Charlottes Web Hldgs Inc. (CWBHF) Q1 2021 Earnings Call Transcript

Charlottes Web Hldgs Inc. (CWBHF 4.22%)
Q1 2021 Earnings Call
May 11, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to the Charlotte's Web Holdings Inc. first-quarter conference call. [Operator instructions] I would now like to hand the conference over to your speaker today, Cory Pala, investor relations.

Please go ahead.

Cory Pala -- Investor Relations

Thank you, Megan. Good morning and thank you, everyone for joining us for our 2021 first-quarter earnings conference call for Charlotte's Web Holdings. My name is Cory Pala, director of investor relations. Leading the call today is Charlotte's Web's CEO, Deanie Elsner; and CFO, Russ Hammer.

The earnings press release, financial statements and our first quarter -- for our first quarter as well as our MD&A can be found on the investor relations of our website now, and these have all been filed on sedar.com. On today's call, Deanie will share some high-level comments on today's earnings results, an update on the business, and Russ will provide more detail around the financial results. We will take questions from our analysts at the end of the prepared remarks. A quick note to our analyst today that we will be closing the call about 10 minutes early today as we prepare for a presentation at our Toronto investor conference this morning that begins at 9:30 Eastern Time.

Please keep this in mind during the Q&A session as we will have a slightly shorter time than usual. 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 the call will also be available through the IR section of our website. As always, a reminder to our listeners that certain statements made on this 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 which could cause actual or future events or company performance to differ materially from implied expectations. Such risk surrounding forward-looking statements are all outlined in detail with the company's regulatory filings on sedar.com.

In addition, during the 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 will now hand over the call to Charlotte's Web's chief executive officer, Deanie Elsner.

Deanie Elsner -- Chief Executive Officer

Thanks, Cory. Good morning from Boulder, Colorado and thank you for joining our call this morning. As we closed out of the first quarter of 2021, three themes are beginning to emerge. First, there is a return of retail.

Second, the category is experiencing some competitive contraction. And third, within the category, there is a consumer demographic extension. Regarding the return to retail, closing out of Q1, we began experiencing a return to pre-pandemic category run rates in FDM coupled with strong improvements in the medical and natural channel run rates. Over the last year, the pandemic lockdowns had the biggest impact on takeaway in our bricks-and-mortar retail.

Q1 2021 B2B run rate continued to build on the recovery we experienced in the second half of 2020, driven by expanded distribution and improving sales velocities. Now with the pandemic winding down, B2B retail run rates which are further improving. Going forward with our development across channels, Charlotte's Web is best positioned to benefit from these improving trends. Emerging data indicates that the category is experiencing a competitive contraction.

The latest research from the Brightfield Group estimates that the CBD category has experienced more than a 20% reduction of competitors from a peak of about 3,500 last year. Most of this is occurring among the smallest players who simply cannot compete in this operating environment. Natural channel in market SPINS data indicates a 7% reduction in competitive brands in Q1 versus a year ago, which supports the anecdotal feedback we heard from our customers coming out of Q2 -- Q4 2020. In Q1, Charlotte's Web held the No.

1 market share position in both FDM and the natural channels, expanding our share leadership versus the nearest competitor. Going forward, Charlotte's Web is positioned to benefit from the ongoing competitive contraction. Finally, in terms of the consumer demographic extension, for the first time, the CBD category consumer base shifted to greater representation of millennials and Gen Z versus Gen X and baby boomers. This supports the data that the younger generations have been disproportionately impacted by the pandemic and are actively looking for solutions to improve their wellness.

According to the CDC, U.S. consumers experiencing anxiety or depression as of December 2020 increased four times versus pre-pandemic levels. As this trend plays out, Charlotte's Web is well positioned with this broad portfolio offer and channel development to benefit from this consumer demographic extension. Shifting to Q1 2021 results, Charlotte's Web Q1 revenue increased 9.1% versus a year ago to $23.4 million.

This net revenue growth was driven by both our DTC eCommerce channel, up 14.5% and our B2B channel, up 11% on a like-for-like basis, when excluding non-retail B2B hemp drying services. For Q1, DTC represented approximately 69% of our total revenue, while B2B represented about 31%. As the pandemic winds down this year, we are expecting B2B to continue a higher -- to contribute a higher percentage of total revenue. For the first quarter of 2021, DTC net revenue was up 14.5% versus a year ago.

This growth reflects a healthy performance for the DTC channel when considering the lapping of the pre-pandemic pantry build that occurred last year, driving higher than normal stock in sales. A more balanced analysis of year-on-year DTC performance suggests growth of about 20% or better for this channel, consistent with historical performance, which we are modeling for the 2021 full year. That said, the pandemic has likely brought a permanent shift in consumer behavior and our DTC channel can capitalize on the shift. DTC KPIs remained strong versus a year ago with traffic up 12%, conversion up 26% and subscription up 40%.

Average order volume was down 15% versus a year ago due to our product mix reflecting the impact of the younger consumers coming into our franchise through lower-priced products like gummies. In March, DTC delivered their third strongest overall sales month in over a year, which provides a good indication of how we expect the remainder of the year to unfold. Shifting to B2B channels. Consolidated B2B net revenue reported for Q1 was down slightly by 1.4% versus a year ago.

However, on a like-for-like comparative basis, adjusting for nonretail revenue and a onetime retailer pandemic return, our B2B sales were up 11% versus a year ago. This growth was driven by the strength of our medical channel business, new distribution channels and a significant improvement in our natural channel. The medical and natural channels are two of our biggest channels in the B2B business, as these channels return to more normalized run rates, our B2B business will continue to improve. We expect to achieve those more normalized run rates in Q2.

Two additional data points that confirm a return of retail growth. First, April sales for B2B were up 20% to 30% versus a year ago, depending on the channel. These growth rates are consistent with what we expect for growth in B2B for the balance of the year. Second, some FDM retail -- retailers and several new alternate channels are beginning to expand distribution in the CBD category.

We look forward to reporting on a more -- reporting on more of these successes in the coming months. Our B2B results are consistent with what we're seeing play out in terms of market share. In the first quarter, Charlotte's Web expanded market share leadership in both FDM and the natural channels. In FDM, Charlotte's Web market share was 34%, up 6 percentage points versus a year ago and 1.5 percentage points versus Q4.

Our FDM market share position is almost four times our closest competitor at 9%. In the natural channel, for the second quarter in a row, Charlotte's Web held the No. 1 market share position, expanding our share position incrementally versus the previous quarter. On a gross revenue basis, both our ingestible and topical segments grew in Q1 versus a year ago.

Total Q1 ingestibles gross revenue increased 11% versus a year ago, led by gummies up 102% versus a year ago, offset by declines in capsules, down 6%, and tinctures, down 15%. As the consumer demographics continue to extend, we expect to experience product mix -- product -- continued product mix shifts. Importantly, we plan to evolve our portfolio through innovation to reflect new formats to satisfy evolving consumer needs. Q1 topical growing revenues increased 263%, primarily due to the acquisition of Abacus, a market leader in CBD OTC topical products.

Topicals contributed 18% of total gross revenue compared to just 6% of gross revenue in Q1 of 2020. Looking forward, we expect topical sales to increase further becoming an even bigger part of our portfolio. Finally, with regard to the regulatory landscape, we believe regulatory oversight will come in one of two ways. First, the FDA continues its proactive data collection and investigation regarding hemp, CBD and other derivatives.

We continue to partner with the FDA to advance their learning, and we're optimistic that they are committed to establishing regulatory direction later this year. Second, from a legislative perspective, we're encouraged by the congressional legislative advances being made by the House of Representatives bill number 841, which would legislate hemp and these derivative products as dietary supplements. We understand that soon, the Senate will also be putting forward a bill in addition to and similar to H.R. 841.

This illustrates the support of both House and Senate to establish a legislative framework within which the FDA would regulate hemp and its derivatives. We look forward to the progress ahead. I will now turn the call over to Russ for an overview of our financial performance.

Russ Hammer -- Chief Financial Officer

Thank you, Deanie and good morning, everyone. Q1 revenue, Deanie spoke to Q1 sales already, so I won't repeat them. What I would add is that although we have not provided prior guidance for the first quarter, net revenue of $23.4 million was within our expectations. Q1 is seasonally our softest quarter of the year.

Turning to gross profit. Gross profit was 58.4% for the quarter, resulting in a gross profit of $13.7 million, which was $1.4 million lower and $15.1 million gross profit last year despite the higher revenue this year. Quarterly gross margin variations have primarily reflected product and channel mix during the respective quarters. Lower gross margin in Q1 was primarily due to a higher revenue contribution from our lower-margin gummy products.

We expect high sale contributions from our leading gummies line to continue in 2021 but with improving margins from manufacturing cost reduction plans later this year. In addition, we will strategically decrease overall COGS as our new production and distribution facility becomes fully operational with improved manufacturing efficiencies as volumes ramp up. For 2021, overall, we modeled forward consolidated gross margin to land within the low to mid-60s range, generally increasing through the year. Now turning to operating expenses.

Total opex for the first quarter was $24 million or up 2.9% from a year ago, but generating higher revenue, which was up 9.1%. We are pleased with this result. Our opex level also reflects the success of our expense reduction program that we implemented last quarter to reduce our opex by at least 10% from the Q3 2020 peak and bring our costs more in line with our pandemic impacted revenue levels. We have been well ahead of that plan, with our opex run rate down 15.2% in Q1 from our Q3 2020 run rate.

Through this initiative, we are forecasting more than $12 million annualized cost savings for 2021 from our high point Q3 2020. It is notable that we have been able to deliver these significant reduction despite this year's first quarter, having the additional operating expenses of both Abacus and CW Labs as well as our start-up investments in international markets added to our operating expenses versus Q1 of last year. Importantly, we've been able to reduce expenses without sacrificing the effectiveness of the overall business. We have achieved this through consolidation of facilities, a reduced headcount and increased operating efficiencies, including an approximate 20% workforce efficiency reduction while investing in our key strategic initiatives.

Operating loss after gross margin of $13.7 million and operating expenses of $24 million, we had an operating loss of $10.3 million for the quarter compared to a loss of $8.3 million a year ago. The increased operating loss is primarily related to the lower gross margin this year. We are modeling improved operating profit through 2021 during positive late second half of the year and ended 2022. Adjusted EBITDA.

Our Q1 adjusted EBITDA loss of $4.7 million was an improvement versus Q1 '20 adjusted EBITDA loss of $5.7 million. Now turning to capex spend. During the first quarter, our capex spend was approximately $1.6 million related to completing Phase 3 construction of our R&D production and distribution facility. As this facility comes fully online this year, we will be able to reduce some production cost and improve margins.

We have now completed the bulk of this investment, and therefore, related capex drops off significantly this year. For the full year, we have planned total capex investment to be between $8 million and $10 million, an approximate 70% reduction in capex spending from last year. We look forward to hosting an investor day to showcase the capabilities and efficiencies of our new manufacturing R&D, extracting and distribution facility in the second half as COVID vaccinations reach acceptable standards. Now, turning to cash and working capital.

Use of cash during the first quarter included $7.7 million in operations compared to $14.9 million in Q1 of last year. In addition, approximately $1.6 million was deployed for equipment toward completing the build-out of the company's new facility. The bulk of the balance of cash used was a strategic payment of $8 million cash for the option purchase agreement with the shareholders of Stanley Brothers USA cannabis business. Cash at the end of Q1 was $35 million.

In addition to this cash, we have a short-term IRS tax receivable of $10.8 million pending. Working capital stood at $95.6 million on March 31, 2021. We remain debt-free. We have an unused line of credit with JPMorgan, providing ample liquidity and believe that we are sufficiently capitalized to deliver on our plan.

For additional tools in our financial liquidity toolbox, we recently updated our shelf prospectus filing, which was expiring in April. As previously disclosed, we also intend to put in place an at-the-market equity distribution program, or ATM, as another prudent liquidity pool. We expect to file this in the coming week. With the strength of our balance sheet and improving cash flow expectation, we do not foresee any near-term intentions of raising capital.

In terms of financial guidance, we are not providing specific revenue estimates for the year due to the lack of economic visibility caused by the pandemic. However, our data is giving us an increasing optimism that there is light at the end of the COVID tunnel. Regions have been reopening again as vaccinations are increasing, and we currently expect that retail will continue to strengthen through the year, especially in the back half as distribution expansion increases. To summarize, as Deanie mentioned, March was the third strongest month over the past 12 months, with 25% growth over 2020, and this is in our seasonally softest quarter.

As the pandemic appears to be ebbing, retail growth is returning to our B2B business. And I can confirm that retail sales were noticeably higher in April, depending on the channel, up 20% to 30% year over year. Top 2021 growth ultimately manifest will be determined to a large degree, but a level of success in the rollout of vaccines and downward trend in the COVID infection. So far, what we are seeing has been very encouraging.

I will now turn the call back over to Deanie for her closing remarks.

Deanie Elsner -- Chief Executive Officer

Thanks, Russ. Over the last 15 months, we discuss our intent to expand our footprint with what is arguably the most recognized brand in the cannabis sector. Over the last six months, we've made moves to expand geographically and within the sector, which I want to highlight for you now. In December of 2020, we announced a strategic partnership with Canndoc, a division of InterCure in Israel.

Entering Israel with Canndoc was a strategically important decision for Charlotte's Web. Israel is one of the most advanced countries within the cannabis sector in terms of clinicals and research. In addition, InterCure has 100% distribution within every cannabis approved pharmacy in Israel with potential to access and distribute into Europe. We are closely monitoring the regulatory environment in Israel as we map our plans to strategically expand our portfolio footprint.

Last month, our proprietary cultivars were approved by Health Canada to be added to the list of approved cultivars. This was a critical first step in our expansion plans into Canada as current international laws do not allow for bulk importing of U.S. grown hemp CBD or related products into Canada. Hemp CBD wellness category is underdeveloped in Canada with limited offerings of quality full spectrum hemp extract products.

Most CBD products in Canada are produced from cannabis with THC levels well above 0.3%, which have an intoxicating effect. We believe that our patented full spectrum cultivars will be a competitively advantaged in Canada in the Canadian market because of our high-quality and consistent hemp extracts. We are employing an asset-light model approach to the Canadian market benefiting from a well-established but underutilized infrastructure. We are finalizing strategic partnerships for cultivation, extraction, production and distribution, and we expect to be planting next month.

Finally, in March, we disclosed our intent to enter cannabis -- the cannabis wellness space when we announced an option purchase agreement with the Stanley Brothers cannabis company, pending U.S. federal legalization. There is a significant activity happening at the state and federal levels, and we are keeping close pulse on how to legislatively resolve toward federal legalization. Between the Safe Banking Act, the States Act, the MORE act and the push for federal legalization, there is clearly momentum.

While it is unclear how quickly the landscape will shift in the U.S. We continue to consider various options in other countries where cannabis is federally legal, including Israel and Canada, where we have disclosed material for steps. We are positioned for both hemp CBD and cannabis wellness markets in these regions, employing an asset-light model through partnerships and leveraging our brand strength and proprietary genetics. We look forward to updating you on our progress on these long-term strategic initiatives throughout the year.

With that, I'll ask the operator to open the line for questions.

Questions & Answers:

Operator

[Operator instructions] Your first question is from Derek Dley with Canaccord Genuity. Your line is open.

Unknown speaker -- Canaccord Genuity -- Analyst

Hi. Good morning. Thanks for taking my question. It's actually Fulkit filling in for Derek.

Thanks for providing a lot of color on the gross margin. And I know you guys touched upon that a little bit and how you see it improving over the year. But I just wanted to see if you could provide some more color in terms of where do you think the product mix shifting or if you can provide us some more color regarding the SG&A part of it as well?

Deanie Elsner -- Chief Executive Officer

I'll kick off and then I'll let Russ get into the specifics. In terms of the category, as we mentioned in the prepared remarks, there's two areas we see the product mix shifting, having the biggest impact on our portfolio mix in the year. The first is into new forms of ingestibles, very specifically, gummies. That's coming as a result of the consumer demographic base moving more toward millennials and the Gen X, who have a propensity to go after more recognized formats.

And so ingestibles continues to grow, but that growth within ingestibles likely is going to continue to shift and continue to shift going forward into gummies. Second, historically, topicals has been the weakest part of our portfolio with sincerely a gap in our portfolio. The acquisition of Abacus last June enabled us to strengthen our portfolio in the topical segment, specifically now as we move forward into 2021, we will be looking to expand distribution on those topical products, both the Abacus products as well as the Charlotte's Web products into channels that they have not been represented in before, specifically, the natural channel and parts of food, drug, mass. And so there's real white space opportunity for us to continue to see topical -- our topical portfolio develop, and we expect both gummies and topicals to have the biggest product mix impact to our portfolio this year, driven specifically by channels and consumers.

Russ can speak specifically to numbers.

Russ Hammer -- Chief Financial Officer

Derek, I'll just add one thing to what Deanie said, and that is the product mix, the gummies that we mentioned, up 102%. We see that strengthening as we go forward, and that is our lower-margin product as it was shifting from tinctures and capsules. But we think that the volume growth is going to be tremendous in that area.

Unknown speaker -- Canaccord Genuity -- Analyst

That's very helpful. And then one more if I can. It would be regarding the return you guys mentioned for B2B vertical. Is there any more color you can provide us regarding it? That would be really great.

Thank you.

Deanie Elsner -- Chief Executive Officer

Absolutely. We're not going to provide specific channel growth rates specifically because we feel like that is competitively a bit sensitive. But I will say, as I mentioned in my prepared remarks, both the medical channel and the natural channel, which are two of our biggest channels in B2B are rebounding in an incredibly strong way. And so we would expect medical continue to be strong growth this year as we both build out the portfolio of the Abacus products in those channels as well as incrementally expand distribution behind innovation as well as we take a number of our new topical products into the natural channel.

We had to work a little bit on those topical products to ensure that the ingredient stream in topicals was acceptable to the natural channel. That has been completed. We're literally in the process of launching topicals into natural. Now, those two channels are really important because those two channels are channels where consumers are early adopters and/or highly influenced by the medical profession.

So having those channels grow disproportionately in our B2B business has a disproportionate impact to how B2B returns to the pre-pandemic growth levels, and that's what we're most excited about seeing. In terms of food, drug, mass, we are seeing retailers begin to open up to broader distribution opportunities in both the topical channels, but even in the beginning of the ingestible segment. And so for those reasons, we're feeling very good about the return to growth in B2B and feel like we're really well positioned with our portfolio development as well as our channel development to benefit in the most disproportionate way.

Unknown speaker -- Canaccord Genuity -- Analyst

That's excellent. Thank you so much.

Deanie Elsner -- Chief Executive Officer

Absolutely.

Operator

Your next question is from Gerald Pascarelli with Cowen. Your line is open.

Gerald Pascarelli -- Cowen and Company -- Analyst

Hi, thank you. Good morning, team. Thanks very much for taking the questions.

Russ Hammer -- Chief Financial Officer

Good morning, Gerald.

Gerald Pascarelli -- Cowen and Company -- Analyst

Good morning. So it's encouraging to hear that the market seems to be becoming less saturated. But that said, over the past few months, we have seen increased entry by some of the large Canadian operators into the U.S. CBD space.

We've seen some recent -- some more recent notable M&A. And so I guess, looking forward, as you assess the competitive backdrop from like a -- from some of these larger companies, just how are you thinking about protecting what is a market-leading position in the U.S.?

Deanie Elsner -- Chief Executive Officer

Absolutely. And Gerald, I think it goes back to classic consumer product good strategy. If you look at how this sector -- this total cannabis sector is developing, it's very consistent with what we see in consumer products goods. There are consumers that are segmenting out.

There are need states and conditions that consumers are shopping against. And as a brand and a portfolio of brands within this sector, our job is to position these brands to take advantage of the greatest growth opportunities. And so we do that by growing the brand by growing innovation as well as entering new adjacencies. In terms of brand strength, I think the market share is our largest and fastest indicator of how well our brand is being received by consumers.

To have a 34% share of the food, drug and mass channel is incredibly advantaged. To have that grow six points versus the previous Q1 of 2020 and expand that position versus Q4 indicates that we are disproportionately taking market share, and our brand is strong, and we're seeing that consistently played out in terms of awareness, conversion in terms of loyalty. So all of those brand health metrics are indicating brands matter, and we're winning that game. The second place is through innovation.

And you saw us just launch last month, new products that where we have a bit of a gap in our portfolio and not specifically the THC-free products. These are for consumers who don't want or cannot have any level of THC in their CBD wellness products. It took us a little bit of time to figure out the right way to develop the products that satisfy the needs of our consumers, but was consistent with the quality expectations we have for Charlotte's Web. That has now been launched and well received.

And we really see students, athletes as well as frontline workers taking advantage of that product. And I think the third is entering new adjacencies. And as we look at that, expanding in further into the medical channel as well as looking toward cannabis wellness, we know there's a lot of white space for us to enter. So from a brand standpoint, from a channel standpoint and portfolio, we're well positioned.

Beyond that, you differentiate on the science as well as protecting your patents so that you drive value in an advantaged way in the marketplace. And so all of those things are coming to fruition. If you saw our Q1 release this morning, we have expanded our patent protection on our genetics. We've defended trademark challenges on our brand trademark.

And we're continuing to advance our cultivation outside of the U.S. And so for all of those reasons, we're seeing a really nice return to B2B. And I think when it does return, we will disproportionately be advantaged.

Gerald Pascarelli -- Cowen and Company -- Analyst

Got it. Thank you, Deanie. That was super helpful. Next question is just on pricing.

So as you assess the competitive landscape, have you noticed that competitive pressures, competitive pricing pressures have subsided some kind of given your commentary that some of the smaller brands have been essentially removed from the market at this point. Is that a fair assessment?

Deanie Elsner -- Chief Executive Officer

Yeah, and I just will go to a comparative standpoint in terms of pricing. If you step back and take a look at Q1 2020. Our competitive price gaps across our portfolio versus the competition were well over 100%. Our products were well above 100% more expensive than the average price point across our channels.

Fast forward to our price gaps today and they're well within the GAAP range we need for us to drive the highest velocities. And in fact, we're seeing the velocity improvement happen as of August of last year. And so I'm really quite pleased about the progress we've made in managing the average price of our portfolio to a price gap that we know we can win in market across our channels. To your question directly, are we seeing the same competitive saturation and pressure on price that we were seeing in the last 12 months or potentially in the last 18 months.

The answer to that question is no. It's not as dramatic. For sure, it's still going to be there, although there is some reduction in the competitive landscape, it hasn't dropped in half. And so there are still competitors in the marketplace who are challenged in an operating environment, who will used price as the only differentiator to survive.

But we do not have that pressure that we had, and we're at a very comfortable place in terms of price gaps versus our competitive set.

Gerald Pascarelli -- Cowen and Company -- Analyst

Got it. Super helpful color. Thanks very much. I'll hop back in the queue.

Operator

Your next question is from Scott Fortune with ROTH Capital Partners. Your line is open.

Scott Fortune -- ROTH Capital Partners -- Analyst

Good morning and thanks for taking the call. Just want a little bit of follow-up of how much COVID has impacted sales trends and the foot traffic in 1Q, obviously, from that standpoint. And you're seeing it normalized. And when you say normalized pre, how quickly are we getting back to where we were with pre-robust for traffic pre-COVID kind of at what level do you expect that to kind of occur as vaccinations open up here in the U.S?

Deanie Elsner -- Chief Executive Officer

Yeah, it's a great question. So let's give you some data points we can respond to. Our reported B2B revenue in Q1 was down 1.4%. And so that was a disconnect for us, Scott.

Because as we looked at all of the brand health indicators, our market share, our awareness, our conversion, our loyalty, everything was up. So as we stripped it back, what we found was we had some non-retail drying revenue in our B2B numbers that was distorting our B2B numbers. So when you pull that out because it wasn't actual retail revenue, a like-for-like comparison of our retail in Q1 was up 11%. That's very consistent with the additional data KPIs that we're seeing in share awareness, conversion and loyalty.

And so that's a much more accurate reflection of our numbers. In fact, we've gone forward, and we've shared with you what we're seeing in the B2B channels as of April. And our April numbers across our channels are between a 20% and 30% up. Now that threshold, the category threshold for the pre-pandemic run rates in total B2B channels has now crossed over the impact of the pandemic from last year.

And so I can tell you, from a category standpoint, we've crossed over and we're beginning to hit the run rate. And I can tell you from a business standpoint, we've crossed over and we're hitting the run rates. And so I don't want to declare that pandemic is over and that things are immediately back to normal. But I will tell you, we're very encouraged by what we're seeing in the B2B channels.

Beyond that, our sales team has done a tremendous job in seeking out new channels for revenue beyond what we've reported on in the past. And we've had really nice success in those channels. And so we're quite encouraged by what we see in B2B to the point where we want to firmly declare that B2B as a percent of our business will be greater than it was last year and getting back to a normalized rate.

Scott Fortune -- ROTH Capital Partners -- Analyst

OK. I appreciate that color. Thank you. And then a follow-up for me is you mentioned kind of Abacus and the healthcare channel, the practitioner channel will open up as we reopen the country from that standpoint.

But any color on the Abacus products and selling online into your platform? And then also kind of a little bit of update on the pet side as far as growth opportunities there?

Deanie Elsner -- Chief Executive Officer

Yeah, absolutely. So let's step back on Abacus first. The biggest opportunity we had in the Abacus acquisition was in the healthcare practitioner channel. About 65% of their revenue was sold through the healthcare practitioner channel, that's an incredibly important channel because 50% of consumers who come into this category come in because their healthcare practitioner has recommended them to come in.

And so having the right portfolio, being able to partner with and influenced key opinion leaders is a big part of how we build our brand footprint in retail. So for sure, our biggest opportunity for Abacus continues to be in the healthcare practitioner channel, both in the business they've built as well as expanding that portfolio with new products and entering new segments. As you know, healthcare practitioners is a very big channel. So for sure, the No.

1 priority for us with Abacus is building out our footprint in the healthcare practitioner channel. The second biggest opportunity for us with Abacus is expanding it into our B2B retail channels, where to date, it has not held distribution. It's a really important product line as I mentioned, the Abacus product line is an over-the-counter topical CBD product line, and that sits in a very different place in retail. And so we are actively working toward expanding the distribution footprint for the Abacus products in the food, drug, mass channels, which include also a natural channel.

So medical and channel expansion in our B2B are the two biggest priorities we have on Abacus. You are right, eCommerce is a big opportunity and we will expand eCommerce as we target new consumer segments with OTC topical products. But by far, the biggest revenue opportunities are in medical and retail expansion on that product line.

Scott Fortune -- ROTH Capital Partners -- Analyst

Thank you. And real quick, the pet line, any color on the pet? Thank you.

Deanie Elsner -- Chief Executive Officer

Oh sorry. Sorry. Sorry. My -- I didn't -- my pen -- I'm out of ink and I didn't write that down.

So in terms of pet, we're seeing a really nice expansion in our pet line. That's coming online as well as food, drug, mass retailers who are beginning to expand their pet offering as well as specialty retail pet expansion. And so Q1, we lapped a big inventory build as we expanded our pet products in Q1, but our run rate in pet are encouraging. And you will see new products from our pet line being introduced in the back half of this year.

So we're excited about what pet brings to our portfolio and it continues to be an opportunity in a white space for us to enter.

Russ Hammer -- Chief Financial Officer

Scott, I'll just mention one thing. We have recently -- and it's in our filings. We have brought on Carli Lloyd, Captain of the U.S. Women's National Soccer Team as a CBD medic sponsor because she actually came to us, she used the product for over a year before she came to us and told us how she recovered from her injuries with it.

So I just wanted to share that as well.

Scott Fortune -- ROTH Capital Partners -- Analyst

OK. And you still have Gronkowski on board, correct?

Deanie Elsner -- Chief Executive Officer

We do. Gronk is active with our business, and we're in contact with him frequently. He uses our products. But because he's back in the NFL, we're unable to expand his voice as far as we would like to.

We'll wait to see how this season plays out and how his career ends up. But yes, we're actively involved with Gronk at this point.

Scott Fortune -- ROTH Capital Partners -- Analyst

Great. I appreciate. I'll jump back in the queue.

Operator

Your next question is from Pablo Zuanic with Cantor Fitzgerald. Your line is open.

Pablo Zuanic -- Cantor Fitzgerald -- Analyst

Thank you. Good morning. Two quick questions. One, can you give more color about your discussions with the FDM channel? I think you did mention you plan to expand there, but what are they telling you, are they waiting for the FDA or are some of them just moving forward, with our drugstores, mass merchandisers, supermarkets.

And the second question regarding bill 841. You talked about the bill version of it in the Senate. Is that a risk that the big bill for marijuana the Senate is working on takes presence over CBD or gets included in this marijuana bill or do you think that will just be a separate path for 841?

Deanie Elsner -- Chief Executive Officer

You're welcome, Pablo. So I'll tackle your first question -- or your second question first and then come back and give you some color or retail. From a legislative standpoint, absolutely, there is momentum building for cannabis across the country, and we're seeing a number of bills being introduced to improve the operating environment as well as potentially challenge the federal legality of cannabis. Cannabis versus CBD are two different ends of the spectrum.

CBD has already gone through the legalization standpoint. It's already pushed out the regulatory standpoint, and we're at the back end of the approval, waiting for final direction on regulations versus cannabis that is coming in and in the very early stages of legalization and building an operating landscape. And so yes, there is momentum shifting toward cannabis in terms of just the legislative process. On CBD, I really do believe, given our discussions with folks on the hill that the intention of the Senate and the House is to land the regulatory environment for CBD, why? Because it opens up an entire industry and sets the path for cannabis to follow going forward.

Cannabis will have to go through the same process of getting the regulatory environment locked up, proving the science and giving the FDA comfort that they have controls over the product they're putting into the marketplace. So I am not concerned that cannabis morphs and takes over CBD, I'm much more focused on clearing the final hurdle on CBD and then shifting our attention to how we evolve our portfolio to take advantage of the emerging cannabis wellness opportunity we see coming forward. In terms of the retail channel and a little bit more color in terms of retailers, we're not in a position today to comment on the retailers that are leaning a little bit further into the channel. But we are seeing, Pablo, across the board and across the country, a number of different retailers beginning to have interest in expanding their offer, both on shelves and across segments.

They have not shipped that buffer yet, but we are ready in ourselves to ship those offers. And I think what that indicates is, the date the FDA has not positioned themselves to regulate this category. A number of competitive retailers as well as companies are benefiting from the revenue opportunity this category provides and consumers want access to it. And so I think there will come a time if the FDA doesn't act, retailers will act and move forward.

And at this point, we're having those discussions, and we've got a number of those commitments and we will look forward to Q2 when we can share some of that news.

Pablo Zuanic -- Cantor Fitzgerald -- Analyst

Great. Thank you.

Russ Hammer -- Chief Financial Officer

Thanks, Pablo.

Operator

We have no further questions at this time. I'd like to turn the call back to Deanie Elsner for closing remarks.

Deanie Elsner -- Chief Executive Officer

That's good. I do thank you very much for taking the time this morning to join our call. I'm really looking forward to the year as it evolves. I'm looking forward to coming out of the pandemic, and I really thank my Charlotte's Web's colleagues for everything they've done to get us to this point.

We are exiting the pandemic as a stronger company than we entered the pandemic, and we're looking forward to an opening of the retail environment. So with that, thank you for your time and look forward to talking to you in the future.

Operator

[Operator signoff]

Duration: 44 minutes

Call participants:

Cory Pala -- Investor Relations

Deanie Elsner -- Chief Executive Officer

Russ Hammer -- Chief Financial Officer

Unknown speaker -- Canaccord Genuity -- Analyst

Gerald Pascarelli -- Cowen and Company -- Analyst

Scott Fortune -- ROTH Capital Partners -- Analyst

Pablo Zuanic -- Cantor Fitzgerald -- Analyst

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