Q4 2021 Charlotte's Web Holdings Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to shallow Sweat Holdings, Inc. Fourth quarter and year end conference call. At this time all lines are in listen only mode. So long in the presentation. We will conduct a question and answer session. If at any time. During this call you quite immediate assistance. Please press star zero for the operator. This call is being recorded on March 24th.
2022, I would now like to turn the conference over to Mr. Cory Pala director of Investor Relations. Please go ahead.
Thank you and good morning, everyone. Thank you for joining us for the 2021 fourth quarter and year end earnings Conference call for Charlotte's Web Holdings. My name is Cory Pala director of Investor Relations, leading the call. This morning is Charlotte's web CEO Jacques toward early Jacques was appointed CEO in December of last year, and it's been a member of Charlotte's Web board of.
<unk> since 2019.
He is joined by West voice in his in his recently expanded role as Chief financial and operating Officer and also on the call is that you take a Terry our chief Accounting Officer.
Our earnings press release and financial statements for the fourth quarter and year end have been posted on the Investor Relations section of our website and filed on SEDAR Dot com in Canada as well as in the U S with E. S. P C as a form 8-K, including exhibits.
In addition, we have also filed our first 10-K in the U S on Edgar which may be accessed through the SEC's website at SEC Gov, Charlotte's web became N S. T SEC filer in January of this year.
Now as a U S registrant, our financial statements have been prepared in accordance with U S. GAAP financial reporting, whereas previously our financial statements were prepared in accordance with Ifr S reporting standards, our comparable 2021, and 2020 U S. GAAP financial statements can be found on the SEC web site in the U S N and SEDAR in Canada.
On today's call Jacques will share some high level comments on 2021, and an update on the business initiatives for 2022 and beyond what will review the details of our Q4 financial results and we will take questions from our analysts at the end of our prepared remarks.
Replay of this call will be available through the next week accessible for the details provided in our earnings release and a webcast replay of this call will also be available for an extended period of time accessible through the IR section on our website at Charlotte's web Dot com.
And finally, a reminder to our listeners that certain statements made on today's call, including some answers. We may provide to certain questions may include content that is forward looking in nature, and therefore subject to risks and uncertainties and other factors, which could cause actual future results or company performance to differ materially from implied expectations such risks surrounding forward looking statements are all outlined in.
In detail within the company's regulatory filings on SEDAR Dot com and our Form 10-K for the year ended December 31, 2021, and our other filings with the SEC all of which can be viewed on the SEC's website. In addition, during this call we will refer to supplemental non-GAAP accounting measures, including adjusted EBITDA and adjusted gross profit, which do not have any.
Saturday's, meaning prescribed by GAAP. Please refer to the earnings release contained in the form 8-K that we filed today for a description of adjusted EBITDA and other non-GAAP accounting measures as well as a reconciliation of such measures to their respective most directly comparable GAAP financial measures and with that I now hand over the call to Charlotte's Web Chief Executive Officer, Dr. Charlie.
Hey, you're a very good morning from Denver, and thank you all for joining our call as Corey said I've been a member of Charlotte was board of directors since 2019, so moving into the CEO position on December 16th of last year made for a really smooth transition, enabling Wes Jarrett Stanley and I had to quickly take actions to better position.
The company for 2022 and beyond I'll speak more to these following <unk> review of our Q4 and full year 2021 financial results.
Let me start with a couple of 2021 themes. However.
The year saw consumers customers and investors eager for regulatory resolution and a catalyst for CVD growth in the industry in the U S. Either from the FDA or congressional legislation as you well know this didn't happen.
But in 2021, some positives for hemp regulation or were announced with two of the biggest markets, New York, and California, passing favorable legislation for food and beverages.
In 2022, our focus will be a full court press on federal legislation in support of HR 841 eight.
HR 841 has shown some momentum since our Q3 call in November picking up six floor co sponsors for a total of 39 bipartisan support.
<unk> 41 also passed into committee on fed five and it will be imperative to engage and support its momentum.
The reason HR 841 is so important is because it not only forces the fda's hand to regulate CBD as a dietary supplement. It also utilizes the F. D. A N D. I process for regulating CBD, we are maintaining our position and will be immediately resubmitting, our application to the FDA upon passage of HR 841.
Yeah.
Theres certainly on March 11, the U S. Senate Appropriations Committee directed the F D a to regulate CBD and studied products in the market.
As you know Charlotte slips invested substantial resources to prepare for FDA regulation and is well positioned to effectively service sophisticated mass retail and other consumer channels when regulations do come.
With that said, we are not simply waiting for this to happen as the number one brand in the sector. We've laid out plans to grow the business and our industry share and I'll again discuss those later does.
Despite a challenging environment Charlotte's web grew revenue, albeit modestly in 2021.
Net revenues were up 1% to $96 $1 million.
Unit volume grew at a modestly higher rate, but at a lower average selling prices as part of the consumer trend to lower priced products, such as gummies and topical and away from higher priced Tincher Royals continues.
Charlotte's web is the number one market share position and gummies and just last quarter. We introduced three new CBD gummy formulas immunity daily wellness and THC free of course, these add to our market, leading gummy formulations asleep.
And recovery.
So all of US continue to gain market share in B to B and it has the largest e-commerce business in the CBD industry.
We nevertheless have bigger ambitions and we're playing for the long game by expanding into new products formats channels and countries, where we believe we have the right to win.
It continues to be the envy of the industry with the most recognized brand not only in the U S, but even among multiple international markets, where we are not yet present, you'll see our reputation precedes us in many international markets.
Our mission hasn't changed since the founding by the Stanley Brothers, we are uniquely positioned in our science credentials, including five patents with the advantage of vertical integration and quality standards second to none.
So before going into our initiatives for 'twenty, two and beyond let me first turn the call back over to Wes to walk you through the fourth quarter and full year financials.
Jack Good morning, everyone and thank you again for joining us today as.
As Corey mentioned, we performed an assessment of our foreign private issuer status as of June 30th 2021 .
And concluded that more than 50% of our shareholders. Our residents of the U S.
As a result, we are now in SCC registrant, and now follow U S GAAP versus I for his financial reporting.
We have successfully completed a financial reporting conversion from <unk> to U S. GAAP and effectively became an ACC radio stopped as of January 4th 2022.
U S. GAAP financial statements were filed in a form 10 and two subsequent amendments with the SEC and included the use into 2020 and 2019, along with interim periods for six months and nine months ended June 30th and September 30th for both 2021 and 'twenty 'twenty.
Our first 10-K filed today will reflect a two year comparative for the years into 2021 .
In 2020.
Before unpacking, the Q4 financial results I would like to start by addressing the payment charges to goodwill.
Tangible and other long lived assets taken during the quarter.
We test goodwill annually for impairment and review a definite lived intangible assets and other long lived assets for events that may indicate they are paid.
During the quarter, we identified a triggering event related to a sustained decrease in our share price in the fourth quarter of 2021 .
Partly associated with a significant decline to the equity value of the overall category.
As a result of the subsequent fair value analysis performed.
We concluded that both goodwill and intangible assets related to our 22 any abacus acquisition were fully in paid along with impairment charges on other long lived assets.
This resulted in impairment charges of $98 million, which affected into our net loss for Q4 and the full year.
These are noncash charges on our P&L and do not affect our cash working capital.
Now turning to a detailed review of our Q4 financial results.
The product and channel mix shifts of 2021 continued in the fourth quarter.
With some consumer transition from online shopping to brick and mortar retail.
And a continued shift to lower price point products, such as gummies and topical posture.
Partially offset by higher volume sales of these products.
Q4, GAAP net revenue of $24 $8 million increased by four 7% versus Q3.
But with seven 8% lower on a year over year basis, primarily due to lower than expected direct to consumer E Commerce sales.
Q4, DTC revenue was on par with prior quarters of 'twenty, 'twenty, one and one 1% higher than Q3.
But 12, 1% lower year over year compared to Q4 of 2020, which was the highest ever quarter for our DTC business doing at peak pandemic online shopping period.
DTC channel sales were below expectations in the quarter, partially due to lower than expected traffic to our website.
Although sequentially up from Q2 and Q3.
And continued promotional pricing.
Conversion rates remain strong and 11, 8% lower than the 13, 8% conversion rate in Q4 of 2020.
Average order volumes were also down seven 2% year over year due to product sales mix and the current DTC pricing environment.
For the 12 months of 2021 D to C revenue was down two 3% year over year, primarily due to product mix and traffic.
<unk> group reported overall D to C, having a larger decline.
Yeah.
In terms of D to cede market share Charlotte's web maintains its lead in online CBD sales at four 9% of the total market at the end of Q4 2021.
I'm paid to our nearest competitor with three 1%.
Shifting to our <unk> revenue.
On a consecutive basis for the full quarters of 2021 our b to B business contributed an increasing portion of total quarterly net revenue.
For the full year BTB contributed 35% of net revenue.
Q4, <unk> net revenue was consistent year over year and up 11, 2% versus Q3.
For the year <unk> increased seven 5%.
In <unk> retail, we expanded new and existing customers in California.
Slowing the passing of Assembly Bill 45 during the fourth quarter.
Adding approximately 400, new doors within the grocery natural and paid channels.
We also expanded retail doors nationally.
Adding G. A N C as a customer contributing nearly 800, new doors in 24 states with more doors to follow in additional markets. This year.
As a result.
We continued to increase our number one market share position in food drug mass and natural speciality retail.
At year end Charlotte's Web F. D. A market share was 23, 2% up three one share points versus prior year.
We also made gains.
And share gains in natural speciality channel gaining.
Gaining approximately one percentage point to 14, 5% according to spins data.
Total retail.
Products are represented at more than 15000 retail locations and through over 8000 health care practitioners offices.
With this leading distribution coverage Charlotte's web is well positioned to grow with our existing customers as well as new customer opportunities.
As a reminder.
Our products are available across the country and the Commonwealth of Puerto Rico.
Q4 gross profit.
Excluding the impact attributable to inventory provisions was $13 8 million or <unk> 55, 4% of consolidated net revenue.
Versus $16 $4 million or 68%.
In Q4 of 2020.
Due to product and channel mix and lower overall net revenue year over year.
Gross margin fluctuations each quarter, primarily reflect product and channel mix.
We anticipate realizing Cogs improvements in the second half of 2022.
As we achieve further efficiencies from our new production and distribution facility.
Net inventory provisions of $9 $6 million were taken in the fourth quarter across all of our classes of inventory primarily related to obsolescence and aged goods.
We also decided not to remediate certain out of spec extract and made a strategic decision to move more of our products to USDA certified organic.
Our number one priority is quality and consistency built on the foundation of science.
Beauty safety and quality are critical to our brands.
Products artists that as many as 20 times prior to sale and we leave no margin for poorer quality keeping in mind that consumers rely on our products on a daily basis.
Q4, SG&A expenses of $24 $4 million with four 7% higher versus prior year due to increased marketing spend severance charges related to our recent reorganization and onetime professional fees related to our transit.
<unk> to us GAAP reporting and SEC filings.
Adjusted EBITDA loss for the fourth quarter was $4 5 million or 18, 2% of consolidated net revenue as.
As compared to negative adjusted EBITDA of $3 $1 million or 11, 6% of consolidated revenue for the fourth quarter of 2020.
Primarily the result of lower revenue and gross margin and higher operating expenses. This excludes asset impairments.
Yeah.
The company recognized and payments of $76 million related to goodwill and $22 million related to customer relationships trade names and other long lived assets.
Including these noncash write downs, we reported a net loss of $118 $2 million for the fourth quarter of 2021 compared to a net loss of $14 $3 million for the fourth quarter 'twenty 'twenty.
Yeah.
Total Capex in Q4 was zero point $8 million.
Primarily related to completing the final phase of our R&D production and distribution facility.
Bringing our total capex for the year to approximately $4 $9 million.
Turning to cash and liquidity.
Total cash to use for 2021 was $33 $3 million.
For context.
<unk> amount of cash used during this period was nonrecurring.
Approximately $22 million was attributable to one time cash use items in 2021, including.
$8 million relating to the strategic purchase option for the Stanley Brothers U S cannabis business.
$7 million for cultivation liabilities.
$5 million relating to final stand up of our new facilities and $2 million related to a name and likeness agreement with the Stanley Brothers.
We also added cash with our at the market equity program, raising eight $3 million.
Turning to the full year 2021.
In summary for the 12 months net revenue increased 1% to $96 $1 million.
With DTC revenue decreasing to 3%, while <unk> revenue increased seven 5% versus 2020.
D to C and BTB contributed 65% and 35% of revenue respectively.
Margin, excluding inventory provisions was 61% versus 63% in 2020.
SG&A expenses decreased by 6% in 2021, and adjusted EBITDA loss was $18 6 million an improvement of $5 million.
Okay.
We ended the year with $75 $6 million of working capital now.
$19 $5 million of cash.
And a pending 10 $8 million of IRS tax refund.
$10 million line of credit facility with JP Morgan remains unused.
In Q4 of this facility was put on hold often not meeting certain covenants.
As always we will continue to explore financing alternatives to add to our liquidity toolbox.
In addition, we have no long term debt and we remain focused on being cash generative this year.
We remain focused on growing our topline.
And being choice for in our SG&A spend and improving our cash flows through the year and beyond.
We expect Capex investment for 2022 to be immaterial.
And we intend to provide better visibility in our Q1 earnings report in May.
I will now turn the call back over to Jack.
Hey, Thank you us so welcome the CW to point O.
That's what I said in my first Townhall with employees on December 17th.
I also say that it was all upside.
And I meant it.
Growing revenues being cash generative and acting with the confidence of the leading brand in CBD those are our goals.
CBD market is a multibillion dollar category.
The truth is we haven't done enough to amplify our brand equity.
Our unparalleled science credentials with consumers.
That is most evident with three data points.
Our ecommerce traffic is down.
By reinforcing our brand equity, we can rely less on promotional pricing.
The way as does the competitive set.
And re engaging the Stanley brothers, and storytelling and innovation, while keeping is grounded in our mission as a company.
To improve a billion lives.
Again and again.
And finally, I believe we over complicated our business.
Well look that's all in our rear view mirror.
So now let's look through the windshield to CW to point out.
In my first weeks as CEO , we laid down five pillars.
Support our priorities for 2022 and O a long game.
Better aligning our leadership team with shareholders.
Right sizing our expenses to the size of the current business and being choice full and the use of cash.
We're bringing back our culture of founders family and Fearless.
Growing revenues, regardless of regulatory action.
And simplifying our business with speed and execution excellence.
Let me briefly unpack these pillars.
First executive management compensation is now more heavily equity based we've also modified employee incentive plans to equally be more equity based not only to align our interest with shareholders, but also as a retention.
Incentive vehicle.
Secondly, we significantly reduced our cash cost of the business, which will benefit EBITDA in each of each quarter of 2022 versus 2021 .
We eliminated a layer of leadership to increase agility.
We now have a fit for purpose cost base and people and discretionary expenditures and.
And we will be choice full and prioritizing P&L investments to advance revenue and have a long term acceptable return.
That said, we have never we will never compromise on our science quality or consumer experience.
Third we are reigniting and entrepreneurial culture.
Just do the right thing it's that simple.
Each employee brings the best self each day embracing the values of family founders and feel is for the company our customers and our consumers.
Look solid as what began as a mission of compassion before it was a business with seven brothers, helping a little girl and need and subsequently, helping countless others that follow.
This was Charlotte's web founding culture with a mission to improve lives through the healing powers of Mechanicals and capacity on science benefiting the planet and all those who live on it.
Feel its values.
Solid towards origin story, leading brand recognition and consumer trust are unique in the CBD category from this foundation, we've built valuable thought leadership.
Science credentials and optionality into our business presenting substantial opportunities to be unlocked at home.
Our broad over time.
We're eager to lead this category with a revitalized approach and a renewed energy.
Is a founder's values.
Our December reorganization actions marked a return to the founding principles of our passionate fast moving entrepreneurial spirit, we flattened the organization to Reengage the bulk culture that Charlotte's web was founded upon.
We transitioned to a horizontal organizational structure as well as the empower employees with increased decision, making and enable more efficient collaboration creativity across the company.
Driving faster action and better customer service.
Simplified structure also aligns employees more closely with our business goals. These are family values.
Fourth we simply must grow our revenues.
Indeed, a b, it's a multi approach.
Growing our existing customers.
More doors, we arent penetrated 100% and customers retail locations, yet and GNC and lifetime are but two examples of that.
Higher sell through and in trade Activations and consumer marketing.
Have the right products at the right prices and the right accounts.
Gain incremental facings at retail for products with the highest consumer poll.
Here, our SKU rationalization and optimization initiative underway already will play an important role.
Reorganizing sales to be accountable for key customer and national accounts with executive sponsorship.
Not just managing channels.
Growing new customers and existing industry channels as we did with GNC last year.
Expanding availability by penetrating new industry verticals or channels, if you will where our products can and should be available.
Thank hospitality for example.
Our exclusive partnership with lifetime gives us access in 2022 to their villages.
Your line of business for them.
Again, it's just one example.
Each of these priorities grow existing growing you expand across new verticals each have specific commission incentives.
To support these actions we've recently brought on a global lead for strategic customers and new business.
We've hired additional sales leadership and reorganized the team.
We've also staffed a small dedicated team focused on international opportunities.
Turning to D to C.
Turning around the decline in e-commerce traffic is job one for us.
We can conclude that our traffic has been impacted by the return of the store shopping.
Really haven't given a potential consumers a reason to come to our brand world.
So it will be always on and paid and earned media across owned and third party platforms.
Ill interrupt socially relevant conversations with equally.
11 compelling and on brand content.
As the market leader, we must constantly build consumer knowledge of the CBD category generally.
I know the relevance the steam and differentiation of Charlotte's Web story and brand qualities, we will do that by amplifying our stories through smart PR media and of course, the Stanley Brothers.
Well also be better than S. C O R targeted email S T M.
And health care practitioners and word of mouth referrals.
And by the way if we execute this with excellence I believe in the power of community to influence regulatory change.
Next selectively innovating.
Putting the consumer at the heart of everything we do when it comes to innovation.
We previously announced plans to launch beverages in late 2022, and we believe we have a right to win and Kosmos surgical's, given the strength of our topical and science.
Another innovation in the pipeline for near Horizon and beyond.
And finally growing our international presence over time.
Asset light route to market approach.
<unk> strategic partners on a market a region or a global basis, we're prepared to follow the globe on regulatory changes.
Let me quickly take you through three markets.
We're encouraged by what's now happening in Israel.
Recently, the Israeli Minister of Health announced that CBD will be removed from dangerous drugs Act.
We expect the Israeli policymakers will follow produced favorable legislation in the medium to long term, which permits retail sales of products containing hemp derived CBD, including dietary supplements topical and over the counter pet products.
We have an exclusive CBD partnership with Lindsey insecure, that's tremendous scale in the country, including distribution through ultimate health the market leader with an unmatched shelf space of OTC and nutritional supplements that over 1700 points of sale, including all major pharmacies.
Into cure and Ultimate Health plan to register market and distribute Charlotte's web branded products in Israel as soon as possible.
In Canada last quarter, we completed the harvest of our first ever international hemp crop.
The Canadian harvests included our original Formula patented cultivar among others.
The hemp biomass.
Produce into whole plant hemp extracts for Charlotte's web CBD wellness products and manufacturing to a final product through strategic third party relationships.
Charlotte's web will prioritize original formula for medical cannabis patients in Canada and launch a diversified CBD portfolio in the Rockies recreational market.
We're engaging with potential Canadian manufacturing and distribution partners for product availability in mid 2022 .
Equally importantly, Canada provides us with a gateway to international markets through export.
Finally, turning to the U K.
In the U K, we eagerly await updates from the FSA and validation of our novel novel Foods application submitted for a full spectrum of products.
However, we do have a competitive advantage by already being in the U K market before regulations required an application process for new market entrants.
We announced earlier this week, an exclusive distribution agreement with Savage Cabbage limited.
One of the first and most trusted CBD companies in the U K.
On the renew and clear novel food regulatory framework will work to leverage Savage Cabot's extensive U K distribution network with potential access to other EU markets to expand the presence of Charlotte's web.
Finally, Jane proud when the founder and CEO of Savage Cabbage also recently was named our global brand Ambassador working directly with me and the leadership team.
Fifth and finally, we must simplify rationalizing skus to focus on the core products that consumers want.
Streamlining processes for faster decisions and better leveraging investments in technology.
Like our Salesforce platform.
<unk>.
So look in closing.
So we think we've done a lot of 90 days, we have defined our priorities we created a fit for purpose organization supported by the right incentives to grow this business.
And we will be choice full to ensure we only invest against our priorities.
Something doesn't work, we fail fast and we move on.
All in the entrepreneurial spirit of accelerating growth as we go through this year and beyond.
Jaret, Wes and I are setting the foundation for long term sustainable growth regardless of regulatory circumstances.
While staying true to the mission of the founders and never never conceding on the quality of our products and the equity Charlotte's web has with our consumers.
So with that I'll turn the call over to questions.
Thank you, Sir ladies and gentlemen will now conduct the question and answer session. If you'd like to ask a question Press Star then the number one on your telephone keypad she'd like to withdraw your question Press Star two.
They are using a speaker phone.
Set foot breast in any case.
One moment. Please for your first question. Your first question comes from Gerald Pascarelli with Cowen. Please go ahead.
Hi, Good morning, Thank you very much for taking the questions.
Hmm.
If we could just start on the top line.
A week left in <unk>. So if you could provide any color in terms of how your revenues are trending.
In <unk> relative to the 24 eight.
That that Charlotte student and <unk> that'd be helpful. And then maybe some commentary just by channel DTC versus being a bit. Thank you.
Yeah, I'm going to let Wes answer that question, but keep in mind the seasonality as our fourth quarter is typically stronger than our first quarter, so with that context I'll hand, it over the west.
Hey, Joe Good morning.
Look January is typically a slow month post the December holiday season and.
And we again saw that trend. This year February however was better and in March we had a record by day.
I think most importantly, we remain optimistic that we can continue to take share.
And maintain our leadership and market leadership.
Growing consumer interest in alternative forms like gummies, we are growing rapidly by the way and we will stay focused in meeting the consumer where they are driving traffic to our largest platform, which is the e-commerce too.
To <unk> earlier point.
Hopefully that helps out at this point I can't give you any more color on where Q1, we think Q1 is going to land, but we'll have more data on that here soon in the May earnings call.
Okay. Thank you Wes.
Last one for me is just on gross margin kind of given some of the commentary.
And negative mix shift associated with lower priced products consumers you know looking at products outside of higher priced tinctures.
And the like when you take that and then you couple that with the.
The high levels of inflation. That's in fact, that's affecting all of consumer packaged goods companies.
Is it fair to assume that.
Is that target gross margin may be below the low sixties I think that that was the that was the target laid out on our last call.
Hum.
50 is the number are you still targeting a low sixty's margin just any any color you can provide on gross profitability, but would also be helpful. Thank you.
Yeah happy to do that Gerald and help unpack that a bit more as we all know inflation is at the highest rating for decades.
And I think it reached close to 8% in February as consumer demand increases in supply shortages prevail and <unk>.
So we're keeping a close eye on inflation and the impact it will have on our cost of goods sold.
That being said I think what would be helpful. For you to know is as we mentioned in the script.
A couple of minutes ago.
We continue to see a shift in consumer preference into into more gummies.
And in Q4, we continue to see that shift from tinctures to gummies.
We've also seen that from a full year perspective.
As you know gummies have a lower margin versus the tinctures.
In addition to the the changes from our consumers shift from from from Tinctures as an example to gummies.
Also the shift from the D to C to more b to B, which also impacts the mix.
But I think the good news is we've seen that offset by higher volume so volumes Sydney have increased.
Quarter over quarter and year over year on a total basis.
So we will continue to monitor this.
From a Cogs perspective.
Hmm and inflation as I mentioned perspective, and yes, we continue to see.
Range of call it a high fifties to low <unk> from a gross profit perspective.
And Gerald I, just it's Jack I'll just add two other points. One is you know as Wes alluded to it in his remarks, we will see some offset to that downward pressure on cogs from the shifts in channel and product mix through.
Our facility coming fully on board the.
The other thing I'd say is a.
Gross margin percentage and we're gonna stay to the guidance that West just gave you, but what I'm really looking at as well as gross margin dollars right and that's where.
The volume shifts the gummies and two our lowest priced products, we're seeing the lift in volume.
And that's something we expect to see going forward as well.
Yeah.
Got it. Thank you for the color I will hop back into the queue.
Thank you.
Thank you.
Your next question comes from Scott Fortune with Roth Capital Partners. Please go ahead.
Good morning, and thank you for the question you mentioned in your comments, California. The 18 to 45 and then also your kind of.
Even the regulatory.
Stan and TBD for Ingestible, what are you seeing kind of the uptake from that in California, and New York and kind of being able to add doors and products into those states are you seeing other states kind of coming on board with similar until we will seek to drive sales into 2022 here.
Scott Good morning, good to hear your voice again.
We are needless to say Super excited about the the legalization.
<unk> in California.
To give you some perspective in the fourth quarter, we actually opened more than.
400, new doors in California of which roughly 200 of those doors, when the natural channel, including vitamin Shoppe.
And we will continue to explore incremental distribution opportunities to drive incremental volume.
And not only in California, but other states that might follow and as you know a few states have developing regulations for the full portfolio of CBD products.
And we are bullish for what this means across other states and for our business and so needless to say, we are staying close to that process.
Yeah.
Okay I appreciate the color and then just shifting kind of your international global kind of expansion opportunity you've been some Canada Israel.
And U K coming on board.
Can you.
Hello.
And the timing of that is this more of a second half story for 2020 from revenue growth and then how does that open up for the rest of Europe .
Do you like the rest of Europe , Germany, being a big market there for <unk>.
And he can expand international opportunities here.
Yeah, I think well first thanks for the question you know for sure. Both all three of the markets, we talked about will grow over time.
Starting pretty much in the second half of the year I mean, we we were probably going to be a little bit more advanced when it comes to the U K than the other two markets, but but still we're excited about each of those markets, giving us potential frankly more for the mid to long term, then adding substantive revenue to our base business.
This this year there'll be some but it'll be modest in that regard.
Look we have different ways to get into Germany.
We are in discussions with different partners, we can potentially use savage cabbage and their e-commerce platforms in the EU as well.
And part of our deal with <unk>.
Insecure in Canada.
For solely up the possibility of working with them as our partners in Germany, and what I've said to them is we will get to Germany. After we see how well you're doing Israel, well, we're not gonna be awarding markets unless we're comfortable with the partners and their performance. So we're gonna be we're gonna be deliberate about it but we're excited about the opportunities in it.
The EU, Germany, particularly.
And and and the rest of the World you know as I said in my remarks, we're prepared to follow the globe as regulations open up a cat four.
CBD products.
Yeah, Scott maybe to add to <unk> point, I think what's interesting to note in Germany as you know.
The new coalition government in 2021 signaled that the intent is for CBD to remove beat who moved from drug restrictions and legalize up two 1% THC.
And as Jack Sudanese He's earlier remarks, we continue to look at this regulatory environment as it evolves and we will very much follow an asset light approach.
Looking for capable and reputable partners around the world.
I appreciate it and look forward to kind of a return to normal growth here from me guys. Thanks, I'll jump back in the queue.
Thank you well and you know just had both the west and I with our backgrounds, we're excited to get back into international markets as well over time. So we're looking forward to that.
Yes.
Okay.
Thank you. Your next question comes from Derek <unk> with Canaccord. Please go ahead.
Yes, hi, everybody can you just comment on that on the new production facility now that it's at the commission and it will be ramping up over the course of this year are you are you capable of producing all of your different product formats within that facility. I know you mentioned, you're seeing increased volumes gummies versus tinctures can you can you make those in that facility.
Yeah listen you know at the moment, we have the facility, which we stood up it's up and running you know and we don't see a in the near term, bringing all of our production and distribution capabilities to what we call the loft.
We're always looking at the economic trade offs between the capital investment to bring production in house versus the fees, we pay to co man.
And so that's an ongoing evaluation for us the good news here is that we have sufficient space capacity to really meet the needs of the business going forward for quite some time. So you.
You know we built it early and now that we have it we're delighted with it'll give us some savings as a you know as a west had said.
But one of the things to it does for US is it gives us significant savings in the extraction process.
And and as well as our Cogs for for Gummies as well.
Alright, and that'll that'll continue to particularly Gummies will continue just continue to see some benefit in Cogs as we go forward here.
Okay. That's helpful.
On the SG&A side I think there was a line in the press release.
You mentioned, you're now more comfortable with the operating expense line versus your revenue and but when I look at it for the quarter. It was at $24 million operating expense line and $25 million in revenue sell in assuming theres more to go and youre, referring to a run rate, but where should we expect SG&A.
Two amount to you in 2022.
Hey, Derek Good morning, let me take that question and help unpack the opex.
As you mentioned, yes, we did have some incremental opex in the fourth quarter versus prior year.
And we referenced that earlier on in the in the commentary, but if you exclude some of these one time.
SG&A items in Q4.
SG&A was actually down 5% versus prior year.
But more importantly, we've restructured the organization now as we mentioned earlier to be more fit for purpose.
And we've reduced both head count and discretionary spend.
But I think what you would probably find more helpful. For your modeling purposes, we anticipate our overall full year opex to probably be in the range of high <unk> to low eighty's.
Okay, that's great. Okay, that's terrific.
And then just the last one for me I appreciate the update on the market share across a number of categories that was very helpful, which channels are growing faster and slower.
As you get into 'twenty two.
They're all go up growing slower than we'd like.
So I'll start out with that but we're excited with the with the new customer focus for our sales organization as well.
We're really we're really we're still looking at the business from a channel point of view, but we're really focused on on really having customer relationships that are.
You know a bit more strategic doing a joint business planning.
And you know as well as I'm working on the Activations and in store trade activity that we haven't really done enough of going you know in the past, but we'll do more of going forward.
<unk> medical and pet channels are growing the fastest and I'd say S. T M natural and of course D to C. Now of late are are the slowest growing channels that we've experienced over the last year or so.
Okay, great. Thank you very much.
Thank you there are no further questions at this time. Please proceed.
Okay.
Well. Thank you everyone for joining us for our fourth quarter earnings call today.
We will be reporting our Q1 in mid May and look forward to speaking to you then.
Okay.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a great day.