Q2 2020 Charlotte's Web Holdings Inc Earnings Call
Im growth, we executed our portfolio price reduction strategy, which dramatically reduced our competitive price gaps and through August is increasing our sales velocity is.
We achieved be Corp. certification underscoring, our SG commitments to our employees our customers our communities and our shareholders. Finally, we expanded our leadership in key brand health metrics, we became the number one CBD product in terms of household penetration increasing our pen.
Titration, 40% versus year ago, we.
We continued our number one position in awareness purchase intent and loyalty and increased our lead across all three metrics double digits and we remain the number one CPD product in terms of a custom radian, increasing by almost 10 basis points. These brand health metrics are important.
Indicators for long term sustainable growth and as the external and operating about it settles Charlotte's web will emerge a stronger brand among consumers.
Now turning to two Q2 performance.
The pandemic had the greatest impact on our sales through temporary closures of brick and mortar retail that made up a b to B channel. Our consolidated Q2 revenue was $21.6 million down 13.6 versus year ago leg.
Legacy Charlotte's web Q2 revenue was $21 million down 16% versus year ago.
Versus Q1, our total consolidated Q2 revenue was up 1% and the Charlotte's Web legacy Q2 revenue was down 2%. This was a strong relative performance from an industry perspective as the Brightfield group estimated category revenues in Q2 were down six.
83% versus Q1.
In Q2, our consolidated B to B retail channel revenue was down 54.5%. This decline was substantially offset by the strength of our direct to consumer channel, which increased revenue, 33.6% versus year ago, and 10% versus Q1.
For Q2 direct to consumer sales represented 72% of our total revenue and B to B represented 28%.
I want to unpack the Q2 B to B results for.
For better understanding our BTB revenue is made up of four channels food drug and mass retail natural retail health care practitioners, we refer to that channel as H CP and the pet retail channel.
For legacy Charlotte's web the to be to be channels, most impacted by cobot, where the natural channel and the healthcare practitioner channel down collectively about 60% versus year ago. This makes sense as many of these outlets for closed for an extended period of time in Q2, our Q2 food drug and mass.
Channel revenue was down 34.9% versus year ago, performing better than the natural channel and the healthcare practitioner channel due to less store closures more foot traffic and our expanded distribution at a national drug chain.
On a sequential basis, our food drug and mass retail volume was up 35% versus Q1, driven by expanded distribution and innovation, our pet retail revenue increased significantly on a small base by expanded distribution in our first national Pet retailer. In addition, we.
We're in discussions with other national pet chains for 2021 distribution.
In total legacy Charlotte's web b to B distribution expanded by 1700 doors Q2, bringing our total doors to about 12000.
Finally in Q2, we executed our price deal realignment, which reduced our base price points by 15% to 20% across our total portfolio, enabling us to close competitive price gaps by 37 percentage points in Q2.
And Tim in terms of products segment growth gross sales of our injectable products was down 12% versus year ago. Within Injectables are new Gummy line was a tremendous success with sales up six times versus year ago, contributing now 20% of our total portfolio.
Leo gross revenue earn.
Early consumer research indicated new users showing a preference for more familiar forms our gummy innovation capitalized on this insight in the second half of 2020, we plan to expand our gum gummy offering with larger formats to satisfy increased consumer demand Q.
Q2 gross revenue growth Q2, gross revenue for Topicals were down 49% versus year ago, as we lapped the largest quarterly ftn inventory load of 2019, however sequentially gross sales of topical increased 32% versus year ago, reflecting.
The launch of our new topical innovation and the contribution of the Abacus capital sales looking forward, we expect topical sales to increase significantly in the second half of 2020.
Shifting to our acquisition.
The abacus transaction closed on June 11th and contributed sales for the final 19 days of the quarter, adding $610000 in revenue the health.
The healthcare practitioner channel represents a substantial amount of abacus is total revenue and this channel has been particularly impacted by the cobot 19 with accounts closed temporarily in Q2 due to the Pandemics.
The 100 day business integration plan is on track.
For an up from an Opex standpoint, we began leveraging initial cost synergies with abacus last month. This will continue in the second half of 2020, as we integrate our new production and fulfillment center, providing further cost reductions we are.
We are now operational in our new manufacturing and fulfillment center. We are building out the facility in stages and expect to be fully operational by early 2021, we have commenced warehousing and fulfillment operations and the first production runs are scheduled for later this month.
Consolidating disparate manufacturing operations into a new facility will enable closing of two former locations, reducing certain operating expenses beginning in the fourth quarter.
Future milestones target additional expense optimizations as we manage operating expenses during capacity expansion to support an eventual full product launch into the food drug and mass retail channels I will now turn it over to Ross for an overview of our financial performance.
Thank you, Jamie and good morning, everyone.
Certainly appreciate you joining us this morning are key.
Our Q2 financial statements and the management discussion and analysis have been filed on SEDAR tells you have cancer year, along with this morning's Q2 press release I will address some of the more notable items in the Q2 financial results with the aim of providing additional transparency and share some highlights on our outlook and our guidance.
Total consolidated net revenues for the second quarter was $21.6 million, which includes such terms on Belgium averages acquisition. During the final 19 days or the quarterly fluctuations during the locum acquisition closing date.
Excluding averages net revenue or Charles where business was $21 million, a decrease of 16% year over year decrease quarter over quarter of 2% in Q1.
Our Q2 B to B retail sales decline of 55% year over year were substantially offset by strong DTC sales up 34% year over year to 15.5 million accounting for 72% of total revenue compared to 46% for Q2 a year ago.
For better transparency adjusted gross margin for inventory positions was 64.8%.
Paired to 75.2 last year and 70.2 in the first quarter.
Lower gross margin reflects product sales mix of portfolio wide repricing during the quarter and new topical distribution and b to b.
Reported Q2 gross margin of 53% includes inventory provisions of two and a half million dollars taken in the quarter for expiring product.
For transparency and modeling purposes, we expect second half consolidated gross margin in the mid Sixtys range based on sales mix and increasing into 2021 from production and fulfillment cost improvements as our new facility come fully online.
Q2 operating expenses.
$29.5 million were up 82% year over year from 16.2 million.
This included $6 million extra ordinary items relating to the abacus acquisition transaction and legal fees to protect our brand in IP and.
Excluding these extra ordinary items, our Q2 opex expenses for the Charlotte's Web legacy business were basically flat from Q1 our book.
Our banking emergencies, our 50% lower year over year sales partnering with JP Morgan at the start of the year, reducing expenses by approximately $400000 per quarter.
For modeling purposes with the addition of Abacus, we expect additional expenses of about $6 million per quarter for the back.
Sales of this year, which includes cost of restructuring.
[music].
Let me comment a little bit on Opex and cost controls our expense levels, partly reflect the infrastructure and capabilities. We believe we have ahead of revenue to support the growth of our E Commerce business and B to B business originally expected in the first half of the year.
But had been temporarily impact by October 19 pandemic. Additionally.
Additionally, healthcare practitioner offices have been closed due to over 19, which has materially impacted abacus channels and sales temporarily.
While we believe these channels will recover in 2021, the infrastructure and associated costs remain today and operating expenses have become a higher percentage of revenue than desired.
While we anticipate the FDA or legislation will enable a launch of the FDM channel around mid 2021 and covered lockdowns could be resolved to a meaningful degree we're proactively taking action to reduce our spend.
Our new production on fulfillment center has been coming online in stages and presents significant future cost saving opportunities starting in 2021 for expense consolidations, a benefit of owning our supply chain consolidating disparate manufacturing operations into a new facility will enable the closing of two former locations reducing.
So she is operating expenses in 2021 as of now.
As the facility build progress is additional expense optimization will be realized.
We have also identified significant synergies related to the integration of abacus, which will start to provide additional costs release in Q1 21.
In total we are actively targeting a 10% reduction of annualized consolidated operating expenses going into 2021. This is.
This is not downsizing of the business, but opportunistic reductions through efficiency improvements.
Adjusted EBITDA loss was 5.7 million compared to Q1.
Compared to a positive 3.8 million a year ago, reflecting the infrastructure build out ahead of revenue growth and the Cobra impacts.
Now turning to cash flow.
Turning to cash and working capital our cash balances at the end of the second quarter were $99.8 million with working capital of 155 level.
Capex of $8.7 million during the quarter $10.2 million during the first half.
In the second half, we expect Capex expenditures of approximately $25 million for a total of $35 million for 2020.
This primarily reflects the continued investment and construction of the temp is new production and performance Center.
As a reminder, our total new production center capital expenditures will total approximately $33 million between 2019 2021 with a ball.
With the bulk of it in 2020.
Advocates business outlook and expected revenue contribution.
We're fully integrating averages topical portfolio into our business channels and so there won't be separate panels going forward.
Operating synergies will be realized beginning in Q4 that will equate into savings started in Q1 2021.
The majority of Abacus quarterly sales go through the health care practitioner channel, where it is a market leader with CBD clinic line of products. Unfortunately. This was among the most heavily impacted channels from cooperatives majority of healthcare practitioners have been forced to temporarily close operations due to the pandemic.
Some states have begun to reopen the locked down we are seeing sales beginning to return and expect sales levels to return to normal and of course once a country fully emerges from lockdown. However.
However at this point, we are modeling for the abacus acquisition to add 5 million to our revenue in the second half of 2020 due to the closures.
Now turning to guidance, we are operating in a sub optimal environments in the near term as the pandemic has had a larger and longer impact than we anticipated on retail and practitioners.
Okay retails sales declines have been.
Mostly offset by a strong DTC growth of more than 30%.
We believe Q2 was our LOE for the year, while it's only two weeks remaining in third quarter, we see growth for the second half of 2020 over the first half.
Pending on how meaningful we see the opening up of the economy and health care practitioner channels, we expect revenue to be flat to modestly higher in the 2020 year on that.
Ill now turn the call back to Jamie for her closing remarks.
Thanks, Russ before I close I want to provide an update on the regulatory front 10 days ago Bi partisan hemp legislation was introduced into the house Representatives. The HR 80, 179 belt states.
That CBD and any other ingredient derived from HAMP Shelby lawful under the federal food drug and cosmetic act as a dietary ingredient in in a dietary supplement we provided input and support at HR 80, 179, because it effectively resolve.
The fts quandary and would enable companies to comply with the existing legal framework for dietary supplements production and labeling.
This legislative process is running in parallel to efforts being undertaken by the FTC towards a regulatory pathway for hemp CBD dietary supplements in.
In July the FDA submitted draft enforcement policy for the industry to the office of management and budget. This is the agency is best thinking on how they will they will structure enforcement. The FDA plays a critical role in consumer safety and we are supporting their efforts by sharing our data in.
Addition to participating in a national clinical trial being led by valid care. This.
The study will help the FDA gain the data it needs to confidently regulate hemp derived CBD we are.
We are committed to the safety and efficacy of our products and we welcome the opportunity to bring science based data forward to key regulators results of the study will be shared with the FDA near the end of this year and are expected to be published in a peer reviewed journal early 2021.
While a specific timeline for a definitive regulatory framework has not yet been provided by the FDA industry observers expect that we may see actionable guidance from the FDA sometime in 2021, and we aim to be ready.
Despite the headwinds of an ambiguous regulatory environment and the pandemic the growth trajectory for this category remains three to five times. Its current size over the next three to four years. So it's important to maintain the long view on the sector Charlotte's web develop portfolio.
Across channels and segments is a true advantage. In addition, we have a fortified balance sheet. We are advancing the science, we're actively managing our expenses down and we have rapidly integrated AP, the abacus acquisition and effectively stood up our new production and fulfillment facility.
Hi, Good night team is not forever and we are confident that favorable regulations are forthcoming from the FDA for legislation in 2021. This will be a key catalyst for the category growth and we remain focused on our efforts to strengthen our business to ensure that Charlotte's web is the best physician company to win.
Thank you and with that we will open it up to questions.
As a reminder to ask a question you will need to press star one on your telephone. So we try to your question press the pound all hash key please stand by while we compile to Q on Erosnow.
Your first question comes from the line of Michael Lavery of Piper Sandler The line is open.
Good morning, Thank you.
And Michael and good morning can you touch.
Can you touch a little bit on how to balance.
Cost savings and running efficiently with how to position yourself for the kind of growth you want and and leaning in on some investments to be the sort of CPG company that that you have as your aspiration and and specifically related to that give some sense of of how much of the.
Cost savings that you anticipate or.
From deal synergies versus other efficiencies apart from that.
Russ you want to start.
Let me, let me take a shot at that long question, but I think I got a call.
So the cost savings we're looking at are across a few different channels. One when we finish the build out of our operational and distribution center.
We will be able to produce our XTRAC that less than half the cost we are looking at before when we insource our quality.
Testing that we have been outsourcing we are going to say again significant profit over half of what we were doing so so the center is unlocking of value for us in the future and that gives us a significant cost advantage going forward and then on the synergy side as you asked.
And for the second quarter with 19 days in with them at the end of the quarter, but it's going well. We are ahead of our plan. We've as you've noticed they are already up on our website and there are cross selling about channels that being said the healthcare practitioners is a tough part, but the synergies that we're looking at.
Are the revenue synergies with the cross selling but that has been eliminated with the health care practitioners shutdown and then cost synergies cost synergies just to give you a flavor will go across employees contractors marketing arm.
R&D operations lease amortization, and obviously public company costs. So we'll give more color on that in the third quarter, but we're looking at some pretty significant synergy savings from a cost perspective as well.
That's great color. Thanks.
Thanks.
Sorry, do you know that.
Sorry, I was just a build up the back part of your question, which is was.
How do you do that.
If you want to be a CPG world class CPG player in the marketplace, we spend a lot of time building out our infrastructure and our capabilities and I will tell you. This is I think the strongest management team that I've ever had the privilege to work with and so our focus will be on surgically getting after.
Redundant costs in our system getting smarter about how we spend and Cogs, while we maintain the infrastructure to drive the capability and ultimately our top line.
Okay. Thank you very much opentable.
Your next question comes from Gerard Pos currently of Cowen Your line is open.
Hi, good morning, Thanks, very much for taking the questions.
Good morning.
Good morning, So it's encouraging to see E Commerce, certainly I guess accelerate from us from the 29% growth in one Q, but.
Still trending below mapped to the first half of the year trending below the 39%.
That's your web delivered for the full year 2019.
I guess can you provide some color on maybe just the cadence of how you see that channel given as how were so good so deep into <unk>.
Threeq right now maybe how your ecommerce is trended in July and August and just the opposite.
The opportunity to cross sell the abacus brands channel, which I believe makes.
It's essentially represents a new revenue stream for them. Thanks.
Yeah.
Gerald absolutely and I think it's a fair question I remember a year on year eco.
E Commerce this year for us is a much bigger channel and so growing at at the same accelerated pace as we get a 19 is always our desire.
But may not be completely possible, we feel really really great about our DTC business, we're watching the business up almost 34% on the quarter and up versus Q1, but if you dig into whats driving that ecommerce business were.
We're seeing double digit conversion rates.
Our acquisition.
It's up 63% subscriptions up 124% and our retention is up 56% so amazing increases on our capesize the one place.
That is below year ago.
His traffic traffic's down and traffic's down due to civil unrest the pandemic the election and and consumers are distracted and so we feel like as things settle out a little bit we will see traffic return and then our strong CPI schools continue to drive that business up I think.
We've got a lot of opportunity in this channel.
We built an amazing infrastructure last year, we built new capabilities that got launched in Q2 and starting in Q3 and so we now have the infrastructure the capabilities to get very precise about targeting insights personalized messaging and prompt and consumers were also seeing some great new opportunity.
He's with abacus mention that our database in this column ecommerce channel is 30 times the size of what abacus is operating on and so scale will play a big part of this actually the first month advocates has been on we saw about 68% of the abacus sales includes Charlotte's web.
Product. So we see the early data points that would indicate we've got upside in this channel and we'll continue to drive it.
Yes.
Carol This is Ross I'd, just add one comment to them is input on that Matt is near our ecommerce channel of course as everyone knows is one of our most profitable, but it's also our larger than our next nearest competitor just our E Commerce channel. So thats the significant size of it as Daniel mentioned on the growth still growing.
You know well over 34% again this quarter is substantial for the for a sizable market.
Got it. Thank you that's super helpful. Just last one for me I get that brick and mortar retail is a headwind for everyone in the industry and market saturation within within certain channels, you know brick and mortar retail has certainly been a theme I mean.
It does I guess this is more of a hypothetical question because the book is coded 19 expedite the process of of a potential shakeout from from some of these companies that are and some of these brands that are better saturating natural products.
To result in a in a shake out maybe maybe quicker.
And then would have been the case outside of of a coordinated environment. Thanks.
Yeah, It's a great question, Joe and we are beginning to see that happen we're seeing.
As competitors begin to lose steam and and lose their space on shelf I think.
I think the shake out is going to happen I think that in the natural channel is going to happen a little slower just because natural has historically how is the greatest amount of competitors in the in the greatest breadth of portfolio I think the biggest change over in terms of how you're going to see.
Brand Shake out is the opening of the food drug and mass channels and that's really because of two reasons. One when it is fully opened in the FDA has landed there regulatory.
That that set of channels is going to represent about two thirds of the revenue that goes to this category will go through food drug and mass and so it would be a massive shift in terms of volume going through importantly, the food drug and mass customers tend to operate on a more limited.
Brand and portfolio representation and so on average I would expect to see about 12 competitors in a in a an FDM competitive set versus you know many many many more in a natural setting so I think thats going to be one of the biggest drivers I think once it gets into food drug drug and mass those.
Customers tend to be more focused on me.
Making every inch work and much more focus on category management, that's where this company is going to shine. We've got tremendous sales in for structure to help guide the retailer to inform them about the insights and to help optimize the return on their investment from a shelving standpoint in store and so as that mix.
Sales to FDM in FDM opens up that's where I think you're going to see the biggest shake out we're beginning to see receptivity from the FDM channel as I mentioned 1700, new doors of expansion in Ftn in Q2.
And and we are beginning to initiate conversations with some by retailers on adjustables and so I think you're going to begin to see this move.
And I'm I'm optimistic the FDA will then the regulatory to enable it.
Andrew I'll just add one thing to work any just mentioned as he said in her closing comments as well the bipartisan have legislation on HR anyone's online Bill has been introduced.
Back to possibly be the start of this so we're excited about it.
Got it.
Thanks, very much for the color I'll pass it on.
Your next question comes from Scott I'll turn off Roth Capital Partners. Your line is open.
Good morning, and thank you for taking the call.
Folks a little bit on your second half 20 guidance.
You see we're going to see continued DTC growth from that standpoint, but is there, including a modest FDM channel growth stores opening there tends to help the understand the pet channels, the new national retailers growth, there and what is being offset the volume and then are you seeing continue.
Pricing pressure from that standpoint.
Yes, you're going to start or do I mean, just to start.
Well give a couple a couple of inputs on the back half Scott. Thanks for the question as we're looking at third quarter fourth quarter, we're already seeing as I mentioned in my comments that we're ahead.
And third quarter over second quarter with just a couple of weeks to go in the third quarter. So that is encouraging to us our E commerce business has it.
Its new software.
With Adobe and were able to raise.
Raises.
Our level of performance on that in the back half. So we're pretty excited about the opportunity in front of US we've also taken position.
Our gummies, so that we see the exploding popularity of this and that we will be well stocked or the run up into the.
HM up into cyber Monday.
And the entire holiday season, So we're pretty excited where we we see growth still in that you have and thats on expansion.
The natural channel is so tight and we think we'll probably continue some contraction in the medical channel is expanding as well, especially as the healthcare practitioner doors are open up.
Yeah.
Yeah, I think I think thats right and I think I think the the exclamation point you should put on Ross's notice as we watched takeaway both through spends and Nielsen.
Scott, we are beginning to see sales velocity and the category as well as our brand.
Tick back up near.
Near in the pre corporate levels and so what I.
What I think we had and what Weve experienced is is a dip in Q2 that ran into parts about the early part of Q3.
But those losses and those that takeaway is improving and getting back up to pre cobot levels in our previous earnings call, we mentioned that going.
Going into co, but if we saw a pantry stocking event happened both in B to B as well as.
You see the difference was DTC continued you see in the growth and BBB bottomed out at some point is getting as low as 40 or 50% of what the previous velocities where for a period of time and so we're seeing a nice rebound and I think that we can expect to deliver on what vessels laid out in terms.
For the channel channel growth in the back half.
Establishment and one thing we are.
We also have expenses.
Expenses in the past so I mentioned the expansion on the FDM. We also have expansion in the pet area as well as doors.
Opening.
A real quick follow up on that until you do have are you selling into a national retailer on the on the pet side, one on the big box retailers currently.
We are we've we've launched our product line and that the channel Unfortunately ill.
We also experienced some partial closures in Q2, but versus previous year. It was up slightly.
And and and continues to improve and velocity assess we have expanded distribution there.
Okay, and then one other follow up real quick on your your him crops update for for this year, obviously, there's been fires in Oregon and no freeze in Colorado any color there and then provide cover an update on your inventory and provisions around the inventories that is things here.
Sure Denny I'll take that and I'll address yeah.
Yeah, I was going to say I, Russ I apologize guys Russ they're not in the same room and so just the visual is not getting caught please rest.
So the inventory primarily.
What we have been growing this year is only minor for generic R&D purposes well.
So we have done very little grow all of our biomass that you see on our balance sheet is stored and safe. So we don't have any growth issues, because we have plenty of growth from the previous year. So we are actually hardly growing at all this year. That's the advantage of our supply chains, we can dial those variable costs.
Up and down based.
Based on how we see the demand of the inventory is.
So.
Okay. Thanks for that color I'll jump back in the queue.
Your next question comes from the rig to Lee of Canaccord Genuity. Your line is open.
Yes, hi, there I'm just wondering in terms of new products.
Introduction, you mentioned gummies had been been doing exceptionally well.
Can you comment on sort of what the pipeline looks like going forward, whether that's with Charlotte's web products or with abacus products.
Absolutely Derek good morning, so.
So our our innovation from last year, both on the pad expansion as well as companies have been.
Tremendous success.
As we look to the back half of this year will be filling in the gap with more trial packs on some for our products as well as value pack. So larger volume packs, we've had such a strong demand on our gummy business, we're going to be expanding that business across value.
Value pack, so that consumers can satisfy their demand and ER and we can take advantage of the sales those packs will be both margin accretive as well as revenue driving so that's what the back half looks like you know that we launch CW labs back in February of this year and Leif.
But a lot of time into our innovation pipeline you can count on us going into next year to be focused on innovation by channel.
And and format by channel I think.
I think one of the challenges Weve had historically and our portfolio is that we offered the same portfolio across every channel and that got a little problematic when it came to different channel pricing practices, but importantly customer shopping those channels and so we've put a lot of time into I'm trying to figure out where the innovation best meets to.
Consumer need and aligning our portfolio to best meet the needs of the consumers in those channels and you'll see us launching that as early as.
Late Q4 this year in Q1 of next year.
Okay. Thanks, and then just in terms of the firm.
Promotional activity during the quarter.
You mentioned you did reduce prices I think you started doing that in Q1 and completed the price reduction. This quarter did did you see any changes in that competitive set like I get you guys came down to narrow the gap and your competitors move down even more has promotional activity remain.
Relatively stable.
We're seeing it's a great question and so just to set the context, we announced a price still realignment 15, 20% list price reduction in Q1.
That that launched in the market in late March early April and so it was just right in the cost of Q1 Q2.
Within weeks of that launch in the market, we began to see our price gaps compress versus the competitive set and every.
In Q2, we saw the compression in July and August we sell the compression so.
The price do you have any alignment that was launched in April has now worked its way through on shelf can totally and were now seeing the price compression targets that we were going after.
Achieved as of August.
We're not seeing a lot of competitive reaction to what we've done in market Derrick, but it's very possible that the competitive pricing scenarios took place before we launched ours and so our GAAP have reduced.
And and we're seeing the velocity upticks. So we're feeling quite excited about that in addition, a part of our of our price daily alignment was to launch accessing entry points into our product segments and those primarily first for launch on Comcast are starting to work their way into retail.
And we've seen really nice uptake on those.
From an ecommerce standpoint, we have a way to really leverage trial.
Across a number of our different segments, but from a retailer standpoint, we have an opportunity to dial in propane price points appropriate by channel and so.
We'll see us do more in that area going forward as we could.
As we try to meet the needs of these customers across different channels.
Great. Thank you for the color.
Thank you.
Your next question comes from publishers unique off come to Fitzgerald. Your line is open.
Good morning, I'm, just gonna start we're very a I guess a broader macro question then I'll have some follow ups.
You know you've talked over the branch sales, but what about the category shelf index Weve consumer what worries me sometimes is that we keep talking about you know these three to five times growth in the market over the next few years.
In the case of T.H.C., we havent ideal display so mark you based on the elusive market putting to guess what should be the it's an estimate right based on on clinical income consumers appreciation, so that category, but again here. We there will be a long winded what worries me is that I see you know Clint do different types of products on the shelf, how much will simply don't carry CBD, but.
Gary Jim see him back drugs right you have a.
They still it's in some places at the retail level you have broad spectrum full spectrum. So I'm. Just wondering is it will show him or confused.
Because of all the products on the shelf and small by the operators potentially over there. So do we have you know some broader than actually work and as a result consumer gets upset with the category.
In general about that that's a good way when sales on my side in terms of how you said.
He said the already it develops and whether you have suffered over the next year over the past year. Thanks.
Yeah Taco as it is it's it's a great question, because I think with the lack of a regulatory environment.
The FDA has left open for competitors to define this category and you're right. We're seeing everything from Iceland to distillate to full spectrum to claims of CBD and no no CBD in the product and so the risk is confused consumer confusion the risk is a bad experience.
And consumers walk away from the category.
Encouraged by the E Commerce revenue and it appears that the manufacturers in this category today, who have a well developed ecommerce footprint are faring better through the pandemic I think the demand through E. Commerce demonstrates that consumers are seeking out this category to deal with.
Things like anxiety and sleep and general wellness.
We're going to have a lot of that coming off this pandemic and so we continue to be very bullish on the category I do agree with you that getting to the bottom of what this category really is in terms of an estimate has been a hard.
Tranche, but we're now looking across several different authorities in the category and we're kind of landing on the same number kind of in that mid.
Mid teens to high teen range in terms of billions and so although I know 2020 has been disappointing from that standpoint.
Sandpoint distribution availability and just general category trends externally in the B to B channels.
The reality is this category, even with all of that we'll drill 11% this year and going forward, we'll see growth rates in the 20 to 35 range in the next four or five years and so I think it's realistic to expect.
Some very attractive growth and a profile that that that is worthy of of stain participating in but I do understand your concerns.
Okay and then just one last quick question in for.
In Brazil, we are going to be shown in the past we worry about all the smaller operators segment the nature of the industry, whether we keep seeing more larger companies something they got to worry you know kind of your goals with a full suite of products, including the long answer as much as two of them faster than other CVD products wrote award will leave.
No, it's maybe singling isolated incidents, but we're seeing more and more companies right and what I worry about is as we got to go to their local engine of CPG on top of that.
Maybe that's an issue for small companies on the semi side you guys with the strong brand maybe it's less of an issue it but if you can talk about that and also how you see the competitive that that new source of competition living the bus maybe we had not been enough attention to.
Unrelated to that just remind us when you think of your brand portfolio and nobody knows who formats, but into sort of brand portfolio, where are we right now because you have all because you have obviously the skin care brand that I was acquired.
Well as Weve has been extended to bed, if I'm not wrong right.
So you know what I suppose you have larger competitors with affordable household brands. What are you gonna gaps if any intention industrial brands you indulging disciplines. Thanks.
Yes, so thank you.
Hi to your first question, we track the broader sector closely and we're keeping tabs on.
The seat the T.H.C. competitors competitive set as they expand into CBD.
We think that it's it's no.
Nothing has come to fruition on it yet, but it's something we watch very closely like anything the best defense is a good offense and so our focus has been on advantaged and patented genetics science that proves a differentiation.
Platforms that that scale across all channels and die and and then dialing up innovation that uniquely meets the needs of consists of consumers and so.
I think our focus has always been on the competitor over the hill versus the one were directly competing with today and we see that CPG will come forward and compete at some point in the future I think it's the importance of why Youve got to develop a brand that has differentiated you make an advantage.
In the marketplace and I think that's what we've got with Charlotte's web.
And so we see it developing but we think they've got an opportunity to truly dial it in and and be one of the only brand that succeeds as as those new players come into the marketplace in terms of where our portfolio goes across the different segment as well as consumers.
You will see us evolve we're taking in all of the abacus brands, we're doing a complete assessment from a consumer standpoint and.
A need state education.
To ensure that we're getting the brands right.
Identifying the gaps from a consumer standpoint that don't aren't met today in the portfolio in evolving our brands tour. It's a scale play where it makes the most sense. We will begin to launch those initiatives in Q1 of next year.
And you'll you'll see more from us.
That develops but we're doing exactly what you suggested were going to roll out a brand portfolio that leads with Charlotte's web with science and legitimacy with data and validated research and price genetics, and then we will push out the portfolio to take advantage of the over the counter sector as well.
As the medical sector and launched some new products into consumers that we have not been able to get to historically so that will start in Q1 of next year.
Right. Thank you.
There are no further questions at this time I tend to call buckles, that's the presenters for closing remarks.
Okay, well. Thank you everyone for joining us today and appreciate the questions. We will look forward to next report to you on our November call on our Q3 results.
That terminate the call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].