Pacha Disposable line and our refreshed Pacha e-liquid line, both of which launched in the second quarter of 2022. Our tight fiscal controls have reduced Company operating expenses, as a percentage of revenue, to 42% during the third quarter, and demonstrate the strength and scale of our business as we ramp revenue."

Ryan Stump, Charlie's Chief Operating Officer, commented, "At this date, Charlie's 2020 Premarket Tobacco Application ("PMTA") remains among the select minority of applications submitted to the FDA that has not received a Marketing Denial Order ("MDO"). This fact highlights our progress toward achieving full regulatory compliance and demonstrates the emphasis Charlie's places on providing customers with a trusted product portfolio. Our extensive R&D investments and broad regulatory compliance efforts have set Charlie's PMTAs apart from those submitted by the vast majority of our peers. We believe we have put our Company in the best possible position for success."

"We are pleased to report that Charlie's achieved greater revenue in the first 9 months of 2022 than in ALL of 2021… this is a record year for the Company! That said, these are challenging times for the entire vapor products industry, explained Henry Sicignano III, Charlie's President. "Accordingly, in order to mitigate regulatory risks associated with nicotine products, in Q4 2022 and throughout 2023, we will place a heavy focus on alternative cannabis products that are not currently subject to FDA review and are legal throughout most of the United States. As more fully described at Pinweel.com and on Instagram @Pinweelpals, Charlie's PINWEEL brand may well be our most strategically important launch ever."

Highlighted Strategic Initiatives

Considering industry-specific hurdles, as well as the potential for future regulatory changes, Charlie's has targeted several strategic initiatives for future growth.

First, the Company plans to increase the sales of its hemp-derived products, including ingestibles and disposable vapor devices. Charlie's believes there is significant growth potential in the hemp-derived products space, and has shifted its focus to the market for products containing compounds that are synthetically derived from hemp, including Delta-8-Tetrahydrocannabinol ("Delta-8-THC") and other synthetic tetrahydrocannabinol compounds. Also referred to as "alternative cannabis products," hemp-derived products mitigate the current PMTA regulatory risk that is related to the Company's nicotine products. Because Charlie's alternative cannabis products contain only cannabinoids that are derived from the hemp plant, they are not subject to the Controlled Substances Act and are legal throughout most of the United States. Further, alternative cannabis products are not currently subject to FDA review. Accordingly, the category represents a unique opportunity for the Company to market and advertise to adult consumers.

Second, the Company continues to see a significant opportunity for sales growth in international markets for its e-liquid and other vapor products. Presently, approximately 15% of Charlie's vapor product sales come from international markets. The Company is well positioned to increase sales in countries where it already has a presence and, leveraging its existing distribution platform, the Company intends to exploit new overseas markets. Specifically, the Company intends to launch proprietary new disposable vape products, along with e-liquids, both of which have been specially formulated for the European and Middle East markets. In partnership with international distributors, Charlie's will sell the Company's products in target markets where more than 20% of the adult population consumes nicotine in some format.

Finally, the Company believes that tobacco and synthetic nicotine vapor products will continue to provide a significant growth opportunity domestically. During the quarter ended March 31, 2021, Charlie's launched its synthetic nicotine (not derived from tobacco) Pacha Disposable product line. The Company is continuing with its plan to obtain marketing authorization for certain of its nicotine-based vapor products through its September 2020 Premarket Tobacco Applications ("PMTAs"), as well as through Charlie's May 2022 PMTA submissions pertaining to the Company's synthetic nicotine Pacha product line. Obtaining one or more marketing orders from the FDA would, the Company believes, advance Charlie's position as a trusted, industry leader committed to full regulatory compliance.

Financial Results for the Three Months Ended September 30, 2022:

• Revenue: For the three months ended September 30, 2022, revenue was $6.4 million, an increase of $1.2 million, or 23%, compared with $5.2 million for the same period last year. The increase in sales was primarily due to an increase in sales of nicotine-based vapor products. The increase in nicotine-based vapor product sales was driven by sales of the new 12ml Pacha Disposable line and the Company's refreshed Pacha e-liquid line, both of which launched in the second quarter of 2022, as well as by incremental market penetration of existing Pacha Disposable products.
• Gross Profit: For the three months ended September 30, 2022, gross profit was $2.8 million, a decrease of $0.2 million, or 5%, compared with $2.9 million for the same period last year. The resulting gross margin was 42.9%, compared with 55.7% for the same period last year. The decrease in gross margin is primarily due to (i) Charlie's Pacha Disposable product line, which carries a lower unit margin relative to the Company's other products, representing a higher proportion of sales than last year, and (ii) pricing pressure in certain channels due to enhanced competition has also contributed to higher cost of goods relative to sales.
• Total Operating Expenses: For the three months ended September 30, 2022, total operating expense, including general and administrative, sales and marketing expense and research and development costs, were $2.7 million, an increase of $0.2 million, or 7%, compared with $2.5 million for the three months ended September 30, 2021. The increase in operating expenses was primarily due to enhanced trade-show activity during the quarter in furtherance of the Company's plan to grow market share across the nicotine and hemp-derived product categories. Sales commissions increased due to revenue growth across Charlie's businesses, however the increase was mitigated by further restructuring of the Company's sales team and compensation program at the beginning of 2022. Operating expenses as a percentage of revenue decreased to 42%, from 48%, for the periods compared.
• Operating Income: For the three months ended September 30, 2022, operating income was $0.0 million, a decrease of $0.3 million, or 88%, compared with an operating income of $0.4 million for the three months ended September 30, 2021.
• Net Income: For the three months ended September 30, 2022, net income was $0.2 million, a decrease of $2.9 million, or 92%, compared with net income of $3.1 million for the three months ended September 30, 2021. Of note, net income for the three months ended September 30, 2022 and 2021 included a $0.2 million and $2.7 million gain in fair value of derivative liabilities, respectively.

Financial Results for the Nine Months Ended September 30, 2022:

• Revenue: For the nine months ended September 30, 2022, revenue was $21.9 million, an increase of $6.9 million, or 46%, compared with $15.0 million for the same period last year. The increase in revenue was primarily due to an increase in sales of nicotine-based vapor products and an increase in sales of hemp-derived products. The increase in nicotine-based vapor product sales was driven by sales of new 8ml Pacha Disposable line, which launched in December 2021, as well as 12ml Pacha Disposable and refreshed Pacha e-liquid lines, both of which launched in the second quarter of 2022.
• Gross Profit: For the nine months ended September 30, 2022, gross profit was $9.2 million, an increase of $1.3 million, or 16%, compared with $7.9 million for the same period last year. The resulting gross margin was 42.2%, compared with 53.1% for the same period in 2021. The decrease in gross margin is primarily due to an increased percentage of our sales coming from Charlie's Pacha Disposable product line, which carries a lower unit margin relative to the Company's other products and pricing pressure in certain channels, due to enhanced competition, has contributed to higher cost of goods relative to sales.
• Total Operating Expenses: For the nine months ended September 30, 2022, total operating expense, including general and administrative, sales and marketing expense and research and development costs, were $9.4 million, an increase of $1.4 million, or 18%, compared with $8.0 million for the nine months ended September 30, 2021. The increase in operating expenses was primarily attributable to sales and marketing costs related to enhanced trade-show activity during the quarter in furtherance of the Company's plan to grow market share across the nicotine and hemp-derived product categories and $0.7 million in research and development costs associated with the Company's 2022 PMTA submissions. Operating expenses as a percentage of revenue decreased to 43%, from 53%, for the periods compared.
• Operating Loss: For the nine months ended September 30, 2022, operating loss was $0.1 million, an increase of $0.1 million, compared with an operating loss of $0.0 million for the nine months ended September 30, 2021.
• Net Income: For the nine months ended September 30, 2022, net income was $0.3 million, a decrease of $2.4 million, or 89%, compared with net income of $2.7 million for the nine months ended September 30, 2021. Of note, net income for the nine months ended September 30, 2022 and 2021 included a $0.6 million and $1.9 million gain in fair value of derivative liabilities, respectively, and the nine months ended September 30, 2021 included a $0.9 million gain on debt extinguishment.

About Charlie's Holdings, Inc.

Charlie's Holdings, Inc. (OTCQB:CHUC) is an industry leader in the premium, nicotine-based, vapor products space. The Company's products are sold around the world to select distributors, specialty retailers, and third-party online resellers through subsidiary companies Charlie's Chalk Dust, LLC and Don Polly, LLC. Charlie's Chalk Dust, LLC has developed an extensive portfolio of brand styles, flavor profiles, and innovative product formats. Don Polly, LLC creates innovative hemp-derived products and brands.

For additional information, please visit Charlie's corporate website at: Chuc.com and the Company's branded online websites: CharliesChalkDust.com, Pacha.co, andPinweel.com.

Safe Harbor Statement

This press release contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements regarding the Company's overall business, existing and anticipated markets and expectations regarding future sales and expenses. Words such as "expect," "anticipate," "should," "believe," "target," "project," "goals," "estimate," "potential," "predict," "may," "will," "could," "intend," variations of these terms or the negative of these terms, and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond the Company's control. The Company's actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to: the Company's ongoing ability to quote its shares on the OTCQB; whether the Company will meet the requirements to up-list to a national securities exchange in the future; the Company's ability to successfully increase sales and enter new markets; whether the Company's PMTA's will be granted marketing orders by the FDA, and the FDA's decisions with respect to the Company's future PMTA submissions; the Company's ability to manufacture and produce products for its customers; the Company's ability to formulate new products; the acceptance of existing and future products; the complexity, expense and time associated with compliance with government rules and regulations affecting nicotine, synthetic nicotine, and products containing cannabidiol; litigation risks from the use of the Company's products; risks of government regulations, including recent regulation of synthetic nicotine; the impact of competitive products; and the Company's ability to maintain and enhance its brands, as well as other risk factors included in the Company's most recent quarterly report on Form 10-Q, annual report on Form 10-K, and other SEC filings. These forward-looking statements are made as of the date of this press release and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Except as required by law, the Company undertakes no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events or changes in its expectations.

Investors Contact:

IR@charliesholdings.com
Phone: 949-570-0691

SOURCE: Charlie's Holdings, Inc.

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FAQ

What were the revenue results for Charlie's Holdings in Q3 2022?

Charlie's Holdings reported a revenue increase of 23% to $6.4 million for Q3 2022.

What is the significance of the PINWEEL product line for Charlie's Holdings?

The PINWEEL product line represents a strategic shift towards alternative cannabis products, reducing regulatory risks associated with nicotine.

How did Charlie's Holdings' net income change in 2022?

Net income decreased by 89% to $0.3 million for the nine months ended September 30, 2022, compared to $2.7 million in the previous year.

What is the impact of operating expenses for Charlie's Holdings?

Operating expenses decreased as a percentage of revenue from 53% to 43%, although total operating expenses increased by $1.4 million for the nine months.

What are the future plans for Charlie's Holdings regarding regulatory compliance?

Charlie’s Holdings aims to focus on alternative cannabis products that are not subject to current FDA review, potentially enhancing growth opportunities.