Key Takeaways:
- BAT converted C$75.3M debenture plus US$10M new cash into 109.9M shares
- The tobacco giant now holds 40.6% of Charlotte's Web post-transaction
- Proceeds will fund participation in a Medicare CBD pilot program
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Charlotte's Web closes BAT deal, receives US$10M for 40.6% stake
British American Tobacco converted a C$75.3M debenture into a 40.6% stake in Charlotte's Web and invested an additional US$10M, closing a deal that eliminates the CBD company's largest debt liability.
"This transaction meaningfully strengthens our balance sheet and enhances our capital position," said Bill Morachnick, chief executive officer of Charlotte's Web. "With increased financial flexibility and a streamlined capital structure, we are better positioned to execute our growth strategy."
The conversion, at C$0.94 per share, covered the full C$75.3M principal plus C$14.2M in accrued interest, totaling C$89.6M (US$65M). BAT also subscribed for 14.7 million new shares in a concurrent private placement, bringing its total holdings to 109.9 million shares — or 40.6% of the 270.5 million shares outstanding after closing. The deal received 94% shareholder approval at the company's annual meeting on May 28, with 60.1% of eligible shares voted.
The transaction removes a debt overhang that had weighed on Charlotte's Web since 2022 and provides fresh capital to pursue a Medicare pilot program for CBD products — a potential regulatory gateway that could reshape the company's revenue base.
Debt Conversion and Capital Structure
BAT, through its subsidiary BT DE Investments Inc., first invested in Charlotte's Web in November 2022 via a C$75.3M convertible debenture. The amended conversion at C$0.94 per share — covering both principal and C$14.2M in accrued interest — eliminates the company's most significant debt obligation. The additional US$10M equity injection brings BAT's total commitment to roughly US$75M across debt and equity.
Charlotte's Web plans to deploy the US$10M cash proceeds toward the CMMI Medicare pilot program, which would allow eligible Medicare beneficiaries to access CBD products through physician consultation, subject to regulatory approvals. The program represents a potential inflection point for the company, which has reported improving cash flow trends as it reduced operating costs.
Strategic Context
The deal structure mirrors BAT's broader strategy of placing strategic bets in the cannabinoid space. The tobacco giant has made similar investments in Organigram Holdings, a Canadian cannabis producer, as it seeks exposure to next-generation wellness alternatives beyond traditional tobacco products.
For Charlotte's Web, the transaction simplifies a capital structure complicated by the convertible debenture's terms. The company, a Certified B Corporation based in Louisville, Colorado, has struggled to achieve consistent profitability amid a fragmented U.S. CBD market and federal regulatory uncertainty. The Medicare pilot pathway offers a potential channel to institutionalize CBD access through the healthcare system.
The closing remains subject to final approval from the Toronto Stock Exchange, though the company said it expects the transaction to be fully completed shortly.
This article is for informational purposes only and does not constitute investment advice.
[1] Charlotte's Web Announces Closing of Transaction with British American Tobacco, Including US$10 Million Investment[2] BAT unit to own 40.6% of Charlotte's Web after shareholder vote - Stock Titan[3] Charlotte's Web Reports Shareholder Meeting Voting Results - TMX Newsfile[4] [6-K] British American Tobacco p.l.c. Current Report (Foreign Issuer) - Stock Titan
