Charlottes Web Hldgs Inc. (CWBHF) Q4 2020 Earnings Call Transcript

Charlottes Web Hldgs Inc. (CWBHF -3.23%)
Q4 2020 Earnings Call
Mar 25, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Charlotte's Web Holdings Inc. fourth-quarter conference call. [Operator instructions] I would now like to hand the conference over to your speaker today, Mr. Cory Pala, director of investor relations for Charlotte's Web.

Cory Pala -- Director of Investor Relations

Thank you, Deborah. Good morning, and thank you for joining us for our 2020 fourth-quarter and year-end earnings conference call for Charlotte's Web Holdings. My name is Cory Pala, director of investor relations and leading the call this morning is Charlotte's Web's CEO, Deanie Elsner; and CFO, Russ Hammer. The earnings press release, financial statements for our fourth quarter and year-end as well as our MD&A can be found in the investor relations section of our website, and these have also been filed on sedar.com.

On today's call, Deanie will share some high-level comments on today's earnings results with an update on the business. Russ will provide further details around the financial results. Following the financial review, we will also provide some color around our recent announcement of a purchase option agreement to acquire Stanley Brothers Cannabis Wellness business, the rationale behind the strategic move and the value that this added optionality brings to Charlotte's Web in the future. We will take your questions from the analysts at the end of our prepared remarks.

A replay of this call will be available through the next week, accessible for the details provided in our earnings release. A webcast replay of this call will also be available for an extended period of time, accessible through the IR section on our website. A reminder to our listeners, certain statements made on the call, including some answers, we may provide, certain questions may include content that is forward-looking in nature and, therefore, subject to risks and uncertainties and factors, which could cause actual future results or company's performance to differ materially from implied expectations. Such risks surrounding forward-looking statements are all outlined in detail within the company's regulatory filings on SEDAR.

In addition, during this call, we will refer to supplemental non-IFRS accounting measures, including adjusted EBITDA, which do not have any standardized meaning prescribed by IFRS. Adjusted EBITDA is therefore defined in our press release as well as our MD&A as filed on SEDAR. With that, I'll now hand over the call to Charlotte's Web, chief executive officer, Deanie Elsner.

Deanie Elsner -- Chief Executive Officer

Good morning from Boulder, Colorado and thank you for joining the call this morning. Before I begin, I want to express our condolences to the families of the victims of Boulder shooting three days ago. A tragedy like this impacts us all, our hearts go out to the families of the victims killed as well as to the family of heroic police officer, Eric Talley, who lost his life in the line of duty. This event occurred about 1 mile from our head office, so it hit close to home.

Looking back, Charlotte's Web entered 2020 with plans to address two distinct headwinds: an undefined regulatory environment forcing FDM customers to pullback on distribution commitments; and second, a resulting competitive overcrowding with a tenfold increase in CBD brands. We were presented with a third unexpected headwind as the pandemic took hold. To mitigate these compounding factors, we took action to rethink and reprioritize our business. To address the regulatory uncertainty, we took three specific actions.

We launched our CW Labs division in February, designed to lead our research, clinical and science to address the need for data from the FDA. Second, we filled the gap in our topicals portfolio with the launch of seven new Charlotte's Web topical SKUs in addition to completing the acquisition of Abacus Health to improve our competitive position in the important topical segment. Third, we participated in third-party quantitative liver health study conducted by ValidCare. This study protocol was designed with feedback from the FDA to support their request to provide data on product and consumer safety.

To address the retail competitive crowding, we announced a 15% average price deal realignment across our portfolio in March, passing on cultivation and supply chain cost savings to improve our competitive price gaps on shelf. This action successfully drove increased unit volumes and sales velocities in the second half of 2020. As the pandemic forced the closure of retailers and healthcare practitioners, many consumers transitioned to online shopping, which was actioned by doubling down on our leading e-commerce business, investing in the platform and in marketing programs to be where the consumers were. Our results demonstrate that we took appropriate actions to drive return to year on year and quarter-on-quarter growth in the second half of 2020, finishing the year strong.

Now, turning to our Q4 results. Q4 net revenue increased 17.9% versus one year ago, delivering total net revenue of $26.9 million. This net revenue growth was driven by both our DTC and e-commerce and B2B businesses. Versus Q3 2020, total net revenue increased 7% on a quarter-over-quarter basis.

For Q4, DTC represented approximately 65% of our net revenue, while B2B represented about 35% of our net revenue. In Q4, our DTC business increased 21.2% versus one year ago and 4.2% versus Q3. Our shift to double down on DTC paid off when we review our KPIs. Customer acquisition was up 74% versus one year ago.

Repeat purchases up 51% versus one year ago. Conversion rate up 84% versus one year ago. Total subscriptions up 64% versus one year ago. For the full-year 2020, DTC net sales increased 27.6% versus 2019, representing 67% of total revenue.

Shifting to our B2B business, total B2B net revenue increased 12.4% versus one year ago and was up 11.8% versus Q3. This increase was driven primarily by the food, drug and mass channel and the healthcare practitioner channel. Q4 marked the strongest quarter of the year for our FDM channel. And for the first time in our history, Charlotte's Web became the market share leader in both the FDM channel and in the natural channel.

In addition, on a consolidated basis, Charlotte's Web ended Q4 with the No. 1 market share in topicals in the FDM channel. In terms of our B2B distribution and reach, in Q4, we added approximately 1,100 new FDM retail doors and approximately 100 independent pet stores. For the full-year 2020, Charlotte's Web expanded our B2B channel footprint from 10,000 doors to more than 22,000 doors.

With this leading distribution coverage, Charlotte's Web is well positioned to benefit as the pandemic eases and regulatory guidelines get established. For the full-year 2020, B2B net sales decreased 29.5% versus 2019, representing 33% of our total revenue. This decline is primarily due to the pandemic, which had the greatest impact on retail and healthcare practitioners. On a gross revenue basis, in Q4, both our ingestible and topical segments grew versus a year ago.

Total Q4 ingestibles gross revenue increased 6%, driven by gummies up 15%, capsules up 19% and tinctures up 1%. Total Q4 topical gross revenues increased 32%. We are especially pleased with the increase in our consumer momentum for topicals in the back half. Our new topical expansion combined with the Abacus acquisition resulted in topicals contributing 21% of total gross revenue compared to just 7% of gross revenue in Q4 2020.

These results validate our strategic decision to acquire Abacus Health. Looking forward, we expect topical sales to increase further to become a bigger part of our portfolio. Going forward, science will play an even larger role in the regulation of this category. We advanced the science in 2020 through the launch of CW Labs and a partnership with the University of Buffalo with an assuming network of 64 universities in New York.

CW Labs recently announced a scientific collaboration researching hemp CBD efficacy with Harvard Medical School's Dr. Staci Gruber. CW Labs also participated in a health -- in the liver health study with ValidCare. On Tuesday of this week, we announced that the results of the study demonstrated no sign of CBD causing liver disease or toxicity in study participants who use products for at least 60 days.

This provides a significant amount of science-based data from a large population using oral CBD products to show a lack of toxicity, liver disease or other adverse events. This safety information was made available to the FDA and ultimately will be published in a peer-reviewed journal in Q2. Finally, Charlotte's Web was recently awarded utility patents for three of its cultivars, bringing the total number of patented cultivars to five. Every hemp cultivar has a unique genetic fingerprint, patenting our genetics allows us to protect cultivars to ensure we can reliably duplicate consistent and uniform end products around the world for consumers who rely on them.

With regard to regulatory, we contributed to the reintroduction of Federal Bill H.R.841, the Hemp and Hemp-derived CBD Consumer Protection and Market Stabilization Act. H.R.841 legislates hemp derivative products as dietary supplements, which would fall under the purview of FDA. H.R.841 was submitted with bipartisan support and we're optimistic that we will see actionable regulation results this year, which would stabilize the hemp sector and related U.S. agriculture in an important time for the country's economic recovery.

So to summarize, Charlotte's Web entered 2020 as the world's leading hemp wellness company with the strongest infrastructure in the sector. We had several headwinds to address. And by the close of 2020, we demonstrated how we are outperforming our peers and are managing our business to win long term. Our position is clear.

We have the most recognized and trusted brand with the No. 1 position in awareness and loyalty. We're the market share leader across our channels. We own our vertically integrated supply chain, which provides us low-cost advantage, safety, transparency and traceability.

We have the largest B2B retail distribution reach and the largest e-commerce platform generating robust consumer data. We have proprietary patented genetics that deliver quality and consistency, further supported by the liver safety study results published by ValidCare this week, and our brands are backed by science, clinicals and research led by CW Labs. So despite a challenging year, we took action and we outperformed most of our competitive set. We expanded our footprint, gained market share and further strengthened our brand metrics.

I will now turn the call over to Russ for an overview of our financial performance, after which, I will speak to some of our growth plans to address the broader sector. Russ?

Russ Hammer -- Chief Financial Officer

Thank you, Deanie and good morning, everyone. We certainly appreciate you joining us this morning. Our Q4 and 12-month financial statements and the management discussion and analysis have been filed on SEDAR. I trust you've had a chance to review along with this morning's Q4 earnings press release.

Fourth-quarter net revenue of $26.9 million continued our important return to consecutive quarterly growth of 7% over Q3 revenue of $25.2 million. The important takeaway is to return to quarter-on-quarter growth following the declining sales due to COVID in the quarters leading into the second half of the year and the all-important pivot back to quarterly growth. The return to quarter-on-quarter growth reflects both macro and microeconomic factors. On the macro side, we've seen significant culling of smaller competitors in the segment but we do not expect will return.

We have seen this across a range of competitors from big to small. The ebb and flow of the pandemic impact has also been a factor at retail. We saw recovery in the back half of 2020, which resulted in a quarter-on-quarter growth in our retail and healthcare practitioner channels as B2B and HCP channels began reopening during Q3 and the distributor orders increased. This was mitigated, however, somewhat in December as regional lockdowns restarted and reduced some of the distributor pull.

Regions have been reopening again as vaccinations are increasing, so we are fairly optimistic going forward. We currently expect that retail will continue to strengthen through the year. We are no longer able to accurately break out Abacus-specific P&L following its full integration into the Charlotte's Web family business, but we can confirm that net revenue from the acquired product line continued to grow quarter over quarter as before. We are very pleased with the integration and continued progress in the Abacus healthcare practitioner channel that was hit so hard by the pandemic in the first part of 2020.

Since the pandemic began, retail sales declines have been mostly offset by our strong DTC growth. Our Q4 DTC sales were up 41% year over year. Our DTC business has been a consistent performer. This was further driven by the pandemic as consumers transition to online purchasing of our products.

Gross profit, excluding inventory provisions, was 62.2% for the quarter compared to 52% last year and 57.4% in Q3. Gross profit fluctuations each quarter primarily reflect product and channel mix. So we model forward consolidated gross profit to generally land within the low to mid 60s range. Provisions of $5.8 million taken in the fourth quarter reduced gross profit and were larger than we would typically expect.

These were primarily related to a minor portion of contract grown biomass that did not meet Charlotte's Web's strict specifications. Our No. 1 priority is quality and consistency of our product, keeping in mind that thousands of Charlotte's use our products on a daily basis. In this area, we leave no room for error.

The extraordinary provision taken in Q4 resulted in net gross profit of 40.6%. This does not reflect our true ongoing gross profit, which we expect to be in the 60% to 65% ranges. In support of our gross profit, our COGS are designed to decrease as our new production distribution facility becomes fully operational in the first half of 2021 and we expect significant efficiencies from our capabilities investment this year as volumes ramp up. Now turning to opex and cost controls.

In our Q3 earnings report and conference call last November, we shared our goal to bring our opex run rate down by at least 10%. We took actions to better align operating expenses with lower revenue levels due to the pandemic and have been immediately successful with our expense optimization program in the fourth quarter. We reduced opex from $28.3 million in quarter 3 to $23.6 million in the fourth quarter. This represents a 16.6% reduction on a quarter-over-quarter basis and a 10.4% reduction year over year.

We are aiming for more than $12 million annualized savings in 2021. This has been achieved through the consolidation of facilities, a reduced headcount, and increased operating efficiencies. I also would like to point out that the year-over-year reduction of 10.4% was achieved despite the addition of Abacus and CW Labs to our operating expenses in this Q4 period. I commend all of our Charlotte's Web team for their respective cost management effectiveness in this area.

With lower operating expenses and increased revenue, we have delivered an improving trend of opex as a percent of revenue since Q2 last year from 136% in Q2, reduced by 48 percentage points to 88% for Q4. Adjusted EBITDA loss in Q4 was $2.1 million, a significant quarter-over-quarter improvement from Q3 negative adjusted EBITDA of $6.7 million and a year-on-year improvement from adjusted EBITDA loss of $10.1 million in the fourth quarter of 2019. This improvement is a reflection of the aforementioned expense optimization program combined with higher revenue. Capex spend during the fourth quarter was $5.9 million, primarily related to completing construction of our new operational R&D production and distribution facility.

We expect total capex investment for 2021 to be between $8 million and $10 million. This is a significant year-over-year reduction. Cash and working capital. Cash at the end of Q4 was $52.8 million with working capital of $113.6 million.

In the quarter, we utilized capital for purchases of equipment for the build-out of the company's expanded production and distribution facility. As we have now completed a bulk of our strategic investments, capex drops off significantly this year in 2021. We remain debt-free and have an unused line of credit with J.P. Morgan, providing ample liquidity.

We also have $11.4 million of income tax receivables from the IRS who are delayed with refunds due to the pandemic, but expect to effectively add this to our cash position as well. We also maintained a shelf prospectus filing as part of a prudent liquidity toolbox for efficient access to capital through an equity financing in the event of attractive market dynamics. This shelf prospectus filing expires in April, so we intend to update the filing in the coming weeks to keep it current and maintain this optionality. We also intend to put in place an at-the-market equity distribution program or ATM as a prudent and cost-effective capital access and liquidity tool.

We previously disclosed this intention last year. However, with the strength of our balance sheet and improving cash flow, we do not have any near-term intention of raising capital. In terms of the outlook and financial guidance, we are not providing revenue guidance numbers for 2021 at this time. As to mention, that Brightfield Group for 2021 forecast growth for the sector of 29.3%.

The magnitude of growth this year will be affected by the level of success in the rollout of vaccines as well as possible congressional and regulatory moves. We hope to provide visibility in our Q1 earnings report in May. I'll now turn the call back over to Deanie for her closing remarks.

Deanie Elsner -- Chief Executive Officer

Thanks, Russ. Earlier, I spoke about managing our business for the long term. Our intent is to expand our market share leadership in the CBD category by filling gaps in our portfolio and expanding our footprint internationally. In addition, we plan to increase shareholder value by positioning our company to enter adjacencies in the sector where we have a right to win.

I'll speak briefly to how we're approaching each of these areas. In terms of new products, we will selectively launch high-quality, competitively priced product offerings into each channel where we have adapted in our portfolio. For example, recently, we announced the launch of our THC free offering to address consumers that do not want or cannot have THC. Through a unique extraction process, this product line maintains a broad spectrum of cannabinoids and terpene to deliver the wellness benefits of CBD without the THC.

And later this year, we'll be transitioning our product lines to certified organic. This has also been a big consumer push as they desire organic products to produce in a regenerative way with transparency, and we are expecting us to deliver. In December, we announced an exclusive distribution agreement in Israel with InterCure, owner of Canndoc, one of Israel's largest and most established medical cannabis producers. This marked a first public step in our international strategy.

There are a few important markets that we are targeting as the regulatory environments evolve. Our objective is to provide high-quality consistent products around the world. We're encouraged by what's happening in Israel and chose a partner that has tremendous scale and access because we believe the CBD market is on the cusp of fully launching there. We are also exploring distribution into Greater Europe and possible manufacturing with Europe and Israel.

In the coming months, we will share with you our plans to support our international expansion strategy for '21 and 2022. Finally, this month, we announced that we have secured future optionality to enter the cannabis wellness space in the U.S. through an option purchase agreement to acquire the Stanley Brothers USA Cannabis Wellness Company following U.S. Federal legalization of cannabis.

Stanley Brothers Holdings is a multistate cannabis wellness incubator and innovator with sales in Colorado, California and Florida with expansion under way in eight additional states. The Stanley Brothers pioneered cannabis wellness with the same heritage and philosophy that drove the success of the Charlotte's Web brand. This provides Charlotte's Web strategic optionality in a fast-moving U.S. legislative environment.

Both companies will operate as stand-alone entities in the U.S. until the option is exercised, but we will explore international opportunities where cannabis is federally permissible. We view cannabis wellness as the space in the sector between full spectrum hemp through CBD and low dose THC. Charlotte's Web is arguably the most recognized brand in the sector globally, and it is a market share leader in CBD.

We have a right to win in cannabis wellness and by expanding our brand equity and extending our consumer reach, this is a strategic move that increases our total available market by two times to three times driving shareholder value. This is a move in the right direction that reinforces our long-term destination that begins to frame the space in cannabis wellness. With that, I'll ask the operator to open up the call to questions.

Questions & Answers:

Operator

[Operator instructions]

Cory Pala -- Director of Investor Relations

Deborah, this is Cory Pala. I'm monitoring the Q&A fleet here and I don't see anybody registering. However, I could see that all of our analyst are on the line. This would suggest there is a technical issue here.

I don't know if that's fixable from your side.

Operator

I only handle the audio portion of the call.

Cory Pala -- Director of Investor Relations

Unless you can move them into directly into our feed, I don't think that's -- this going to work yet. Unfortunately. Looks like we have a technical look challenge right.

Deanie Elsner -- Chief Executive Officer

So that's gonna put the onus on us to have the direct ones so that we can get out some of these questions. Is there any way to see...

Cory Pala -- Director of Investor Relations

Hold on. They just populated. They just populated. OK, they're all in now.

Deborah, let's go ahead.

Operator

We have Gerald Pascarelli with Cowen.

Gerald Pascarelli -- Cowen & Company -- Analyst

Hey, team. Can you hear me?

Deanie Elsner -- Chief Executive Officer

We can.

Russ Hammer -- Chief Financial Officer

Good morning, Gerald.

Gerald Pascarelli -- Cowen & Company -- Analyst

Good morning. Good morning. Thanks very much for taking the questions. So I look at the retail numbers, and I think double-digit quarter-on-quarter growth certainly came in better than maybe my going in expectations given the second wave of COVID cases that really took form in November and in December, which is encouraging.

I guess, two-part question. First, do you have any idea how much COVID impacted your trends in 4Q? And then as a follow-up, as we're almost through the first quarter, any color you can provide on how your top-line progressed from January through March, I think would be helpful in this environment? Thank you.

Deanie Elsner -- Chief Executive Officer

Absolutely. Unfortunately, I can't give you a perspective on how COVID impacted our Q4. I will tell you that coming off of Q3 we saw a decent momentum going into Q4. And as the lockdowns post-Thanksgiving began to be reinstituted, we saw a little bit of a slowdown in B2B.

And that kind of is how it played out on the quarter. And so I think Charlotte's Web is quite advantaged in that we've got a multitude of different channels to push and pull on when one channel goes down, we have the opportunity to shift and drive harder in other channel. I think that is, in large part, how we were able to keep our Q4 results where they were. And so that's the level of optionality I'm quite excited about.

In terms of Q1, Q1 historically has been -- Q4 is usually the peak of the CBD category in terms of seasonality. So Q1 tends to come off a little bit. But we're continuing to see the foot traffic and the consumption happening in Q1. The data is a little murky.

We can't see it completely because it lagged so far back. But from what we can see, we have a belief that we will continue to perform at a level that we're pretty excited about and have the opportunity to do more. So that's where we've got so far. Q1 e-commerce traffic, I think, remains decently strong and B2B appears to be returning.

The natural channel, specifically in B2B is a little slower on the return. We lost a number of natural retailers with the pandemic. And so I would expect to see those numbers return probably about mid-summer in terms of full traffic.

Gerald Pascarelli -- Cowen & Company -- Analyst

Got it. Thanks Deanie. That's super helpful. Next question is just on pricing.

Obviously, you took the 15% price cut. The commentary seems favorable that there's ultimately a -- there seems to be a shake out with some of the smaller competitors. So through that lens, can you just provide your outlook on the competitive environment as it relates to pricing? And then how comfortable you are with your gaps today? I think would be helpful.

Deanie Elsner -- Chief Executive Officer

Absolutely. So in terms of pricing, we took a pricing action across our portfolio in the way of the price deal realignment, which enabled us to reallocate our trade dollars and pass along savings from our supply chain and in that way we were able to fund the pricing. Now when we took that pricing action, our price gap versus our competitive set was over 100%. So we were really quite premium priced in the marketplace.

That price deal realignment enabled us to get our price gaps work within a much more comfortable range that we feel like our products justified the premium upcharge. That pricing action took place at the end of March. And we began to see the sales velocities very specifically in the B2B channels about mid-August, they were pulled over in about mid-August, during the pandemic is when we saw them come through. At that point, we saw unit velocities pop up quite favorably as well as our total sales velocities.

So it took that long to see it come through in B2B. That pricing action depresses our top-line by about 15% list price adjustment, but it did help result in us reestablishing our double-digit growth in both of our channels. So it was the right action. We're now in a really comfortable price gap that is something we feel like we can command.

And it will continue to be something that we launch as we go forward very closely. In terms of the marketplace and the impact of that price gap had on the broader category, we're definitely seeing a culling of the market in 2020. Our competitive set at the peak last year was about 3,500 brands. Our numbers would indicate that there's about less than 2,500 brands in the marketplace today.

We see a lot of the small brands dropping out. And the larger companies are starting -- that were starting to dabble on the outskirts of this category, have paused their efforts. So the culling has had taken place. We are seeing continued heavily fragmented consolidation of the leaders.

And here are some amazing numbers. In the food, drug and mass channel, there's 115 different competitors competing today. Seven of them represent 65% of the retail sales in the latest four weeks. And so as these smaller players drop out, you're going to see even more momentum shift to those bigger players.

In natural, the numbers are even more compelling and natural is about 306 different competitors on any given day. And five competitors generate about half of the sales. And so we think that we're going to continue through the rest of this year, see a culling of these brands and a fall-off of companies that can't sustain the marketplace. And then, of course, the category growth will explode as FDA lands a regulatory environment and FDM is reestablished as kind of a powerhouse set of channels.

And so that's how pricing went, that's how we're seeing the market play out. And we are really looking forward to seeing the FDA eventually land this regulatory environment.

Gerald Pascarelli -- Cowen & Company -- Analyst

That's very helpful color. Thanks very much. I'll pass it on.

Deanie Elsner -- Chief Executive Officer

You bet.

Operator

The next question comes from the line of Scott Fortune with ROTH Capital Partner.

Scott Fortune -- ROTH Capital Partners -- Analyst

Good morning and thanks for the questions. Deanie, as you mentioned, you saw 2020 year like consolidation with COVID on the sales side and competition. But you've been busy adding to your supply chain distribution kind of the new categories of pet, topicals and practitioner channels to 22,000 doors. But can you provide a little more color on the next legs of growth and how are you looking at the global market, the strategy there? Where are you at on novel foods kind of certification and the potential revenue opportunity in the international side, looking at more of an asset-light model internationally and just more of a 2022 story? Just kind of help us understand that a little bit clear -- closer, that would be great.

Deanie Elsner -- Chief Executive Officer

Absolutely. Happy to do so. So in terms of the white space opportunity or where do we see growth? If you look domestically, it's really going to be around managing our portfolio gaps. Specifically, I mentioned THC-free organic and also expanding out platforms where we see real consumer stickiness.

And obviously, for us, that's gummies -- not to pun on the word, but gummies are a tremendous platform for us, and you'll see us do more there. And domestically, we'll also go after new conditions, mainly topicals uniquely targeting consumer conditions, new forms, depending on those conditions, the best way to deliver CBD to consumers. And then new consumer segments, whether that's a new offer, new brand and a new channel. So that's kind of what's happening domestically.

You are absolutely right. We are looking at international and in order for us to look at international, we've got to be highly aware and engaged in the regulatory environment, it takes to compete in these different countries. And so we've been very, very involved in what's happening both in the UK and in Europe as well as Israel and Canada, looking at the regulatory environment to ensure that we've got the right applications and the right path forward to participate in those categories. I won't speak too much about that, Scott, because this is all still quite proprietary for us.

And I don't want to overshare but we are -- our intent is to be international. Our intent is to be where the category is, and our intent is to be the market share leader in those categories. And so you mentioned an asset-light model. I think what's key for us is that we lead with our cultivation.

Our genetics are incredibly important to us, and we've got to ensure that we maintain consistency all the way through the system. And so cultivation would be the key but you're right, we won't be building a vertically integrated supply chain in every country we compete in because the market is more establishing, we're able to do it in more of an asset-light way.

Scott Fortune -- ROTH Capital Partners -- Analyst

That's great. Appreciate the color. And then just a follow-up on the ValidCare data, the recap there, right? The FDA was looking for data around liver toxicity and such, and that came back very positive. Kind of help frame the next step for the FDA now that they have, this data is being submitted to them.

And any updates on Congress. Congress is pushing forward with the SAFE banking, it seems, which will help out the CBD industry. But your sense of this being a priority for Congress to kind of move this -- accelerate this forward for guidelines and regulations?

Deanie Elsner -- Chief Executive Officer

Yeah. I think it's definitely a priority for Congress to move this forward. And I think it's why there's such strong bipartisan support of H.R.841. We are on the back leg of getting the regulatory environment established for the CBD category.

And as you know, between the SAFE Act, the STATES Act and the MORE Act, there's a lot of energy coming forward with cannabis legislation. And so our objective is to help push the legislative action through Congress so that we can push the FDA to take a stand on the regulatory environment and begin to enforce. I think we're quite excited about what's ahead of us as the FDA lands regulatory, but in full transparency. The Farm Bill Act of December 2018 legalize the agriculture of CBD and hemp.

But it really left far more stranded because it didn't open up the distribution path that put consumers at risk because it forced them to be the person managing their own safety. And it challenged manufacturers because of lacked federal pre-emption. So we really need Congress to go back and clean up the tail of the law they've established so that the FDA can focus on regulating the environment. And I think when that happens, that's when you're going to see the explosion of this category open up and consumers have access to products and brands they want.

Until then, we will continue to push on every parameter we can that help the FDA with data and push legislative forward and continue to operate across our channels where we can have the biggest impact.

Scott Fortune -- ROTH Capital Partners -- Analyst

Thank you. Appreciate the color and I will pass it on.

Deanie Elsner -- Chief Executive Officer

Good. Thank you.

Russ Hammer -- Chief Financial Officer

Thanks, Scott.

Operator

Next question is from Derek Dley with Canaccord Genuity.

Derek Dley -- Canaccord Genuity -- Analyst

Yeah. Hi, thanks. Deanie, just wondering you provided in those comments saying you got a No. 1 market share in a few different categories.

Can you provide some just more color around that? Like what is No. 1 market share? Is it 20%? Is it 15%? Any context there will be helpful.

Deanie Elsner -- Chief Executive Officer

Yeah, absolutely. And when you look at the market share -- and again, I'm going to say this, Derek, taking all this with a grain of salt because the data is not especially strong despite the fact that there's really good companies trying to read the data. But if you look at Q4, our total combined market share, in Q4, was about 34% in the food, drug and mass channel. If you shift that over to the natural channel, that was something more in the area of about 14% to 15%.

And so natural is a much more saturated channel. It's a channel that we've been unable to compete with a broad topical selection, which clearly we're going to fix this year. But despite that, given what we have done in the last year, we've now moved into the No. 1 share position in channel -- in natural.

So you're right. The numbers are quite as big. Right now, our share position in natural is about 1.5 points higher than our nearest competitors. Whereas, in the food, drug and mass channel, the share versus our competitors is in the 18 to 20 point range.

Now again take that with a grain of salt because the data is relatively -- the data is relatively projected out, and we just -- we're looking at it every four weeks and trying to get a handle on it, but we're finally at a position where we feel like the data is stable enough to start sharing, and we're quite pleased with the position we're in. And we know the products we're about to launch into these channels and so we feel like that position will continue for the remainder of this year.

Derek Dley -- Canaccord Genuity -- Analyst

That's great. Appreciate the color there. Just a question on inventory. How do you feel about your inventory position heading into the rest of 2021? And I guess, what are the plans for -- are there plans for a new crop to be planted this year? How are you guys thinking about that?

Russ Hammer -- Chief Financial Officer

Yes. Derek, hey, it's Russ. We feel pretty confident in our inventory levels as we're going into 2021, and we do not have a need for a big grow. We will have some R&D type grow but that will be most of what we have because we have enough biomass and extract on hand for our '21 demand.

Deanie Elsner -- Chief Executive Officer

So -- and just to point out, we did grow in 2020 Derek and I think we've talked about this in the past, but it was really quite selectively growing. So instead of doing a broad cultivation grow in 2020 because as Russ mentioned, we're in a good position from an inventory standpoint, and we feel like we'll be in a position where we can take advantage of if there's a near-term injection of growth of say, the FDA lands, we'll be in a position where we can support that. But our 2020 cultivation really focused on new cannabinoids. And so we planted more R&D cultivation to start building our CBG cannabinoid profile as well as some other minor cannabinoids that we have interest in translating through to new products.

And so for us, our inventories are solid on biomass. Our inventories are solid on extract, are ready to support any large growth that might be ahead of us. And now we're starting to pivot out to other minor cannabinoids that we have interest in driving new products behind. And I think that's the right profile for us because I think we're in a position where we can lead innovation and we can lead news in the marketplace.

And we certainly have the institutions who are interested in researching all of this further. And so we're in a good position and one that I think is enviable in the market as we look at new products.

Derek Dley -- Canaccord Genuity -- Analyst

OK, great. Thank you very much.

Operator

And your next question comes from Jason Zandberg with PF Financial -- I'm sorry, PI Financial.

Jason Zandberg -- PF Financial -- Analyst

Thanks. Just a question about Israel, if I could. Could you provide an update on that -- the regulatory framework in Israel? And sort of what your expectations are for this -- your five year partnership with Canndoc in terms of when you think that could hit some meaningful numbers? I know it's a little bit of a crystal ball question, but any hints there would be helpful.

Russ Hammer -- Chief Financial Officer

Just a little.

Deanie Elsner -- Chief Executive Officer

It's a little bit of a crystal ball question, but I'll do my best. Israel is a good move for us, but not just because of the business. Israel is a good strategic move for us. And so if you know a lot about this category, Israel legalized medical cannabis almost 40 years or 50 years ago.

So in terms of Israelis being the furthest ahead in terms of research and the medicinal properties of this plant, they are, by far, the country that's the furthest ahead in that space. And so we're excited to begin to partner with some of the thought leaders and institutions researching this. The second leg for us in Israel is truly from a brand standpoint, Israel, although a small country, gives us an opportunity to further infiltrate that country with Charlotte's level and got consumers there who are looking for this product. And so we see there's an opportunity to walk in with our product.

But I think the last part of this is partnership, the strategic partnership with InterCure and Canndoc. As you know, Canndoc is expanding across the world. And so they're a partner that provides us optionality across countries outside of Israel to potentially partner and/or penetrate other countries. And we feel like that is the right profile.

And I think Gerald mentioned the asset-light model, maybe it was Derek, answered a question, the asset-light model. Outside of the U.S. if we're able to establish cultivation, we have a line of sight to how we can get our products available in the marketplace. And so for us, building the right strategic partnerships that can help us scale different countries on the international front is an important leg for us.

Canndoc for us is that in addition to Israel being a country where we think there's going to be some real synergies between CW Labs and the depth of research and knowledge in this category. And so for us, that's why Israel becomes so important and a pivot point for us. We will explore cultivation and/or manufacturing in Israel, specifically. Certainly, our profile puts us in a place where we potentially consider a lot of options in terms of growing business, both from a branded and non-brand standpoint, and we're evaluating all that, but watching the legalization of this category very closely.

We believe that by the back half of this year Israel will crossover this regulatory challenge, and we'll see CBD opening up. But if we don't, we think this partnership still has tremendous strategic value for us.

Jason Zandberg -- PF Financial -- Analyst

OK. That's great. And maybe another question just closer to home on the domestic pet food or the pet product market. Just can you talk about sort of sales momentum in that segment in Q4 and sort of what your expectations are moving forward into 2021?

Deanie Elsner -- Chief Executive Officer

Absolutely. So in 2020, pet was a channel that saw a number of retail closures due to the pandemic. And so we ended Q1 of last year. Building distribution in pet and then we had a number of retailers who closed in Q2.

And so the momentum just began to pick up in Q3 and Q4. So we are lapping in the first half of this year distribution expansion in that channel. We've got a lot of energy for pet. We're actually seeing consumers come into our franchise, having used our CBD product for their pets.

There's no placebo effect when you see how your dog calms down by using some of our products. And so we will continue to invest in pet. We've got some new products coming out of the back half of this year. And we're excited about the opportunity this lends to us in terms of a consumer group, pet owners, but also more broadly, as it helps influence consumers into our franchise.

So it will continue to be a place that we will focus. We think that the right certifications in pet is really important. And so we are putting science behind this so that we are ensuring that what we put it out in the marketplace is, in fact, safe. And I think that's a bit of a differentiator for us in this category, but that will continue to be an area of focus for us, and we anticipate to see decent growth there this year.

Jason Zandberg -- PF Financial -- Analyst

OK, great. Thanks very much.

Deanie Elsner -- Chief Executive Officer

You bet.

Operator

The next question comes from Michael Lavery with Piper Sandler.

Jeff Kratky -- Piper Sandler -- Analyst

Hi. This is Jeff Kratky on for Michael. Thanks for taking the question.

Deanie Elsner -- Chief Executive Officer

Absolutely.

Jeff Kratky -- Piper Sandler -- Analyst

Just looking at B2B, I know COVID was an impact and the pricing action had more of a benefit to velocities in the second half. But given the big increase in 2020 distribution, you have a decrease in year-over-year sales in B2B. Could you help us understand that dynamic? And if there's any risk of losing distribution in places where velocities have fallen?

Deanie Elsner -- Chief Executive Officer

It's a great question, Jeff. So let me just -- let me help you understand why the data is a little bit murky because I think you're right, the data is murky. So first, we took a price deal realignment on our portfolio for B2B starting in -- at the end of March, early April. That means our list prices decreased by 15%.

It was a bit of a self-inflicted reduction on our top line, but an important one for us as we reestablished the appropriate competitive price gap. So that's one piece of the thought we've got to work through. The other piece of the thought is we acquired Abacus Health, almost 70% of Abacus Health's revenue is going through the healthcare practitioner channel. So that healthcare practitioner channel saw significant closures in Q2 and early Q3.

So it was a part of the channel buy and that just really didn't generate a lot of revenue in the period. And then coming out, if there's a slower ramp coming out as outlets in the healthcare practitioners channel began to open. So that's the other murky part of the environment. I think the third murky part of the environment is our distribution expansion plans were slowed a little bit as retailers committed but didn't actually pull the trigger on distribution until Q4, although were able to achieve it.

And so the numbers look a little bit like a disconnect because while we did expand doors, we didn't get the full-year benefit of all of those doors. And I think that's why you're seeing the momentum in Q3 and Q4 and B2B begin to ramp up. If you look at us versus our competitive sets, while we're down 29.5% in B2B versus one year ago, if you look at our numbers versus our competitive set, we're actually significantly outperforming competitors who are in the same channel. And so those initiatives that we've put in place are, in fact, helping to improve our revenue, but due to the store closures and, I think, much lower traffic during the obvious pandemic, we're not seeing the full benefit.

We will see B2B to be better this year as we're lapping that, and we expect the vast majority of those fog filters to lift in 2021 as we begin to get into Q2.

Jeff Kratky -- Piper Sandler -- Analyst

Got it. That makes a lot of sense. Thank you. And then just a quick follow-up.

The Stanley Brothers announcement was very exciting. How should we expect your strategy to evolve over time from just pure hemp-derived CBD to more cannabis wellness broadly, and how much of a push should we expect just in higher THC products over time?

Deanie Elsner -- Chief Executive Officer

The interesting thing about the cannabis market is we keep putting a very high number on that market. And depending on the outlook that you read, this market is going to be $60 million, $70 million, $80 million or $100 million big and I believe that it's going to be that big. But for whatever reason, we keep thinking that entire market is recreational. The truth of the matter is the cannabis sector will become a consumer products good company.

And in doing so, it will be segmented by different consumers with different needs. As you look at that, the total available market for recreational THC is something well below the numbers that we've all read. What I get excited about is the continuum from full spectrum hemp extract, which is really low THC below 0.3 and high CBD to that grade ground up to medical cannabis. I don't have the exact products because we're in development as we speak.

But we believe we've got a true right to win in that condition-based cannabis wellness environment that is above 0.3 THC, but well below the intoxicating levels of recreational or directly medical cannabis. And so for us, when we map that space out, today in the U.S., the CBD sector is anticipated to be about a $13 billion to $20 billion category over the next three to four years. When we map out the space, we believe our brands can compete with in the cannabis wellness sector. It increases our total available market to something closer to $30 billion to $40 billion.

So without doing much beyond what we're doing today, but just getting to better products that have higher levels of efficaciousness with slightly higher levels of THC, we're able to expand our total available market by two times to three times. That's just within our company. And so what we get excited about is the option purchase agreement with the Stanley Brothers enables us to expand our footprint into segments that we have a right to win and then partner with the Stanleys who tend to be a little bit more in that social, what I would call, social lubricant stage of the cannabis market. That gives us a really good and great footprint to compete within with brands that consumers trust and brands that they recognize.

And I think as the CPG category begins to defend in cannabis, you're going to see brand become more and more important and trust and safety and quality become the key parameters around where consumers make decisions. So we like the opportunity very much. We will prepare ourselves for the legalization of cannabis in the U.S. but outside the U.S.

where it is federally permissible, we will begin to explore these opportunities and incubate, if you will, the strategy that we'll be pursuing in the U.S. So excited about what's ahead of us.

Jeff Kratky -- Piper Sandler -- Analyst

Great. Thank you so much.

Deanie Elsner -- Chief Executive Officer

Absolutely.

Operator

[Operator instructions] We have no questions in queue at this time. Management, would you like to go with closing remarks at this time?

Deanie Elsner -- Chief Executive Officer

Absolutely. I'll make this quick, guys. I really appreciate -- I know there's a lot of calls this morning. Really appreciate you participating and asking your questions and look forward to reporting next to you on our first-quarter results on May 11.

So thank you for taking the time, thank you for the questions and I look forward to speaking to you again soon.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Cory Pala -- Director of Investor Relations

Deanie Elsner -- Chief Executive Officer

Russ Hammer -- Chief Financial Officer

Gerald Pascarelli -- Cowen & Company -- Analyst

Scott Fortune -- ROTH Capital Partners -- Analyst

Derek Dley -- Canaccord Genuity -- Analyst

Jason Zandberg -- PF Financial -- Analyst

Jeff Kratky -- Piper Sandler -- Analyst

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