CWBHF 10-K & 10-Q changes, risk factors and insider trading

Failure to comply with FDA requirements may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. The Company’s advertising is subject to regulation by the Federal Trade Commission ("FTC") under the Federal Trade Commission Act ("FTC Act") as well as subject to regulation by the FDA under the DSHEA. In recentprevious years, the FTC has initiated numerous investigations of dietary and nutritional supplement products and companies based on allegedly deceptive or misleading claims, and also released guidance aimed at strengthening its substantiation requirements for health-related claims. At any point, enforcement strategies of a given agency can change as a result of other litigation in the space or changes in political landscapes, and could result in increased enforcement efforts, which could materially impact the Company’s business. Additionally, some states also permit advertising and labeling laws to be enforced by state attorneys general, who may seek relief for consumers, class action certifications, class wide damages and recalls of products sold by the Company. Private litigants may also seek relief for consumers, class action certifications, class wide damages and recalls of products sold by the Company. Any actions against the Company by governmental authorities or private litigants could have a material adverse impact on the Company’s business, financial condition and results of operations.

Compliance with changes in legal, regulatory and industry standards may adversely affect the Company’s business. The formulation, manufacturing, packaging, labelling, handling, distribution, importation, exportation, licensing, sale and storage of the Company’s products are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar constraints. Such laws, regulations and other constraints may exist at the federal, state, provincial or local levels. ThereThe is currently no uniform regulation applicable to natural health products nationally or worldwide. There can be no assurance that the Company is in compliance with allinterplay of these laws,federal, regulationsstate, and otherlocal constraints,regulatory frameworks creates a dynamic and changesoften touncertain suchregulatory laws,environment. regulationsThe Company expects continued evolution in the laws governing hemp-derived cannabinoids, including potential congressional action, FDA rulemaking, state legislation, and otherstate constraintsagency may have a material adverse effect on the Company’s operations. Through December 31, 2024, several states have adopted new regulations that may impact the Company's ability to sell certain of its products as currently formulated or packaged in these states.rulemaking.

The designation of cannabinoids as a New Dietary Ingredient (NDI) or as an impermissible adulterant are uncertain. The FD&C Act requires that manufacturers who wish to market dietary supplements that contain "new dietary ingredients" ("NDI") notify the FDA with their basis for concluding that a dietary supplement containing such dietary ingredient will reasonably be expected to be safe. There is substantial uncertainty and different interpretations among state and federal regulatory agencies, legislators, academics and businesses as to whether cannabinoids were present in the food supply and marketed prior to October 15, 1994, or whether such inclusion of cannabinoids are permissible dietary ingredients under the FD&C Act. The uncertainties cannot be resolved without further federal legislation, regulation, or a definitive judicial interpretation of existing legislation, regulation and rules. For instance, on July 23, 2021, the Company was advised by the FDA of its objection to a New Dietary Ingredient Notification ("NDIN") submitted by the Company earlier in 2021. The Company's submission was objected to on the basis that a full-spectrum hemp extract does not meet the definition of a dietary supplement because the FDA has taken the position that CBD was not marketed as a dietary supplement or conventional food prior to its authorization for investigation as a new drug. The Company disagrees with the FDA’s position that CBD was not marketed as dietary supplement or food prior to the investigation of CBD as a new drug, and believes there are arguments against this position. There is no guarantee that federal legislation, regulation, or judicial action will override the FDA’s position and permit the use of CBD as an NDI, or as a dietary ingredient generally. If the FDA’s position is not modified, this would have a materially adverse effect upon the Company and its business.

The FDA enforcement against the sale and marketing of CBD products under the FD&C Act could target the Company and adversely impact the Company’s business and financial position. The FDA continues to enforce against violations of the FD&C Act by issuing warning letters to companies marketing and selling hemp-derived CBD products. Over the past several years, the FDA has issued warning letters to companies marketing and selling unapproved hemp-derived CBD products. The letters reiterate the agency’s position that CBD cannot be added to food and dietary supplements and targeted companies whose products violated the FD&C Act’s prohibition against: i) marketing CBD as or in a dietary supplement, human and animal food, or food additives; ii) marketing a dietary supplement, human and animal food, or cosmetic with disease or drug claims (i.e., claims suggesting that a product is intended to treat, cure, or prevent disease); iii) including a substance in human or animal food when that substance is not GRAS; and iv) selling products that are misbranded due to their failure to include "adequate directions for use by a layperson". The FDA also issued a consumer update reaffirming its position that CBD cannot lawfully be added to a food or marketed as a dietary supplement due to existing provisions of the FD&C Act, and outlining the data and potential safety issues it is considering as part of its ongoing evaluation of potential regulatory frameworks for CBD. Notably, the FDA states that it could not conclude based on available data that CBD is "generally recognized as safe" for use in human or animal food. While this is broad and may not be applicable in all instances, it nevertheless could materially and adversely impact the Company’s business and financial condition. Further, the FDA has recently stated that it will continue to police the market and enforce against CBD products, and onOn March 22, 2021, the agency issued warning letters to two companies for selling OTC products labeled as containing CBD, alleging the products were illegally marketed unapproved drugs and misbranded due to prominent featuring of CBD on the labeling, followed by additional warning letters issued in 2021 and 2022. The FDA’s enforcement against the unlawful sale and marketing of CBD products has to date been limited to the issuance of warning letters, but other enforcement means are available to the FDA, including civil and criminal penalties. The FDA’s current prohibition on certain hemp-derived products and the unknowns and associated risks of potential future regulations governing hemp-derived CBD products create risk for the Company’s business.

The FTC may take enforcement actions against companies selling CBD products, including the Company. The FTC and the FDA often coordinate enforcement efforts where the agencies have overlapping jurisdiction, including with respect to the advertising, labeling, and promotion of food, cosmetics, medical devices, and OTC drugs. In the CBD product marketplace, the FTC has joined the FDA in the issuance of a number of warning letters to companies warning that the company’s advertisements were not supported by competent and reliable scientific evidence and thus violate the FTC Act, 15 U.S.C. § 41 et. seq. The FTC has also issued independent warning letters to companies selling CBD products. These warning letters allege that companies make exaggerated or false and misleading claims about their CBD products without rigorous scientific evidence to substantiate the claims. While historically, the FTC enforcement actions related to CBD have been limited to warning letters, in December 2020, the FTC initiated its first law enforcement administrative action against six companies selling CBD products. These companies were alleged to have violated the FTC Act by allegedly making unsupported health claims. The FTC entered into settlement agreements with these companies, which required, among other things, that the companies stop making such unsupported health claims and pay a monetary judgment to the FTC. The FTC’s enforcement was publicized by the agency as part of its ongoing effort to protect consumers from false, deceptive, and misleading health claims made in advertisements on websites and through social media companies. An additional enforcement action against a CBD company was announced in May 2021. Further, onOn December 20, 2022, the FTC released a Health Products Compliance Guidance that covers all health-related product advertising and to substantiate health-related claims that emphasizes the need to support health-related claims with high quality randomized, placebo-controlled human clinical trials, which may signal the FTC is preparing to more closely scrutinize such claims compared to previous years. The unknowns and associated risks of potential future FTC enforcement actions create risk for the Company’s business.

Any inability to obtain required regulatory approval and permits could limit the Company’s ability to conduct its business. The Company may be required to obtain and maintain certain permits, licenseslicenses, product registrations and approvals in the jurisdictions where its products are sold. There can be no assurance that the Company will be able to obtain or maintain any necessary licenses, permitsproduct registrations or approvals. Any material delay or inability to receive these items is likely to delay and/or inhibit the Company’s ability to conduct its business, and would have an adverse effect on its business, financial condition and results of operations.

Regulatory uncertainty with respect to anti-money laundering laws and regulations impact on the CBD and marijuana-relatedcannabis related businesses, if revised or resolved unfavorably to the Company’s interests, may have an adverse effect on the Company’s business. The Company is subject to a variety of laws and regulations in Canada and the United States and elsewhere that involve money laundering, financial recordkeeping and proceeds of crime, including the U.S. Currency and Foreign Transactions Reporting Act of 1970 (commonly known as the "Bank Secrecy Act"), as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 ("USA Patriot Act"), the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), the Criminal Code ("Canada"), as amended and the rules and regulations thereunder, and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States and Canada.

In February 2014, the Financial Crimes Enforcement Network ("FinCEN") of the U.S. Department of the Treasury issued a memorandum providing instructions to banks seeking to provide services to marijuanacannabis related businesses (the "FinCEN Memo"). The FinCEN Memo states that in some circumstances, it may not be appropriate to prosecute banks that provide services to marijuana-relatedcannabis related businesses for violations of federal money laundering laws. It refers to supplementary guidance that Deputy Attorney General Cole issued to federal prosecutors relating to the prosecution of money laundering offenses predicated on cannabis-related violations of the CSA. It is unclear at this time whether the current administration will follow the guidelines of the FinCEN Memo. Under U.S. federal law, banks or other financial institutions that provide a cannabis-related business with a checking account, debit or credit card, small business loan, or any other service could be found guilty of money laundering, aiding and abetting, or conspiracy.

As a marijuana/cannabis relatedcannabis-related business, the Company may have difficulty accessing banking services due to the illegality of marijuana under federal law. Since the production and possession of cannabis is currently illegal under U.S. federal law and the Company relies on exemptions promulgated pursuant to the 2018 Farm Bill, it is possible that banks may refuse to open bank accounts for the deposit of funds from businesses adjacent to the cannabis industry. The inability to open bank accounts with certain institutions could materially and adversely affect the business of the Company.

The Company’s products have a limitedstated shelf life and product inventory may reach its expiration prior to sale. The Company holds goods in inventory and its products have a limitedstated shelf life. Its inventory may reach its expiration date and not be sold. Although the Company manages its inventory, it may be required to write-down the value of any inventory that has reached its expiration date, which could have a material adverse effect on the Company’s business, financial condition, and results of operations.

The Company is dependent upon agricultural production of hemp for part of the Company’s operations, which are subject to seasonal and weather-related risks. The Company’s business can be affected by unusual weather patterns. The production of some of the Company’s products relies on the availability and use of live plant material, which is grown in Arizona, Colorado, KentuckyKentucky, New Mexico, and Canada. Growing periods can be impacted by weather patterns and these unpredictable weather patterns may impact the Company's ability to harvest its industrial hemp and produce products. In addition, severe weather, including drought, fire, hail and freezing temperatures, can destroy a crop, which could result in the Company having no or limited hemp to process. If the Company is unable to harvest hemp through its proprietary operations or contract farming arrangements, its ability to meet customer demand, generate sales, and maintain operations could be impacted. Given the proprietary nature of the Company’s crops, it may not be practicable for the Company to source adequate, or any, replacement hemp to produce some downstream products.

The Company may be unable to obtain or maintain highfarming quality farmlandcontracts sufficient for its hemp cultivation needs. The Company may be unable to maintain or obtain highfarming quality farmlandcontracts in sufficient acreage to support production levels or sustained accelerated growth. Moreover, where farmland is available in sufficient acreage, it may not be available at rental rates or otherwise on acceptable economic terms. Inability to obtain sufficient farmland for operations (with or without significant product demand growth) could negatively affect the Company’s operations and financial condition.

Climate change could exacerbate certain of the risks inherent in the Company’s agricultural operations. Climate change could result in increasing frequency and severity of weather-related events, fires, resource shortages, changes in rainfall and storm patterns and intensities, water shortages and changing temperatures, any of which can damage or destroy crops, resulting in the Company having no or limited hemp to process. If the Company is unable to harvest hemp through its proprietary operations or contract farming arrangements, its ability to meet customer demand, generate sales, and maintain operations will be impacted. Furthermore, severe weather-related events may result in substantial costs to the Company, including costs to respond during the event, to recover from the event, and to possibly modify existing or future infrastructure requirements to prevent recurrence. Climate changeschange could also disrupt the Company’s operations by impacting the availability and costs of materials needed for production and could increase insurance and other operating costs.

Further, under certain circumstances, patent term covering the Company's products or product candidates may be extended for time spent during the pendency of the patent application in the U.S. PTO (referred to as PTA, or Patent Term Adjustment). The laws and regulations underlying how the PTO calculates the PTA are subject to change, and a third party could challenge any such PTA. If the Company does not prevail under such a challenge, the PTA may be reduced or eliminated, resulting in a shorter patent term, which may negatively impact its ability to exclude competitors. The U.S. Court of Appeals for the Federal Circuit recently handed down a decision in the In re Cellect case that introduces particular uncertainty around PTA calculations. In that case, the court determined that patents with a term that exceeded the term of other patents in the same family—due to a PTA extension—were invalid for obvious-type double patenting. If that decision is not overturned or reversed by Congress, then any PTA in a patent that the Company has or will obtain in the future could be vulnerable to similar invalidity challenges based on other earlier-expiring patents. While the In re Cellect case focused on such challenges from patents in the same family, the court did not address challenges to a PTA from patents in other families that the Company or others may own, and this creates additional uncertainty with respect to PTA calculations. Because a PTA added to the term of patents covering biological or pharmaceutical products and methods of their use have particular value, the CompanyCompany's business may be adversely affected if a third party successfully challenges the PTA, and its ability to exclude competitors is reduced or eliminated. In addition, for issued patents where the Company has a PTA, it may determine that it is prudent not to file additional applications in that family to preserve that PTA. Such a decision would negatively impact the Company's ability to obtain patents with a different scope from the same patent family, even though the Company could be otherwise entitled to such patent protection. If the Company does not obtain patents on all the subject matter that it is entitled to in its patent applications, the Company's ability to exclude competitors may be harmed.

Trade Secrets may be difficult to protect. The Company’s success depends upon the skills, knowledge and experience of its scientific and technical personnel, consultants, advisors, and contractors. Because the Company operates in a highly competitive industry, it relies in part on trade secrets to protect its proprietary products and processes. However, trade secrets are difficult to protect. The Company enters into confidentiality or non-disclosure agreements with its corporate partners, employees, consultants, outside scientific collaborators, developers, and other advisors. These agreements generally require that the receiving party keep confidential and not disclose to third parties confidential information developed by the receiving party or made known to the receiving party by the Company during the receiving party’s relationship with the Company. These agreements also generally provide that inventions conceived by the receiving party wihlewhile rendering services to the Company will be its exclusive property, and the Company enters into assignment agreements to perfect its rights.

The Company’s status as a public benefit company and a Certified B Corp may not result in the benefits that the Company anticipates. The Company has elected to be classified as a "Benefit Company" under the BCBCA, in connection with which it will pursue the public benefits identified in its Articles. There is no assurance, however, that the expected positive impact from being a benefit company will be realized.

As a benefit company, the Company is required to disclose to Shareholders an annual benefit report outlining how the Company conducts its business responsibly and sustainably and how it promotes its public benefit. In addition, the Company’s directors and officers are required to act honestly and in good faith conduct business responsibly and sustainablysustainably, and to promote the Company’s public benefits, which must be balanced with their duty under the BCBCA to act honestly and in good faith in the best interests of the Company. If the Company is unable to provide this report in a timely manner, or if the report is not viewed favorably by the parties with which the Company does business, its regulators, or others reviewing its credentials, its reputation and status as a benefit company may be harmed.

As a benefit company under British Columbia law, the Company’s directors and officers are required to act honestly and in good faith with a view to conducting business responsibly and sustainablysustainably, and to promoting the Company’s public benefits, which must be balanced with their duty under the BCBCA to act honestly and in good faith with a view to the best interests of the Company. While the Company believes its public benefit designation and obligation will benefit Shareholders, in balancing these interests, the Board of Directors may take actions that do not maximize Shareholder value. Any benefits to Shareholders resulting from the Company’s public benefit purposes may not materialize within the expected timeframe, or at all, and may have negative effects. For example:

As a public benefit company, the Company may be subject to increased legal proceedings concerning its duty to balance Shareholder and public benefit interests, the occurrence of which may have an adverse impact on the Company’s financial condition and results of operations. As a British Columbia benefit company, the Company’s Shareholders (if they, individually or collectively, own at least 2% of the Company’s outstanding capital stock or shares having at least C$2 million in market value (whichever is less)) are entitled to commence a legal proceeding claiming that the Company’s directors failed to balance Shareholder and public benefit interests. However, the BCBCA clarifies that despite any rule of law to the contrary, a court may not order monetary damages in relation to any breach by the Company’s directors of these additional duties. This potential liability does not exist for traditional corporations. As a new class of corporate entity, there is uncertainty over how British Columbia courts would view a board’s balancing of interests as little jurisprudence exists to offer insights or guidance. Therefore, the Company may be subject to increased legal proceedings, which would require management's attention and, as a result, may adversely impact management’s ability to execute the Company’s strategy effectively. Any such derivative litigation may be costly and have an adverse impact on the Company’s financial condition and results of operations.

Debt and the Convertible Debenture Agreement that the Company has in place may limit other future potential strategic investor interests. Effective as of November 14, 2022, the Company entered into the Subscription Agreement with BT DE Investments, Inc. a wholly-owned subsidiary of BAT Group (LSE: BATS and NYSE: BTI), providing for the issuance of an approximately $56.8 million (C$75.3 million) debenture convertible into 19.9% ownership of the Company’s Common Shares at a conversion price of C$2.00 per Common Share of the Company on the Toronto Stock Exchange (TSX).TSX. The debenture will accrue interest at an annualized rate of 5% until such time that there is federal regulation permitting the use of cannabidiol, a phytocannabinoid derived from CBD as an ingredient in food products and dietary supplements in the United States. Following federal regulation of CBD, the annualized rate of interest shall reduce to 1.5%. The maturity date for the debenture is November 2029.

The capital needs of the Company will depend on numerous factors including: (i) profitability; (ii) the release of competitive products by competitors; (iii) the level of investment in R&D; (iv) operating expenses; and (v) the amount of the Company’s capital expenditures, including acquisitions. There can be no assurance that the Company will be able to obtain capital in the future to meet its needs.

The Company’s information technologyIT systems and online activities, including its e-commerce websites, also may be subject to denial of service, malware or other forms of cyber-attacks. While the Company has taken measures to protect against those types of attacks, those measures may not adequately protect its online activities from such attacks. If a denial-of-service attack or other cyber event were to affect the Company’s e-commerce sites or other information technologyIT systems, its business could be disrupted, it may lose sales or valuable data, and its reputation may be adversely affected. The Company’s risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cyber security and the continued development and enhancement of controls, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access is a priority. As cyber threats continue to evolve, the Company may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities.

The Company’s internal controls over financial reporting may not be effective, and the Company’s independent auditors may be unwilling or unable to provide us,the Company, when required, with an attestation report on the effectiveness of internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act. The Company is subject to reporting and other obligations under applicable Canadian securities laws and rules of any stock exchange on which the Common Shares are listed, including National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings of the Canadian Securities Administrators, and is subject to U.S. securities reporting and regulatory requirements. These reporting and other obligations place significant demands on the Company’s management, administrative, operational and accounting resources. If the Company is unable to accomplish any such necessary objectives in a timely and effective manner, the Company’s ability to comply with its financial reporting obligations and other rules applicable to reporting issuers could be impaired. Moreover, any failure to maintain effective internal controls could cause the Company to fail to satisfy its reporting obligations or result in material misstatements in its financial statements. If the Company cannot provide reliable financial reports or prevent fraud, its reputation and operating results could be materially adversely affected which could also cause investors to lose confidence in the Company’s reported financial information, which could result in a reduction in the trading price of the Common Shares.

The following discussion should be read in conjunction with, and is qualified in its entirety by the audited consolidated financial statements and the accompanying notes. Except for historical information, this section's discussion contains forward-looking statements involving risks and uncertainties. Future results could differ materially from those discussed below for many reasons, including the risks described in Item 1A—"Risk Factors.Factors".

Charlotte’s Web Holdings, Inc. is a Certified B Corp headquartered in Louisville, Colorado, which conducts the majority of its business in the United States. The Company is a market leader in innovative hemp extract wellness products under a family of brands which includes Charlotte’s Web™, CBD Medic™, and CBD Clinic™. Charlotte's Web premium quality products start with proprietary hemp genetics that are 100% North American farm-grown and are then manufactured into hemp extracts containing naturally occurring phytocannabinoids including cannabidiol ("CBD"), cannabichromene ("CBC"), cannabigerol ("CBG"), terpenes, flavonoids and other cannabinoids and beneficial hemp compounds. The Company is headquartered in a cGMP compliant facility in Louisville, Colorado, where the Company conducts its production of tinctures, distribution, and quality control activities as well as research and development ("R&D"). Charlotte's Web product categories include full-spectrum hemp extract oil tinctures (liquid products), gummies, capsules, CBD topical creams and lotions, broad-spectrum botanical CBD, functional mushrooms, and pet products. The Company also offers NSF Certified for Sport® broad-spectrum tincture and gummy products. Charlotte's Web products are distributed to retailers and health care practitioners, and online through the Company's website at www.CharlottesWeb.com. The information provided on the website is not part of this MD&A.

The Company grows its proprietary hemp domestically in the United States on farms leased in northeastern Colorado and sources hemp through contract farming operations in Arizona, Colorado, Kentucky, New Mexico, and Canada. The hemp grown in Canada is utilized exclusively in the Canadian markets or for research purposes and not in the Company's products sold within the United States.

AsConsistent ofwith Decemberprior 31, 2024, severalyears, states havecontinue adoptedto adopt new regulations that will impact the Company's ability to sell certain products as currently formulated or packaged in these states. Many of these states have also implemented new THC/CBD limits, age verification, testing, labeling and packaging requirements. The Company continues to assess the business and financial impacts of the new regulations, including steps that can be taken to address the new product formulation and labeling requirements, as well as costs and potential revenue impacts and anticipated timing for such impacts to the Company in these states.

OnIn February 24, 2025, the Company announced that the U.S. Food and Drug Administration ("FDA") has completed its review of the Phase 1 data and Investigational New Drug ("IND") application submitted by DeFloria. The FDA has concluded that DeFloria may now proceed with its planned FDA Phase 2 clinical trial for its botanical pharmaceutical candidate, AJA001 Oral Solution, a treatment for symptoms of autism spectrum disorder ("ASD"). DeFloria is a collaboration including the Company and AJNA to develop AJA001 as a treatment for irritability associated with autism spectrum disorder. AJA001 employs the Company's proprietary full-spectrum cannabidiol hemp extract derived from one of its patented cultivars.

The majority of the Company’s revenue is derived from sales of branded products to consumers via the Company’s DTC e-commerce website, distributors,website and retail B2B customers.distributors.

Total revenue for the year ended December 31, 2024,2025, was $49,667,$49,897, aan decreaseincrease of 21.4%0.5% compared to the year ended December 31, 2023.2024.

The service revenue is attributable to the Company and DeFloria, Inc. ("DeFloria") entering into a Master Services Agreement ("Services Agreement") pursuantbetween tothe Company and DeFloria in which the Company is compensated for the provision of certain services to DeFloria. DeFloria has concluded Phase I clinical trials, as such the service revenue has been decreased for Phase II.

Cost of goods sold increaseddecreased 3.0%0.7% for the year ended December 31, 2024 despite lower revenue2025 compared to the same period in 2023.2024. The increasedecrease was primarily due to the prior year including a $4.2$3.9 million non-cash inventory provision related to wholesale hemp biomass transactions partially offset by an increase in inventoryvariable provisionsoperating costs in 2024the duecurrent period, including startup costs associated with the transition to thein-house revaluationgummy ofproduction agedand hempexpanded biomassproduct based on current market conditions.offerings. The increasedecrease was partially offset by loweran increase in production costs related to higher inventory expense and other variable costs associated with lower revenue in 2024.variances.

Depreciation and amortization expense for the year ended December 31, 20242025 and 20232024 waswere $9,979$6,323 and $15,160,$9,979, respectively, of which $3,388$3,541 and $3,571,$3,388, respectively, was expensed to cost of goods sold. The remaining depreciation and amortization expenses of $6,591$2,782 and $11,589,$6,591, respectively, was expensed to Selling, general, and administrative expenses.

The primary factors that can impact gross profit margins include the volume of products sold, revenue mix between DTC e-commerce and B2B, product sales mix, promotional and sales discount rate,rates, manufacturing spend, transportation costs, and changes in inventory provisions.

Total Selling, general, and administrative expenses for the year ended December 31, 20242025 and 20232024 were $53,247$41,968 and $75,630,$53,247, respectively. For the year ended December 31, 2024,2025, the 29.6%21.2% decrease was primarily dueattributable to a reduction in amortization expense of $4.9 million related to the termination of the MLB Promotional Rights Agreement. The remaining decrease is due to cost cutting measures in personnel costs undertaken by the companyCompany inbetween the secondcomparable half of the year,periods. These measures included adjusting the size of the workforce to properly align with the revenue scope, as well as improving the Company's insurance program, aligning with more cost-efficient software options, and makingimproved prudentoperating travel decisions, among others.efficiencies.

Depreciation and amortization expensed to Selling, general, and administrative expenses for the year ended December 31, 20242025 and 20232024 were $6,591$2,782 and $11,589,$6,591, respectively,respectively. andThe decreaseddecrease was due to the amendmentdecrease in amortization related to the MLB agreement that allowed for the extensiontermination of the paymentsMLB and amortization.agreement.

Total research and development expenses for the year ended December 31, 20242025 and 20232024 were $2,332$1,805 and $2,964,$2,332, respectively, expensed to Selling, general, and administrative expense. Research and developmentR&D expenses primarily include personnel costs related to the Company's R&D science division as well as R&D related projects advancing hemp cannabinoid science through research programs that provide a better understanding of the therapeutic uses of cannabinoids.

Total change in fair value of financial instruments for the year ended December 31, 20242025 and December 31, 20232024 was a loss of $7,269 and a gain of $615 and $9,339,$615, respectively. For the year ended December 31, 2024,2025, the gainloss in fair value of financial instruments was primarily due to the revaluation of the fair value of the Company's debt conversion option and debt interest rate conversion feature resulting in a gainloss of $2.5$5.2 million, compared to a net gain of $9.6$2.5 million for the year ended December 31, 2023.2024. The fair value of the Company's embedded derivatives and options are revalued at each reporting date, with changes impacted by variability in the Company's share price and implied debt yields.

Benefit From (Provision for) Income Taxes

The Company’s effective tax rate during the year ended December 31, 20242025 and December 31, 20232024 was (0.1)%0.2% and (2.30.1)%, respectively. The effective tax rate for the year ended December 31, 20242025 is (0.1)%0.2% as the Company continues to believe its deferred tax assets are more likely to not be realized and a full valuation allowance remains recorded against net deferred taxes as of December 31, 20242025 and December 31, 2023.2024. The increase in the effective rate for the year ended December 31, 20242025 compared to the year ended December 31, 2023,2024, is primarily due to the remeasurement of the valuation allowance.

As of December 31, 2024,2025, the Company had total cash and cash equivalents of $22,618,$8,035, compared to $47,820$22,618 at December 31, 2023.2024. The decrease over the twelve-month period is primarily a result of cash used in operating activities of $21,261, and capital expenditures of $3,851 primarily allocated to enabling in-house production of topical and gummy products.$14,121.

Management believes that the Company's existing cash and cash equivalents, and short-term investments will provide sufficient liquidity to fund operations and planned capital expenditures for the next 12 months. The Company’s ability to fund its operations for the longer term will depend on the future operating performance, particularly revenue growth,growth and expense management, which can be affected by general economic conditions, industry regulatory changes, and other factors beyond the Company’s control.

Net cash used in operating activities for the year ended December 31, 20242025 and December 31, 20232024 were as follows:

For the year ended December 31, 2024,2025, the increasedecrease in cash used in operations of $5.9$7.1 million is primarily due to the Company's collectiontermination of $4.3the the MLB Promotional Rights Agreement in which the Company paid $0 for the year ending December 31, 2025, compared to $5.0 million from income tax refunds duringfor the year ended December 31, 2023.2024. Additionally, operating cost saving measures contributed to the decrease in cash used in operations.

Net cash used in investing activities for the year ended December 31, 20242025 and December 31, 20232024 were as follows:

Net cash used in financing activities for the year ended December 31, 20242025 and December 31, 20232024 were as follows:

For the year ended December 31, 2024,2025, the change was primarily due to the vesting of restricted stock units.RSUs.

As of March 17,26, 2025,2026, 158,009,541159,683,953 common shares were issued and outstanding, and nil preferred shares were issued and outstanding. As of March 17,26, 2025,2026, potential dilutive securities include (i) stock options exercisable to purchase 985,012 common shares pursuant to the Company’s 2015 legacy option plan with a weighted average exercise price of $0.56; (ii) stock options exercisable to purchase 2,366,6751,924,812 common shares pursuant to the Company’s 2018 option plan, as amended, with a weighted average exercise price of $0.72$1.04; (iiiii) 4,409,2343,532,850 restricted share units ("RSUs").RSUs. Each option, restricted share award, and convertible share entitles the holder to purchase one common share.

Effective November 2020, the Company issued a secured promissory note, where $1,000 was loaned to one of the Stanley Brothers. The note receivable was secured by equity instruments with certain of the Stanley Brothers, bore interest at 3.25% per annum, and required the unpaid principal and unpaid interest balances to be paid on or before the maturity date of November 13, 2021, which date was subsequently extended. Effective November 13, 2024, the Company entered into a third amendment of the promissory note to extend the maturity date until November 13, 2029. According to the terms of the agreement, no additional interest will accrue through the payment date. The note has been fully reserved for as of December 31, 2024.2025.

On March 2, 2021, the Company entered into the SBH Purchase Option with Stanley Brothers USA as discussed above (Note 3 "Fair Value Measurement"). The SBH Purchase Option was purchased for total consideration of $8,000. Certain members of the Stanley Brothers, who are or were employees of the Company at the time, are the majority Shareholdersshareholders of Stanley Brothers USA. The Company is not obligated to exercise the SBH Purchase Option and as such the unexercised option expired as of February 26, 2026.

On April 6, 2023, the Company jointly formed an entity, DeFloria, Inc., with AJNA BioSciences and BAT. AJNA is a botanical drug development company.company AJNAand is partially owned and was co-founded by certaina member of the Stanley Brothers. BAT holds an equity interest in the entity in the form of 2,000,000,approximately 2,000,000 preferred units following its initial $10 million investment and has the right to participate in future equity issuances to maintain its pro rata equity position. The Company and AJNA each hold 4,000,000 of the entity’s voting common units (Note 3). Effective May 1, 2023, the Company entered into an 8% interest bearing note receivable with DeFloria for the sale of lab equipment in the amount of $170. The principal and interest of the note receivable willare bebeing paid in 36 monthly installments. As of December 31, 2024,2025, and 2024 the remaining note receivable of $71$19 and $71, respectively, is presented in other assets in the consolidated balance sheets. Additionally, on February 12, 2024, the Company and DeFloria entered into a separate master services agreement pursuant to which the Company will be compensated for the provision of certain services to DeFloria. For the year ended December 31, 2024, the Company recognized $648 in revenue and cost of goods sold, respectively, related to the service agreement with DeFloria. The Company has an accounts receivable balance due from DeFloria of $648 as of December 31, 2024.

The SBH Purchase Option provides the Company the option to acquire all or substantially all the shares of Stanley Brothers USA, at a purchase price to be determined at the time of exercise of the SBH Purchase Option. The Company is not obligated to exercise the SBH Purchase Option and as such the unexercised option expired as of February 26, 2026. The Company has elected the fair value option in accordance with ASC 825-10 guidance to record its SBH Purchase Option. Under ASC 825-10, a business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The SBH Purchase Option is classified as a financial asset in the consolidated balance sheets and is remeasured at fair value at each reporting date, with changes to fair value recognized in the statements of operations for the period. The use of assumptions for the fair value determination includes a high degree of subjectivity and judgment using unobservable inputs (level 3 on the fair value hierarchy), which results in estimation uncertainty. Changes in assumptions that reasonably could have been different at the reporting date may result in a higher or lower determination of fair value. The Monte Carlo valuation model considers multiple revenue and EBITDA outcomes for Stanley Brothers USA and other probabilities in assigning a fair value. Primary assumptions utilized include financial projections of Stanley Brothers USA and the probability and timing of exercise asserted by the Company.

The Company reviews intangible assets with indefinite useful lives for impairment at least annually and reviews all intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. Long-lived assets, such as property and equipment and intangible assets subject to depreciation and amortization, as well as indefinite-lived intangibles and goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than the Company had originally estimated. Recoverability of these assets is measured by comparison of the carrying amount of each asset or asset group to the future undiscounted cash flows the asset or asset group is expected to generate over their remaining lives. If the asset or asset group is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset or asset group. If the useful life is shorter than originally estimated, the Company amortizes the remaining carrying value over the new shorter useful life. Impairment losses are recorded in selling, general, and administrative expense in the consolidated statements of operations. There waswere $0 and $548 ofno impairment losses recognized related to long-lived assets for the year ended December 31, 20242025 and December 31, 2023,2024, respectively.

The Company accounts for uncertainties in income taxes under ASC Topic 740, which prescribes a recognition threshold and measurement methodology to recognize and measure an income tax position taken, or expected to be taken, in a tax return. With respect to any tax positions that do not meet the recognition threshold, a corresponding liability, including interest and penalties, is recorded in the consolidated financial statements. The Company may be subject to examination by tax authorities where the Company conducts operations. The earliest income tax year that may be subject to examination is 2019.2022. The Company has recorded an uncertain tax position as of December 31, 20242025 and December 31, 2023.2024. The Company’s policy is to recognize interest and penalties on taxes, if any, within the consolidated statement of operations as income tax expense.

Our Annual Report on Form 10-K for the year ended December 31, 2025 includes a detailed discussion of our risk factors under the heading "Part I, Item 1A—Risk FactorsFactors.". There have been no material changes from such risk factors during the quarter ended MarchJune 31,30, 2026. You should consider carefully the risk factors set forth in this Form 10-Q and discussed in our Annual Report on Form 10-K for the year ended December 31, 2025 and all other information contained in or incorporated by reference in this Form 10-Q before making an investment decision. If any of the risks discussed herein or in the Annual Report on Form 10-K for the year ended December 31, 2025 actually occur, they may materially harm our business, financial condition, operating results, cash flows or growth prospects. As a result, the market price of our common shares could decline, and you could lose all or part of your investment. Additional risks and uncertainties that are not yet identified or that we think are immaterial may also materially harm our business, financial condition, operating results, cash flows or growth prospects and could result in a complete loss of your investment.

This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements that are, or may be considered to be, "forward-looking statements" under Canadian securities laws and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be subject to the "safe harbor" created by those sections and other applicable laws. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on current beliefs, expectations or assumptions regarding the future of the business, future plans and strategies, operational results and other future conditions. All statements other than statements of historical fact included in this Form 10-Q regarding the prospects of Charlotte's Web Holdings, Inc.Inc., ("Charlotte's Web", the "Company" or "we"), the industry or its prospects, plans, financial position or business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as "plans," "expects" or "does not expect," "is expected," "look forward to," "budget," "scheduled," "estimates," "forecasts," "will continue," "intends," "the intent of," "have the potential," "anticipates," "does not anticipate," "believes," "should," "should not," or variations of such words and phrases that indicate that certain actions, events or results "may," "could," "would," "might," or "will," "be taken," "occur," or "be achieved," or the negative of these terms or variations of them or similar terms. Furthermore, forward-looking statements may be included in various filings that the Company makes with the SEC, on SEDAR +, or in press releases or oral statements made by or with the approval of one of the Company's authorized executive officers. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. All capitalized and undefined terms used in this section shall have the same meanings hereafter defined in this Quarterly Report on Form 10-Q.

Charlotte's Web Holdings, Inc. is headquartered in Louisville, Colorado, which conducts the majority of its business in the United States. The Company is a market leader in innovative hemp extract wellness products under a family of brands which includes Charlotte's Web™, CBD Medic™, and CBD Clinic™. Charlotte's Web premium quality products start with proprietary hemp genetics that are 100% North American farm grown and are then manufactured into hemp extracts containing naturally occurring phytocannabinoids including cannabidiol ("CBD"), cannabichromene ("CBC"), cannabigerol ("CBG"), terpenes, flavonoids and other cannabinoids and beneficial hemp compounds. The Company is headquartered in a cGMP compliant facility in Louisville, Colorado, where the Company conducts its production of tinctures, distribution, and quality control activitiesactivities, as well as research and development ("R&D"). Charlotte's Web product categories include full-spectrum hemp extract oil tinctures (liquid products), gummies, capsules, CBD topical creams and lotions, broad-spectrum botanical CBD, functional mushrooms, and pet products. Charlotte's Web products are distributed to retailers and health care practitioners, and online through the Company's website at www.CharlottesWeb.com. The information provided on the website is not part of this MD&A.

The Company's business consists of the farming, manufacturing, marketing, and sales of hemp-derived CBD and botanical-based wellness products. As of MarchJune 31,30, 2026, the Company operated in a single operating and reportable segment, with hemp-derived CBD wellness productsproducts, making up the majority of the revenue of the Company products. The executive officers reviewed overall operating results in order to assess financial performance and to make resource allocation decisions, rather than assessing any lower-level unit of operations in isolation.

In FebruaryFebruary, 2025, the Company announced that the U.S. Food and Drug Administration ("FDA") has completed its review of the Phase 1 data and Investigational New Drug ("IND") application submitted by DeFloria. The FDA has concluded that DeFloria may now proceed with its planned FDA Phase 2 clinical trial for its botanical pharmaceutical candidate, AJA001 Oral Solution, a treatment for symptoms of autism spectrum disorder ("ASD"). DeFloria is a collaboration including the Company and AJNA to develop AJA001 as a treatment for irritability associated with autism spectrum disorder. AJA001 employs the Company's proprietary full-spectrum cannabidiol hemp extract derived from one of its patented cultivars.

On MarchMay 30,28, 2026, the Company announced that it has entered into an agreement to complete a transaction with BATBT DE comprised of two components: (i) amendment and conversion of BAT’sBT DE’s outstanding C$75.3 million convertibleConvertible debenture,Debenture, as well as, all accrued interest, into Charlotte’s Web's common shares at a conversion price of C$0.94 per share; and (ii) a concurrent additional equity investment by BAT of $10 million (approximately C$13.6 million at currentthe then applicable exchange ratesrate) by way of a private placement (the "Investment") at a price equal to the greater of (a) C$0.94 per share, and (b) a dollar amount equal to the maximum discount available pursuant to section 607 of the TSX Company Manual applied to the 5-day volume weighted average price ("VWAP") of the Company’s common shares on the TSX prior to the closing dateshare (collectively, the “"Transaction”"). The Transaction will result in the issuance of approximately 110 million Charlotte's Web's common shares to BAT and represents a total equity commitment of approximately C$103 million (approximately $75 million). Completion of the Transaction is subject to, among other conditions, TSX and shareholder approval. The Company's shareholders will be asked to approve the Transaction at an annual general and special meeting of the shareholders to be held on or about May 28, 2026

Total revenue for the three months ended MarchJune 31,30, 2026 was $11,159,$10,855, a decrease of 9.0%15.2% compared to the three months ended MarchJune 31,30, 2025. Total product revenue decreasedwas by$10,780, $1.1representing milliona 15.3% year over year decrease, driven by the Company's decision to shift the majority of the retail business to a more margin-accretive distributor model during the third quarter of 2025.

Cost of goods sold decreased 1.3%9.3% for the threesix months ended MarchJune 31,30, 20262026, compared to the threesix months ended MarchJune 31,30, 2025,2025. The decrease was primarily duedriven by a $1,836 or 23.7% reduction in inventory expensed to cost of goods sold, reflecting lower sales volume and improved product and channel mix following the Company'sshift decision to shiftof the majority of the retail business to a more margin-accretive distributor model.model in the third quarter of 2025. The decrease iswas partially offset by ana $326 or 9.8%, increase in variableother operatingproduction costs in the current period,costs, including startup costs associated with the transition to in-house manufacturing.gummy production and expanded product offerings, and a $311 or 19.3%, increase in depreciation and amortization expensed to cost of goods sold.

Depreciation and amortization expense for the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 was $1,678$3,171 and $2,449,$2,961, respectively, of which $956$1,921 and $822,$1,610, respectively, was expensed to cost of goods sold. The remaining depreciation and amortization expenses of $722$1,250 and $1,627,$1,351, respectively, was expensed to Selling, general, and administrative expenses.

The primary factors that can impact gross profit margins include the volume of products sold, revenuethe mix of revenue between DTC eCommerce and B2B retail,distributors, product sales mix, promotional and sales discount rate, manufacturing spend, transportation costs, and changes in inventory provisions.

Total Selling,selling, general, and administrative expenses for the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 were $9,528$19,043 and $11,578,$21,640, respectively. The 17.7%12.0% decrease was primarily attributable to cost cutting measures in personnel costs undertaken by the Companycompany between the comparable periods. These measures included adjusting the size of the workforce to properly align with the revenue scope.

Depreciation and amortization expensed to Selling, general, and administrative expenses for the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 were $722$1,250 and $1,627,$1,351, respectively.

Total research and development expensescosts expensed to Selling, general, and administrative expense for the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 were $411$815 and $503,$1,025, respectively. Research and development expenses primarily include personnel costs related to ourthe Company's R&D science division as well as R&D related projects advancing hemp cannabinoid science through research programs that provide a better understanding of the therapeutic uses of cannabinoids.

Total change in fair value of financial instruments for the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 wasresulted in a loss of $8,868$3,311 and $126,$1,669, respectively. For the threesix months ending MarchJune 31,30, 2026, the change in fair value of financial instruments was primarily due to the revaluation of the fair value of the Company's debt conversion option and debt interest rate conversion feature, which resulted in a net loss of $8,668,$2,811, as well as a loss of $200$500 in the investment of DeFloria. For the three months ending March 31, 2025, theDeFloria.The change in fair value of financial instruments for the three months ended June 30, 2025 was primarily due to a loss of $100$1,100 in the investment of DeFloria. The fair value of the Company's embedded derivatives and options are revalued at each reporting date, with changes impacted by variability in the Company's share price and implied debt yields

As of MarchJune 31,30, 2026 and December 31, 2025, the Company had total current liabilities of $8,100$8,256 and $8,659, respectively, and cash and cash equivalents of $5,198$13,988 and $8,035, respectively, to meet its current obligations.

The Company expects a continued cost containment strategy in overall selling, general, and administrative expenses in 2026 as a result of several actions taken over the prior two years. This includes improvements in operating efficiency throughout the businessbusiness, from more efficient technology, and a data-driven reorganization of its revenue and partnering strategies.

Specifically,On onMay March 30,28, 2026, the Company announced that it had entered into an agreement to complete the Transaction with BAT in which BAT, pursuant to which, among other things, upon satisfactioncomprised of certaintwo conditions,components: including(i) TSXamendment and shareholderconversion approval,of BATBAT’s willoutstanding makeC$75.3 anmillion convertible debenture, as well as, all accrued interest, into Charlotte’s Web's common shares at a conversion price of C$0.94 per share; and (ii) a concurrent additional equity investment by BAT of $10 million (approximately C$13.6C$13.9 million at current exchange rates) by way of a private placement at a price equal to the greater of (a) C$0.94 per share, and (b) a dollar amount equal to the maximum discount available pursuant to section 607 of the TSX Company Manual applied to the 5-day volume weighted average price of the Company’s common shares on the TSX prior to the closing date.date Upon(collectively, completionthe “Transaction”) provided that the maximum number of Common Shares to be issued to BAT under the Investment would not exceed 14,760,638 Common Shares. The Transaction resulted in the issuance of 109,944,042 common shares to BAT, comprising 95,281,277 common shares issued on conversion of the Transaction,debenture and accrued interest and 14,662,765 common shares issued under the private placement. BAT holds approximately $65 million of total debt will be eliminated from the Company's balance sheet, interest on the debenture will stop accruing, and liquidity will increase for near-term operations. The Company would operate with no long-term debt and with a simplified equity structure. The Company's shareholders will be asked to approve the Transaction at the Annual General and Special Meeting40.6% of the Shareholdersissued toand beoutstanding heldcommon shares on Maya 28,non-diluted 2026.basis.

Net cash used in operating activities for the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 were as follows:

For the threesix months ended MarchJune 31,30, 2026, the decrease in cash used in operations increasedis byprimarily less than 1% compareddue to the three months ended March 31, 2025. The Company has stabilized operating costscost oversaving measures implemented during the respective periods.period.

Net cash used in investing activities for the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 were as follows:

For the threesix months ended MarchJune 31,30, 2026, the Company has spent minimal amounts on capital expenditures, compared to the threesix months ended MarchJune 31,30, 20252025, in which the Company was finalizing the in-source projects for gummies and topicals.

Net cash provided by (used byin) financing activities for the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 were as follows:

As of MarchJune 31,30, 2026 and December 31, 2025, the Company does not have any off-balance-sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition, including, and without limitation, such considerations as liquidity and capital resources.

Effective November 2020, the Company issued a secured promissory note, where $1,000 was loaned to one of the Stanley Brothers. The note receivable was secured by equity instruments with certain of the Stanley Brothers, bore interest at 3.25% per annum, and required the unpaid principal and unpaid interest balances to be paid on or before the maturity date of November 13, 2021, which date was subsequently extended. Effective November 13, 2024, the Company entered into a third amendment of the promissory note to extend the maturity date until November 13, 2029. According to the terms of the agreement, no additional interest will accrue through the payment date. The note has been fully reserved for as of June 30, 2026 and December 31, 2025.

On March 2, 2021, the Company entered into the SBH Purchase Option with Stanley Brothers USA as discussed above (Note 3 "Fair Value Measurement"). The SBH Purchase Option was purchased for total consideration of $8,000. Certain members of the Stanley Brothers, who are or were employees of the Company at the time, are the majority shareholders of Stanley Brothers USA. The Company was not obligated to exercise the SBH Purchase Option and as such the unexercised option expired as of February 26, On April 6, 2023, the Company jointly formed an entity, DeFloria, with AJNA BioSciences and BAT. AJNA is a botanical drug development company and is partially owned and was co-founded by a member of the Stanley Brothers. BAT holds an equity interest in the entity in the form of approximately 2,000,000 preferred units following its $10 million investment and has the right to participate in future equity issuances to maintain its pro rata equity position. The Company and AJNA each hold 4,000,000 of the entity's voting common units (Note 3). Effective May 1, 2023, the Company entered into an 8% interest bearing note receivable with DeFloria for the sale of lab equipment in the amount of $170. The principal and interest of the note receivable will be paid in 36 monthly installments. As of MarchJune 31,30, 2026 and December 31, 2025, the remaining note receivable of $8$0 and $19, respectively, is presented in other assets in the condensed consolidated balance sheets.

On April 6, 2023, the Company and DeFloria entered into a supply agreement in which the Company shall supply raw material that will be used in the development of the new drug. The price charged by the Company is at cost of goods sold level. For the three and six months ended June 30, 2026, the Company recognized $68 in revenue and cost of goods sold, respectively, related to the supply agreement with DeFloria. Similarly, on February 12, 2024, the Company and DeFloria entered into a separate master services agreement pursuant to which the Company will be compensated for the provision of certain services to DeFloria. For the three and six months ended MarchJune 31,30, 2026 and March 31, 2025,2026, the Company recognized $75 and $75$150 in revenue and cost of goods sold, respectively, related to the service agreement with DeFloria. Additionally, the Company has an accounts receivable balance due from DeFloria of $1,546$1,689 and $1,471 as of MarchJune 31,30, 2026 and December 31, 2025, respectively.