Charlotte Web : Quarterly Report - CWBHF Q3-2021 Management Discussion and Analysis

CHARLOTTE'S WEB HOLDINGS, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021

(Expressed in United States dollars)

INTRODUCTION

For the three and nine months ended September 30, 2021.

For purposes of this discussion, "Charlotte's Web," "CW," "we," or the "Company" refers to Charlotte's Web Holdings, Inc. and its subsidiaries: Charlotte's Web, Inc. and Abacus Products, Inc. ("Abacus"), and its wholly owned subsidiaries.

This management's discussion and analysis of financial condition and results of operations ("MD&A") is provided as of November 15, 2021 and should be read together with the Company's Unaudited Interim Condensed Consolidated Financial Statements and the accompanying notes for the three and nine months ended September 30, 2021 and the audited Consolidated Financial Statements and the accompanying notes for the year ended December 31, 2020. The results reported herein have been prepared in accordance with International Financial Reporting Standards ("IFRS") and, unless otherwise noted, are expressed in United States dollars.

Additional information relating to the Company, including the Company's Annual Information Form ("AIF"), can be found on SEDAR at www.sedar.com.

The Company determined that, as of June 30, 2021, more than 50% of the Company's issued and outstanding voting shares were directly or indirectly owned of record by residents in the United States. As a result of this fact and certain other requirements under applicable United States federal securities laws, the Company determined that it will lose its foreign private issuer status under applicable United States federal securities laws and will be subject to Securities and Exchange Commission ("SEC") reporting requirements applicable to U.S. domestic companies beginning on January 4, 2022. These U.S. reporting requirements will require, among other things, the Company's financial statements and financial data to be presented under U.S. Generally Accepted Accounting Principles ("US GAAP") following this transition period. After becoming an SEC reporting issuer, the manner in which the Company raises capital will be different and will likely require that the Company file registration statements with the SEC related to such activities, which will likely increase the time and expense associated with such activities.

On November 5, 2021, the Company filed a Form 10 with the United States Securities and Exchange Commission in order to register the Company's common shares pursuant to section 12(g) of the Securities Exchange Act of 1934.

FORWARD-LOOKING STATEMENTS

In the interest of providing the shareholders and potential investors of Charlotte's Web Holdings, Inc. with information about the Company, including management's assessment of the Company's future plans and operations, certain information provided in this MD&A constitutes forward-looking statements or information (collectively, "forward-looking statements"). Forward-looking statements are typically identified by words such as "may", "will", "should", "could", "anticipate", "expect", "project", "estimate", "forecast", "plan", "intend", "target", "believe" and similar words suggesting future outcomes or statements regarding an outlook. Although these forward-looking statements are based on assumptions the Company considers to be reasonable based on the information available on the date such statements are made, such statements are not guarantees of future performance and readers are cautioned against placing undue reliance on forward-looking statements. By their nature, these statements involve a variety of assumptions, known and unknown risks and uncertainties, and other factors which may cause actual results, levels of activity, and achievements to differ materially from those expressed or implied by such statements. The forward-looking statements contained in this MD&A are based on certain assumptions and analysis by management of the Company ("Management") in light of its experience and perception of historical trends, current conditions and expected future development and other factors that it believes are appropriate.

Specifically, this MD&A contains forward-looking statements relating to, but not limited to: potential capacity expansion for production, extraction, R&D and distribution; national and international expansion activities and strategy; capacity expansion and transition to a CPG operating company capable of supporting mass retail channel growth; the impact of certain activities on the Company's business and financial condition; customer acquisition and retention; suggested regulatory developments; possible equity and debt financing; the Company's anticipated trajectory, long-term growth expectations and shareholder value creation; R&D activities, including potential clinical trials; and product expansion, including into cannabis wellness where federally permissible.

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The material factors and assumptions used to develop the forward-looking statements herein include, but are not limited to, the following: (i) the impact of the COVID-19 pandemic; (ii) the legislative and regulatory climate in which the Company currently operates and may in the future operate; (iii) the continued sales success of the Company's products; (iv) the continued success of sales and marketing activities; (v) the Company's ability to complete the conversion or buildout of its facilities on time and on budget; (vi) there will be no significant delays in the development and commercialization of the Company's products; (vii) the Company will continue to maintain sufficient and effective production and research and development capabilities to compete on the attributes and cost of its products; (viii) the Company's ability to deal with adverse growing conditions (due to pests, disease, fungus, climate or other factors) in a timely and cost-effective manner; (ix) there will be no significant reduction in the availability of qualified and cost-effective human resources; (x) new products will continue to be added to the Company's portfolio; (xi) demand for the Company's products will grow in the foreseeable future; (xii) there will be no significant barriers to the acceptance of the Company's products in the market; (xiii) the Company will be able to maintain compliance with applicable contractual and regulatory obligations and requirements; (xiv) there will be adequate liquidity available to the Company to carry out its operations; and (xv) products do not develop that would render the Company's current and future product offerings undesirable and the Company is otherwise able to minimize the impact of competition and keep pace with changing consumer preferences.

The Company's forward-looking statements are subject to risks and uncertainties pertaining to, among other things, the adverse impact of the COVID-19 pandemic to the Company's operations, supply chain, distribution chain, and to the broader market for the Company's products, revenue fluctuations, nature of government legislation and regulations (both domestic and foreign), economic conditions, loss of key customers, retention and availability of executive talent, competing products, common share price volatility, loss of proprietary information, product acceptance, internet and system infrastructure functionality, information technology security, cash available to fund operations, crop risk, availability of capital, international and political considerations, the successful integration of acquired businesses, regulatory changes, and including but not limited to those risks and uncertainties discussed under the heading "Risks and Uncertainties" in this MD&A, the AIF, and the Company's other filings with securities regulators. The impact of any one risk, uncertainty, or factor on a particular forward- looking statement is not determinable with certainty as these are interdependent, and the Company's future course of action depends on Management's assessment of all information available at the relevant time. Except to the extent required by law, the Company assumes no obligation to publicly update or revise any forward-looking statements made in this MD&A, whether as a result of new information, future events, or otherwise. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on the Company's behalf, are expressly qualified in their entirety by these cautionary statements.

BUSINESS OVERVIEW

Charlotte's Web Holdings, Inc., a Certified B Corp headquartered in Denver, Colorado, is a market leader in innovative hemp extract wellness products under a family of brands which includes Charlotte's Web™, CBD Medic™, CBD Clinic™, and Harmony Hemp™. Charlotte's Web branded premium quality products start with proprietary hemp genetics that are 100% American farm grown and manufactured into hemp extracts containing naturally occurring phytocannabinoids including CBD, cannabichromene (CBC), cannabigerol (CBG), cannabinol (CBN), terpenes, flavonoids and other beneficial hemp compounds. The Company's CW Labs R&D science division is located at the University at Buffalo in New York which is part of the State University of New York (SUNY) system of 64 universities. Charlotte's Web product categories include full spectrum hemp extract oil tinctures (liquid products), gummies (sleep, stress, immunity, exercise recovery), capsules, CBD topical creams and lotions, as well as products for pets. Charlotte's Web products are distributed to more than 14,000 retail outlets and 8,000 health care practitioners, and online through the Company's website at www.CharlottesWeb.com.

The Company's primary products are made from high quality and proprietary strains of whole-plant hemp extracts containing a full spectrum of phytocannabinoids, terpenes, flavonoids and other hemp compounds. The Company believes the presence of these various compounds work synergistically to heighten the effects of the products,

making them superior to single-compound isolates.

Hemp extracts are produced from Hemp. The Company is engaged in research involving the effectiveness of a broad variety of compounds derived from Hemp. Where such research evidences that a higher than 0.3% THC

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formulation enhances the efficacy of a product, or necessitates a new product, the Company may consider expanding its product portfolio in jurisdictions where it is legal to do so and where consistent with the Company's founding principles.

The Company does not currently produce or sell medicinal or recreational marijuana. On March 2, 2021, Charlotte's Web entered into an option purchase agreement (the "SBH Purchase Option"), pursuant to which the Company has the option to acquire Stanley Brothers USA Holdings, Inc. ("Stanley Brothers USA"), a Cannabis wellness incubator. Until the SBH Purchase Option is exercised, both Charlotte's Web and Stanley Brothers USA will continue to operate as standalone entities in the US. Internationally, the companies are able to explore opportunities where Cannabis is federally permissible.

As noted above, the Company's current product categories include tinctures (liquid product), capsules, gummies, pet, and topical products. The Company's products are distributed through its e-commerce website, third-party e- commerce websites, select distributors, health practitioners, and a variety of brick-and-mortar specialty retailers.

The Company grows its proprietary hemp on farms leased in northeastern Colorado and sources high quality hemp through contract farming operations in Kentucky and Oregon.

The Company continues to invest in research and development ("R&D") efforts to identify new product opportunities. Management is working to expand the Company's production capacity, sales and marketing infrastructure, and to find opportunities for continuous improvement in the supply chain and proactively define the competitive landscape. The Company is working to capitalize on the rapidly emerging botanical wellness products industry by driving customer acquisition and retention, as well as accelerating national and international retail expansion. In addition, the Company may consider expanding its product line beyond Hemp-based products should the science and the Company's founding principles support such expansion.

In furtherance of the Company's R&D efforts, the Company has established CW Labs, an internal division for R&D, to substantially expand the Company's efforts around the science of hemp derived compounds. CW Labs aims to support the Company's product portfolio with science-based innovation (including studies on safety, effectiveness, and efficacy) while advancing clinical trials. CW Labs is currently engaged in double-blind,placebo-controlled human clinical trials addressing hemp-based solutions for several need states. CW Labs is located in Louisville, Colorado at the Company's production and distribution facility and the Hauptmann Woodward Research Institute on the campus of the University at Buffalo's Jacobs School of Medicine and The Center for Integrated Global Biomedical Sciences through which it fosters collaborations throughout the State University of New York network of 64 national and international research and medical institutions. In November 2019, the Company announced a collaboration between CW Labs and the University at Buffalo's Center for Integrated Global Biomedical Sciences to advance hemp cannabinoid science through a research program that provides a better understanding of the therapeutic uses and safety of cannabinoids.

FACTORS AFFECTING THE COMPANY'S PERFORMANCE

The Company's performance and future success depends on a number of factors. These factors are also subject to several inherent risks and challenges, some of which are discussed below and referred to under "Risks and Uncertainties."

The COVID-19 Pandemic

The COVID-19 pandemic continues to disrupt global economic conditions, financial markets, supply chains, and business operations. Global equity markets have experienced significant volatility and uncertainty, and governments and central banks have reacted to the pandemic with significant monetary and fiscal interventions designed to stabilize economic conditions. Notwithstanding widespread vaccine availability within the United States, the emergence of COVID-19 variants and slowing vaccination rates in certain localities has resulted in increased infection rates and several jurisdictions resuming certain COVID-19 restrictions.

The COVID-19 pandemic has influenced and may continue to influence consumer spending behavior and retail operations. If the impacts of the COVID-19 pandemic persist, or if consumer demand for the Company's products

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lags, the Company could experience declines in financial performance and, if deemed to be more than temporary, could trigger asset impairment.

On September 9, 2021, in an effort to prevent the spread of COVID-19 and the highly contagious Delta variant, President Biden announced executive orders that included a mandate for private-sector businesses with 100 or more employees to require COVID-19 vaccination or weekly testing as soon as the Occupational Safety and Health Administration ("OSHA") issues its Emergence Temporary Standard ("ETS"). As of the date hereof, the OSHA has yet to deliver its ETS. The Company is monitoring the status of the ETS and will review it upon release to understand and comply with any legal obligations. The Company endeavors to ensure that current health and safety protocols in place across the Company's facilities remain in compliance with applicable local, state and federal guidelines.

Management continues to closely monitor and react to the impact of the global pandemic on the Company, with a focus on ensuring the health and safety of employees, business continuity and supporting our communities. Management has implemented various preventative measures that aim to limit disruption to the Company's operations, production and supply chains, while maintaining full operations and internal controls over financial reporting and disclosures.

As the Company reintegrates its personnel to its workplace, it may incur additional costs to adapt the workplace to meet applicable health and safety requirements. The occurrence of additional waves of the virus or its variants, or insufficient vaccination levels may require the Company to revise or delay such integration plans. To the extent that it is unable to effectively protect its workforce against the transmission of the virus, the Company may be forced to slow or reverse its reintegration efforts and could face allegations of liability.

Due to the speed with which the COVID-19 variant situation is evolving and the uncertainty of its duration, it is not possible to fully estimate the short and long-term impact on the Company's business, operations or financial results; however, the impact could be material. The Company continues to monitor the situation and work with its stakeholders in order to assess further possible implications to its business, supply chain and customers, and, where practicable, mitigate adverse consequences and responsible address this global pandemic.

See also "Risks and Uncertainties - Impacts of COVID-19 to the Company's Business" below.

Branding

The Company's well recognized brand, Charlotte's Web, along with its acquired CBD Clinic™, CBDMedic™, and Harmony Hemp™ brands, are built around consumer trust with a focus on quality. Maintaining and growing the Company's brand appeal domestically and internationally is critical to its continued success.

Regulation

The Company is subject to the local, state, and federal laws in the jurisdictions in which it operates. Outside of the United States, the Company's products may be subject to tariffs, treaties and various trade agreements as well as laws affecting the importation of consumer goods and the retail sale of hemp-derived products. The 2018 Farm Bill became law on December 20, 2018. The 2018 Farm Bill removed hemp from the list of controlled substances under the Controlled Substances Act. The 2018 Farm Bill also redefined hemp to include its "derivatives, extracts, and cannabinoids", and accordingly removed popular hemp products, such as hemp-derived CBD from the purview of the U.S. Drug Enforcement Agency (the "DEA").

Although the DEA no longer regulates hemp, the U.S. Food and Drug Administration ("FDA") retains its authority to regulate ingestible and topical products, including those that contain hemp and hemp extract constituents such as CBD. FDA regulations govern manufacturing and marketing of food and dietary supplements. These include regulations for food facility registration; current good manufacturing practice ("cGMPs") regulations; nutrition and allergen labeling and label claim regulations; rules for submission of received serious adverse event reports; and safety requirements, including, as applicable, new dietary ingredient ("NDI") and generally recognized as safe ("GRAS") regulations.

Shortly after the 2018 Farm Bill was signed into law, the FDA issued a statement by former Commissioner Dr. Scott Gottlieb on the agency's regulation of products containing cannabis and cannabis-derivedcompounds, in which the FDA confirmed its authority to regulate ingestible and topical products, including those that contain hemp and hemp extracts constituents such as CBD.The FDA has also stated its concerns over drug claims being made about

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