Charlotte’s Web Announces US$56.8 Million Investment from BAT

DENVER, Nov. 15, 2022 /PRNewswire/ – (TSX: CWEB) (OTCQX: CWBHF) Charlotte’s Web Holdings, Inc. (“Charlotte’s Web,” or the “Company”) the market leader in hemp-derived cannabidiol (“CBD”) wellness products, today announced a US$56.8 million investment (the “Investment”) from a subsidiary of BAT (LSE: BATS) and (NYSE: BTI), which provides the Company with incremental capital to fund growth initiatives, including the Company’s expanding portfolio of botanical wellness products.

BAT’s Investment has been made via a convertible debenture in the amount of US$56.8 million. The debenture is currently convertible into a non-controlling equity stake in Charlotte’s Web of approximately 19.9% and is convertible at BAT’s discretion.

Jacques Tortoroli, CEO of Charlotte’s Web said: “This Investment will provide Charlotte’s Web with funding that we anticipate will help unlock deeper and broader research and development that is key to our continued innovation, global footprint, and the advancement of our intellectual property portfolio.”

Kingsley Wheaton, Chief Growth Officer at BAT, said: “The appeal of Charlotte’s Web is clear to us: a wide portfolio of high-quality products, strong brand equity, an extensive retail presence and robust B2C e-commerce platform serving a loyal US consumer base, and a track record of in-depth scientific research.”

The Investment provides substantial liquidity at an attractive cost of capital for Charlotte’s Web. Upon closing of this investment, Charlotte’s Web will have pro-forma cash and short-term investments of approximately US$65 million.

Debenture Terms

The Investment was made by BAT’s subscription for an unsecured convertible debenture issued by Charlotte’s Web (the “Debenture”) in the principal amount of C$75.3 million due November 14, 2029. The principal amount of the Debenture is currently convertible into approximately 19.9% of the outstanding common shares of Charlotte’s Web and, subject to adjustment in accordance with the terms of the Debenture, is a conversion price of C$2.00 per common share on the Toronto Stock Exchange (TSX). The Debenture will bear interest at a rate of 5% per annum with a step down to 1.5% following 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.

Concurrently with entering into the Debenture, BAT and Charlotte’s Web entered into an investor rights agreement (the “IRA”).  The IRA provides BAT with certain rights, including the right to nominate 20% of the members of the Company’s board of directors (the “Board”) for so long as BAT and its affiliates’ partially diluted ownership of the Company’s common shares is at least 15% (with a stepdown in BAT’s nomination rights to 10% of the members of the Board).  BAT’s nomination rights terminate upon BAT and its affiliates’ partially diluted ownership of the Company’s common shares declining below 10% for, subject to certain exceptions in the IRA, a 30 day period.  The IRA also provides BAT with certain pre-emptive rights on the issuance of common shares of the Company and top-up rights in respect of certain issuances of common shares of the Company that are not otherwise subject to a pre-emptive rights.  Subject to the provisions of the IRA, the pre-emptive rights and top-up rights provide BAT with an opportunity to maintain its percentage ownership of the Company’s common shares from time-to-time as though the Debenture was converted at the applicable time.

Lazard acted as financial advisor and DLA Piper (Canada) LLP and DLA Piper (US) LLP acted as legal counsel to Charlotte’s Web. Jones Day acted as legal counsel to BAT.

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