Charlotte's Web Positions to Enter US Cannabis Wellness Market

Rhea-AI Summary

Charlotte's Web Holdings has entered into an Option Purchase Agreement with Stanley Brothers USA, a cannabis wellness incubator, allowing Charlotte's Web to acquire the company within five years, contingent upon certain conditions. Stanley Brothers operates in Colorado, California, and Florida and plans to expand into eight more states. The agreement involves a purchase price determined by revenue and EBITDA multiples. The Option was purchased for US$8 million. Charlotte's Web aims to strengthen its presence in the cannabis wellness market as consumer trends and laws evolve favorably.

Positive

• Charlotte's Web can acquire Stanley Brothers USA, enhancing its position in the U.S. cannabis wellness market.
• Agreement allows for potential growth opportunities and increased shareholder value.
• Stanley Brothers USA operates in multiple states with plans to expand, which could benefit Charlotte's Web.

Negative

• The acquisition is contingent upon federal legalization of cannabis in the U.S., which poses uncertainty.
• Charlotte's Web is not obligated to exercise the Option, potentially missing growth opportunities.

Charlotte's Web secures Option to purchase Stanley Brothers' cannabis business

BOULDER, Colo., March 3, 2021 /PRNewswire/ - Charlotte's Web Holdings, Inc. ("Charlotte's Web", "CW" or the "Company") (TSX: CWEB) (OTCQX: CWBHF), the market leader in full-spectrum hemp CBD extract products, announces that it has entered into an Option Purchase Agreement (the "Option") with Stanley Brothers USA Holdings, Inc. ("Stanley Brothers USA"), a privately-held Delaware company, and the shareholders of Stanley Brothers USA. Stanley Brothers USA is a cannabis wellness incubator currently operating in three states (Colorado, California, Florida) with expansion plans underway in eight additional states. The Option has a five-year term (extendable for an additional two years) and provides Charlotte's Web the optionality to acquire Stanley Brothers USA on the earlier of three years from the effective date of the Option and federal legalization of cannabis in the United States, or such earlier time as Stanley Brothers USA and Charlotte's Web may agree (the "Triggering Event") potentially including when otherwise permitted by the policies of the stock exchange on which the Company's securities are listed for trading. The common shares of Charlotte's Web continue to trade on the TSX in Canada and OTCQX in the US.

"Consumer attitudes, market trends, and laws surrounding cannabis and its role within the wellness category continue to trend positively. This strategic Option provides Charlotte's Web optionality to enter the U.S. cannabis wellness market in partnership with an experienced and trusted team and brand, positioning our business for potential new growth opportunities and shareholder value creation," explained Deanie Elsner, CEO of Charlotte's Web. "The Stanley Brothers are innovating cannabis wellness with the same philosophy and vision that drove their success as founders of the Charlotte's Web brand. With this shared heritage, we could not be more aligned."

Stanley Brothers USA is evolving botanical formulations for the Cannabis 2.0 wellness-focused consumer, combining full-spectrum cannabis extracts with functional botanical ingredients. Marketed under the "ReCreate" brand, the wellness formulations are lower in tetrahydrocannabinol ("THC") for more precisely controllable benefits. Products include functional chocolates, gummies and oil tinctures, formulated with the wellness benefits of the entire cannabis plant including CBD and THC to help achieve a desired state of wellbeing.

Charlotte's Web is the global leader in the cultivation, production and distribution of hemp-derived CBD wellness products. Until the Option is exercised, both Charlotte's Web and Stanley Brothers USA will continue to operate as standalone entities in the US. Internationally the companies are able to explore opportunities where cannabis is federally permissible.

Related-Party Transaction and Board Changes

Two founders of Stanley Brothers USA are members of the Charlotte's Web board of directors. To further support the strategic Option, Charlotte's Web co-founders Joel Stanley and Jared Stanley resigned as members of the Charlotte's Web board of directors in order to transition to board positions with Stanley Brothers USA and oversee execution of that business with aligned values, business practices, and vision.

• Joel Stanley, a Charlotte's Web co-founder and Board Member, is a Stanley Brothers USA co-founder and will assume a seat on the Board of Directors at Stanley Brothers USA.
• Jared Stanley, a Charlotte's Web co-founder, Board Member, and its Chief Cultivation Officer, is a Stanley Brothers USA co-founder and will assume a seat on the Board of Directors at Stanley Brothers USA.

A special committee (the "Special Committee") of the board of directors of CW (the "Board"), comprised solely of independent and disinterested directors, and advised by its own independent legal advisors, unanimously recommended that the Board approve the Option. Acting upon the recommendation of the Special Committee, the members of the Board unanimously approved the Option.

Additional Terms of the Option

The five-year Option (extendable to seven years upon payment of additional consideration) with Stanley Brothers USA shareholders was purchased for total consideration of US$8 million cash. Upon the occurrence of the Triggering Event, the Company may exercise the Option to acquire Stanley Brothers USA for a purchase price to be determined at the time of exercise of the Option. The purchase price determination will involve weighted application of 3.5 times revenue and 13.5 times EBITDA multiples to Stanley Brothers USA's financial statements at the relevant time, or a base amount and earn-out, in certain circumstances.  The purchase price will be subject to customary adjustments for working capital, debt and cash at closing, and certain portions of the purchase price may be held back to cover post-closing adjustments and indemnification matters. Subject to compliance with applicable law and stock exchange approval, if required, Charlotte's Web intends to satisfy the purchase price through the issuance of common shares of CW ("CW Shares"), to be issued at a price based on the 20-day volume weighted average trading price of the CW Shares on the Toronto Stock Exchange at the relevant time of issuance.

CW is not obligated to exercise the Option.

In addition to the Option, Stanley Brothers USA has issued CW a warrant (the "Warrant") exercisable to purchase 10% of the outstanding Stanley Brothers USA shares and convertible securities that are considered in-the-money subject to certain conditions and exclusions. The Warrant is exercisable for a nominal exercise price in the event the Company elects not to exercise the Option.

A copy of the Option and the Warrant will be made available on CW's SEDAR profile at www.sedar.com.

Advisors

The Special Committee was advised by independent legal advisors and an independent national valuation firm.

DLA Piper (Canada) LLP and DLA Piper (US) LLP acted as legal counsel to Charlotte's Web. Akabas & Sproule acted as legal counsel to Stanley Brothers USA.

About Charlotte's Web Holdings, Inc.
Charlotte's Web Holdings, Inc., a Certified B Corporation headquartered in Boulder, Colorado, is the market leader in the production and distribution of innovative hemp-derived cannabidiol ("CBD") wellness products under a family of brands which includes Charlotte's Web™, CBD Medic™, CBD Clinic™, and Harmony Hemp. The Company's premium quality products start with proprietary hemp genetics that are 100-percent American farm grown and manufactured into whole-plant hemp extracts containing a full spectrum of naturally occurring phytocannabinoids including CBD, CBC, CBG, terpenes, flavonoids and other beneficial hemp compounds.  Charlotte's Web product categories include  CBD oil tinctures (liquid products), CBD gummies (sleep, stress, inflammation recovery), CBD capsules, CBD topical creams and lotions, as well as CBD pet products for dogs. Charlotte's Web is the number one CBD brand in the USA and distributed through more than 22,000 retail locations, select distributors and online through the Company's website at www.CharlottesWeb.com. 

Charlotte's Web was founded by the Stanley Brothers with a mission to unleash the healing powers of botanicals through compassion and science, benefiting the planet and all who live upon it.  Charlotte's Web is a socially and environmentally conscious company and is committed to using business as a force for good and a catalyst for innovation. The Company weighs sound business decisions with consideration for how its efforts affect employees, customers, the environment, and diverse communities. The rate the Company pays for agricultural products reflects a fair and sustainable rate driving higher quality yield, encouraging regenerative farming practices, and supporting U.S. farming communities. Management believes that its socially oriented and environmentally responsible actions have a positive impact on its customers, suppliers, employees and stakeholders. Charlotte's Web donates a portion of its pre-tax earnings to charitable organizations.

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Forward-Looking Information
This news release contains forward-looking statements and information within the meaning of applicable securities legislation. Often, but not always, forward-looking statements and information can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "estimates", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements or information involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Charlotte's Web to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements or information contained in this news release.

Risks, uncertainties and other factors involved with forward-looking information could cause actual events, results, performance, prospects and opportunities to differ materially from those expressed or implied by such forward-looking information, including assumptions as to CW's business; Stanley Brothers USA's business; the efficacy and results of research; the adverse impact of the COVID-19 pandemic to the Company's operations; and such risks contained in Charlotte's Web's annual information form dated March 27, 2020 and filed with Canadian securities regulators available on Charlotte's Web's issuer profiles on SEDAR at www.sedar.com. Readers are cautioned that the foregoing list of factors is not exhaustive.

There can be no assurance that the Triggering Event or the exercise of the Option or Warrant will occur, or that such events will occur on the terms and conditions contemplated in this news release. 

Charlotte's Web Holdings, Inc.
THE WORLD'S MOST TRUSTED HEMP EXTRACT™

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SOURCE Charlotte's Web Holdings, Inc.

FAQ

What is the Option Purchase Agreement announced by Charlotte's Web and Stanley Brothers USA?

Charlotte's Web has entered into an Option Purchase Agreement with Stanley Brothers USA, allowing for the acquisition of the company within five years, depending on specific conditions.

How much did Charlotte's Web pay for the Option to purchase Stanley Brothers USA?

The Option was purchased for a total consideration of US$8 million.

What markets does Stanley Brothers USA currently operate in?

Stanley Brothers USA operates in Colorado, California, and Florida, with plans for expansion in additional states.

What does the Option Purchase Agreement mean for Charlotte's Web (CWBHF)?

The agreement provides Charlotte's Web the potential to enter the U.S. cannabis wellness market, which could create new growth opportunities and enhance shareholder value.

What factors could affect the execution of the Option by Charlotte's Web?

Execution of the Option is contingent upon federal legalization of cannabis in the U.S. and other agreed-upon conditions.