Financial News
Charlie's Holdings Reports 2023 Results Highlighted by the Launch of SPREE BAR(TM) with Proprietary Metatine(TM) Inside
COSTA MESA, CA / ACCESSWIRE / April 15, 2024 / Charlie's Holdings, Inc. (OTCQB:CHUC) ("Charlie's" or the "Company"), an industry leader in the premium vapor products space, today reported results for the twelve months ended December 31, 2023, and provided an update on recent business highlights.
Key Financial Highlights for 2023
- Revenue decreased 39% to $16.3 million
- Gross profit decreased 39% to $6.0 million
- Operating expenses decreased 30% to $8.2 million
- Operating loss increased 22% to $2.2 million
- Net loss increased 32% to $2.1 million
Key Business Highlights from 2023
- Developed, tested, and trademarked Metatine nicotine substitute alkaloid; launched SPREE BAR product line
- Awarded eleven large customers SPREE BAR Master Distributor and Distributor contracts
- Accepted purchase orders and corresponding 50% cash deposits for each SPREE BAR Distributor's initial order
- Announced a new strategic initiative to develop patented "age-gating" technology to address significant concerns raised by U.S. Food and Drug Administration ("FDA") over the use of Electronic Nicotine Delivery System ("ENDS") products by underage consumers
Management Commentary
Ryan Stump, Charlie's Chief Operating Officer, explained, "We are very excited about SPREE BAR and Metatine. In late 2024 and beyond, we believe our nicotine substitute products will be very important market leaders. Our plans for 2024 include cost-effectively expanding and strategically refocusing our sales team. Part of our sales focus will be on direct-to-retail (smoke shops, chain stores, adult beverage/liquor stores, gas stations, and grocery stores) with the goal of acquiring 1,000 new customer accounts in 2024. Another sales team focus will be on satisfying the requirements of mega-distributors (traditional big tobacco distributors) in order to sell into the nation's largest chain store accounts. Additionally, we plan to build-out a dedicated international team, including country managers and marketing coordinators, to market and sell a suite of custom-made products to new and existing international customers."
"As we pivoted in 2023 to focus Company resources on the development of proprietary Metatine and on the SPREE BAR product line, we greatly reduced our cash burn by right-sizing overhead to match our decline in revenue," stated Matt Montesano, Charlie's Holdings, Inc. Interim Chief Financial Officer. "In this effort we significantly lowered headcount, non-commission salaries, and tradeshow-related costs in preparation for the customer education campaign and commercial launch of Charlie's nicotine substitute products. Further, in January 2023, Charlie's executive officers Henry Sicignano and Ryan Stump voluntarily elected to reduce their salaries by 20% and 25%, respectively, until such time that the Company returns to growth. Indeed, in the second half of 2024, we believe Metatine and SPREE BAR will put us on this path."
Henry Sicignano III, Charlie's President, commented, "We took a step back in 2023: to reassess our strategic priorities, to develop Charlie's proprietary nicotine substitute alkaloid that is Metatine, and to launch Version One of the SPREE BAR product line. In mid to late 2024, it is our intention not only to secure SPREE BAR distribution in several of the nation's larger c-store chains, but also to grow significantly Pacha™ disposable sales in this same channel."
Mr. Sicignano continued, "Though we have a challenging runway to navigate, we believe that increased sales of our Pacha disposables - which remain in substantive review with the FDA - combined with SPREE BAR sales in national chains in the second half of 2024, could position Charlie's for an uplist to a national securities exchange. It is our plan to do everything possible to affect these achievements."
SPREE BAR
During the fourth quarter of 2023 the Company launched new disposable vape products, under the "SPREE BAR™" brand, that the Company believes could (i) replace many of Charlie's legacy products, and (ii) become the single largest, most important commercial opportunity in Charlie's history. The Company and its attorneys believe SPREE BAR products with Metatine™ inside, are not subject to FDA Premarket Tobacco Application ("PMTA") review. In short, the Company's SPREE BAR vape liquids are not made or derived from tobacco, nor do they contain nicotine from any source. Based on the information provided by the Company's contracted chemical suppliers and its consultants, the proprietary Metatine™ alkaloid (patented in the United States and in China by the Company's chemical supplier) does not meet the definition of nicotine set forth in 21 U.S.C. § 387(12) and therefore Charlie's products that contain Metatine as their active ingredient are not subject to regulation as "tobacco products" under 21 U.S.C. § 321(rr).
In late 2023 the Company began shipping its new Metatine-based, SPREE BAR™ disposable vape products to master distributors. Charlie's believes that its transition to Metatine-based products will give the Company an extraordinary opportunity to capture significant sales and market share in the vapor products marketplace in late 2024 and beyond.
| SPREE BAR, with Metatine, is indistinguishable from a conventional disposable vape; SPREE BAR provides adult consumers with the same satisfaction that typical nicotine disposables provide, but without nicotine. | |
| As a disposable pod system - with a reusable battery - 6,000-puff SPREE BAR flavor pods have a retail price that is significantly less than that of the industry-leading 5,500-puff disposables. | |
| Because Metatine is not made or derived from tobacco, and because Metatine does not consist of or contain nicotine from any source, SPREE BAR is not subject to FDA Pre-Market Tobacco Application ("PMTA") requirements. |
Age-Gating Technology
The Company has also begun to develop intellectual property around technologies designed to prevent youth access to nicotine vapor products. Edward Carmines, Ph.D., a member of Charlie's Board of Directors and an accomplished scientist and regulatory affairs expert, is spearheading Charlie's development of patented "age-gating technology" for both Charlie's and potential licensees of the Company. Currently, there is a need for age-gated product technologies that can satisfy or accommodate concerns the FDA has related to under-age youth access in the ENDS market. If Charlie's age-gated e-cigarettes-in-development are recognized as "products of merit" by the FDA, the Company's e-cigarettes could emerge among the select minority of flavored nicotine disposables able to be sold legally in the $7 billion U.S. vapor products market.
Underlining the importance of Charlie's work with age-gating technology is an initiative taken by JUUL Labs, one of the largest competitors in Charlie's industry. In July 2023 JUUL announced that it had submitted a PMTA to the FDA for a new e-cigarette device that also included information on novel, data-driven technologies to restrict underage access. JUUL's chief product officer explained, "With our next-generation platform, we have designed a technological solution for two public-health problems: improving adult-smoker switching from combustible cigarettes and restricting underage access to vapor products..." Similar to the age-gating technology under development at Charlie's, the JUUL device includes a mobile and web-based app that enables age-verification technology, including device-locking, and real-time product information and usage insights for age-verified consumers with industry-leading data-privacy protections.
PMTA Update
As December 31, 2023, Charlie's 2020 PMTA remains among the select minority of applications submitted to the FDA for a tobacco-derived nicotine Electronic Nicotine Delivery System ("ENDS") product that has not received a Marketing Denial Order ("MDO") or Refuse-to-File designation.
Financial Results for the Twelve Months Ended December 31, 2023:
| Revenue: For the twelve months ended December 31, 2023, revenue was $16.3 million, a decrease of $10.2 million, or 39%, compared with $26.4 million for the twelve months ended December 31, 2022. The decrease in revenue was primarily due to a $8.6 million decrease in Charlie's nicotine-based vapor product sales and a $1.6 million decrease in hemp-derived products. | |
| The decrease in Charlie's nicotine-based vapor product sales was related to a decline in sales of the Pacha Disposable line, which was launched during the first half of 2022. Pacha Disposables became Charlie's first-ever entrant into the rapidly expanding, disposable e-cigarette market and offers users a variety of premium flavors containing synthetic nicotine (not derived from tobacco) in a compact, discrete format. The nicotine and synthetic nicotine-based disposable category faced significant pressure during the year ended December 31, 2023 due to increased competition from lower-priced Chinese products being sold direct to US retailers, as well as further shortening of product lifecycles, making it challenging to market effectively. Uncertainty regarding FDA's position on flavored nicotine products, specifically disposable vapes, continued to drive the market underground, creating significant challenges for brands like Charlie's that choose to adhere to state and Federal legislation. | |
| The decrease in sales for Charlie's hemp-derived products business declined due to regulatory challenges with specific product formulations as well as an intentional reallocation of resources to the launch of evergreen product categories such as SPREE BAR. During the second half of 2023, Charlie's made the strategic decision to contract the Company's hemp-derived products business and utilize working capital to fund development of Metatine and the SPREE BAR line of non-nicotine vapor products. | |
| Gross Profit: For the twelve months ended December 31, 2023, gross profit was $6.0 million, a decrease of $3.9 million, or 39%, compared with $10.0 million for the twelve months ended December 31, 2022. The resulting gross margin for the twelve months ended December 31, 2023 was 37.2%, compared with 37.8% for the twelve months ended December 31, 2022. Gross margin declined slightly due to lower overhead cost absorption resulting from reduced sales activity, as well as a decrease in the amount of shipping costs passed on to customers. | |
| Total Operating Expenses: For the twelve months ended Deember 31, 2023, total operating expenses, including general and administrative, sales and marketing and research and development costs, were $8.2 million, a decrease of $3.6 million, or 30%, compared with $11.8 million for the twelve months ended December 31, 2022. | |
| Operating Loss: For the twelve months ended December 31, 2023, operating loss was $2.2 million, an increase of $0.4 million, or 22%, compared with $1.8 million for the twelve months ended December 31, 2022. | |
| Net Loss: For the twelve months ended December 31, 2023, net loss was $2.1 million, an increase of $0.5 million, or 32%, compared with $1.6 million for the twelve months ended December 31, 2022. Of note, net loss for the twelve months ended December 31, 2023 included a $0.5 million gain in fair value of derivative liabilities and a $0.5 million interest expense, compared with $0.3 million gain in fair value of derivative liabilities and a $0.2 million interest expense for the twelve months ended December 31, 2022. | |
| EPS: For the twelve months ended December 31, 2023, diluted earnings loss per share was ($0.01), compared with diluted earnings loss per share of ($0.01), for the twelve months ended December 31, 2022. |
About Charlie's Holdings, Inc.
Charlie's Holdings, Inc. (OTCQB: CHUC) is an industry leader in the premium vapor products space. The Company's products are sold around the world to select distributors, specialty retailers, and third-party online resellers through subsidiary companies Charlie's Chalk Dust, LLC and Don Polly, LLC. Charlie's Chalk Dust, LLC has developed an extensive portfolio of brand styles, flavor profiles, and innovative product formats. Don Polly, LLC creates innovative hemp-derived products and brands.
For additional information, please visit Charlie's corporate website at: Chuc.com and the Company's branded online websites: CharliesChalkDust.com, Pacha.co, Pinweel.com and SPREEBAR.com.
Safe Harbor Statement
This press release contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements regarding the Company's overall business, existing and anticipated markets and expectations regarding future sales and expenses. Words such as "expect," "anticipate," "should," "believe," "target," "project," "goals," "estimate," "potential," "predict," "may," "will," "could," "intend," variations of these terms or the negative of these terms, and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond the Company's control. The Company's actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to: the Company's ongoing ability to quote its shares on the OTCQB; whether the Company will meet the requirements to uplist to a national securities exchange in the future; the Company's ability to successfully increase sales and enter new markets; whether the Company's PMTA's will be approved by the FDA, and the FDA's decisions with respect to the Company's future PMTA's; the Company's ability to manufacture and produce products for its customers; the Company's ability to formulate new products; the acceptance of existing and future products; the complexity, expense and time associated with compliance with government rules and regulations affecting nicotine, synthetic nicotine, and products containing cannabidiol; litigation risks from the use of the Company's products; risks of government regulations, including recent regulation of synthetic nicotine; the impact of competitive products; and the Company's ability to maintain and enhance its brand, as well as other risk factors included in the Company's most recent quarterly report on Form 10-Q, annual report on Form 10-K, and other SEC filings. These forward-looking statements are made as of the date of this press release and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Except as required by law, the Company undertakes no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events or changes in its expectations.
Investors Contact:
Phone: 949-570-0691
SOURCE: Charlie's Holdings, Inc.
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