Q1 2021 Charlotte's Web Holdings Inc Earnings Call
[music].
Good day, and thank you for standing by and welcome to the Charlotte's Web Holdings, Inc. First quarter conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Good question during the session you will need to press star one on your telephone.
And he has further assistance. Please press star zero and please be advised that today's conference is being recorded I would now like to.
And the conference over to your Speaker today, Cory Palace and Investor Relations. Please go ahead.
Thank you Meghan good morning, and thank you everyone for joining us for our 2021 first quarter earnings conference call for Charlotte's Web Holdings and my name is Cory Pala director of Investor Relations, leading the call today is Charlotte's web C. E O T D Elsner and CFO Russ Hammer the earnings press release financial statements and a first quarter for our first quarter as well as your MD&A it can be.
Found on the Investor Relations of our web site now and these have all been filed on SEDAR Dot com on today's call of duty will share some high level comments on today's earnings results and update on the business and Russell will provide more detail around the financial results. We will take questions from our analysts at the end of the prepared remarks, a quick note to our analysts today that we will be closer to call about 10 minutes early today.
Day as we prepare for a presentation at a Toronto Investor Conference. This morning that begins at 930.
Eastern time, please keep this in mind during the Q&A session. As we will have a slightly shorter time than usual a replay of this call will be available through the next week accessible for the details provided in our earnings release, a webcast replay of the call will also be available through the IR section of our web site.
As always a reminder to our listeners that certain statements made on this call, including some answers. We may provide to certain questions may include content that is forward looking and nature, and therefore subject to risks and uncertainties, which could cause actual future events or performance to differ materially from implied expectations such risk surrounding forward looking statements are all outlined in detail with the company's regulatory.
Tori filings on SEDAR Dot Com. In addition, during the call we will refer to supplemental non I F. R. S accounting measures, including adjusted EBITDA, which do not have any standardized meaning prescribed ER prescribed by Ifr S. Adjusted EBITDA is therefore defined in our press release as well as our M D and E as filed on SEDAR.
With that I will now hand over the call. This Charlotte's web Chief Executive Officer, Jenny Elsner.
Thanks, Corey good morning from Boulder, Colorado, and thank you for joining our call. This morning, as we closed out and the first quarter of 2021, three themes and beginning to emerge first.
He is a return of retail second category is experiencing some competitive contraction and third.
Third within the category there is a consumer demographic extension.
Regarding the returned the retail clothing and out of Q1, we began experiencing a return to pre pandemic category run rates in STM, coupled with strong improvements and the medical and natural channel run rates over the last year. The pandemic Lockdowns had the biggest impact and takeaway and our brick and mortar D day retail Q.
One 2021, BW run rates continued to build on the recovery, we experienced and the second half of 2020 driven by expanded distribution and improving sales velocities and now with the pandemic pandemic winding down and it would be retail run rates with our further improving.
Going forward with our development across channels channels web is best positioned to benefit from these improving trends.
Emerging data indicates the categories experiencing and competitive contraction and the latest research from the Bright-field group estimates and the CBD category has experienced more than a 20% reduction of competitors from a peak of about 3500 last year.
Most of this is occurring among the smallest players who simply cannot compete and this operating environment.
Natural channel and markets and this data indicates 7% reduction and competitive brands in Q1 versus a year ago, which supports the anecdotal feedback we heard from our customers coming out of Q2, Q4, 2020 in Q1 Challenge web held the number one market share position in both F D M and the <unk>.
Channel expanding our share leadership versus the near and nearest competitor going forward challenged web is positioned to benefit from the ongoing competitive contraction and finally in terms of the consumer demographic extension for the first time, the CBD category consumer base shifted to greater representation of.
Millennials and Gen Z verses Gen X and baby Boomers. This supports the data that the younger generations have been disproportionately impacted by the pandemic and are actively looking for solutions to improve their wellness. According to the CDC U S consumer's experiencing anxiety or depression as of the.
<unk> 2020 increased four X versus pre pandemic levels. As this trend plays out Charlotte's web is well positioned with this broad portfolio offer and channel development to benefit from this consumer demographic extension shifts.
Shifting to Q1, 2020 2021 results Charlotte's web and she wasn't revenue increased nine 1% versus a year ago to $23 $4 million. This net revenue growth was driven by both our DTC E Commerce channel up 14, 5% and our <unk> channel up 11.
And our like for like basis, when excluding non retail <unk> dry and surfaces.
Our Q1 DTC represented approximately 69% of our total revenue about <unk> represented about 31% as the pandemic winds down. This year, we are expecting GDP to continue a higher to contribute a higher percentage and the total revenue.
For the first quarter of 2021, DTC net revenue was up 14, 5% versus year ago. This growth reflects a healthy performance for the DTC channel when considering the lapping of the pre pandemic pantry belt that occurred last year driving higher than normal stocking sales.
Our balanced analysis of year on year DTC performance suggests growth of about 20% or better for this channel consistent with historical performance, which we are modeling for the <unk> 2021 full year.
That said the pandemic has slightly brought a permanent shift and consumer behavior and our DTC channel can capitalize on this shift.
T see kpis remained strong and versus year ago with traffic up 12% conversion up 26% and subscription up 40% average order volume was down 15% versus a year ago due to our product mix, reflecting the impact of younger consumers coming into our franchise through.
Lower price products like gummies.
And March DTC deliberate and third strong this overall sales month and over a year, which provides a good indication of how we expect the remainder of the year to unfold.
Shifting to BW and channels consolidated <unk> net revenue reported for Q1 was down slightly by one 4% versus a year ago, However, and.
Like for like comparative basis, adjusting for non retail revenue and a onetime retailer pandemic return or <unk> sales were up 11% versus year ago. This growth was driven by the strength of our medical channel business, new distribution channels, and a significant improvement and our natural channel.
And medical and natural channels are two of our biggest channel from the BD business and as these channels returned to more normalized run rates. Our <unk> business will continue to improve we expect to achieve those more normalized run rates in Q2.
Two additional data points that confirm our return of retail growth first April sales for <unk> were up 20%, 30% versus year ago, depending on the channel.
These growth rates are consistent with what we expect for growth and b to be for the balance of the year.
Second some F T M retails retailers and several new alternate channels are beginning to expand distribution in the CBD category. We look forward to reported on a more reporting and more of these successes and the coming months.
Our <unk> results are consistent with what we're seeing play out in terms of market share and the first quarter Charlotte's web expanded market share leadership in both STM and the natural channels and F. T. M. Charlotte's web market share was 34% up six percentage points versus year ago, and one five percentage points.
Versus Q4, our F. T M market share position is almost four times, our closest competitor at 9%.
And the natural channel for the second quarter and a row Charlotte's web held the number one market share position expanding our share position incrementally versus the previous quarter.
And a gross revenue basis, both our ingestible and topical segments group versus in Q1 versus year ago total coupon Ingestible gross revenue increased 11% versus year ago, led and gummies up a 102% versus a year ago, offset by declines and capsules and 6% and tinctures.
And 15% as.
As the consumer demographics continue to extend we expect to experience product mix product continued product mix shifts and importantly, we plan to evolve our portfolio through innovation to reflect new formats to satisfy evolving consumer needs.
One topical gross revenues increased 263%, primarily due to the acquisition of abacus market leader and CPD OTC topical products.
Topicals contributed 18% of total gross revenue compared to just 6% of gross revenue in Q1 of 2020 looking forward, we expect capital sales to increase further becoming an even bigger part of our portfolio.
Finally, with regard to the regulatory landscape, we believe regulatory oversight will come and one of two ways first the FTA continues its proactive data collection and investigation regarding hemp CBD and other derivatives, we continue to partner with the FDA to advance their learning.
And we're optimistic that they are committed to establishing regulatory direction later this year.
Second from a legislative perspective, we're encouraged by the congressional legislative advances being made by the house of Representatives, Bill number 841, which would legislate him and the strip the products as dietary supplements.
We understand that soon the Senate will also be putting forward a bill in addition to and similar to H R. 841. This illustrates the support of both house and Senate to establish a legislative framework within which the FDA would regulate hemp and its derivatives.
We look forward to the progress ahead and.
I'll now turn the call over to Russ for an overview of our financial performance.
Thank you Danny and good morning, everyone.
Q1 revenue.
And he spoke to the tier one sales already so I won't repeat them what I would add is that although we have not provided prior guidance for the first quarter net revenue of $23 4 million was within our expectations Q1 is seasonally our softest quarter of the year.
Turning to gross profit gross profit was 58, 4% for the quarter, resulting in a gross profit of $13 7 million, which was $1 4 million lower and $15 1 million gross profit last year. Despite the higher revenue. This year quarterly gross margin variations and primarily reflected product and channel mix during the <unk>.
Spec of quarters lower gross margin in Q1 was primarily due to a higher revenue contribution from our lower margin gummy products.
We expect high sales contributions from our leading and gummies line to continue in 2020, one, but with improving margins for manufacturing cost reduction plans later this year.
In addition, we will strategically decrease overall cogs as our new production and distribution facility becomes fully operational with improved manufacturing efficiencies as volumes ramp up for 2020. One overall, we model forward consolidated gross margin to land within the low to mid sixties range generally increasing through the year.
Now turning to operating expenses total opex for the first quarter was $24 million or up two 9% from a year ago, but generating higher revenue, which was up nine 1%.
We are pleased with this result, our opex level also reflects the success of our expense reduction program that we implemented last quarter to reduce our opex by at least 10% from the Q3 2020 peak and.
And bring our costs more in line with our and impacted revenue levels.
We have been well ahead of that plan, but our opex run rate down 15, 2% and Q1 from our Q3, 2020 run rate.
Through this initiative, we are forecasting more than 12 million annualized cost savings for 2021 from our high points.
Three 2020 it.
It is noticed noticed notable that we have been able to deliver these significant reduction. Despite this year's first quarter, having the additional operating expenses of both abacus and CW labs.
As well as our startup.
Investments in international markets.
Added to our operating expenses versus Q1 of last year.
Importantly, we've been able to reduce expenses without sacrificing the effectiveness of the overall business. We've achieved this through consolidation of facilities, a reduced head count and increased operating efficiencies, including an approximate 20% workforce efficiency reduction, while investing and our key strategic initiatives.
Operating loss after gross margin of $13 7 million and operating expenses of $24 million, we had an operating loss of $10 3 million for the quarter compared to a loss of $8 3 million a year ago and.
And the increase operating losses, primarily related to the lower gross margin this year.
We are modeling improved operating profit through 2020, one and turning positive late second half of the year and enter 2020 two.
Adjusted EBITDA, our Q1 adjusted EBITDA loss of $4 7 million was an improvement versus Q1, 'twenty adjusted EBITDA loss of $5 7 million.
Now turning to Capex spend during the first quarter, our Capex and was approximately $1 6 million related to completing phase III construction of our R&D production and distribution facility.
As this facility comes fully online this year, we will be able to reduce some production cost and improve margins.
We have now completed the bulk of this investment and therefore related GAAP capex drops off significantly this year.
Full year, we have planned.
Excuse me total capex investment to be between $8 million and $10 million and approximate 70% reduction and capex spending from last year.
We look forward to hosting an investor day to showcase the capabilities and efficiencies of our new manufacturing.
R&D extracting and distribution facility and the second half as COVID-19 vaccinations reach acceptable standards.
Now turning to cash and working capital use of cash during the first quarter included $7 7 million and operations compared to $14 9 million and Q1 of last year and.
In addition, approximately 1.6 was deployed for equipment towards completing the build out of the company's new facility.
The bulk of the balance of cash use was a strategic payment of $8 million cash for the option purchase agreement with the shareholders of Stanley Brothers USA cannabis business.
Cash and the end of Q1 was 35 million and addition to this cash we have a short term IRS tax receivable of pinpoint 8 million pending.
Working capital stood at $95 6 million on March 31, 2021.
We remain debt free we have and unused line of credit with JP Morgan, providing ample liquidity and believe that we are sufficiently capitalized to deliver on our plan.
For additional pools, and our financial liquidity toolbox, we recently updated our shelf prospectus filing which was expiring in April as previously disclosed and we also intend to put in place and at the market equity distribution program or ATM is another prudent liquidity tool, we expect to file this and the coming week.
With the strength of our balance sheet and improving cash flow expectation and we do not foresee any near term intentions of raising capital.
In terms of financial guidance, we are not providing specific revenue estimates for the year due to the lack of economic visibility caused by the pandemic. However, our data is giving us and increasing optimism that there is light at the end of the COVID-19 tunnel.
Agents have been reopening again as vaccinations are increasing and we currently expect that retail will continue to strengthen through the year, especially in the back half is distribution expansion increases.
To summarize as Danny mentioned March was the third strongest month over the past 12 months with 25% growth over 2020.
And this is and our seasonally softest quarter.
And the pandemic appears to be ebbing retail growth is returning per PDP business and I can confirm that retail sales were noticeably higher in April depending on the channel up 20% to 30% year over year.
And how 2021 growth ultimately manifest will be determined to a large degree by the level of success and the rollout of vaccines and downward trend and the COVID-19 infection. So far what we are seeing has been very encouraging I will now turn the call back over to Danny for her closing remarks. Thanks, Ross over the last 15 months will discuss our intent to expand our.
Print with what is arguably the most recognized brand and the kind of a sector over the last six months, we've made moves to expand geographically and within the sector, which I want to highlight for you now and December of 2020, we announced a strategic partnership with <unk> a division of interfere in Israel and train Israel with can dock was this.
Strategically important decision for Charlotte's web Israel is one of the most advanced countries within the cannabis sector in terms of clinical and research and addition, interfere has 100% distribution within every cannabis approved pharmacy, and Israel with potential to access and distribute into Europe.
We are closely monitoring and the regulatory environment and Israel as we map our plans to strategically expand our portfolio and footprint.
Last month, our proprietary cultivars were approved by health, Canada to be added to the list.
This was a critical first step and our expansion plans into Canada as current international laws do not allow for bulk and partnering of U S grown hemp and CBD or related products and to Canada hemp CBD wellness category category is underdeveloped and Canada with limited off periods.
<unk> full spectrum hemp extract products.
Most CBD products in Canada are produced from cannabis with THC levels, well above 0.3%, which have an intoxicating effect, we believe that our patented full spectrum pulse device will be a competitively advantaged and Canada and the Canadian market because of our high quality and consistent hemp extracts where.
Our employee and an asset light model approach to the Canadian market benefiting from a well established underutilized infrastructure.
We are finalizing strategic partnerships for cultivation.
Extraction and production and distribution and we expect to keep planting next month.
Finally in March we disclosed our intent to enter cannabis and cannabis wellness space, when we announced and option purchase agreement with the Stanley Brothers Cannabis company pending U S federal legalization.
There is a significant activity happening at the state and federal levels, and we are keeping close pulse on how the logistics and evolve towards federal equalization.
Between the safe <unk> net the States Act more act and the push for federal legalization and.
Clearly momentum while it is unclear how quickly the landscape will shift and the U S. We can we continue to consider various options and other company countries, where cannabis is federally legal including Israel, and Canada, where we have disclosed material first steps we.
We are positioned for both hemp and CBD and cannabis wellness markets and these regions employing and asset light model through partnerships and leveraging our brand strength and proprietary genetics. We look forward updating you on our progress and long term strategic initiatives throughout the year, but that I'll ask the operator to open the <unk>.
Line for questions.
Certainly at this time, we would like to take any questions. You may have to ask a question. Please.
And one on your telephone keypad and your first question is from Derek <unk> with Canaccord Genuity. Your line is open.
Oh, Hi, and good morning, and thanks for taking my question and so I can be focused filling in for New York.
Thanks for providing a lot of color on the gross margin and I know you guys touched upon that a little bit and how you see it improving over the year.
And I just wanted to see if you could provide some more color in terms of.
Where do you think the product mix shifting or if you can provide us some more color regarding this part of it and that's all thank you.
And I'll start I'll kick off and then I'll, let Russ get into the specifics in terms of the category as we've mentioned in the prepared remarks, there's two areas, we see the product mix shifting having the biggest impact and our portfolio mix and the year.
First is into new forms of Ingestible very specifically dummies, that's coming as a result of the consumer demographic is moving more towards millennials and Gen X who have a propensity to go after more recognized formats and so ingestible continues to grow.
But that growth within Injectables likely is going to continue to shift and continue to shift going forward into gummies.
Historically <unk> has been the weakest part of our portfolio. It was sincerely are GAAP and all the.
And of Abacus last June and enabled us to strengthen our portfolio in the topical segment.
Typically now as we move forward into 2020, one we will be looking to expand distribution and those topical products, both the abacus products as well as the Charlotte's web products and the channels that they have not been represented and before specifically and natural channel and parts of food drug and mass and so there's real white space opportunity.
For us to continue to see.
Buckle, our topical portfolio developed and we expect those dummies and topical is to have the biggest product mix impact to our portfolio. This year, driven specifically by channel and consumers Russ can speak specific share numbers Mark I'd, just add one thing to what <unk> said and that is the product mix.
The gummies that we mentioned up 102%.
We see that strengthening as we go forward and that is our lower margin product because it was.
Shifting from tinctures and capsules.
But we think that the volume growth is going to be tremendous and that area.
That's very helpful. Thank you and then one more if I can and it would be regarding the return you guys mentioned furby and it'd be vertical and then.
And any more color you can provide and you're guiding it.
And really great. Thank you.
Absolutely.
We're not going to provide specific channel growth rates, specifically, because we feel like that is competitively sensitive, but I will say as I mentioned in my prepared remarks, both the medical channel and the natural channel, which are two of our biggest channels and b to B are rebounding in an incredibly strong way and so we would expect.
Medical continue to be straw.
Strong growth this year.
As we both build out the portfolio of the advocacy products and the.
Those channels as well as incrementally expand distribution behind innovation.
And as well as we take a number of our new topical products into the natural channel.
We had to work a little bit and those topical products to ensure that the ingredients stream and topical was acceptable and the natural channel that has been completed we're literally in the process of launching topical in the natural now those two channels are really important because those two channels are channels, where consumers are early adopters and or highly influenced by the medical profession.
And so having those channels grow disproportionately and our <unk> business has a disproportionate impact how it returns to the pre pandemic growth levels and and that's what we're most excited about seeing in terms of food drug and mass we are seeing retailers begin to open up to broader distribution.
And <unk> opportunities and both the topical channels and even in the beginning of the Ingestible segment and so for those reasons, we're feeling very good about the return to growth and need to be and feel like we're really well positioned with our portfolio development as well as our channel development to benefit and the most disproportionately.
That's excellent and thank you so much.
Absolutely.
Yes.
Your next question is from Gerald.
And with Cowen Your line is open.
Hi, Thank you good morning team, thanks, very much for taking the questions.
Good morning, Jeremy.
Good morning, so it's encouraging to hear that the market seems to be becoming less saturated but that said you know over the past few months, we have seen increased entry by some of the large Canadian operators into the U S. CBD space. We've seen some recent some more recent notable M&A and so.
I guess looking forward as you assess the competitive backdrop from Mike from from some of these larger companies just how are you.
Are you thinking about protecting what is our market leading position and the U S. Thanks.
Absolutely and Darryl and I think it goes back to <unk>.
Classic consumer product good strategy. If you look at how this is.
Sector. That's total cannabis sector is developing and it's very consistent with what we see and consumer products goods. There are consumers that are segmenting out there are need states and conditions that consumers are shopping against and as a brand and a portfolio of brands within the sector. Our job is to position these brand.
<unk>.
Take advantage of the greatest growth opportunities and so we do that by growing the brand.
Growing innovation as well as and train new Adjacencies in terms of brand strength I think market share is our largest and fastest indicator of how well our brand has been.
Received by consumers have a 34% share of the food drug and mass channel is is incredibly advantage to have that growth six points versus previous Q1, 2020 and and that position versus Q4 indicates that we are disproportionately taking <unk>.
<unk> share and our brand is strong and we're seeing that consistently played out in terms of awareness conversion in terms of loyalty. So all of those brand health metrics are indicating brands matter and we're winning that game. The second place is through innovation and you'll see you saw us just launch.
Last month, new products that where we have a bit of a GAAP in our portfolio and that specifically the THC free products. These are for consumers, who who don't want or cannot have any level of THC and CBD wellness products. It took us a little bit of time to figure out.
Wait to develop.
And that satisfies the needs of our consumers, but was consistent with the quality expectations. We have for Charlotte's web and has now been launched and well received and we really see students athletes as well as frontline workers, taking advantage of that product and I think the third is and train new adjacent states and nicely as well.
Look at that.
<unk> and further into the medical channel as well as looking towards cannabis wellness, we know theres a lot of white space for us to enter so from a brand standpoint from a channel standpoint and portfolio, we're well position beyond that you differentiate on the science as well as protecting your patents so that you drive.
Value and an advantaged way and the marketplace and so all of those things are coming to fruition. If you saw our Q1 release this morning.
We have and in our patent protection on our genetics, we've defended trademark challenges and are on our brand trademark and we're continuing to advance our cultivation outside of the U S and so for all of those reasons, we're seeing a really nice return to be to be and I think when it does return we will.
Disproportionally advantage.
Got it thank you and beauty that's super helpful.
Our next question is just on pricing.
So as you know.
And as you've assessed the competitive landscape have you.
You noticed that competitive pressures competitive pricing pressures have subsided, some kind of given your commentary that some of the.
Some of the smaller brands have been.
Essentially removed from the market at this point is that is that a fair assessment.
Yeah, and I just spoke to a comparative standpoint in terms of pricing and if you step back and take a look at Q1, 2020, our competitive price gaps.
Our portfolio versus the competition for well over a 100% of our products were well above 100% more expensive than the average price point across our channels.
Fast forward to our price gaps today and they are well within the GAAP range, we need for us to drive the highest velocities and in fact, we're seeing the velocity improvement happened as of August of last year, and so I'm really quite pleased about the progress we've made and managing the average price of our portfolio to a price.
GAAP that we know we can win and market across our channels.
To your question directly are we seeing the same competitive saturation and pressure on price that we were seeing in the last 12 months or potential and the last 18 months to answer that question is no.
It's not as dramatic for sure it's still going to be there.
Although there is some reduction and the competitive.
Landscape and <unk>.
Dropped in half and so there are still competitors and the marketplace, who are challenged and the operating environment, who will use price as the only differentiator to survive.
And do not have that pressure that we had and we're at a very comfortable place in terms of price gaps versus our competitive set.
Got it Super helpful color, Thanks, very much and I'll hop back into the queue.
But thank you.
Your next question is from Scott Fortune with Roth Capital Partners. Your line is open.
Good morning, and thanks for taking the call Keith while a little bit of follow up of how much code that COVID-19 has impacted sales trends and the <unk>.
Traffic and.
<unk>, obviously from that standpoint, and you're seeing it normalized when you say normalized.
How quickly are we getting back to where we were.
With pretty robust and traffic pre COVID-19 kind of at what level do you think that that can occur and <unk>.
Nathan is open up here and the U S.
Yeah. It's a great question. So this should give you some data points, we can respond to.
Our reported <unk> revenue in Q1 was down 1.4, Sharepoint a percent and so that was a disconnect Prescott because as we looked at all of the brand health indicators, our market share our awareness our conversion our loyalty everything was up so as we stripped it back what we found was we had some <unk>.
Non retail driving revenue and our <unk> numbers that was distorting our <unk> numbers. So when you when you pull that out because it wasn't actual retail revenue a like for like comparison of our retail and.
And Q1 was up 11%, that's very consistent with the additional data kpis that we're seeing and share awareness conversion and loyalty and so that's a much more accurate reflection on our numbers and in fact, we've gone forward and we've shared with you what we're seeing and the BTB channels as of April and our April numbers across our.
Panels are between 20% and 30% up now that threshold that the category thresholds for pre pandemic run rates and total BTB channels has now crossed over and impacted the pandemic from last year and so I can tell you from a category standpoint with <unk>.
Crossed over and we're beginning to hit a run rate and I can tell you from a business standpoint, we've crossed over and we're hitting the run rates and so.
And one.
Declared the pandemic is over and that things are immediately back to normal, but I will tell you. We're very encouraged by what we're seeing and the PDP channels beyond that our sales team has done a tremendous job and seeking out new channels for revenue.
And what what we've reported out in the past and we've had really nice success and those channels and so we're quite encouraged by what we see and BB and B to B to the point, where we want to formally declare that <unk> as a percentage of our business will be greater than it was last year and getting back to a normalized rate.
Okay and I appreciate that.
And then follow up for me and you mentioned.
Cash and the healthcare channel the pregnancy and channel will open up.
Reopening the country from that standpoint, but any color on the because products and selling online and into a platform and then also kind of a little bit and update on the pet side.
As far as growth opportunities there.
Yeah, absolutely so let's step back on advocates first.
Biggest opportunity, we had and the abacus acquisition was and the health care practitioner channel about 65% of their revenue.
<unk> sold through the health care practitioner channel, that's an incredibly important channel because <unk>.
50% of consumers, who come into this category come in because they're health care practitioner has recommended them to come in and so having the right portfolio being able to partner with and influence key opinion leaders is a big part of how we build our our brand footprint and.
And retail so for sure our biggest opportunity.
<unk> continues to be and the health care practitioner channel book and the business, they've built as well as expanding that portfolio with new products and entering new segments. As you know health care practitioners is a very big channel. So for sure that number one priority for us with Abacus is building out our footprint and the healthcare practice.
And our channel.
Second biggest opportunity for us with advocacy is expanding into our <unk> retail channels, where to date. It has not held distribution. It's a really important product line because as I mentioned, the abacus product line is and over the counter topical CBD.
CBD product line and that fits and a very different place and retail and so we are actively working towards expanding the distribution footprint for the efficacy products and the food drug and mass channels, which include also and natural channel, So medical and channel expansion and our <unk> are the two biggest.
Priorities, we have on <unk>.
Right.
Commerce is a big opportunity and we will expand e-commerce as we target new consumer segments with OTC topical products, but by far the biggest revenue opportunities are in medical and retail expansion on that product line.
Thank you and then real quick the pet line E color Oh, sorry.
Yeah. Thank you.
Sorry.
Sorry, I didn't I might have Inc, and I didn't write that down so in terms of pet we're seeing a really nice expansion and our pet line.
Coming online as well as <unk>.
Food drug and mass retailers, who are beginning to expand their pet offering as well as specialty retail pet.
And expansion and so Q1, we lapped a big inventory build as we expanded our.
Products and Q1, but our run rates and pet are encouraging and you will see new products from our pet line being introduced and the back half of this year. So we're excited about what <unk> brings to our portfolio and it continues to be and opportunity and a white space for us to enter.
And Scott I'll, just mention one thing.
We have recently and it's in our filings we have.
Brought on Carli Lloyd tapped into the U S women's National Soccer team.
CPG medic sponsor because she actually came to us she uses the product for over a year before she came to us and told US how should we covered from Andrews with it.
I wanted to share that as well.
Okay and you still have.
Kankowski onboard correct.
We do <unk> is active with our business and we're in contact with him.
Quickly he uses our products, but because he is back and the NFL.
And we're unable to ship and is voice as far as we would like to and we will.
See how the season plays out and.
Every year ends up but yes, we're actively involved with growth at this point.
Great and I appreciate it I'll jump back in the queue.
Absolutely Thanks Scott.
Your next question is from Pablo.
With Cantor Fitzgerald Your line is open.
Thank you good morning.
<unk> one can you give more color.
And what your discussions with your volume Channel I think you did mentioned you plan to expand there, but what are they telling you they are waiting for the FDA.
And just moving forward and whether the drug stores mass merchandisers supermarkets.
And the second question regarding.
<unk> 41, you talked about the bill.
Version of it and the Senate.
Is that a risk that.
The big deal for Marty one of its into the machine. When he is working on the expressions over CBD or to get.
Included in this already wanted to be or what do you think that will just be a separate but for day 41. Thank you.
Youre welcome.
I'll tackle your first question or your second question first and then come back and give you some color on retail from a legislative standpoint.
Absolutely there is momentum building for cannabis.
Across the country and we're seeing and.
Number of bills being introduced to improve the operating environment as well as potentially challenge the federal legality of cannabis.
<unk> versus CBD are two different ends of the spectrum CBD has already gone through the legalization standpoint, it's already pushed out the regulatory standpoint, and we're at the act and if the approval waiting for final direction and regulations versus cannabis and that is coming in and and the very early stages of.
Legalization, and and building and operating landscape and so.
Yes, there is momentum shifting towards cannabis in terms of just the legislative process.
And CBD I really do believe given our discussions with folks on the hill that the intention of the Senate and the house is to land the regulatory environment for CBD why.
Because it opens up a and entire industry and sets the path for cannabis to follow billing forward cannabis will have to go through the same process of getting the regulatory environment locked up proving the science and giving the FDA comfort that.
They have controls over the product, they're putting into the marketplace. So I am not concerned that cannabis morphs and takes over CBD and much more focus and clear and defined hurdle and CBD and then shifting our attention to how we evolve our portfolio to take advantage of the emerging cannabis wellness opportunity.
We see coming forward in.
In terms of the retail channel and a little bit more color and.
In terms of retailers.
And the position today to comment on the retailers that are leaning a little bit further into the channel, but we are seeing Pablo and <unk>.
The board and across the country and number of different retailers beginning to have.
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Shelf and across segments.
They have not shipped that offer yet, but we are ready and ourselves to ship those offers and I think what that indicates is that day. The FDA has not position themselves to regulate this category and.
And number of competitive retailers as well as companies are benefiting from the revenue opportunity. This category provides and consumers want access to it and so I think there will come a time if the FDA doesn't act retailers will act and move forward and at this point, we're having those discussions and.
We've got a number of those commitments and and we will look forward to Q2, when we can share some of that news.
Great. Thank you.
And your problem.
We have no further questions at this time I turn the call back to Daniels and up for closing remarks.
That's good I do thank you very much for taking the time. This morning to join our call I'm really looking forward to the year as it evolves I'm looking forward to coming out of the pandemic and I really think my Charlotte Charlotte's web colleagues for everything they've done to get us to this point, we are exiting and the pandemic as a stronger company than we entered the pandemic.
And we're looking forward and open it opening of the retail environment. So with that thank you for your time and look forward to talking to you and the future.
This concludes today's conference you may now disconnect.
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Yes.
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