The Stanley brothers are unhappy with the current state of affairs at the company they founded and are bidding for a return to right the company ship.
The dramatic fallout in the CBD industry continues to wreak havoc on the once darling sure bet companies comprising the hemp-based market sector. Chief among those organizations experiencing the corporate and fiscal pain of that continued downward spiral is Charlotte's Web Holdings, based in Denver, Colorado.
CW's founders, brothers Joel and Jesse Stanley, were riding high as they took their company public on the Toronto Stock Exchange and the OTCQX Venture Market in the United States in September 2018. However, since then, CW's stock price has plummeted from an all-time high of $21.90 on April 1, 2019, to its current value of only $0.2196 (about 22 cents) as of June 12, 2023.
That catastrophic collapse in valuation has prompted the brothers to take action. According to multiple news outlets, the Stanley brothers are calling for the immediate resignation of four of the current six members of the company's board of directors, including board President John Held and the company's CEO, Jacques Tortoroli.
On Monday, the brothers released an incendiary press statement that bluntly said the company's future viability is "at risk" because of strategic missteps, uncontrolled spending, and poor hiring practices from the current executive leadership.
Joel Stanley said in the statement, "The incumbent Board and management's business strategy has been to pin their hopes on FDA regulations changing in favor of the business. Rather than innovate within the current framework, the Company continues to burn money on conventional marketing."
"The incumbent Board and management's business strategy has been to pin their hopes on FDA regulations changing in favor of the business. Rather than innovate within the current framework, the Company continues to burn money on conventional marketing."
- Joel Stanley, Co-Founder of Charlotte's Web Holdings
The company's annual general meeting is scheduled to take place this Thursday. Ahead of that potentially fiery gathering, the Stanleys are urging their fellow shareholders to withhold votes for Held, Tortoroli and independent directors Thomas Lardieri and Alicia Morga. Susan Vogt and Jonathan Atwood, two other directors, appear to be safe from the wrath of the Stanleys and would presumably be welcome to remain on the board moving forward.
Furthermore, Joel Stanley additionally emphasized in his portion of the statement that since the four directors targeted for dismissal "will fail to achieve majority support, (they should) do the right thing by stepping down and avoid delaying change." In their place, the brothers are calling to replace the quartet with themselves, Lynn Kehler, a business and finance executive, and natural products industry veteran Angela McElwee.
Among the many criticisms leveled at CW's executive leadership team, changing the company's CFO four times in the past two years and paying "exorbitant compensation to the CEO and other senior executives" were highlighted as proof that the current board lacks focus and a grasp of the company's most important priorities.
Jesse Stanley echoed those sentiments in the statement, saying, "The significant cash burn rate with decreasing revenues must end immediately. The current leadership blames the general industry decline and regulatory headwinds to avoid taking responsibility for their actions. The truth is that the actions of this board have clearly contributed to the destruction of shareholder value."
"The significant cash burn rate with decreasing revenues must end immediately. The current leadership blames the general industry decline and regulatory headwinds to avoid taking responsibility for their actions. The truth is that the actions of this board have clearly contributed to the destruction of shareholder value."
- Jesse Stanley, Co-Founder of Charlotte's Web Holdings
According to its year-end financial statement, CW suffered a net loss of $59.3 million on revenues of $74.1 million last year, which put the company's total losses at $186 million for the two-year period ending March 31, 2023. The brothers attribute those dismal numbers to "a steady decline in revenue across all channels, with little to no product innovation or SKU expansion."
CW Holdings famously inked a deal with Major League Baseball (MLB) to become the league's official CBD sponsor last fall, just before the first pitch of the World Series. As part of that arrangement, the company gave MLB 4% of the company's shares and agreed to pay the league $30.5 million plus a 10% royalty on sales. According to the Stanleys, MLB concurs with their assessment of the current situation and believes changes are needed.
Thursday's general meeting should prove dramatic and telling for the ailing industry leader. Even if the Stanleys get their way and can retake their board seats, it is not a given that their presence will automatically signal a turnaround for CW. Along with weakened demand for products and a significant oversupply of hemp flower used to manufacture CBD, which led to the massive price decrease starting in 2019, the industry could face other substantial challenges.
As CBD makers continue to battle with the U.S. Food & Drug Administration (FDA) over establishing health and safety regulations for CBD, that wish may end up leading to an existential crisis for the industry. Battered and beleaguered for its lack of action and initiative, the FDA has recently sent strong signals that it could end up classifying the hemp-based product as a drug due to the many health concerns surrounding the effects of prolonged CBD use.
If that happened, it could effectively wipe out the current market. The industry desperately needs solid and bold leadership if it is to weather this prolonged storm. The Stanleys taking back their company may be a step in the right direction. For now, all eyes are on Denver.
