Charlie’s Holdings, Inc. (CHUC) 10-K Review: A Pivot to Zero-Nicotine and Regulatory Hurdles

Charlie’s Holdings, Inc. (OTCQB: CHUC), parent of Charlie’s Chalk Dust, LLC, is a California‐headquartered vapor products company with an ambitious mission: to become a market leader in both non‐combustible nicotine‐based vape products and alternative alkaloid (zero‐nicotine) vapes. Over the past decade, Charlie’s has built a portfolio that ranges from traditional synthetic nicotine disposables to innovative Metatine™‐based flavor pods. However, in 2024, the Company faced a confluence of headwinds—regulatory uncertainties, declining revenues, and cash constraints—that have tested its strategic resilience.

Warren.AI 💰 3.4 / 10

1. Business & Product Lines

A. Core Subsidiary: Charlie’s Chalk Dust, LLC (CCD)

• Formulates, markets, and distributes vape devices under brands such as Pacha, PACHAMAMA, and SBX.
• Partners with contract manufacturers in the U.S. (ISO Class 7 facilities for e‐liquids) and China (for disposables).

B. Product Categories

1. Alternative Alkaloid Vapes (SBX)

• Metatine™, a synthetic alkaloid analog that mimics nicotine’s sensory effect but is not derived from tobacco.
• SBX disposables feature 17–25K puff counts, three power modes, and digital displays.
• Regulatory Hedge: Not classified as a “tobacco product” by the FDA, exempting it from premarket review. Exempt from certain state flavor bans (e.g., New York).

1. Nicotine‐Based Disposables & E-Liquids

• 2 mL to 20 mL disposables under Pacha, PACHAMAMA, and SBX.
• Synthetic nicotine (“not derived from tobacco”) and tobacco‐derived nicotine formulations.
• PACHAMAMA Salts: Open system nicotine salts in 25 mg and 50 mg strengths in 10 mL to 100 mL bottles.

C. Don Polly, LLC – A consolidated variable interest entity, licensed by CCD to develop “alternative products.” The Company earns 100% of Don Polly’s net profits through licensing and service agreements.

2. Regulatory Environment & FDA PMTA Strategy

FDA Oversight: The 2016 Deeming Regulations expanded FDA authority over all e‐vapor products, requiring premarket tobacco applications (PMTA) by the September 2020 deadline.

• PMTA Investment: Charlie’s has invested over $6.5 million on more than 650 PMTAs, engaging doctors, scientists, and CROs.
• Market Reality: As of late 2024, the FDA has made determinations on over 27 million PMTAs but authorized fewer than three dozen non‐flavored products. No company has received FDA authorization for flavored disposable vapes.

Metatine™ Regulatory Hedge: To blunt PMTA risks, Charlie’s launched its SBX disposables in Q4 2024. Metatine‐based vapes are non‐tobacco/non‐nicotine and therefore not subject to FDA tobacco product regulations or flavor bans in many states.

Recent Wins: In March 2025, the FDA issued “Acceptance Filings” for 11 flavored Pacha disposables PMTAs, signaling active review and potentially favorable outcomes.

3. 2024 Financial Performance

All figures are in millions of USD, except per‐share data.

Metric	2024	2023	Change
Net Revenue	8.494	16.250	-47.7%
Gross Margin (Product)	34.0%	37.2%	-3.2 pts
Net Loss	(4.159)	(2.093)	+98.7%
Loss per Share
(Diluted)	(0.02)	(0.01)	–
Cash Used in Ops	(1.621)	(0.783)	–

Revenue Drivers:

• Sharp decline in Pacha disposable sales post‐FDA PMTA uncertainty.
• Lower demand for open‐system e-liquids and salt products amid regulatory noise.

Margin Compression:

• Lower fixed cost absorption on reduced volumes.
• Increased unit costs.

Operating Expenses:

• G&A down 18.0% ($1.25M) via executive salary cuts, headcount reductions, and cutbacks in professional and IT spend.
• R&D net credit of $0.07M in 2024 (vs. $0.17M expense in 2023) from vendor refunds and lower project outlays.

4. Balance Sheet & Liquidity

• Cash: $0.21M at December 31, 2024 (down from $0.37M).
• Working Capital Deficit: $(1.86)M vs. $(0.33)M.
• Total Debt (incl. related parties and receivables financing): $2.74M.
• Debt Highlights:
  • $1.4M of high‐cost notes (21% interest) to executives/shareholders in 2023.
  • $0.75M receivables financing program in September 2024.

Going Concern: Recurring operating losses, negative cash flows, and regulatory uncertainties raise substantial doubt about the Company’s ability to continue without new capital, profitable commercialization of SBX, or strategic partnerships/sales.

5. Recent and Subsequent Developments

• April 2025 Asset Sale: Charlie’s sold select flavored Pacha PMTA assets to R.J. Reynolds Vapor Company for $5M upfront + up to $4.2M earn-outs.
• FDA Milestone: 11 flavored PMTAs accepted for review in March 2025.
• Extended Financing: Various note extensions with related parties into 2026 on reduced interest rates (10%).
• Pinnacle Payoff: $1.25M paid in April 2025 to extinguish the receivables financing agreement (saved ~$100K).

6. Risks & Catalysts

Primary Risks:

1. Regulatory Risk: FDA Marketing Denial Orders (MDOs) or flavor bans could force product removals.
2. Going Concern Risk: Liquidity horizon is narrow; future viability depends on financing or revenue inflection.
3. Competition: "Big Tobacco" and deep‐pocket startups compete aggressively in dispensable and regulated segments.
4. FDA PMTA Uncertainty: Despite massive investment, outcomes remain unpredictable for flavored disposables.

Potential Catalysts:

• Full FDA marketing orders on Pacha flavored disposables.
• Commercial success of SBX Metatine disposables in convenience chains (no FDA gate).
• Earn-out payments from R.J. Reynolds asset sale.
• New strategic licensing of PMTA portfolio.

7. Investment Outlook & Score

Stronger

• Innovative Metatine™ franchise potentially escapes FDA oversight entirely.
• PMTA asset portfolio could yield licensing or sale value exceeding current market cap.
• Strategic partnership with R.J. Reynolds validates intellectual property.

Weaker

• Continued cash burn, $2 million+ cash outflows at current burn rates.
• High‐cost debt to insiders and receivables financing increases interest burden.
• FDA PMTA uncertainty remains high for flavored nicotine products.

Investment Score: 3.4 out of 10.
The enterprise is navigating a high‐risk regulatory maze with limited liquidity. While the Metatine™ strategy represents an imaginative regulatory hedge and PMTA assets may hold significant value, current cash constraints and sustained losses make CHUC a speculative opportunity, best suited for investors with a high tolerance for regulatory and execution risk.