v3.26.1
FAIR VALUE MEASUREMENT
 6 Months Ended
Jun. 30, 2026
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENT FAIR VALUE MEASUREMENT
The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis as of June 30, 2026 and December 31, 2025, by level within the fair value hierarchy:

June 30, 2026

Level 1
Level 2
Level 3
Total
Financial assets:
Debt interest rate conversion feature
—
—
—
— 
Total financial assets
$
—
$
—
$
—
$
—
Investment in unconsolidated entity:
$
—
$
—
$
8,300
$
8,300 
Financial liabilities:
Debt conversion option
$
—
$
—
$
—
$
— 

December 31, 2025

Level 1
Level 2
Level 3
Total
Financial assets:
Debt interest rate conversion feature
—
—
211
$
211 
Total financial assets
$
—
$
—
$
211
$
211
Investment in unconsolidated entity:
$
—
$
—
$
8,800
$
8,800 
Financial liabilities:
Debt conversion option
$
—
$
5,187
$
—
5,187 
There were no transfers between levels of the fair value hierarchy and there were no changes in the fair value methodologies during the three and six month periods ended June 30, 2026 and the year ended December 31, 2025.
Investment in Unconsolidated Entity
On April 6, 2023, the Company jointly formed an entity, DeFloria, with AJNA BioSciences ("AJNA"), and a subsidiary of British American Tobacco ("BAT"). AJNA is a botanical drug development company. AJNA is partially owned and was co-founded by a member of the Stanley Brothers. The seven Stanley brothers (the "Stanley Brothers") founded CWB Holdings, Inc. (predecessor to Charlotte's Web, Inc).
As of June 30, 2026, BAT holds an equity interest in DeFloria in the form of approximately 2,000,000 or 100% preferred units following its $10 million initial investment and has the right to participate in future equity issuances to maintain its pro rata equity position. In 2024, BAT and AJNA invested an additional $5 million and $2 million, respectively, into DeFloria in exchange for a convertible debenture. The Company and AJNA each hold 4,000,000 or approximately 50% , respectively, of DeFloria's voting common units following a 1-10 stock split when DeFloria converted from a Limited Liability Company to a Corporation. The Company's contribution to DeFloria is a license permitting the use of certain proprietary hemp intellectual property, including clinical and consumer data. Additionally, the Company has a
supply agreement with DeFloria, under which the Company supplies the oils at cost used to produce and develop the new drug. AJNA's contribution to the entity is laboratory and regulatory services, clinical expertise, and the provision of clinical services. DeFloria used the investments for the clinical development of a hemp botanical Investigational New Drug application and has concluded Phase I clinical development.
Concurrently with the formation of DeFloria, the Company was issued a warrant to purchase 865,052 shares of Class A Common Stock of AJNA for an exercise price of $2.89 per share. Management determined the warrant should be accounted for in accordance with ASC 321, which requires the warrant to be measured at fair value at issuance and subsequently remeasured at fair value each reporting period. All changes from the remeasurement of the warrant were recorded as a change in fair value of financial instruments in the condensed consolidated statements of operations. As of April 2025, the AJNA warrants have expired and as such have no value.
The Company determined that it has a variable interest in the investment in DeFloria; however, the Company is not the primary beneficiary of DeFloria as it lacks the power to direct DeFloria's key activities. The Company concluded that the investment in DeFloria should not be consolidated. The maximum exposure to loss in the investment in DeFloria is limited to the Company's investment, which is represented by the financial statement carrying amount of its retained interest.
In accordance with ASC 825-10, equity method investments are eligible for the fair value option as they represent recognized financial assets. As the Company is not required to consolidate the investment and does not meet any of the other scope exceptions, the Company had the ability to adopt the fair value option for the investment at inception. Upon formation of the entity, the Company elected the fair value option because it allowed the investment to be valued based on current market conditions.
The investment has been remeasured at fair value at each reporting date, with changes recognized in condensed consolidated statements of operations as changes in fair value of financial instruments for the period. For the three months ended June 30, 2026 and June 30, 2025, a loss of $300 and $1,100, respectively, related to the investment in DeFloria was recognized as a change in fair value of financial instruments in the condensed consolidated statements of operations. Additionally, for the six months ended June 30, 2026 and June 30, 2025, a loss of $500 and $1,200, respectively, related to the investment in DeFloria was recognized as a change in fair value of financial instruments in the condensed consolidated statements of operations. As of June 30, 2026 and December 31, 2025, the DeFloria investment represents an investment of $8,300 and $8,800, respectively, within the condensed consolidated balance sheets.
The use of assumptions for the fair value determination includes a high degree of subjectivity and judgment using unobservable inputs (level 3 on the fair value hierarchy), which results in estimation uncertainty. To determine the value of the investment, the Company utilizes an Option Pricing Model ("OPM"). The OPM considers the various terms of the stockholder agreements, including the level of seniority among the securities, dividend policy, conversion ratios, and cash allocations upon liquidation of the entity. The OPM is appropriate when the range of potential future outcomes is difficult to predict with any certainty.
The following additional assumptions are used in the model:
June 30,
December 31,
2026
2025
Expected term (years)
5.0
5.0
Volatility
96.8%
96.4%
Risk-free interest rate
4.2%
3.7%
Expected dividend yield
—%
—%
Discount for lack of marketability
31.0%
31.0%
Convertible Debt Derivatives
On November 14, 2022, the Company entered into a subscription agreement (the "Subscription Agreement") with BT DE Investments, Inc. a wholly-owned subsidiary of BAT Group (LSE: BATS and NYSE: BTI) (the "Lender" or "BT DE"), providing for the issuance of a $56.8
million (C$75.3 million) convertible debenture (the "Convertible Debenture"). The Convertible Debenture was convertible into 19.9% ownership of the Company's common shares at a conversion price of C$2.00 per common share of the Company on the TSX. The Convertible Debenture accrued interest at a stated annualized rate of 5% until such time that there is federal regulation permitting the use of cannabidiol, a phytocannabinoid derived from the plant Cannabis sativa L. as an ingredient in food products and dietary supplements in the United States. The term "federal regulation" is defined as the date that federal laws in the United States permit, authorize or do not prohibit the use of CBD as an ingredient in food products and dietary supplements. Following federal regulation of CBD, the annualized rate of interest shall reduce to 1.5%. The maturity date for the debenture was November 14, 2029 (the "Maturity Date").
On May 28, 2026, the Company completed BT DE comprised of two components: (i) amendment and conversion of BAT’s outstanding C$75.3 million convertible debenture, as well as, all accrued interest, into Charlotte’s Web's common shares at a conversion price of C$0.94 per share; and (ii) a concurrent additional equity investment by BT DE (the "Investment") of $10 million (approximately C$13.9 million at the then applicable exchange rate) by way of a private placement at a price equal to the greater of (a) C$0.94 per share, and (b) a dollar amount equal to the maximum discount available pursuant to section 607 of the TSX Company Manual applied to the 5-day volume weighted average price of the Company’s common shares on the TSX prior to the closing date (collectively, the “Transaction”) provided that the maximum number of Common Shares to be issued to BAT under the Investment would not exceed 14,760,638 common shares of the Company.
On May 28, 2026, the Company and BT DE entered into an amendment and conversion notice for the Convertible Debenture (the "Amendment and Conversion Notice"). Pursuant to the Amendment and Conversion Notice: (i) the conversion price of the Convertible Debenture was reduced from C$2.00 to C$0.94 per share; (ii) the interest conversion price of the Convertible Debenture was amended to C$0.94 per share; and (iii) the applicable threshold for purposes of the Conversion Cap (as defined in the Conversion Debenture) was increased from 19.9% to 40.8%. At the closing and immediately following the effectiveness of the Amendment and Conversion Notice, BT DE converted the principal amount of, and all accrued but unpaid interest on, the Convertible Debenture into 95,281,277 common shares of the Company. As of the closing of the Transaction and upon the conversion of the Convertible Debenture and the Investment, BT DE holds an aggregate of 109,944,042 common shares of the Company, representing approximately 40.6% of the issued and outstanding Common Shares (calculated on a non-diluted basis) of the Company based on 270,549,931 Common Shares issued and outstanding as of May 28, 2026.
The Company initially determined that the debenture was a freestanding financial instrument which included embedded derivatives. The embedded derivatives were bifurcated from the debenture and accounted for separately in accordance with the provisions of ASC 815, Derivatives and Hedging. The Company reviewed the terms of the debenture and identified two material embedded features which required bifurcation under ASC 815: 1) the interest rate conversion feature based on changes in federal regulations, and 2) the debt conversion option to common shares. The debt interest rate conversion feature was classified as a derivative asset and measured at fair value using a probability-weighted income approach. The debt conversion option was classified as a derivative liability and measured at fair value using a Black-Scholes option pricing model.
When a conversion feature has been separated from a convertible debt instrument and accounted for as a derivative liability or asset, there is no equity conversion feature remaining in the debt for accounting purposes. Therefore, while there is a legal conversion of the debt, the derivatives are subject to extinguishment accounting because they are being surrendered in exchange for common shares. As such, the following two derivatives have been extinguished as May 28, 2026.
Debt Interest Rate Conversion Feature
Prior to the amendment and conversion of the Convertible Debenture, the debt interest rate conversion feature was classified as a financial asset and is remeasured at fair value at each reporting date, with changes recognized in condensed consolidated statements of operations as changes in fair value of financial instruments for the period. The use of assumptions for the fair value determination included a high degree of subjectivity and judgment using unobservable inputs (level 3 on the fair value hierarchy), which results in estimation uncertainty. The debt interest rate conversion feature, if triggered, reduced the stated interest rate of the debenture Convertible Debenture to 1.5% upon federal regulation of CBD in the United States.
For the three months ended June 30, 2026 and June 30, 2025, a gain of $10 and a loss of $525, respectively, related to the debt interest rate conversion feature was recognized as a change in fair value of financial instruments in the condensed consolidated statements of operations. Additionally, for the six months ended June 30, 2026 and June 30, 2025, a gain of $4 and a loss of $578, respectively, related to the debt interest rate conversion feature was recognized as a change in fair value of financial instruments in the condensed consolidated statements of operations. As of June 30, 2026 and December 31, 2025, the debt interest rate conversion feature represents a financial asset of $0 and $211, respectively, within Derivative and other long-term assets in the condensed consolidated balance sheets.
The following table provides a roll forward of the fair value of the debt interest rate feature in connection with the conversion of the convertible debenture:
Balance - December 31, 2025
$
211 
Change in fair value during the period, recognized in change in fair value of financial instruments
4 
Foreign currency exchange impact
(1)
Reclassification to equity in connection with extinguishment of debt
(214)
Balance - June 30, 2026
$
— 
To determine the value of the debt interest rate conversion feature, the Company utilized a probability weighted income approach. This method calculated the present value of the reduced interest accrued on the Convertible Debenture assuming the feature is triggered at a certain time, after accounting for the probability of federal regulation of CBD. This approach is useful when ultimate valuation is based on an unverifiable outcome, such as an event outside of the Company's influence. The following additional assumptions were used in the model:
May 28,
December 31,
2026
2025
Stated interest rate
5.0%
5.0%
Adjusted interest rate
1.5%
1.5%
Implied debt yield
14.3%
13.2%
Federal regulation probability
Various
various
Year of event
Various
various
Debt Conversion Option
Prior to the amendment and conversion of the Convertible Debenture, the Lender had the option, at any time before the Maturity Date at no additional consideration, for all or any part of the principal amount to be converted into fully paid and non-assessable common shares. The Company determined that the debt conversion option was an embedded derivative that required bifurcation and was classified as a financial liability within the condensed consolidated balance sheet. The debt conversion option was initially measured at fair value and revalued at each reporting period using the Black-Scholes option pricing model based on Level 2 observable inputs. The assumptions used by the Company were the quoted price of the Company's common shares in an active market, risk-free interest rate, volatility and expected life, and assumed no dividends. Volatility was based on the actual historical market activity of the Company's shares. The expected life was based on the remaining contractual term of the Convertible Debenture and the risk-free interest rate was based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the expected maturity of the Convertible Debenture.
For the three months ended June 30, 2026 and June 30, 2025, a gain of $5,848 and $83, respectively, related to the debt conversion option was recognized as a change in fair value of financial instruments in the condensed consolidated statements of operations. For the six months ended June 30, 2026 and June 30, 2025, a loss of $2,814 and a gain of $162, respectively, related to the debt conversion option was recognized as a change in fair value of financial instruments in the statements of operations. As of June 30, 2026 and December 31, 2025, the debt conversion option represents a financial liability of $0 and $5,187, respectively, within Derivative and other long-term liabilities in the condensed consolidated balance sheets.
The following table provides a roll forward of the fair value of the debt conversion option feature in connection with the conversion of the convertible debenture:
Balance - December 31, 2025
$
5,187 
Change in fair value during the period, recognized in change in fair value of financial instruments
2,814 
Foreign currency exchange impact
61 
Reclassification to equity in connection with extinguishment of debt
(8,062)
Balance - June 30, 2026
$
— 
The following table provides the assumptions regarding Level 2 fair value measurements inputs at their measurement dates prior to extinguishment upon conversion of the Convertible Debenture as of May 28, 2026:
May 28,
December 31,
2026
2025
Expected volatility
91.6%
89.8%
Expected term (years)
3.47
3.9
Risk-free interest rate
4.3%
3.9%
Expected dividend yield
—%
—%
Value of underlying share
C$0.70
C$0.50
Exercise price
C$2.00
C$2.00
Stanley Brothers USA Holdings Purchase Option
In 2021, the Company entered into an option purchase agreement (the "SBH Purchase Option") with Stanley Brothers USA Holdings, Inc ("Stanley Brothers USA"). The SBH Purchase Option was purchased for total consideration of $8,000 and had a term of five years (extendable for an additional two years upon payment of additional consideration). The SBH Purchase Option provided the Company the option to acquire all or substantially all the shares of Stanley Brothers USA, at a purchase price to be determined at the time of exercise of the SBH Purchase Option. As part of the SBH Purchase Option agreement, Stanley Brothers USA issued the Company a warrant exercisable to purchase 10% of the outstanding Stanley Brothers USA shares and convertible securities that are considered in-the-money, subject to certain conditions and exclusions. The warrant was exercisable at the Company's election for a nominal exercise price in the event the Company elects not to acquire all or substantially all shares of Stanley Brothers USA and expired 60 days after the expiration of the option. The Company was not obligated to exercise the SBH Purchase Option or warrant and as such the unexercised option and warrant have expired.
For the six months ended June 30, 2025, the Company recognized a loss of $52 related to the SBH Purchase Option within change in fair value of financial instruments in the condensed consolidated statements of operations. As of December 31, 2025, the SBH Purchase Option represented a financial asset of $0 within Derivative assets and other long-term assets in the condensed consolidated balance sheets.