Charlotte's Web Holdings, Inc.

Good morning, ladies and gentlemen, and welcome to the Charlotte's Web Holdings Inc. 2023 3rd Quarter Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we'll conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Thursday, November 9th, 2023. I will now talk to turn the conference over to Corey Pala, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us for our 2023 Third Quarter Earnings Conference Call for Charlotte's Web Holdings, Inc. Our 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 third quarter is also available and has been filed on CDARplus.ca in Canada and in the U.S. on EDGAR with the SEC. Leading our call this morning is CEO Bill Marachnik, CFO Jessica Saxton, and Chief Commercial Officer and Co-Founder Jared Stanley. On this morning's call, we'll review the financial results for the third quarter and provide some color on operations. We will take questions from our 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 in our earnings release. And a webcast replay of this call will be available for an extended period, accessible through the IR section at our website at charlottesweb.com. 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 surrounding forward-looking statements are all outlined in detail within the company's regulatory filings on CDARplus.ca and SEC.gov. 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 description of adjusted EBITDA, as well as a reconciliation of such measures to their respective and most directly comparable GAAP financial measures. I would like to start by introducing Bill Marashnik, our incoming Chief Executive Officer. Bill has been with us for two months now and has quickly immersed himself into the business. He's a proven entrepreneur, skilled in creating and managing strategies for consistent and sustained growth. In his short time, he has demonstrated constructive leadership across our business and has already begun enacting positive change, which we will discuss further shortly. And with that, I will now hand over the call to Charlotte's Web Chief Executive Officer, Bill Maracene.

Thanks, Corey. And good morning, everyone. It is really a true honor to join you today for my first earnings call as CEO of Charlotte's Web. I want to start by thanking the board for entrusting me to steer this visionary company and its mission. I am truly energized by this challenge and the potential of this company and the CBD and botanical wellness industry overall. So I came to Charlotte's Web because I have a passion for building premium mission-based brands and leading companies through transformative change. While there are current industry challenges such as regulatory, This company has held a true leadership position for the last decade. Charlotte's Web continues to set the standards, but simply put, it's time to rip off some band-aids. Band-aids that were meant to be temporary, and they are now burdening our team's progress. It's not unusual for a brand with a 10-year history to shake things up a bit, and that's precisely why I'm here. Simplify, focus, and sharpen so that Charlotte's Web can get back to doing what it has always done best, which is leading by example. Now, this doesn't mean taking away the essence of Charlotte's Web. It means streamlining processes and updating technology for a more agile and effective approach. It means upgrading the consumer experience so that we will not miss any valuable touch points to monetize our marketing efforts. And lastly, it also means revisiting our brand. The emotional connection consumers have to Charlotte's Web brand is priceless. It is one of our most valuable assets It needs evolution and upkeep. In my first 60 days with the company, I've worked very closely with an impressive depth of talent on this team, and we're going to shake things up together. I am immediately putting the necessary actions into motion, and we'll speak more about this in a few minutes. But first, I'd like to turn the call over to our Chief Financial Officer, Jessica Saxton, to review our Q3 and year-to-date financial results, and then to Jared Stanley, recently appointed Chief Commercial Officer to share the latest on the regulatory front.

Thank you, Bill. I presume that listeners have had a chance to review our financial results in detail in our earnings press release and 10Q, so I will focus more on the high-level points. Our third quarter net revenue of $14.3 million was down 16.1% compared to $17 million last year. Revenues were down in both B2C e-commerce and B2B retail. However, gross margin remains healthy at 55.5% up from 52.5% a year ago. This improvement was primarily driven by supply chain efficiencies in the quarter. As we have discussed in prior calls, we continuously evaluate opportunities to improve operating efficiencies and margins. This includes leveraging our infrastructure. In early 2023, we launched a plan to transition the outsourced production of our topical products to in-house, at our state-of-the-art facility in Louisville, Colorado. Shortly thereafter, we also set in motion a plan to in-source gummy production. Accordingly, during the third quarter, we completed an initial CapEx investment towards the gummy production line. This investment was to purchase long lead time manufacturing equipment. Based on our analysis, the payback period for this investment is compelling. Gummies are our largest volume and revenue product line accounting for approximately 40% of our business. On-site manufacturing can drive significant benefits across the business. For example, this move unshackles our potential for rapid innovation in both our topical and gummy formulations and substantially improves our speed to market. No longer will we be constrained by third-party production schedules and limitations. This internal production builds on Charlotte's Web's evolution as a vertically integrated CBD market leader. We expect insourcing to deliver improved capacity utilization, enhanced fixed cost leverage, and benefit long-term gross margins. We are confident that this investment will help generate shareholder value over the long term. Turning to online sales. Direct-to-consumer sales through our e-commerce web store generated revenue of $9.4 million for the quarter. This was down from $11.8 million for Q3 of last year. The revenue decline was primarily due to lower organic consumer traffic and engagement on our website. E-commerce is our most critical sales channel, representing approximately two-thirds of our revenue. We have defined a clear action plan to address this revenue decline immediately. to ensure that we are cost-effectively attracting consumers to our website in a highly scalable way. Bill will walk you through the key initiatives that will get us there in more detail shortly. We do continue to maintain our number one spot in brand loyalty metrics as measured by the Brightfield Group, showcasing our continued strength amongst consumers. For the third quarter, B2B retail sales were 4.9 million compared to 5.2 million for Q3 of last year. This modest decrease was primarily due to some retail customers exiting the CBD category on a year-over-year basis. Total retail shelf space allocated to the overall CBD category was down roughly 8% year-over-year in the third quarter. This is in line with expectations, as retailers are adjusting their total space allocation and right-sizing both the brands and SKUs they carry. Charlotte's Web's products as a whole have outperformed the category, as we have been able to reduce our shelf space by less than half of the total category decline. Additionally, we continue to target growth in the natural channel, where there is a focus on early adoption by carrying both ingestible and topical products, and also where CBD has the highest category ACV. Specifically, we have expanded the max number of natural door selling by over 32% in the last 24 weeks compared to a year ago. All of this while maintaining approximately 10 items per store, which is higher than the category average. As we discussed, most retail customers continue to maintain a topical product-only position on CBD until federal regulations are established. Federal government regulation of CBD would be a material catalyst for broadly increased retail distribution of CBD ingestibles. In the interim, with our in-house production of topicals, we will have an enhanced ability to introduce new CBD topical products. Not only should this improve our annual sales volumes and benefit our manufacturing costs as a result of scale, but it also has the further benefit of establishing our brand presence on shelf at a broader scale. This will cement new routes to market with respect to ingestible CBD products once the necessary regulatory frameworks are established. Our third quarter SG&A was $19.9 million, a 31.8% increase from $15.1 million, excluding a $4.1 million employee retention tax credit in Q3 of last year. Excluding MLB-related expenses of $2.9 million, total Q3 SG&A increased $1.9 million, or 12.6% year-over-year, driven by timing of payments between quarters. Notwithstanding the additional MLB expense, we expect SG&A for the full year of 2023 to be only modestly higher than last year. This is evident in our year-to-date SG&A of $57 million, which is only 8.2% higher than the first nine months of 2022. And as a reminder, 2023 year to date also includes 6.8 million in MLB expenses that did not occur in the comparable period last year. We reported a third quarter operating loss of 12 million versus a loss of 3.9 million in Q3 last year. The increased loss was primarily tied to the MLB related expenses and lack of benefit this year of the tax credit. This combined $7 million year-over-year difference resulted in a higher net loss of $15.2 million or minus $0.10 per share versus a net loss of $7.6 million or minus $0.05 per share last year. Both quarters also included a non-cash loss in the fair market value of our derivative instruments of approximately $4 million. We reported negative cash flow in the third quarter of $10.7 million as compared to a positive $1.7 million in Q3 last year. As a reminder, the reason Q3 2022 had positive cash flow was due to a $7.6 million cash receipt related to an IRS refund, as well as the timing of payments. In addition, we spent approximately $2.6 million CapEx on long lead time equipment related to bringing our gummies and topical products in-house. The calculated payback on these projects is less than two years once production begins. In the first nine months of 2023, cash use was $15.9 million, of which $6 million was MLB-related as compared to $3 million of cash use in the first nine months of 2022. Additionally, we are lapping a $10.8 million cash receipt related to the IRS refund in the prior year. The company's cash and working capital at the end of the quarter were $51 million and $59 million, respectively. As the official CBD of Major League Baseball, Angel City Football Club, and the Premier Lacrosse League, we continue to leverage our valuable professional sports partnerships through media and marketing initiatives to drive these passionate fan bases into our brand ecosystem. Specific to MLB, we have gained valuable exposure for NSF Certified for Sport products, as we have been in every playoff team's dugout, bullpen, and clubhouse throughout the postseason. MLB delivered over 174 million digital impressions in Q3 alone, and as a result, for the month of September, we saw a 38% lift in total DTC sessions. Since our announcement of the premier lacrosse league in June, the net median value we received was five times that of the overall sponsorship fee. Specifically, The partnership has provided us with athlete brand ambassadors and allowed us to engage with fans of one of the fastest-growing sports in America. On an exciting note, lacrosse was recently named as an Olympic sport to premiere at the 2028 Summer Olympics in Los Angeles. As you can see, our professional sports sponsorships have been successful in generating meaningful exposure as well as bringing first-time visitors to our site. This is not yet translated into a meaningful increase in sales. We need to increase conversion rates from these leads and are taking several actions to do so, which Bill will speak more to in a moment. With a $51 million cash position at the end of the third quarter, we maintain a stable financial position moving forward, which continues to be an advantage against the bulk of our competitive set in the current environment. I will now turn the call over to co-founder and CCO, Jared Stanley.

Thank you, Jessica. The quarter was very meaningful for Charlotte's Web and the hemp industry in our co-founding membership of industry coalition OneHemp. We are now leveraging the uniting OneHemp industry voice with the consumer voice through Coalition for Access Now, or CAN. See, in this politically charged environment, we are remaining persistent and bold in our approach as demonstrated. and we're proud to share One Hemp and CAN have a forthcoming December 6th briefing on Capitol Hill. This briefing will lead to continued education and keep CBD legislation on the agenda. The goal is an official committee hearing on CBD regulation before House Energy and Commerce and or Senate Health Committees. This would be followed by CBD FDA legislation moving through regular order through markup and beyond. I would like to give more context on One Hemp, as One Hemp will be key in both briefings to educate on the safety of CBD and the policy solution drafted by Denton's LLP in response to a request for information known as an RFI. One Hemp was born from the RFI that came from the House Energy and Commerce Committee on July 27th. and strives to strike the right balance between FDA concerns and industry stability. Top CBD companies have joined together in a historic alliance to advocate for legislation and ultimately FDA regulation of hemp-derived CBD products as dietary supplements. One Hemp has and will continue to offer policymakers a science, and safety-backed industry resource for the development of a regulatory approach that aligns with the need to ensure access to more than 45 million Americans who rely on the benefits of CBD every day. This includes veterans, seniors, athletes, families, and more. Our strategy for 2023 continues to be laying the groundwork necessary for passage of CBD FDA legislation. simply by keeping the consumer voice at the forefront of the debate, establishing credibility through a science-backed approach in a policy solution, furthering House and Senate legislation, engaging with the FDA, uniting the industry, and regular order, committee hearing and markup. Approaching midway through the fourth quarter, Coalition for Access Now includes several of the nation's largest veterans associations, including the American Legion and also the U.S. Pain Foundation. We have House and Senate bills, FDA engagement, an unprecedented bicameral committee RFI, direct engagement from the FDA, and newly formed industry coalition, OneHemp. Our strategy has always been based on the reality that CBD FDA legislation would likely not pass as a freestanding bill. Rather, we would need to catch a ride on another must pass legislation. It is also based on an understanding that we will be at the mercy of the legislative and political process. At best, that means there could be long periods when we will have to generate our own momentum while Congress deals with other issues. Activities such as Hill meetings, the RFI, or committee staff briefings are examples of where we continue to grind out progress. For example, the recent change to a new Speaker of the House resulted in a month's delay as the House was essentially frozen until the GOP chose a new Speaker. The result is a very limited legislative calendar through the end of the year. The continuing resolution expires November 17th. And the new House Speaker Johnson has proposed a second continuing resolution through January of 2024, while Senate Democrats and the White House are proposing a second continuing resolution into April of 2024. From our perspective, this changes little in the sense that the strategy has always aimed for a spending bill or another likely to pass piece of legislation to be most likely vehicle on which to attach CBD FDA reform legislation. So in order to keep the process on track, One Hemp and CAN are now focused on preparing for the December 6th congressional briefing. The briefing for House and Senate staffers will feature two panels, one representing the consumer or public interest, and the second will include talk strategies and Denton's LLP. This represents the scientific and legal issues. ensuring one hemp's position remains objective. One hemp will then use the briefings as the leverage and basis for a hearing on the legislation and the legislative hearing as the basis and rationale for a committee markup. In this way, we create our own momentum and keep the issue alive and on track. We have made enormous and unprecedented progress this year. While we cannot control the politics and the congressional schedule, We have the right plan and the right people engaged to drive much needed change. We continue to work on the things we can control and to innovate around the things we cannot. Briefing, hearing, markup are our next steps. One leads to the next. This will put us in the strongest position to accomplish CBD legislation. I'll now hand the call back over to Bill. Thanks, Jared and Jessica.

So let's start by taking a quick look back at the Charlotte's Web three-pillar strategy for 2023, which includes, number one, to win in Washington, two, pursue botanical drug development, and three, grow the business. There's been great strides on the first two pillars, but to be very frank, we've clearly fallen short on the third one, growing the business. Regarding botanical drug development, we're excited to share that our joint venture, Defloria, has recently commenced its phase one clinical program through the FDA Botanical Drug Development Pathway. Following the completion of this study, Defloria plans to submit an investigational new drug application to the FDA to initiate the phase two clinical program in the first half of 2024. As Jared just shared the Washington update earlier, I will quickly move on to the growth pillar. which is the territory that demands the most immediate attention. From an operational perspective, I have identified three key areas of opportunity to hone our strategy. To start, we must urgently improve our e-commerce experience. There are no two ways about it. Each and every consumer touchpoint must be streamlined to drive subscriptions and loyalty, as well as boost customer acquisition. Secondly, our IT infrastructure requires much needed modifications and upgrades to support our growth goals. Our teams and strategies are unable to perform at their full potential on outdated and sometimes broken platforms. Specifically, we must enhance our tools for ERP, supply chain, and D2C. As a third priority, we're focused on strengthening the brand for D2C and B2B marketing by bringing brand, mission, and purpose back to the forefront. This includes a brand refresh that reflects the core values of what makes Charlotte's Web great. To address this, we're taking quick and decisive actions. As I stated in my opening remarks, I believe Charlotte's Web has the necessary expertise and firepower to increase our leading position in market share. To make this a reality, I have restructured parts of our organization to create a smoother, more integrated business. This simplifies our corporate structure and boosts our agility and speed. On the commercial side of the business, we've established a commercial department to enhance our collaboration between innovation, marketing, and sales. This tighter-knit group will help synchronize and optimize our product portfolio and innovation pipeline within our overall brand architecture. We're very fortunate to have Jared Stanley to lead this department, and he has been appointed Chief Commercial Officer. Jared will also continue to oversee the innovation, cultivation, and government regulations functions. This is a transition for Jared from his previously held Chief Operating Officer role. With Jared taking on this new role, we have internally promoted Ray Kunkel as our new Chief Operating Officer. Over the past two years, Ray and his team have done an exceptional job streamlining operations at our Louisville facility. There's no doubt that he'll do a fantastic job as COO. On to the B2B front. To boost our retail sales velocity, we have formed a more robust, integrated marketing team and improved our go-to-market strategies. At the same time, we're working to expand distribution through new retail partners in untapped channels and leveraging our valuable professional sports partnerships to provide us with rapid awareness, trust, and credibility. Now let's talk about our D2C and IT structure. We are fortifying our e-commerce business by integrating IT engineering into the e-commerce framework. As the company has expanded, multiple software integrations have been layered over time, which has created an overly complex IT infrastructure that's efficient and costly. We have already started an e-commerce platform migration for a more user-friendly and cost-efficient website. Most importantly, it'll add rocket fuel to our content management marketing attribution, consumer engagement, and CRM tools. I think you'll notice that we're working towards fully connecting IT, marketing, and innovation. The end game here is a smoother shopping experience and a highly engaging platform that consistently addresses consumer needs and ultimately inspires brand love. My goal is to simplify, focus, and sharpen what truly matters most to move the business forward. I'm very confident we will regain momentum and reinforce category leadership for Charlotte's Web. So look, I expect the coming period to be a transformative one for Charlotte's Web, specifically a time that sees us getting back to the core of what we do best, which is leading by example. It will also bring renewed life to Charlotte's Web's unique legacy and propel it into the next prosperous chapter. We're very grateful for our shareholders' patience and support as we navigate these challenges and seize future opportunities. The business transformation I've laid out will take some time to fully integrate, but I am excited about what lies ahead. We've got the leading brand, vertical integration, scientific expertise, and now a sharpened strategy that we are already executing against. I am thrilled to be a part of this journey and look forward to updating you in the coming quarters.

And now we'll take questions from our analysts. Thank you.

Ladies and gentlemen, we will now begin the questions and answer session. Should you have a question, please press star 1. If you want to withdraw your question, please press star 2. Your questions will be pulled in the order they are received. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Najib Islam from Canaccord Genuity. Please go ahead.

Thanks for taking the question. So my first question is, how will you approach the balance between revamping the e-commerce platform and integrating the IT infrastructure while managing spend moving forward?

This is Jessica. I'm happy to take this one. Candidly, this isn't anticipated to be material in cost. What we're currently budgeting, specifically in 2024, is CapEx associated with the new platform that Bill was mentioning. We expect this to be anywhere from the mid to high six figures, but again, it's one time. On to the better note, in my opinion, is really around the operating cost savings. Our current platform is overly complicated, like Bill said. It involves multiple external IT service providers, and we really believe that this can actually be consolidated under the new platform and hopefully potentially save some money. As Bill indicated, we've identified areas that we can improve our IT infrastructure, and candidly, we haven't really updated this in several years. There's newer tools out there that are more efficient, more seamless, and to be honest, they cost less. So all in all, what I'll say is the finance department is actually very integrated in this improvement and really excited about what the future holds. And currently, I don't anticipate additional objects associated with the revamp.

Got it. Thanks. And another question I have is, to what extent has pricing pressure for the broader CBD industry led to some of the lower brands and manufacturers pulling back from the market?

Good question. Unfortunately, it's probably not going to be much of a different answer than what we've said in the past, at least right now. Looking at pricing pressure first, yes, we see significant discounting and pricing pressure that remains, specifically in the e-commerce channel. As we all know, during the peak of 2020, online competition surged with COVID, making it really overcrowded. And really, only a couple market leaders, including ourselves, have emerged from that. And on the competitive landscape, the number of brands have been holding pretty steady in 2023, around 2000. We don't expect this to change much, as Jared said previously, until regulations land. But clearly, CBD as a whole is under strain, and some of them will not survive. We are also very grateful for our balance sheet as well as our partnership with BAT. But I do want to add a little bit of context. If you look at B2C, our growth challenges have been really amplified by the lower organic site traffic and a suboptimal tech platform. And our goal remains the same that Bill mentioned, which I'm really excited about. We need our e-commerce platform to be underway for better content, engagement, and marketing for the consumer, and really to modernize our tech stack, improving the consumer journey as well. And then lastly, with our sports league collaboration, collaborations. We're beginning to drive traffic, but that's only one side of the equation that we're doing really well. What we need to improve is the monetization of that traffic to which we're working on currently.

Got it. Thanks for the caller. And just one final question. Could you give me a sense of what the total capex spend will be for bringing the gummy production in-house? Is the $2.6 million just the beginning? Is there more to come down the road?

Yeah, great question. I can take this one too. To date, we've spent around the $2.6 million that I mentioned previously on the insourcing for the gummies and topicals. We do anticipate a little bit more spend in 2020 or at the end of the year, apologies, with $1 million and then a couple million more in H1. But what I want to really focus on is these initiatives are actually going to be completed in 2024, which is actually quite quick with all of the long-time issues that most companies are happening. And we're really going to drive those supply chain efficiencies. And looking at the ROI analysis, something we take really seriously here, the payback for both of these projects is less than two years. And additionally, the finance team is really helping operations not only look at our budget, but our timelines associated with both projects to make sure that we're delivering the most shareholder value. This is also going to be reflected in multiple gross margin BIPs. And as mentioned earlier, although it's not as qualitative, I really think it's important for us to talk about the internalization efficiencies associated. Not only are we going to be able to bring product innovation faster to our customers, but we're just going to have an enhanced speed to market overall, which should drive shareholder value.

Got it. Thanks. Thank you. Thank you.

Your next question comes from Scott Farton from Roth MKM. Please go ahead.

Good morning, and thank you for the questions. Welcome, Bill, to Shortsweb. I just wanted to dig a little bit into your priorities now that you've had a firsthand glimpse kind of view of the business and the positioning of the CV company here. But can you provide kind of color near-term, you know, efforts around sales growth? I mean, you went into a little bit on the three specific areas that you've identified to focus. kind of anything that stands out quickly in your term and strategically to drive that long-term growth that you can put metrics on that you looked at a priority on to start right away?

Yeah, thanks, Scott. So, you know, of the three that I mentioned there earlier in the call, it all revolves back to top-line growth. That's That's the magic elixir to progress this company. I was talking about the pillars earlier as well. You know, really good progress on the Floria. Jared's doing incredible work in D.C. And then our third pillar there is the top-line growth. I think, you know, given that so much of our business is driven by D2C, That's the area that's going to command a big chunk of my attention in these early days. What I keep saying in here internally, Scott, is the fortunate thing is it's, you know, to use an analogy, we're not suffering from an exotic tropical disease that we can't diagnose. We know what the issues are. So that's a much better position for us to be in. I think in the first 60 days, I've gotten a really good handle on the diagnosis, and now we're deploying actions against all of them. Jessica was alluding to it before. You can kind of split it, in my mind, into three buckets. So there's the technology side of it, which people refer to as the tech stack. There's the marketing side of it, which is now colloquially become the marketing stack. The third component of it is really the execution. So the investments required for the tech stack, we're already engaged in that. We're making a lot of changes on the overall integrated marketing approach. which will really, I'm very confident, will bear fruit both on B2B and D2C. The thing that's very much in our control right now is how we execute and go to market. And we're making big strides already, and I'm super excited about what we have queued up moving forward, bringing those three things together. The other element I'll layer on top of all of that is we already also have a compelling innovation pipeline to feed all of these new activities. So, you know, overall, I feel like in the last 60 days, we've put ourselves in a great position to hit a restart button.

No, I appreciate that, Collar. And then kind of just to follow up on that, you know, obviously you're mentioning the DTC side channel and focus on technology there. As you look at it, your sports partnerships are driving traffic to the website. Is your focus really continuing to drive more traffic to the website or higher priority to really converting those customers through education or through kind of enhancing the e-commerce site to drive the conversion? or is it a little bit of both? Just kind of your priorities or your thoughts around traffic and the conversions that need to kind of drive that top line growth here.

Yeah. So not to punt, they're both a priority. What I'll say is, again, let me split those in two. So on the traffic side, I think I mean, you saw the numbers for MLB in third quarter. It drove really nice traffic, a lot of impressions, et cetera, et cetera. I think our big opportunity on traffic is, A, getting the right traffic, and, B, generating traffic in a highly scalable way, meaning that we're not, you know, paying $2 to generate one. The tech stack and the marketing stack, I think, at this moment in time, is inadequate to do that effectively. So that has to be enhanced greatly. Conversion is a big issue. And the numbers don't lie. We had that increased traffic in Q3, yet the DTC sales didn't grow significantly. Didn't grow at all, but certainly didn't grow at a rate commensurate with the traffic. So what does that mean? We're taking a different mindset approach. It's not so much, the ultimate goal is conversion, but to generate conversion, it means that you've got to do a really deep dive on the consumer experience once they've come into the ecosystem or onto the site. Are we providing meaningful content? Do we have a smooth shopping experience? Is there the right tools in place to generate second, third, fourth and on purchases? Do we have a really compelling subscriber experience? All of these things, I think, ultimately are what drive the conversion because they'll lead to the word of mouth that is going to become a very important metric for us moving forward. So both of those need to be addressed, both the traffic generation and let's call it the monetization. but not monetization as the ultimate goal, but more of an outcome of us providing a really meaningful consumer experience.

Thank you. I appreciate that's a really thoughtful and deep, helpful answer from that standpoint. And then last question, probably geared towards Jessica. and how we should be looking kind of at the OPEX cost side. Obviously, you have lower top-line growth, but you're looking to drive that higher. But any further initiatives in place to potentially get more cost efficiencies and to reach breakeven now from that standpoint? Are there other opportunities? you know, outside of the in-store thing with tropicals and gummies to optimize your facility or means to right-size the cost measures here, growth-wise, just kind of their sense of kind of the OPEX side of things from your standpoint.

Thanks, Scott. Yep, I'm happy to take this. I always get excited to talk about financial questions. But I think where I'll start is I'm really proud of the work that the team's done on the finance side in the last 10 months. One of the first things I did when I joined and took over the CFO seat was bring FP&A to Charlotte's Web to support the business. Candidly, it hadn't existed in some time, and it was pretty obvious that it needed to come back to really help create that robust strategy. And candidly, we've accomplished this in record time. We've not only built a team, but the processes associated internally, from the likes of forecasting to bringing zero-based budgeting to the organization, which we're currently doing with 2024, And I have to give the company credit. They've been really responsive and excited about the changes that the finance team is making. And taking it even further, they're asking us to be involved to help them really understand not only the returns associated, but the shareholder value that we can get from it on the revenue side. So I'll say we have taken a broad look at the spend levels throughout the business, and we're working hard to really invest in the things to Bill's point that are driving top-line growth, which is where we need to do and where we really need to focus. So what I will say is we've brought ROI analysis pretty deep in the business as well, looking at the capital investment on the insourcing projects, et cetera. Whether we're growing revenue or whether revenue is declining, I'm a huge believer that you have to do cost analysis no matter what. So zero-based budgeting, forecasting aren't going anywhere. I very much look forward to revenues going up. But we need to bring the financial stability into the daily operations of the business no matter where we go.

I appreciate that. Thanks. I'll jump back in the queue. Thank you.

There are no further questions at this time. I'll turn the call over to Corey Palla for closing remarks. Mr. Palla, please go ahead.

Thanks, Sergio. And thanks, everyone, for joining us on the call today. We appreciate the patience. We will be reporting next following our Q4 near end in March. We anticipate issuing a corporate update early in 2024 to keep you abreast after Bill's first 100 days with the company.

I look forward to communicating with you then. Thank you. Ladies and gentlemen, this concludes your conference call for today.

We thank you for participating and ask that you please disconnect your lines. Thank you.