Charlotte's Web Snares Abacus, CEO Looks Forward To '$10B Market Opportunity'

When Charlotte's Web Holdings Inc. CWBHFCWEB agreed to buy Abacus Health Products Inc. ABCS in March, expectations were high.

"Abacus is a market-leading player in OTC topical products combining active pharmaceutical ingredients with hemp extract," Charlotte's Web CEO Deanie Elsner told Benzinga. "We expect the Abacus business to provide meaningful opportunities in adjacent markets — pain relief and skincare, a $10-billion market opportunity."

The deal, valued at CA$99 million ($68.2 million), would form one of the biggest vertically integrated hemp-derived CBD companies and give Charlotte's Web about 35% of U.S. CBD sales.

Now that the acquisition has officially closed, I pitched a few questions at Elsner to learn more about the purchase, what it means for the Abacus and how COVID-19 affected trends she expects to see unfold in the second half of 2020.

BZ: Charlotte's Web prides itself as a 'trusted' hemp company. What warrants that title?

DE: From the time we began making our products for people who relied on them, we knew we had to strive for consistency, safety and transparency. That led us to grow our own hemp, from our own genetics. We grow using organic practices — 53% of our hemp fields are now certified organic and the rest are in transition to organic.

We test the soil, the water for the crops, the crops and ingredients along the farming and processing chain to finished goods. Our FDA-registered facility follows the FDA's Good Manufacturing Practices (GMP) protocols. We follow American Herbal Products Association's (AHPA) contaminant guidelines and specifications. All Charlotte's Web products are compliant with California's Prop 65 regulations.

Our finished product is tested for phytochemical content, pesticides, heavy metals, residual solvents, glyphosate and microbial contamination, all those test results are available, batch by batch on each package through a QR code that shows the test results for that product.

Did the pandemic affect the Abacus deal at all?

It was a whirlwind, and all done virtually due to COVID-19. We learned a lot about how to be flexible. So while this environment may cause others to slow down, one of the best things we can do for Charlotte’s Web is strategically invest in our business, even in a cost-constrained environment and uncertain economy. Doing s, grows and expands our leadership position to reflect the long-term, evolving CBD market.

Abacus will strengthen our ability to grow as we continue awaiting clearer FDA regulatory guidance on ingestible products in food, drug and mass market retail chains.

What makes the deal worthwhile?

This was an all-stock deal. Charlotte’s Web acquired all issued and outstanding Abacus shares. Abacus Shareholders received 0.85 of a common share of Charlotte’s Web for each Abacus Share held. This acquisition will have our combined products sold through approximately 21,000 retail doors in the U.S. and will have us as a third of all hemp extract CBD sales in the FDM (food/drug/mass) channel today.

The acquisition expands our product portfolio in the topicals category, forecasted to become the fastest growing and largest CBD segment by 2021 according to Brightfield. In July, we intend to begin offering certain Abacus products for sale through our e-commerce site.

Typically, M&A leads to layoffs, and unemployment is currently high. Will the acquisition affect jobs?

It’s too soon to speak to the future organizational structure, but we are focusing on getting to understand one another’s businesses and how to integrate them as thoughtfully and successfully as possible given the unique considerations of each category.

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How is the current COVID-19 crisis impacting CBD at a retail level? What trends do you expect to see unfold in the second half of 2020?

We engaged Nielsen to run an analysis to determine the impact of the COVID pandemic across several consumer product categories, including CBD. The data showed a slight increase in takeaway for the CBD category for the two-week period leading up to the March 21 shelter-in-place mandate. Although there was some slight pantry loading that occurred in the CBD category prior to the shelter-in-place, the FDM category takeaway remained 15% to 20% below the 2020 pre-COVID run rate.

Our online sales experienced a similar increase in our sales. More than half of our revenue comes from online sales and this DTC channel has performed very well during the COVID-19 lockdowns. And while consumers will prioritize consumer staples, we also expect a heightened focus around immune system support and supplementation in the general health and wellness category of which we are a part of.

It’s premature to predict the impact of what coronavirus will be on the FDM channels. As we move forward, we expect the FDM channels to return back to pre-COVID run rates. A portion of these sales will be realized online, which is confirmed with the continued strength of our DTC business. We don’t know how this will all ultimately flesh out and are maintaining conservative expectations.

What's next for Charlotte's Web?

We will continue to follow a deliberate growth strategy, while continuing to hold and grow our position in high-growth hemp-derived CBD categories. We will do this by continuing to evaluate strategic partnerships or acquisitions that fill gaps in product portfolio, market segments or geographical expansion. Acquiring Abacus is a clear example of our growth model in action. Our current focus is to orchestrate a successful integration while seamlessly delivering on what our customers expect and need from us.