Operator Good morning. Welcome to the cbdMD Third Quarter Fiscal 2019 Earnings Call and Update. This afternoon, the company issued a press release that provided an overview of its third quarter results, which followed the filings of its quarterly report on Form 10-Q. Today’s conference is being recorded and will be available online at the cbdmd.com in accordance with cbdMD's retention policy. All participants on this call will be in listen-only mode. The call will be followed by a question-and-answer session. At this time, I would now like to turn the conference over to Mark Elliott, Chief Financial Officer. Mark, please proceed.

Thank you, Cynthia and thank you all for joining the cbdMD third quarter fiscal 2019 earnings conference call. On the call today, we also have our Chairman and Co-CEO, Marty Sumichrast, our Co-CEO Scott Coffman, and our President, Caryn Dunayer. Following the Safe Harbor statement, Marty will provide an overview, of our business and then I will provide a summary of the quarterly financial results. Caryn will go into further details about our brand and marketing and sales efforts and strategies and then Scott will then wrap things up and provide revenue guidance that we issued with today's earnings announcement. Following that we will open the call up for questions. We’d like to remind everyone that various remarks about future expectations, plans and prospects constitute forward-looking statements for purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. cbdMD cautions that these forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated, including risks described in the Company’s filings with the SEC which can be reviewed on the company's website at www.cbdmd.com or on the SEC's website at www.sec.com. Any forward-looking statements made on this conference call speak only as of today’s date, Wednesday, August 14, 2019, and cbdMD does not intend to update any of these forward-looking statements to reflect events or circumstances that would occur after today’s date. With that, I’d like to turn the call over to Chairman and CEO, Marty Sumichrast. Marty?

Mark, thank you very much and thanks to everybody who's listening in on the call this afternoon. Before I get the results from the last quarter, let me take a minute and review our history so that the recent accomplishments can be put into some perspective. It was only seven months ago, on December 21 2018 that the company purchased Charlotte based cure based development, which is the owner and operator of the cbdMD brand. In just a short period of time we've integrated operations, rebranded the company on the NYSE American exchange, and grew the company in both sales and infrastructure far beyond our initial expectations so much that we felt the need to update our future expectations and growth and provide revenue guidance for the next five quarters, something Scott will be talking about in a few minutes. Our mission is singularly focused and that mission is to grow cbdMD into one of the most successful cbdMD brands in the U.S. Now let's review our most recent results. On a GAAP basis our total net sales for the June quarter were $8.44 million which was up 42% from our March quarter. While we don't include our financials from cbdMD's prior sales from the December acquisition based on the audited financials, we have the brand generating approximately 1.6 million in comparative sales from the June 2018 quarter, which means we saw a jump of over 500% year over year. With actual net sales for the third quarter of approximately 8 million, which correlates into annual revenue run rate of 32 million we're well ahead of the 20 million annual net sales target provided for in the earn out provision of the acquisition agreements. While we're seeing well above expected sales gross, we're also experiencing increased expenses as we feel…

Thank you, Marty. I'm going to start with a brief summary of our GAAP based results. Overall, as Marty mentioned earlier, total net sales for the third quarter ended June 30 was just over 8 million. This is up 42% sequentially from the March 31st quarter. Our total gross sales for the quarter we're 9.7 million, with approximately 1.7 million of allowances and discounts. Sales were led by our product segment, which accounted for 99.5% of total net sales. Gross profit as a percentage of net sales came in at 63% for the quarter. This is consistent with what we saw in the March quarter. Our cost of sales in the product segment were 36% and we expect to maintain a constant sales as a percentage of net sales between 35% and 40% going forward. Our major operating expenses include marketing, wages, advertising, travel, rent, professional service fees, public company related expenses, and expenses related to distribution and trade shows. Our overall operating expenses were approximately 13.3 million in the third quarter. This represents a multimillion dollar increase this year as we ramped up our operations. It is important to point out that included in this 13.3 million expense number was a 2.1 million non-cash impairment charge related to our prior license and brand management business, as well as another 2 million of non-cash compensation expense which is related to stock awards and stock options. The company utilized approximately 5.5 million in cash during the June 30 quarter, with approximately 4.1 million being a spend on operations and 1.4 million spend on inventory, which is significant share was on building up our isolated inventory. We had cash and cash equivalents of approximately 11.6 million and working capital of 19.8 million at the quarter end on June 30. This is compared…

Thanks, Mark. Again, thank you to everyone on the call for your interest in cbdMD. Before I dive into sales and marketing, I thought it relevant to provide a brief look back on the brand. Scott and I launched the cbdMD brand little over two years ago, after the initial R&D process, we began generating sales in early 2018. Seven months ago, we took a big step and joined the public company. Marty likes to say that the NYSE American listing is one of our best branding tools in our arsenal and I completely agree. Being public we've not only been afforded the resources, but the credibility of being the first and still to this day, the only U.S. exchange listed pure play CBD company in the United States. This has helped drive results beyond any of our expectations. On virtually every metric that we use to measure our brand, the speed in which we've factored in the market has been absolutely incredible. Despite the fact that several of our competitors have had a multi-year head start on us we are catching up to them and sales and have flat out overtaken them when it comes to overall brand recognition. From groundbreaking category exclusive partnership with Viacom Bellator MMA and Ice Cube's Big3 Basketball League to aligning with the most talented and respected professional and Olympic athletes. We've continuously demonstrated our ability to lead the pack when it comes to building a dominant brand in the CBD space. This was clearly evident last month when the Brightfield Group CBD industry's leading market and consumer intelligence firm named cbdMD not only a Top 10 domestic brands in two booming categories, Topicals and Skincare beauty, but also named cbdMD the brand to watch, in part saying trend followers should look to emulate…

Thank you, Caryn. As you can see, we're in a great growth position for the remainder of fiscal 2019 and beyond. We have a great start to achieving our goal of becoming the number one CBD consumer products brand in the world space. And with our team, I believe we can make that happen. With that we have decided to provide revenue guidance for the next five quarters. Specifically, we expect to achieve annual net sales of between 24 million to 26 million for fiscal year 2019, which ends at September. Looking into fiscal 2020, we expect to achieve annual net sales of 80 million to 90 million. With this guideline in mind and the trajectory it puts us on we now estimate that the five year earn out of 300 million in aggregate net revenue can be reached by the end of the calendar 2021 for two full years ahead of the initial schedule. Achieving this earnout will result an issuance of the final 15.25 million shares pursuant to the December 2018 Purchase Agreement of Cure Based Development, eliminating future related non-cash liability gains allows us eliminating the resulting volatility in our net income results. The bottom line is we are extremely pleased with what we've accomplished so far, and we look forward to sharing our future successes with you in the quarters ahead. With that I'd like to open up the line to Q&A.

[Operator Instructions]. Our first question comes from Steve Emerson of Emerson Investment Group. Please state your question.

Scott, how do you decide in terms of which proposals for internet sales and sponsorships? You're going to activate? Is there a payback or a ratio to estimated customer value?

Yes, we look at both things. We knew the company while someone who will do our bigger things like Big3, or Bellator to give us the overall eyeballs that we think are going to be seen in those types of sponsorships. We use other software meltwater or revisions to look at how much our influencers bring back to us through both coupon codes, how many likes, shares they get, what our affiliate value is worth. So we basically have two people who do nothing but analytics to study where we're advertising and what the return is going to be. We look at both from we want to get a good return from our monetary value but we also are creating strategic partners because as we said before, we're building a brand. So the strategic partners that we deal with be it Bellator, Bubba Watson, those are the ones that we want to be associated with to build the name of our brand out there that other companies don't seem to be doing it at this time.

What's your metric, are you looking for a 4 to 1 payback on an internet buy? Is there any specific metrics you care to share with us?

Sure, so most of our stuff, as you see on sponsorships, and influencers along those lines, the only way we really track pure buy is coupon codes. So most of our influencers, we make back in sales, what we spend on them to be an influencer or more over and above that we look at all the influences [indiscernible] as far as the people in the shares, and the likes of how they get it. So really, if I'm doing just the purchase on the internet, then yes, I can do a two to one if I'm just buying ads on the internet. Well, these sponsorships, they're more of a branding play. So if I didn't get a one to one tracking back plus publicity, I guess, this is successful advertising campaign for.

Okay, so one to one payback over what period is how you make your decision?

Yes, we will get a one to one payback over the period of whatever that promotion or influencer are running, influencers we measure on a month by month basis and then really what we're looking at is all the eyeballs and things that people see it just like a TV ad would be being one Big3 and being on TV that we really can't quantify.

Our next question comes from Paul Cooney of Joseph Gunnar. Please state your question.

Congratulations on terrific growth, it seems to be a big land grab going on and you guys are grabbing a lot of the land. The question I have is when you guys first announced your deal, back in December, shortly thereafter, you guys gave some soft guidance for 2019 and 2020 of around 20 million in sales and around 40 million for 2020. And now it looks like obviously you're way past that you're in over $32 million run rate right now and here we are just in August. What gives you the confidence and this guidance that you guys have given is huge. What gives you the confidence that you can actually achieve these numbers as to what's going on right now with you guys?

So I think a good chunk of that is going to be the people and the products that we have. When we initially gave out the previous guidance, we surpassed it by quite a bit. I think now that we have a massive team in place and I think that we've done our best to hire the best. It's evident that we've been able to really kind of skyrocket in terms of the initial projections that we had of the product clearly, we're getting repeat buys and we're growing. So I think that we've done a very good job of hiring the right people and doing the right marketing, and securing as much market share as possible with having the true premium product that everyone seems to really enjoy.

I think another important point to add to our saying that we've been able to do a couple things in this. One is by building this brand and building a name, we're getting recognized and it's really opening the doors in the retail market that we hadn't expected to be open at this point that they were they would move this quickly. And when they did move this quickly, that we would be able to have these meetings because of the fact that they had seen us where they had already seen our brand out there. Another question we've done is we've given ourselves a lot of credibility, which has led to our increase in the growth on the internet that we're doing and it's also lifted the concept of return customers that we're seeing a much higher ratio, which is what really allows us to build so fast and what we're doing. The third factor, which has been factor we weren't really into until we do we had all our products out is the amount that we think we will be able to do going forward in the pet market, which really wasn't factored into our original projections because we didn't have this type of line that we already have. Now we have close to 30 products in pet, we really have not factored that into our growth, because we weren't sure that we would be able to develop pet product at this rapid phase.

Our next question comes from Michael Solomon of Maxim. Please state your question.

You mentioned, it looks like retail is gaining momentum obviously. We're in 3000 different locations, is there a chance that you can talk about some of these retailers that you're involved with?

So for us, as soon as the Farm Bill passed, retail really opened up, a lot of the big box conversations began and we're having ongoing conversations with, you know, large national chains and distribution, expanding into the travel retail market, which I previously mentioned. Some of the distribution opportunities have just skyrocketed for us, you know, starting with going and calling on the individual brick and mortar to now be able to go after multi-chain multi-organizational pieces and really grow at a much larger rate than just going after the ones and twos here and there. So having some of those larger distribution pieces in place, you'll start to see certain things we're in finalizing some specific rollout collateral and retail POS in the travel retail space which really excited to share with everyone in the public in the next term but some of the stuff that I think wasn't really available for the CBD space prior to December 2018 is as soon as the Farm Bill passed, it just kind of skyrocketed in terms of our ability to really market to the masses and get distribution on an international level even.

Thanks, no names you can share at this point, or is that something we can look forward to?

Well we've got it right now; we don't really want to show the name until we close the deal.

Yes, there are certain deals that are finalized and they're, they're complete, but we're in the rollout phases. So we're in the process of finalizing POS and you'll see some, some press come out in the very near term.

Our next question comes from Scott Fortune of Roth Capital Partners. Please state your question.

A real quick follow up on the retail stores. Are you in discussions with some of the FDMs [ph], the big boxes? And as far as those discussions are what are the biggest concerns or kind of needs that they're looking for from a supplier? And then on that note, can you kind of step out your harvest and your production inventory for the next year of where that can get you? Can you can you supply a big box for the next couple of years with your inventory levels?

Yes, so as far as big box, yes, we're negotiating with a couple of the big box stores that people would know and as you think that a lot of the big box, their first step into CBD is more of a topical market. We are producing our own topicals and also have one of the companies in [indiscernible] which has been a topical producer since 1986, to also help us with big box orders. So we have the capacity to supply big boxes on a large scale moving forward. The other part of what they're wanting is do -- we also have very good chain supply of isolates and a broad spectrum to keep us in supply for what they would be, we're stockpiling now. So that we have, as Marty would have mentioned a supply on hand and with as we just signed our deal, increasing our ability to produce in the area of topical, which is where the big boxes are wanting to start right now. It's really been fortunate for us to put us in a position to say yes to any type of large scale they want to scale to.

Okay, great. And then with that, did you guys put out information or color on your harvest? And how much you're doing on an annual basis from that standpoint? And are you expanding beyond your farmers or cultivators in the north, southeast area?

I was just going to say that will be coming out in the next term. Right now we haven't scaled up from the previous conversations that we've had but we're in a very good situation in a consistent supply. So we're definitely stockpiling and we have quite a bit in reserve at this.

Is Scott, this is Marty, we're not producing, we're not growing. We don't do that. So I don't understand the question you were asking.

Right. So I'm just making sure you have enough supply and then with that infrastructure and fulfilment and distribution to handle large accounts, as they come on board, kind of want to get a sense for that built out or needs from that endpoint.

Yes, I mean, I think we are getting that in place right now. You know, it's a nice problem to have and we feel will be ready and as Scott mentioned, we are have arrangement in place with somebody that can help us with that. So that's tied down.

Okay, and the last question, Scott, you mentioned, obviously, the big boxes are only focused on the topical, a lot of that's due to the FDA. What your sense of clarity from the FDA. We know all the FDMs are waiting to add oil, tinctures and other products that's beyond the topical. So waiting for this FDA clarity, any color from the FDA side of things from you guys?

We haven't heard anything from the FDA. And I think as far as like, the big box are proceeding on topicals because the first companies that went in said topical, right, so other people have just kind of said, Okay, we're going to focus on topicals but you know we haven't had the conversations where they're not opposed to the other things, this is just the easiest way for them to step into the market and then move from there. If they get FDA clarity, that will be great. If they don’t, we see that moving forward with different products, no matter what the market, no matter if we're the market stage right now.

Our next question comes from [indiscernible]. Please state your question.

Guys, great quarter and great numbers and love to see the projections. But what I wanted Caryn to do if she could is give us a little bit more color on the pet line. Do you have a lot of competition out there? And is your retail ecommerce mix the same or how do you expect that to grow over the next 12 months?

Right now I think we probably lead the industry and the amount of skews that we have for our pet division. So we have everything from various concentrations and even flavors. Typically, most of the other competitors in the space, they'll have one flavor, maybe peanut butter or natural. They also don't typically span across multiple species. So we have products for dogs, for cats and for horses. So that's very unique in the industry. In terms of sales, you know that the guidance that we gave, we're hoping by the end of next year to be in about 1000 retail locations on the pet side. Right now it is selling, I think, significantly better than anyone anticipated. The pet market in general, is a little bit less saturated right now than the overall CBD market, there's only a couple key players there. We've also been pretty dominant in that space over the last year and a half, this is kind of a rebranding and a relaunch of an existing line that we've taken and we've just scaled it up significantly with additional product offerings. So you know, kind of having a good, you know, secure place in the market to begin with on the pet side and kind of scaling it up from there. I think we're very excited to see the numbers that come in over the next quarter for the pet division alone.

Do you've the manufacturing capacity to sustain the growth you've already achieved and are expecting in the next 12 months?

Absolutely, you know, internally and then with contract manufacturers that we work with and aligned ourselves with. Absolutely.

But what's the best skew? What's the best flavor?

Well, I personally like the horse tinctures. They taste like apple. They're phenomenal. But in terms of the best seller right now, it's going to be kind of split between some of the cat products with dog products, the natural the cat side and then the peanut butter flavors for the dogs at the lower concentrations. Most likely because it's from an intro CBD buy that are lower price point so it makes the most sense.

There appear to be no further questions at this time. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.