Q2 2023 Charlotte's Web Holdings Inc Earnings Call

[music].

Good day, ladies and gentlemen, and welcome to the Charlotte's Web holdings, turning to any <unk> second quarter conference call.

At this time all lines are in listen only mode.

Following the presentation, we will conduct a question and answer session.

If at any time during this call you are recording to see Sir Please press star zero for the operator.

This call is being recorded today August 23.

I will now look to turn the conference over to Cory Pala Director of Investor Relations. Please go ahead.

Thanks, Sergio and good morning, everyone. Thank you for joining us for 2023 second quarter earnings Conference call for Charlotte's Web Holdings, Inc. Earnings Press release was issued this morning and posted on the Investor Relations section of our website along with our financial statements. Our 10-Q report for the second quarter of 2023 is also available and has been filed on SEDAR Dot Com in Canada.

As well as on Edgar with the SEC.

Leading our call. This morning are CEO Jacques toward a rolling CFO Jessica Sachs COO.

L O Jarrett Stanley on this mornings call, we will rebuild the financial results for the second quarter and provide some color on recent strategic initiatives, we will take questions farmer analysts at the end of our prepared remarks, a replay of this call will be available through the next week accessible via the details provided on our earnings release and a webcast replay of this call will be available for an extended period.

During the second quarter, we held our annual shareholder meeting, where we had where each of the incumbent directors were duly reelected as directors of the company.

However, certain directors received less than majority support at the meeting and in accordance with the company's majority voting policy and under the rules of the Toronto Stock Exchange. These directors, who were provided and offered to resign from the board. The remaining directors are completing a 90 day process to determine the appropriate membership and structure of the board moving forward in connection with the appointment of any board.

The board and the company are complying with all legal requirements and appropriate protocols, including PSX and shareholder approved company policies. As this process is currently ongoing we will have no further public comments around this particular issue, including in the Q&A portion of today's call. A further update will be provided promptly following the board's final.

Termination in due course also as a reminder to our listeners 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 factors, which could cause actual future results or company performance to differ materially from implied expectations such risks.

Forward looking statements are outlined in detail within the company's regulatory filings on SEDAR Dot com in Canada, and SEC Dot Gov in the United States.

In addition, during the call we will refer to supplemental non-GAAP accounting measures, including adjusted EBITDA, which does not have any standardized meaning prescribed by GAAP. Please refer to the earnings release that we filed this morning for a description of adjusted EBITDA as well as a reconciliation of such measures to their respective and most directly comparable GAAP financial measures.

And with that I will now hand over the call to Charlotte's Web Chief Executive Officer, Jack toward really shocked.

Hey, Thank you Corey thanks for joining our call everyone and good morning.

We have actively participated in Washington D. C for many months now as we noted in our press release. This morning, we're extremely encouraged by the progress in particular seeing how Congress the FDA consumer advocacy groups in the industry.

Coming out of a closer to a regulatory framework for CVD.

We all know regulation in Washington, DC will be the biggest catalyst for the industry.

Investors clearly understand this is evidenced by the increased activity in our stock over the past months.

Look we continue to execute on our three pillar growth strategy.

I'll speak more to this in a few minutes Hello, first I wanted to turn the call over to Jessica <unk>.

To you our Q2 and half one financial results and then we'll turn to Jared to share more on the regulatory fronts and an update on our partnership with Dell right in the Canadian market.

So with that I'll now pass the call over to Jessica.

Thank you Jack our financial results and adjusted EBITDA are reviewed in detail in our earnings release and 10-Q as such I will not go through all of them on this call. However, I am happy to answer any specific questions you have in our Q&A session.

We posted a Q2 net revenue of $16 million declining $2 9 million versus last year with the growth gross margin of 55, 7% versus 49, 4%.

The gross margin improvement was primarily due to higher inventory provisions, which negatively impacted gross margin last year.

Specifically e-commerce generated revenue of $10 7 million in Q2, 2023 down from $13 3 million on a year over year basis.

Online traffic to our web store was down 28% year over year, partially offset by improvements in conversion rates, which were up 12% over last year.

In addition, aggressive online price discounting among competitors dampened our e-commerce sales during the second quarter.

That has profound discounting by competitors is generally unsustainable, resulting in more competitive churn within the market.

Wireless web holds the number one market share position across E Commerce, which is the largest purchase channel for CBD. According to Brookfield group.

Our e-commerce business generates more than two thirds of our revenues with attractive gross margins.

Our subscribers account for approximately a third of our revenues demonstrating that when we bring people into our ecosystem. They go through a consumer journey from awareness to purchase to ultimately becoming subscribers representing significant lifetime value.

We continue to prioritize our E Commerce channel and recently appointed a new head of E Commerce, who bring significant experience in growing premium consumer brands.

Under her leadership, we launched our new website recreate you dot com, which directly integrate into our current ecommerce platform.

Additionally, we continue to invest in a significant category and we will be launching a new e-commerce platform to improve the consumer experience.

Lastly, we expect the availability of our new recreate gummies the launch of recreate you dot com and the media and online marketing initiatives associated with our professional sports League partnerships helped drive relevant audiences into our brands that will convert to loyal e-commerce consumers.

And the <unk> retail channel Q2, 2023 sales were essentially flat year over year at $5 3 million.

Modestly lower retail volume was substantially offset by new retail distribution gains achieved in the first six months of 2023.

We are confident that our <unk> retail sales are on the precipice of a return to positive year over year growth supported by the launch of recreate on shelf in the back half of 2023 with select retail customers coming later, this year, including vitamin Shoppe fresh thyme and Stark international among <unk>.

Others with more to come over time.

And the National retail channel Charlotte's web has higher average retail pricing and sales velocities and the overall CBD category, which is experiencing generally higher unit sales declines on average.

Charlotte's web grew all commodity volume or HCV by seven 1% for a total of 26, 7%.

This is defined as the stores total sales of all products relative to the sales of other retailers. This is the largest growth among any CBD brand in the channel.

Despite being one of the most developed brands in the natural channel Charlotte's Web grew unit share by 90 basis points within the first within the channel and unit declines were less than half of the CBD category unit declines on a percent basis.

Being the market share and brand leader in the category, along with having high velocities bodes well for the long term incremental market share gains a retail shelf for Charlotte's web.

We also made significant store count distribution gains within the natural products retail channel over the first six months of 2023.

Despite some retailers, reducing the size of the CBD category over the past two years, we have been able to meaningfully add to the total number of retail doors. During the first half of the year. This speaks to our brand strength in fact, Charlotte's web holds four of the top 10 skus in the food drug mass or SDM.

Channel.

Charlotte's Web also holds the number one share position across gummies, and topical and isn't a top five share ranking across tinctures capsules and pet.

Pet segment is a growing segment in the CBD category that represents 10% of the total market share.

Pet CBD channel is a $400 million channel annually, however, less than 10% of our revenues.

To cement our position of leadership in the pet channel and increase our market share. We recently began to distribute <unk> products do Phillips pet food and supplies the largest pet specialty channel distributor servicing over 14000 retail doors across the country.

To summarize despite a reduction in net revenue on a year over year basis within the quarter in the U S. Charlotte's web holds the number one market share position in overall retail and e-commerce channels. According to Nielsen spin and the bright field group.

Our second quarter SG&A was higher year over year at $19 6 million versus $17 3 million in 2022.

This increase was almost entirely due to the addition of MLB license and media rights assets amortization specifically.

Specifically of the $2 $3 million year over year increase $2 1 million was related to the MLB partnership.

Outside of MLB, we upheld our SG&A stable up just one 7% for the quarter.

And despite the additional MLB expenses for 2023, our first half SG&A has been essentially flat at $31 7 million in 2023.

First is 37 6 million in 2022.

As discussed on prior calls future quarters will include amortization expenses related to the MLB asset, reflecting the valuable three year partnership.

Notwithstanding the additional MLB expense, we expect SG&A for the full year of 2023 to be comparable to 2022.

We reported an adjusted EBIT loss for the second quarter of $7 1 million versus $5 $4 million a year ago with the increase lost a result of the added MLB license fees and lower revenue for the quarter.

There were two significant noncash gains this quarter, which positively positively impacted net income, including a $4 2 million gain in fair value of our convertible derivatives.

At $10 $7 million gain on the Florida.

These gains offset the operating loss and interest expense, resulting in net income of $2 8 million or <unk> <unk> per share basic and diluted for the second quarter of 2023.

This was an improvement versus a net loss of $7 9 million or minus <unk> <unk> per share basic and diluted in Q2 2022.

We reported positive cash flow for the second quarter of $1 million.

As compared to 300000 in Q2 2022.

This improvement was the result of our expense management and the collection of a $4 2 million employee retention credit as compared to a $3 2 million dollar income tax receivable collected in the same period 2022.

In Q2 2023, the collection of the ERC more than offset the $2 million cash payment to MLB.

We will continue prudent cash management with the aim of maintaining our cash burn at a sustainable level, while also investing thoughtfully in the long term growth of our business.

With our $61 $7 million cash position at the end of the second quarter. We are in a stable financial position moving forward with an advantage against the bulk of our competitive set in the current environment I will now turn the call over to co founder and CEO .

Jared Stanley.

Thank you Jessica I will give a brief update on Canada before going into the federal regulatory landscape.

We have launched a set of tinctures and the Canadian medical channel with our partner <unk>.

And we'll be launching in the recreational channel later this quarter, we are on track for topical <unk> capsules and gummies to follow.

Now turning to regulatory comments.

The legislative efforts to regulate CBD as a dietary supplement has continued to progress significantly with Congress demonstrating clear signs of possible legislative action before the end of the year.

Most notable events in the past weeks include the July 27th House Oversight Committee hearing on the SBA is failure to regulate hemp products and an RFP request for information and signed by the four corners, the chair and ranking members of the energy and Commerce Committee The committee that has.

<unk> jurisdiction over the FDA.

I will give our perspective on both events and some thoughts on where we believe this is going.

On the House Oversight Committee representative Liza Mcclain chair of the Subcommittee of financial Services' stated in her opening remarks and I quote.

Instead of regulating hemp derived products under its currently existing authority, the FDA announced that it needs a new regulatory framework for CVD translation gives us more authority gives us more money give us more staff and only then will we do our duties under the law.

Representative Mclean continues to state the FDA must do better and use their already existing authority to regulate hemp products and do the job they signed up to do.

And the quote.

The FDA outlined its position in January arguing they lack the safety science and tools to regulate CBD as a dietary supplement.

Leadership indicated they would work with Congress on a new path based on the creation of an entirely due cannabis center.

Since that time, we responded by uniting the top industry experts to summarize the safety and Tox data to address the fda's concerns.

In this process are leading cannabinoid researcher and chief Scientific officer of Charlotte's Web Doctor Bond Miller engaged talk strategies, a leading independent safety and toxicology firm to summarize industry, leading CBD safety and Tox data.

Charlotte's web and our industry. We are honored July 27th to have a doctor Henderson and independent toxicologist and senior managing scientists talk strategies invited to present recently and should be published preclinical safety studies to provide key information needed to determine a safe oral.

And of CBD.

Outcome of these studies support safe CBD consumption at 30 milligrams to 160 milligrams per day based on a child or adult and the health state of the consumer.

This data is now officially on the record and will be used as a tool to draft legislation.

Furthermore, when Jonathan Miller Executive Chair of Hemp Roundtable was asked by representative Glenn Grassman.

What does actually look like from Congress. So we don't interfere with the FDA as authority.

Mr. Miller responded with.

Past HR, $16, 28, and $16 29 to be able to affirmatively direct FDA to regulate CBD as a dietary supplement and food and beverage additives.

Even if we are going to add additional regulatory oversight, we are open to that as well.

And quote.

Yes.

We believe Mr. Miller's response is exactly how CBD will and should be regulated the FDA has the tools needed today to regulate CBD as a dietary supplement may.

It may require some limited additional regulatory regulatory authority to for instance, setting cannabinoid limits and proper labeling requirements all of which we support.

Moments after the house oversight committee hearing and RF request for information was made public to the industry from the energy and Commerce Committee with a deadline of August 18th for response.

The timing of this resi is a sign that Congress wants to have the information needed coming out of August recess, we are working with our industry peers and a 70 plus industry stakeholder group to bring our collective voice back to Congress.

While we are optimistic on CBD legislation. This year, we are very encouraged by the coming together of an informal industry working group for the first time is working together towards consensus on key legislative issues.

At the same time, we cannot forget our purpose, which is to support the CBD wellness consumer.

Reestablishing the consumers' voice at the front of the congressional debate has been decisive in.

In large part due to the leadership and advocacy of executive director page Vicki of coalition for access now.

The coalition has been adding key partners in the chronic pain and veterans spaces earlier. This month, the coalition announced a partnership with the U S Pain Foundation, which has offered full support of the coalition's efforts. This.

This includes testimonials grassroots activation and joint advocacy.

We have to keep in mind, nearly 52 million Americans and door pain everyday.

Foundation will be a powerful partner to the coalition.

Additionally, the American Legion largest war time veteran service organization has joined the coalition's effort to push legislation for FDA regulation of CBD as a dietary supplement.

The American Legion has nearly 2 million members and more than 12000 posts across the country.

Organization has agreed to actively advocate with the coalition on the hill and to promote the American Legion support.

With Congress, making it clear the FDA has the tools to regulate CBD as a dietary supplement the industry uniting to support the energy and Commerce Committee RFID and with the consumer voice at the forefront of the debate you can see why we are increasingly optimistic of landing CBD legislation this year.

We expect a hearing with the house energy and Commerce Committee and potentially the Senate Health Committee. We will then push for quick committee Mark up on the Griffith and widen bills setting up a process to attach final CBD FDA legislation to a whatever must pass legislation is available towards the end of the year.

Overall, we are seeing broader support across the country and within formal organizations in general further supporting regulatory reform.

Professional sport continues to open up to the hemp CBD as natural alternatives for wellness.

They'll be in the Premier Lacrosse League have already fully committed and recently, we have seen the MBA opening up to support access for players.

Now hand, the call back over to Chuck.

Thanks Jared.

As I said in my opening remarks, and we noted in our <unk>.

Release, I want to assure you that we're working and executing on our strategies.

Some examples in the quarter.

Further improve operating margins in May we launched the topical in sourcing project and expect to be up and running in the first half of 2024.

We're also pursuing alternative routes for in sourcing gummies with the goal of in sourcing some time in 2025 <unk>.

These strategic initiatives when complete it will leverage our last facility capacity utilization.

The lower complexity and co mans, providing better cost benefiting a whole portfolio of product formats.

And lower working capital levels.

Longer term in fact in sourcing opens up the potential for us to drive new revenue streams like being a co man for others.

All possible because of the previous investments made in the facility, which we call before already.

Our quality standards and the strength of our World class operations team, who can take this on.

The grow through innovation during the second quarter, we launched a new brand recreate by Charlotte's web we created the first broad spectrum CBD to be NSF certified for sport.

We create as the official CBD of Major League Baseball Premier Lacrosse League and Angel City Football club.

It's a lifestyle brand that targets millennials and Gen Z or who make up approximately half of the CBD market today.

In July we launched four new recreate gummy formulations combined functional botanical wellness formulations for self care and mental well being.

To help increase traffic to our web store on July 11th we actively launched the recreate marketing campaign that Leverages, our partnership with major League baseball activating at MLB, All star weekend and events, including the Homerun Derby and the all star game itself.

This included digital signage across stadiums on site Activations fan registrations podcast and media on MLB Dot com and teen pages.

As we move through the baseball season into the pennant Chase playoffs, and World series, we expect significant exposure through MLP and related media platforms.

The launch included a new consumer experience via recreate that you. The second door. If you will into our E. Commerce E Commerce platform, it's beautiful and its own brand voice, where we now have four compelling need state coming available.

Retail is set to launch with over 40 customers over the next five months and that's just the start.

We have a robust innovation pipeline and beyond CBD over the next three years.

Each state's packaging formats minor cannabinoids and Botanicals.

We are using earned media as during the <unk>. The all star game weekend to drive relevance connecting with thousands of attendees in Seattle, Dr. Activation food as a simple example, not just at the event, but bringing them into our E Commerce site for further engagement and their consumer journey.

We can do better and furthering our engagement in social media using subject matter experts and our science like Jarrett educate through podcast blogs and social posts posts for Charlotte's web.

With recreate building a community of organic Influencers re creators if you will the credibly participate in conversations where a need state b create products have a right to voice.

Tictoc, Instagram Youtube Whatsapp or Linkedin, and we're just getting started.

By the way as an example go to Youtube and go to Paul ruble.

<unk> and commissioner of the Premier across leak, it's got 270000 subscribers and in the last 19 hours alone at seven 3000 views selling celebrating recreate and his usage of it and the importance of re trade for the players in that organization.

So look in closing we have a strategy since the spring of 2022, you know that because we've been talking about it all along we're executing against this strategy with progress and purpose.

We haven't grown.

It's been a challenging sector confirmed by Bright-field, yes, we retain market leadership.

We're now we believe turning the corner in retail.

<unk> II growth in the U S.

Let me give you. An example, we mentioned recreate retailers with retailers, taking up recreate and that's in the face of many retailers contracting facings for the CBD category. So what does that tell you.

It tells you they like the brand they like NSF certification and the MLP support.

It's hitting the right price points for consumers on shelf and.

And they liked the target demo it matches up well with their shoppers.

And it's a credit to our sales team to be this far along in the sales process with retail.

And it also speaks to the fact that Charlotte's web is the highest velocities on shelf in retail.

The bigger challenge remains ecommerce for us, but we're just getting started to leverage our first season with MLB launching recreate with the new platform to come.

We took the right actions in 2022 to reset the company. Most importantly, the solid liquidity for the near term and bridge to a return to growth.

This year, we're executing on the right initiatives with a pipeline of innovation production and sourcing coming to set up winning the long game.

That still remains the same.

So thanks for listening and we'll now take your calls.

No questions.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session.

You have a question please press star one.

If you want to withdraw your question. Please press star two.

Question is will the bolt indoors as they are received.

We are using a speakerphone please lift the handset before pressing any keys.

Your first question comes from Scott Fortune from Roth and Kim. Please go ahead.

Yes, good morning, and thank you for the questions.

When looking at the DTA DTC channel.

Unpack that a little bit.

We've seen that come off.

Just wanted to step us through kind of the pressure on that online channel, whether it's pricing and youre seeing some transaction volume come off.

<unk> been able to maintain market share.

Is this a case of holding on price side of things to maintain margin.

Versus trying to drive sales as we've seen others do heavy.

Heavy discounting in that channel and just kind of layer that in by looking forward shouldn't be and kind of re create derive.

<unk> growth into that channel going forward, just kind of unpack it a little bit.

Does that continue in that channel.

If I answered, yes would that be enough.

Hey, Scott Thanks for the questions look of course MLB.

As part of the solution here, right and not only MLB, but the other partnerships that we've talked to.

The issue we've had in E com and because we bring pain market share leadership, notwithstanding the performance of the revenue growth over the last period of months and a couple of years here and in fact by the way.

In Q2 for ecommerce revenues were essentially back to pre COVID-19 levels of revenue, which maybe you said something about the shift of consumer channel.

Consumers, where they are going to buy but.

But for US the issue really has been and is the top of the funnel right. We know when we bring consumers into our brand world and into our platform that they stay.

Jessica alluded to that in her remarks, so for us, it's bringing more audiences into the brand and that's exactly why we did the partnership with MLB and on the other partnerships. We have done is to be relevant in conversations.

To educate consumers what CBD is and isn't NY Charlotte's web and now recreate are the premier brands in the industry that people.

It should understand and experience.

So we very much believe that the combination of MLB in our first full season with MLB.

We will be a driver in bringing new audiences into our brand through the media and exposure, we get with them through earned media.

Some support around paid media and activations around the dual events. So so that's that's where we're headed but for sure. We're also seeing from a competitive point of view significant price promotions, both in depth and frequency by our competitive set again, which Jessica mentioned in her remarks.

<unk>.

We have tried to reduce.

The depth of our of our promotions and the frequency and tying more around the value proposition of our brands and again, here's where recreate given the price positioning of the brand in the marketplace on E Commerce, but also in retail we think fits in really well not only with the targeted demographic, we're seeking but with the price points consumers seem to be grabbed.

Trading towards.

So very early days, obviously with MLB and recruit but but we're encouraged and optimistic about where we can go from here, particularly as we bring a new platform to enhance the consumer experience.

Later, this year and into early next year.

I appreciate the color.

Quick follow up on that obviously, it's early at the beach and with that engagement.

We create that you did have the MLB all star game and marketing.

Any conversion metrics or an update on kind of that funnel.

To date coming through.

They're just kind of remind US you mentioned all the media.

And so from that kind of a halo effect from this partnership.

You can move forward here.

Yes look I mean again, it's very early but you know at around the all star game, the Homerun Derby and all the events in between reactivated in Seattle.

Fans were able to come take a photo and recreate dugout take home a custom co branded commemorative ticket.

With MLB and recreate.

As a as a gift if you will because we know the window actually printed tickets for the events. So this was a way to create a momentum with recreate.

For the fans we captured data from those fans that came through a roughly 8000 fans I think the number was it came through and visited really interested in understanding what is this recreate and what's different about it and how do I think about it and so it was a good opportunity for us to educate.

We had product placement in the dugouts and the Bullpens in the locker rooms.

Dedicated space in the celebrity softball player coach and sponsorship VIP gifting suites, we did podcast with partners. So so it was a real strong activation. We also took away some learnings of what we will do differently next time for example, having Spanish language collateral is important so many of the players and profession.

<unk> sports in particular MLB.

English isn't their first language so.

We always look for learnings that we can leverage as we go forward and of course, we had stadium signage and digital and sourcing insertions on the pitching mound.

The initial input into the into our E Commerce platform. It's okay.

The conversion is not quite as strong as I would have liked but again, it's early days on educating the consumer. So so we're encouraged but we know we can do much much better.

Great and then one last one real quick probably for Jeff.

As far as the IP.

Cannabinoid <unk> been working with their plans for additional product launches other minor cannabinoids here and then you mentioned the floor is ready to commence their phase one remind us.

Kind of the first studies youre targeting.

<unk> targeted indications or treatment that that JV is looking to go after from that site.

Sure.

Yes, we've got some innovation lined up we do have some minor cannabinoids, we have been working with NSF to get another minor cannabinoid approved which I'd, rather not disclose that on the call.

But some of these are two new need states and gummies that we'll be launching in Q1.

But our primary focus on re created is on powders new formats grabbing.

Grabbing grow more accessible price point to the consumer and that also opens up multiple delivery options for innovation.

We're also have a.

There is a white paper coming out and we're excited about an innovation coming in in Q4 for Charlotte's web.

Rather not disclose that on the call either but this goes to show you know Charlotte's web as a as a science driven company.

And with our CSO Marcel Bob Miller, we have a very unique asset to be able to formulate based off of what is most efficacious and be able to educate our consumers on why we chose certain products, specifically here and minor cannabinoids.

We are extremely excited about the fleury up and its approvals to officially commenced phase one clinical trials by the Ethics Committee Board in Australia.

We're not disclosing the indication at this moment in time, but it's a massive milestone for the flooring and our progress on this botanical wellness strategy.

Thanks, I will jump back in the queue.

Thanks Scott.

Yes.

Thank you.

Your next question comes from Islam from Canaccord. Please go ahead.

Hi, Thanks for taking the question. So my first question is why is the decision to in source of production of the topical platform do.

Do you expect this to drive higher margins overtime and how much capital do you anticipate this to require.

Thanks I'll take this one I appreciate the question. So the decision was approved by the board in May.

Was the right time based on the ROI that we were calculating with very compelling and really it's minimal capex.

Expecting low single digit millions.

With a payback of actually approximately a year maybe potentially less.

And this is really due to the previous investments that the team made in the facility.

In terms of the additional benefit we do believe there is steady state gross margin improvement were not going to say.

Saar, but I will say that the return is quite beautiful.

I'd also.

Certainly.

A couple of years ago, a couple of yet last year, we went through a significant simplification exercise, reducing the number of skus.

<unk> seen a number of co mans almost in half and so really in sourcing is the next logical step to that strategy of simplification and leveraging the economics of being able to produce ourselves, particularly with the facility that we have here in lewisville and the ability to to operate at increasing capacity levels at a minimal investor.

So we're excited about about in sourcing topical and we're excited about the opportunity little early days, but we're excited about and expect to continue down the path of of in sourcing and reducing the level of co man dependency.

Obviously the benefits so it's not only margins across the whole portfolio of products from an increased utilization of the facility, but also managing our working capital levels carrying less finished goods and the like will also benefit.

Not only the P&L, but working capital and cash.

Sure. Thanks for the color and a follow up question to something that you mentioned on the call. So you mentioned that the promotional environment was getting a lot more intense so with that in mind are you seeing companies operating in this space beginning to wind down where do you kind of seeing there.

Sure.

Well.

You see what <unk> has published I guess, a year or so ago.

And I first started in these roles that were over 4000 brands in the category.

Went down to something like 2500 at the end of last year and I saw something recently that probably feels suggests it's contracted even even further since then so.

I do expect the culling of the current competitive set.

Look at the capitalization of some of the businesses the quality and strength of the brands and particularly.

What they're selling right and I think regulation is Jared articulated plays itself out here.

That will only exacerbate the color the culling of the competitive set and continue to put us in a position.

But we've said all along which is a right to win through through growth of share regardless of what the category overall of those we have a right to take share and that's the expected path. It will go down over the next year and beyond.

Sure. Thanks for the insight there and I was also wondering within the consumer spending environment have you noticed any shift towards more value value oriented products. What are you kind of seeing over there well.

Well.

Don't know if I'd say value oriented, but what I would say is we are seeing and I think we touched on this I mean, the marks on the retail side in particular.

We're seeing consumers look for more affordable price points, particularly those consumers who are coming into the category for the first time and so very deliberately we as Charlotte's web and our portfolio of products under the Charlotte's Web brand.

Is positioned as a premium product, which should be added index slightly above other competitors.

And that's why with recreate.

We believe having a position as a mainstream product price point fits in well too.

Where the price points that consumers are looking for and still at attractive margins for us. So.

So for sure we're seeing some price sensitivity in the marketplace and again the importance of that relative to new consumers coming into the brand.

All right for for growth going forward and that's been the strategy.

Got it thank you.

Sorry, sorry for all the questions for my last question.

Could you maybe discuss the legislative landscape as it relates to discussions with potential retailers are you, having more discussions with retailers looking to enter the space now.

Going on there.

Yeah, I'll take that one.

We have had discussions we have a kind of a <unk>.

Ready to go that can pitch deck, where all refreshed and we are we have our targets, we know who we're going to be going after the big retailers. The good news is is there where were encouraged when we mentioned the 70 plus industry stakeholder groups that are coming together. These are on weekly sometimes biweekly calls some of the.

Those are the retailers are major distributors, so they're there they're listening they're waiting and while we've had one meeting we would not disclose who we've met with but we do expect more action to come as we progress through the landscape.

And I'd just add a color on that as well I mean, we can talk about a new sort of industry retail verticals coming into the market as regulation opens up but the reality as well as in the markets that are open today like SDM a natural.

We're not CBD is not in every natural <unk>.

Store, nor are we all and all of the ESPN channels.

So there's opportunities within the within the industry verticals that are ready take CBD to expand the number of doors and particularly for us competitively grab more facings on shelf because of the strength of the velocity of our brands, which is what customers are looking for right. They want they want to carry minimal inventory they want that inventory on the shelf could be pulled by consumers and.

And have any advantage of the highest velocity in the industry really bodes well for us to get incremental shelf space in stores that take CBD today in stores that don't in those channels that do and then obviously over time in other industry verticals not just in retail, but think hospitality and travel and leisure those verticals will open up.

Up.

As regulations lands as well so a lot of opportunity in the market to be to be to be navigated against.

Got it thanks, everyone I'll hop off the queue.

Thank you.

There are no further questions at this time Mr. <unk> you May proceed.

Thank you Sergio I'd like to thank everybody for taking the time to join our call today and we'll look forward to speaking to you next following our Q3 results and report in mid November .

Thank you.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask about <unk>.

Please disconnect your lines.