Charlotte’s Web Holdings, Inc. Announces Strategic Transaction with BAT

Key Developments in Company Financing and Structure

Charlotte’s Web Holdings, Inc. (“the Company”) has announced a significant strategic transaction with BT DE Investments Inc. (“BAT”), an affiliate of British American Tobacco plc. This development, formalized through a Subscription Agreement and related documents, could have material implications for shareholders and the Company’s future direction.

Key Points of the Transaction

• Conversion of Debenture: Immediately following the approval of an amendment, BAT will convert the principal and all accrued but unpaid interest of a Convertible Debenture into 95,281,277 Common Shares of Charlotte’s Web Holdings, Inc. This is a transformational equity event that will significantly increase BAT’s stake and could alter the Company’s ownership structure.
• Subscription Agreement: BAT will further invest USD \$10,000,000 into the Company, with funds to be used for strategic growth initiatives, most notably the Company’s Innovation Center (CMMI) program. If the CMMI program does not proceed, the funds may be used to support medical channels or general corporate purposes.
• Share Issuance Price: The new shares will be issued at the greater of (i) \$0.94 per share, or (ii) the maximum discount permitted under Toronto Stock Exchange (TSX) rules based on five-day volume weighted average price prior to closing.
• Restrictions on Use of Proceeds: The proceeds from BAT’s investment cannot be used for dividends, share buybacks, or extraordinary payments to management, nor for any conduct defined as “specified unlawful activity” under US law. This ensures funds are directed towards legitimate growth and operational initiatives.

Major Governance and Shareholder Implications

• Board Nomination Rights: Under the Amended & Restated Investor Rights Agreement, BAT will be entitled to nominate directors in proportion to its ownership, with a minimum of two board seats as long as it owns at least 10% of the Company’s common shares (on a partially diluted basis). This gives BAT significant influence over the Company’s strategic direction.
• Registration Rights: BAT will have the right to demand up to three prospectus registrations (one per 12-month period) to facilitate the sale of its shares and will also have “piggyback” rights on Company-led offerings. Shares issued to BAT will be “restricted securities” under Rule 144(a)(3) and subject to Canadian resale restrictions.
• Standstill Provision: BAT will be subject to restrictions on further acquisition of securities and other actions that may affect control of the Company, per the detailed terms in the Amended & Restated IRA.
• Shareholder Approval Required: The transaction is contingent upon approval by a majority of votes cast by Company shareholders, excluding certain related parties as required under Multilateral Instrument 61-101. A special meeting will be convened within 70 days to seek this approval.
• Regulatory Approvals: Closing is also subject to necessary regulatory clearances, including from the TSX.
• Emerging Growth Company Status: The Company is classified as an “emerging growth company” and has elected not to use extended transition periods for new or revised accounting standards, which may impact future financial reporting.

Potential Price-Sensitive Factors

• Substantial Equity Issuance: The conversion of the debenture and new share issuance will significantly increase the Company’s outstanding share count, potentially diluting existing shareholders but strengthening the balance sheet and strategic partnership with BAT.
• Strategic Alignment with BAT: The deepening relationship with BAT, a major global player, may enhance the Company’s strategic options, access to capital, and market position but also aligns the Company’s fate more closely with BAT’s interests.
• Possible Share Price Volatility: The conversion price and new investment terms may be viewed as a valuation benchmark by the market, and the large block of restricted shares could affect trading dynamics over time, especially if BAT seeks liquidity via registration rights.
• Governance Changes: With new board nominees from BAT, shareholders should expect a shift in governance and possibly strategic priorities.

Additional Information & Steps for Shareholders

• The Company will file a preliminary and definitive proxy statement on Schedule 14A with the SEC regarding these transactions. Shareholders are urged to review all proxy materials in detail once available.
• The transaction is not yet final and is subject to shareholder and regulatory approvals, as well as the satisfaction of other closing conditions.
• No offer or solicitation for securities is being made except as permitted by law and only by means of an official prospectus.

Conclusion

This is a transformative transaction for Charlotte’s Web Holdings, Inc., potentially altering its capital structure, governance, and growth trajectory. The deal with BAT is likely to be price-sensitive and could have significant implications for valuation, control, and future strategy. Shareholders should monitor upcoming proxy materials and consider the long-term implications of the transaction, especially with respect to dilution, board composition, and possible future share sales by BAT.

Disclaimer: This article is for informational purposes only and does not constitute investment advice, an offer to sell, or a solicitation of an offer to buy any securities. Investors should review official filings and consult their financial advisors before making any investment decisions. The information herein is based on publicly available filings and may not reflect all developments or risks.

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