cbdMD, Inc. (YCBD) Q4 2025 Earnings Report, Transcript and Summary

Good afternoon, and welcome to cbdMD, Inc.'s Fiscal Year 2025 Earnings Call and Business Update. Earlier today, the company issued a press release discussing results for the fiscal year ended September 30, 2025, following the filing of its annual report on Form 10-K. Today's call is being recorded and will be available on the company's website along with the earnings release and supplemental materials. [Operator Instructions] I will now turn the call over to Brad Whitford, Chief Accounting Officer of cbdMD.

Thank you, and thank you all for joining us today. Before we begin, I'd like to remind everyone that today's remarks contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our annual report on Form 10-K for the year ended September 30, 2025, and our other filings with the SEC for a discussion of these risks. All forward-looking statements are made as of today, and the company undertakes no obligation to update them, except as required by law. With that, I'll turn the call over to Ronan Kennedy, our CEO and CFO.

Good afternoon, everyone, and thank you for joining us. Fiscal 2025 was a year of disciplined execution and meaningful progress for cbdMD. It marked our third consecutive year of operating improvement, continued balance sheet strengthening and a repositioning of the company toward categories and regulatory framework that we believe offer long-term durability. While we are not yet where we ultimately want to be financially, the direction of travel is clear, lower operating losses, the cleaner capital structure, restored exchange compliance and improving commercial momentum. Over the past several years, cbdMD has executed a deliberate reset focused on reducing fixed costs and simplifying our operations, rationalizing our product portfolio toward higher-margin and volume SKUs, repairing and strengthening our balance sheet, investing in categories supported by science, quality and regulatory readiness. Fiscal 2025 represented an important execution year in that reset. For the year, we reduced our operating loss from -- by $1.2 million to approximately $2.1 million loss. That represents our third straight year of improved operating results. Our adjusted non-GAAP EBITDA improved from a $1.7 million loss in 2024 to a $900,000 loss in 2025. These gains were driven by disciplined cost control, more efficient marketing spend, supply chain optimization and tighter focus across our core brands, all while investing in growing a new beverage brand, Oasis. We now have distribution across 9 states, including North Carolina, Florida, Alabama, Texas, Tennessee, Georgia, South Carolina and Minnesota with additional markets under evaluation. We are seeing improving case sell-through in core markets and growing distributor engagement as the brand gains awareness. We believe Oasis positions cbdMD in one of the fastest-growing segments of the beverage market, functional alcohol alternative to social beverages supported by shifting consumer preferences. Across our core cbdMD and Paw CBD brands, we focus on SKU rationalization, margin protection and prioritizing higher velocity products. This discipline allows us to stabilize the business while preserving strong gross margins relative to our peers. A major focus in fiscal 2025 was restoring balance sheet strength and capital flexibility. Through the Series A preferred equity conversion and the financing completed at the end of September, net book value increased from under $2 million to over $7 million. Over $7 million in annual accrued preferred dividend obligations were eliminated, working capital improved materially year-over-year and our capital structure complexity was significantly reduced. As we announced earlier today, we recently closed $2.25 million in additional financing. This transaction resulted in a temporary halt in our stock trading until the material event was publicly disclosed. Given the heightened trading activity this past week, we received numerous interests to raise substantially more capital. However, we remain mindful of dilution and associated fees. We believe we were able to secure the financing at favorable valuation and established a $20 million equity line of credit with minimal fees, providing us with significant flexibility to raise capital prudently under favorable market conditions. We continue to engage with several strategic opportunities that could help add revenue, contribution dollars and bolster our product offering. We believe our strong balance sheet could help position us as a more attractive strategic partner with the wherewithal to weather regulatory uncertainty. In December 2025, cbdMD received formal confirmation from the NYSE American that all prior compliance deficiencies had been fully resolved. This milestone removes a significant overhang and reflects the progress we've made in restoring financial stability and governance discipline. Yesterday, the White House issued a significant executive order directing federal agencies to modernize federal cannabis policy, including accelerating the rescheduling of cannabis and expanding research and access pathways for cannabinoids. Importantly, for the hemp and CBD industry, the administration also highlighted support for exploring Medicare reimbursement pathways for legal full-spectrum hemp-derived CBD products under appropriate medical supervision. While these initiatives require additional administrative action and are not yet law, we view this executive order as an important directional signal that federal policy is evolving towards science-based evaluation and health care integration. This is particularly notable given the uncertainty created by the restrictive hemp language, including H.R. 5371 legislation enacted in November. The executive order underscores that federal policy is not monolithic and that there is active work underway to reconcile public health, consumer access and scientific evidence. We believe cbdMD is exceptionally well positioned in this evolving environment. We were founded on THC-free and broad-spectrum CBD, which remains the majority of our revenue. We operate with cGMP manufacturing, rigorous testing and conservative formulas. We've invested in years in safety, documentation and compliance, not shortcuts. As regulatory clarity improves, we believe well-capitalized, science-driven operators like cbdMD stand to benefit while less compliant competitors face increasing pressure. I'll now turn the call over to Brad for more details on the financials.

Thank you, Ronan. Total net sales for the fourth quarter of fiscal 2025 were $4.7 million or a 2% increase from the prior year comparative quarter total. For the 2025 fiscal year, net sales totaled $19.1 million as compared to $19.5 million in the prior year. Our quarterly e-commerce direct-to-consumer business generated sales of $3.5 million in the fourth quarter of fiscal 2025. This was a 6% year-over-year quarterly decrease. Some of the year-over-year decline is tied to a shift in consumer to hemp beverage category. E-commerce represented 75.1% of our total net sales for the fourth quarter of 2024 versus 81% in the prior year comparative quarter. For fiscal year '25, e-commerce generated $14.7 million of net sales compared to $15.7 million for the comparative prior fiscal year or a 6% decrease. E-commerce represented 77% of our total net sales for the fiscal year ended 2025. For fiscal 2025, our marketing spend to direct-to-consumer revenue totaled 30% as compared with 27% in the prior year. We continue to test and iterate to find out the right marketing spend to revenue ratio and position the company to grow in fiscal 2026. Our wholesale business generated $1.2 million of net sales for the fourth quarter of fiscal '25, up 25% as compared to $900,000 for the comparative quarter in fiscal 2024. Ongoing state-level regulatory changes did impact our business during the quarter. But despite this, our core wholesale business continues to improve while we are able to expand our Oasis business. For the fiscal years ended September 30, 2025 and 2024, our wholesale business generated net sales of $4.5 million and $3.8 million, respectively. Our gross profit as a percentage of net sales came in at 59% for the fourth quarter of fiscal 2025 as compared to 54% in the prior year comparative quarter. During the fourth quarter, we wrote off approximately $113,000 related to legacy [ swag ] that had aged out as compared to $588,000 in 2024 related to legacy botanical products and outdated packaging that was all greater than 2 years old. For fiscal 2025 and fiscal 2024, gross margins totaled 63% and 62%, respectively. Our SG&A expenses for the fourth quarter of fiscal 2025 totaled $3.4 million compared to $2.7 million in the prior year comparative quarter. 2024 included a $700,000 gain related to the settlement of our headquarters lease liability. Management continues to focus on our costs and profitability. For the full 2025 fiscal year, SG&A expenses dropped $1.2 million from $15.3 million to $14.1 million. Overall, this resulted in a loss from operations of approximately $600,000 for the fourth quarter of fiscal 2025 as compared to a $300,000 loss for the prior year period. Our increase in warehouse lease cost was a key driver of this change. The full fiscal year operating loss totaled $2.1 million as compared to an operating loss of $3.3 million in 2024. Our non-GAAP adjustments to operating expenses for the fourth quarter of fiscal 2025 included $8,000 in noncash employee stock expense, $262,000 in depreciation and amortization expense, $113,000 in inventory write-downs, resulting in a non-GAAP adjusted operating loss of $301,000 for the fourth quarter of fiscal 2025 as compared to a $131,000 non-GAAP adjusted operating loss in the fourth quarter of fiscal 2023. The change in non-GAAP adjusted operating loss over the prior year period is primarily attributable to slightly lower revenue and the increase in our warehouse expense over the prior year comparative period. For the 2025 fiscal year, our non-GAAP adjusted EBITDA loss totaled $900,000 as compared to $1.6 million for fiscal 2024, driven by lower G&A costs in 2025. We have negotiated further cost savings during the first quarter of 2026, including insurance and other SG&A items and continue to focus on reducing overhead while we grow revenue. We had cash and cash equivalents of approximately $2.2 million and working capital of approximately $3.3 million on September 30, 2025, as compared to $2.4 million in working capital of approximately negative $1 million on September 30, 2024. The main driver of the working capital improvement was the elimination of the accrued preferred dividend, which was a short-term liability on our balance sheet and proceeds from the sale of our Series B preferred stock. Our current assets as of September 30, 2025, improved slightly to approximately $6.6 million. As of September 30, 2025, the company's total current liabilities were $3.1 million. Considering our cash balance, including the recent Series C preferred financing, we believe we are entering into calendar 2026 with a very strong liquidity position and are focused on driving P&L performance. With ongoing regulatory volatility ahead, our focus is to ensure we have a strong flexible balance sheet and maintain a nimble organization to ensure we can effectively and efficiently react to changing market dynamics. With that, I'll turn the call back over to Ronan.

Thanks, Brad. As we enter calendar 2026, cbdMD is fundamentally stronger than it was 2 years ago. A cleaner balance sheet, lower operating losses, restored exchange compliance, exposure to high-growth beverage category and encouraging regulatory signs. Our priorities remain clear. Scale Oasis responsibly as distribution matures; drive efficient, profitable D2C growth through disciplined marketing execution; preserve margins and capital discipline; and evaluate strategic opportunities aligned with our regulatory strength and diversification. We believe the heavy lifting of the turnaround is largely behind us and fiscal 2026 is about continuing to convert that foundation into improved financial performance and capitalizing on the dynamic regulatory environment. We are still absorbing the President's announcement of potentially $30 billion and 60 million Medicaid consumers that could be turned into CBD starting in April. We know many of these Americans are already buying, but the potential demand increase for quality product could be staggering. This should be an exciting quarter to watch as the details and downstream impact of the executive order unfolds. I want to thank our employees, partners and shareholders for their continued support. And with that, operator, we're happy to take questions.

[Operator Instructions] Your first question comes from Thomas McGovern with Maxim Group.

So just firstly, on a high level, you guys see '26 as kind of return to growth for you guys after a lot of the heavy lifting on the restructuring was executed and the turnaround strategy was executed in '25. Just curious, as you look out in '26, what do you -- among your brands, what do you really think is going to be the key driver of growth from a top line perspective? Do you think it's going to be the Herbal Oasis expanding into these new states or maybe some innovation within the cbdMD core brand? Just maybe walk me through what you think will be the biggest driver of growth in '26.

Sure. Thomas, thank you for the call. Look, we do think there's opportunity to continue to grow with the core cbdMD brand. I think our team -- we've made a significant transformation this year with our team, and they're starting to really dial things in, and we're feeling good about where the core business is. That said, we still think there's huge growth opportunity that we have visibility on the beverage side, at least through November, and we're still sort of depending on where some of the regulatory framework shakes out for the year.

Understood. And when we look at your direct-to-consumer business, we did see a year-over-year decline there. Just kind of maybe if you could unpack that a little bit for us, trying to get us an understanding if that's a reflection of some of the SKU reduction you guys have executed or if it's maybe some declining KPIs in terms of returning customers or customer acquisition? Just kind of any insight you can provide on that would be helpful.

Sure. I mean I think if we look at sort of -- if we scale back kind of our 24-month trend, I think we see the business right now trending slightly up over prior year periods on the DTC side. So I think it was a matter of when we made the changes to the organization early during 2025. It sort of took some time to sort of get our arms around it and sort of create that bottoming out and then as we're starting to sort of move back in the right direction.

Understood. And then last question for me. Obviously, there's a lot going on in the regulatory environment. Just curious if you had any insight on a possible time line for Medicare coverage of CBD or hemp-derived products? And then also maybe just on a higher level, how you guys have adjusted your strategy just given the dynamic environment we're facing currently?

Sure, sure. I will say, Thomas, there's a little bit of change in sort of the script over the last 24 hours, given what happened yesterday. But look, I think what we understand is they are trying to pilot a program starting on April 1. And I think with his commitment to trying to use the category to help consumers, right now, it gives most of the industry, I think, encouragement that they're going to solve for some of the language restrictions that was in the bill in November. I think everybody is still very much for smart regulations around safety, around labeling, around packaging, around quality. I think it's just a matter of how do we use the right limits to make sure that there's a viable effective product for adult consumers.

The next question comes from Mark Taci, private investor.

I'm just wondering, could you put in perspective, sometimes things are overdone in the market when you hear of news. So I'm just wanting to understand this executive order, as you guys talk among yourselves about the benefits or the negative aspects that it may have on your business, whether it's for the good or not the good. Is it overdone? Can you put maybe in detail what you guys think will -- what it can do for your business in the future? If anything, maybe what you've discussed among each other, like is it a game changer for your business? Or is it overdone? Is the hype overdone? I guess that's the best I could put it.

Mark, thanks for the call. Look, I mean, I think we're still trying to just sort of digest sort of his statements. And I think the devil is going to be in detail on how it all gets enacted. But I mean, clearly, the way we viewed it is he made a statement that he wanted to make CBD product available as an alternative solution for people in Medicare. By our -- from what we understand, there's over 60 million consumers on Medicare. And as part of the statements, they spoke about potentially up to $500 a year in reimbursement for CBD products. So when we do the math, that works out to $30 billion of potential Medicare spend that has the potential to help drive demand for the CBD category. Now will we get there in April? No. But I think what it shows is that over the next couple of years, there could be very significant increase in demand for safe, effective, high-quality product. How do we model that into our business? I think in 24 hours, I think we still don't know. I think we are still sort of -- I think we will approach it as aggressively as we can to position ourselves, but at the same time, making sure that we are being prudent and careful with our balance sheet and build our business without that demand into a profitable long-term organization.

Okay. Listen, one comment I'd like to make before I hang up is my dad has neuropathy of the feet and he tries the CBD products. So he's paying out of pocket because it actually helps him, the cream and the internal. And so he's paying out of pocket, but he has Medicare. It looks like even with older people, they're up for it, and the Medicare could kick in to help them purchase it. So that's all I wanted to say. But thanks for making those comments. I appreciate it.

Sure. And thank you for your comment about your father, and we're glad that he was [indiscernible]

Your next question comes from Adam Waldo with Lismore Partners, LLC.

I just want to clarify something in the press release. The paragraph that makes reference to the executive order yesterday talks about the statements around Medicare supporting full spectrum hemp for seniors. And then the couple of sentences later, it makes reference to 60 million seniors on Medicaid. Was that a typo? Or do you expect that the executive order -- I know it's only been about 24 hours, but do you expect the executive order signed yesterday would address both Medicare and Medicaid patients that are [ seniors ].

Adam, I'm sorry, that was -- I think you did pick up a typo. But my -- I guess the way we would look at it is that if it is working on Medicare and they're seeing -- consumers are seeing benefits and if the administration can show that there is a positive return or sort of a cost savings with a better efficacy that it could be expanded to that program as well, although I don't believe it's the same size as what Medicare is.

Fair enough, yes. So potentially centers for Medicare and Medicaid, might extend it to Medicaid over time, but the executive order language explicitly only addresses Medicare at this time. Is that a fair statement on my part?

To the best of our knowledge, that's correct. I apologize for the typo.

No, no worries. I just -- I want to clarify that because obviously, it's only 24 hours, but -- and they're both obviously big potential markets. Okay. So now obviously, you've only had 24 hours to digest this. You probably had sort of put together an operating plan for fiscal '26. Obviously, back in the September time frame that didn't contemplate any of those. You've raised Series B convertible preferred at the end of September. Now you've raised Series C. So liquidity looks pretty good near term. How are you prioritizing -- given the regulatory fluidity, how are you prioritizing growth investment for the balance of fiscal '26 as between sort of the traditional core business and Herbal Oasis, given that I think the executive order really only -- signed yesterday only pertains to the traditional business. Is that right?

It I think highlights a lot more of that traditional business. But I do think as we look at, I guess, there's some conflicting regulations out there now between the bill in November and sort of the statements from Trump. And I think 2 weeks ago, there was -- I think what happened in November with the language change in the definition of hemp has forced sort of the industry to really come together and coalesce. It was done by circumventing sort of a normal process and any sort of normal comment period and review. And we won't get into sort of the details of how or why, but it is what it is. And I think it's giving us -- the industry is starting to come together. You've seen the Wyden bill come out and present sort of more reasonable THC limits as part of sort of a cannabinoid or hemp-derived cannabinoid product. But I don't think what they fully understood in November was it has pretty concerning impact next November if language isn't changed around a lot of firms that this would wipe out 100% of the revenue. So I think the economic analysis of November sort of didn't really happen. And I think as people understand sort of that true economic impact, I think there's better ways to regulate that, and we've seen that with the Wyden bill. And then I think having Trump make his statements yesterday, we feel like there's a much more encouraging outlook that we'll get some resolution to how the language is written in the November bill at some point during this time. So we are operating carefully. We have some contingency plans in place. I think we've got to be careful many of our competitors are on these calls, so we don't want to release too much. But I think we do have a strategy of -- that we do believe the regs will get figured out and the question will become what are those upper limits on the THC side of things. But at the same time, we have a core strong business that we continue to improve. And we still have a very strong sort of THC business and are looking to continue to expand and build upon that core base.

Right. And again, at a high level and very helpful. At a high level, are you prioritizing incremental working capital investment for the next few quarters more in the Herbal Oasis business, which had been your strategy for most of last year? Or will you now put more working capital in the inventory build on the CBD -- traditional CBD product side, the non-beverage side? Or is it just so fluid right now that it's a little hard to know where to prioritize incremental working capital investment in your operation?

I would say probably for the next quarter, it will be a little bit more weighted on the Oasis side. And then there will be constant evaluation with respect to where the regs are moving to try to readjust that as we move through 2026.

Yes, very fair. Okay. Last question, if you'll permit me, share count. So pro forma for the closing of the Series C preferred yesterday, can you just quickly or maybe Thomas can address this, but can you guys just quickly give us what the fully diluted share count would be? And then is there any new executive comp plan being contemplated in light of the regulatory change that might change the equity -- the common shares outstanding in a meaningful way going forward?

Sure. So I think we closed around -- I think in the documents, it's just around 8.9 million and change outstanding, you've got the 1.7 million in the B. There was 1 million in the C. And then at the end of November, the Board has approved a new 2025 employee compensation plan that is subject to shareholder vote in our upcoming annual meeting.

Okay. And those details would be forthcoming in the proxy and/or in the Q for the quarter?

I believe there might have been an 8-K at the end of November.

Okay. I guess we just missed that. Okay, we'll have a look.

This concludes the question-and-answer session and we will conclude today's call. We thank you for joining. You may now disconnect.