cbdMD, Inc. (YCBD) Q2 2026 Earnings Report, Transcript and Summary

Good afternoon. Welcome to cbdMD Inc.'s March 31, 2026, Second Fiscal Quarter of 2026 Earnings Call and Update. This afternoon, the company issued a press release that provided an overview of its first quarter results, which followed the filing of its quarterly report on Form 10-Q. Today's conference call is being recorded and will be available online along with our earnings press release covering our financial results and non-GAAP presentation at cbdmd.com in accordance with cbdMD's retention policies. [Operator Instructions] At this time, I would like to turn the conference over to Brad Whitford, the company's Chief Accounting Officer. Brad, please go ahead.

Thank you, [ Aldera ], and thank you all for joining cbdMD's March 31, 2026, Second Quarter of Fiscal 2026 Earnings Call and Update. On the call today, we also have Ronan Kennedy, our Chief Executive Officer and Chief Financial Officer. We'd like to remind everyone that various remarks about future expectations, plans and prospects constitute forward-looking statements for purposes of the 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 annual report on Form 10-K for the second quarter ended March 31, 2026, and our other filings with the SEC, all of which can be reviewed on the company's website at www.cbdmd.com or on the SEC's website at www.sec.gov. Any forward-looking statements made on this conference call speak only as of today's date, Thursday, May 14, 2026, 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, except as may be required by federal securities laws. With that, I'd like to turn the call over to Ronan.

Good afternoon, everyone, and thank you for joining us. The second quarter of fiscal 2026 was another step forward for cbdMD and one of the most active quarters we've had in years, both operationally and across the regulatory landscape we operate in. Let me start with the headline. We delivered another consecutive quarter of sequential revenue growth, with net sales of $5.6 million. That's up 19% year-over-year and 12% sequentially from the first quarter of 2026. Importantly, that growth was not solely driven by our acquisition of Bluebird Botanicals. Excluding Bluebird, our core business grew approximately $0.5 million versus the prior year and approximately $300,000 sequentially. And even excluding Bluebird, our core revenue this quarter was the highest quarterly revenue we've generated since our first fiscal quarter in 2024, the December 2023 quarter. That continued core growth quarter after quarter is the most important indicator that the reset work we've done over the past several years is showing through in results. From a channel perspective, direct-to-consumer remained our largest channel at approximately 67% of revenue, with wholesale growing to 33% of revenue. Wholesale was up 65% year-over-year reflected continued execution in our core cbdMD brand and ongoing progress with our Oasis TSC beverage brand. In mid-January, we closed our acquisition of the assets of Bluebird Botanicals, a respected and long-standing CBD brand. This is our first acquisition in years made possible by the work we've done to repair the balance sheet and regain full NYSE American continued listing compliance. As expected, the acquisition was a drag on earnings during the second quarter where we absorbed transition costs and integration expenses without the full benefit of a full quarter of Bluebird revenue. That said, Bluebird turned the corner in March and began generating positive contribution, and we expect to flip that into a positive for both top line earnings and earnings in the third quarter as we roll out additional products and capture cost and revenue synergies. Beyond the numbers, Bluebird is strategically important as it adds loyal customer base, broadens our portfolio beyond just our core cbdMD brand and brings grass status for full-spectrum CBD that complements the safety and clinical data we already have on our THC-free broad-spectrum formulations. We believe this transaction is a useful case study for the kind of disciplined accretive M&A we can execute, and we continue to evaluate additional opportunities across hemp and adjacent health and wellness categories where our infrastructure, marketing engine and NYSE American listing can unlock value. The regulatory backdrop has shifted more in the last few months than in any period I can remember. We've seen multiple bipartisan legislative proposals introduced to address the restrictive hemp language in H.R. 5371, the partial rescheduling of cannabis to Schedule III in late April and most directly relevant to us, the April 1 activation of the CMS substance access beneficiary engagement incentive, the first federally supported pathway for hemp-derived CBD products in Medicare. We've been preparing for this opportunity for some time. During the quarter, we made deliberate decisions to accelerate our entry into the CMS substance access pathway moving ahead of our original fiscal 2026 plan because the window to establish a position is now open. That acceleration carried some near-term costs and is reflected in our P&L this quarter. We made the investment with our eyes open because the size of the opportunity justifies it. We stood up a dedicated clinical and health care channel built specifically for this pathway. We're in active conversations with ACOs and others to execute on this pathway. We're deepening the clinical evidence base behind our products because in this channel, the science is what unlocks the market. This is not a near-term revenue story. We expect the early phase of the BEI to be implementation-led with provider adoption developing over the course of the next 12 to 18 months. But we believe the long-term opportunity is significant, and we believe cbdMD's years of investment in manufacturing, quality, safety and clinical research positions the company as a trusted evidence-based supplier of choice as this channel develops. On the federal legislative front, we continue to actively support bipartisan efforts to establish a workable federal framework for hemp, including the Hemp Act, theCannabinoid Safety and Regulation Act, the Hemp Planting Predictability Act and its Senate Companion. We're engaged constructively with industry organizations, policymakers, including time on Capitol Hill, making the case for sensible science-based regulation. Our view is straightforward. As regulatory clarity emerges, it favors operators built for it, well-capitalized, compliance-focused with the strong quality, safety and clinical standards this market will require. That is this company we've built. On the state side, volatility has been a genuine headwind. Changing rules across multiple states has driven ongoing packaging changes, repacking costs and new testing requirements, each carrying real expenses and creating confusion at the customer level. Just as significantly, shifting state restrictions continues to narrow what products we can sell and where we can sell them. We expect that the environment to persist, and we're managing through it operationally, but it's worth flagging as a structural cost of operating in this category today. And frankly, it makes -- it's part of what makes the federal pathway we've been describing so strategically important. With that, I'll turn the call back over to Brad to walk through the financials.

Thanks, Ronan. Turning to the financials for the second quarter of fiscal 2026. Net sales increased to $5.6 million or a 19% increase as compared to $4.7 million in the prior year period and increased 12% sequentially from the first quarter of fiscal 2026. Excluding Bluebird, net sales increased $500,000 as compared to prior quarter and $300,000 sequentially. Gross margin totaled 58% for the quarter, down from 62% over prior year. This is mostly attributable to a shift in revenue mix to more wholesale, including Oasis. Wholesale was 33% of total sales versus 23% of total sales in the prior year quarter, along with incremental costs related to changes in state-level requirements causing additional repacking and new testing requirements. We're continuing to analyze our pricing, product mix and supply chain and are implementing initiatives to enhance product quality and documentation, improve formulas and improve our gross margins going forward. Loss from operations was approximately $801,000 compared to a loss of $486,000 in the prior year period. Excluding a onetime noncash stock vesting, loss from operations was $405,000. Net loss attributable to common shareholders was approximately $876,000 or $0.08 per share compared to a net loss of approximately $1.4 million or $1.90 per share in the prior year quarter. As with last quarter, this was a substantial improvement on a per share basis. As mentioned on our prior quarter call, this improvement was primarily driven by the elimination of our Series A preferred dividend during fiscal 2025 and the resulting conversion of the Series A into common stock. Adjusted non-GAAP EBITDA loss for the quarter totaled $220,000 and was driven by added payroll and other expenses related to the Bluebird acquisition without the benefit of a full quarter of Bluebird revenue and the strategic decision to allocate dollars toward the CMS BEI program, which was not originally in the budget. However, is important to driving -- it is important to drive this initiative forward. Cash used in operating activities was approximately $723,000 and reflects the build of accounts receivable of approximately $435,000 tied to revenue growth and wholesale term customers as that becomes a larger part of our sales mix, coupled with an incremental $240,000 inventory build, excluding inventory acquired in the transaction to support the growth of the overall business. We remain encouraged by the momentum across the business and the continued growth in revenue. At the same time, we are maintaining a disciplined approach to expense management and operational efficiency as we focus on improving margins and driving sustainable profitability. With that, I'll turn the call back over to Ronan.

Thanks, Brad. Stepping back, I want to leave you with a few thoughts on how we're thinking about the rest of fiscal 2026. First, on the core business, several consecutive quarters of sequential growth with our highest core quarterly revenue since December 2023 tells us the underlying business is healthier than it's been in some time. We're going to keep pushing on that. High-velocity SKUs, disciplined customer acquisition and ongoing wholesale expansion across cbdMD, Paw CBD, Oasis and Bluebird. Second, on Bluebird, we expect the acquisition to flip from earnings drag in the second quarter to a positive contributor in the third quarter on both revenue and earnings as integration completes and synergies come through. Bluebird also reinforces our M&A thesis. We believe there's a real opportunity to consolidate quality assets in this fragmented category, and we will continue to evaluate disciplined accretive opportunities. Third, on the medical pathway. The investment we made this quarter and through the balance of the year to redirect resources toward the CMS BEI program is a deliberate strategic choice. We accept the near-term earnings pressure because we believe the long-term opportunity is meaningful and because the window to establish provider relationships and clinical credibility is open now. We are going to continue investing thoughtfully in that channel through the back half of 2026 with the expectation that adoption and contribution build over time than rather overnight. Fourth, on the regulatory and state level environment. We'll continue to engage constructively in Washington on sensible hemp regulation, and we'll continue to manage through the minefield of state-level changes along with the compliance costs that come with operating in this category today. Neither of those are going away in the near term, and we are building the cost discipline and operational flexibility to absorb them. Alongside that engagement in Washington, we continue to invest in contingency planning and product iteration ahead of the November 2026 effective date of the act. We are working through multiple scenarios, including reformulation, pathways, new ingredients, packaging and labeling adjustments, channel mix shifts and supply chain flexibility so that we are positioned to navigate whatever regulatory outcomes emerge, whether it is the act taking effect as written, a delay or comprehensive replacement framework. We don't know today which scenario will play out, but we are determined to be prepared for each of them. And finally, on the balance sheet. The work we've done to repair the capital structure, return to NYSE American continued listing compliance and put financial tools like the ELOC in place give us the flexibility to execute deliberately. We believe we have a meaningful long-term runway, and we intend to use that money to invest where it counts. This was a quarter where we delivered another period of growth in our core business. Completed and began integrating our first acquisition in the years and made deliberate investments ahead of what we believe is a meaningful long-term opportunity in Medicare. The foundation we've built over the past several years is showing through, and we believe cbdMD is entering the second half of 2026 on firmer footing than at any point in recent memory. I want to thank our employees, partners and shareholders for their continued support. And with that, I'm now happy to take questions.

[Operator Instructions] We'll take our first question from Adam Waldo at Lismore Partners.

A lot of exciting things on the plate for you guys. In that vein, how are you all thinking -- let's start out sort of a high level here. In the quarter just ended the March quarter, how much of that, call it, almost 11% organic revenue growth was attributable to Herbal Oasis versus the core CBD businesses?

It was split. Adam, we had some growth of some of the core, but we'll call it a reasonable amount of that was from the Oasis side of the business as well.

Okay. And I haven't had a chance to look at the Q yet. Will there be more granularity in the Q in terms of the impact Herbal Oasis is having? Or is it not material yet? And do you think you'll start to report later in the year -- in the fiscal year as it might become more material?

We have not segregated out that category yet, and we'll continue to evaluate sort of segmentation as we move through the year and see continued growth there.

Okay. And given just a high level, very dynamic regulatory environment, obviously, and a lot of potential growth opportunities coming to fruition here all at once, while improved, the balance sheet and liquidity profile, believe me, wondering how you expect to use the balance sheet and liquidity profile to support those growth opportunities in the coming several quarters. I mean you burned about a little over $700,000 of cash in the March quarter, just under $1 million in the December quarter. On the other hand, you have about $2.6 million on the balance sheet in terms of cash at the end of the March quarter, and you have the -- obviously, the equity facility -- common equity facility out there in the market. Any commentary about sort of how you see the liquidity runway and support there for all the growth opportunities you have ahead of you?

Yes, sure. Look, I think we made some inventory investments ahead of sort of the growth. So I think we're in a pretty good position there. We are continuing to evaluate some SKUs and some consolidation. We'll continue to work on lowering the cost of some of those as well. So we expect on a go forward to not have such a -- to be a little bit more efficient from an inventory standpoint as we move forward. And then given some of the steps that we've taken during this quarter, our anticipation is the cash burn is -- our EBITDA should improve and not have the same working capital build requirements that we've had in the last 2 quarters.

Okay. Last one, if you'll permit me. At the Annual Shareholders Meeting on March 30, the reverse stock split proposal 3 passed. It obviously calls for a 2:1 to 10:1 reverse split to be implemented within a year of the annual meeting. We're 6 weeks from the annual meeting, the reverse split hasn't been implemented yet. What update can you give on sort of the remaining milestones to implement and any expectation you have for the time line to implement it?

Adam, we put that in more sort of a protection just knowing that we could have a -- the markets are incredibly volatile right now. It's with not only our category but with global economic events. And I think as we outlined in the proposal, there was not a current need or a plan to execute that on that. It was more in the event that is needed over the next year, we have that available as a tool so we can react quickly should something happen. I believe the NYSE is also making some changes to slightly increase their sort of minimum share price under the NYSE. So right now, there is no plan to execute a reverse. It is more sort of to make sure we have it available and can react quickly rather than have to go out and proxy shareholders.

Okay. If you don't mind my following up on that, but more and more broker-dealers are not permitting trading in stocks under $1 share price, in some cases, under $5, even if you're listed on the NYSE or NYSE American. So -- does that color your thinking at all as to kind of the urgency to implement the reverse stock split?

Look, it's something we're continuing to value it, and we'll continue to do so during the balance of the year.

We'll move next to Tom McGovern at Maxim Group.

I guess first one is just on Bluebird Botanicals, right? So obviously, still kind of working there. But wondering if we can get an update on where you guys stand in terms of realizing some supply chain or shared service synergies. Then a follow-up to that is just, have you seen already any cleaning KPIs that would indicate that you've seen some strong cross-selling or that you're bringing in additional customers? And just kind of finally on that front, do you expect Bluebird Botanical to be accretive to the bottom line in the fiscal third quarter once you guys have a full quarter of operation under your belts?

Look, we -- during the quarter, we incurred sort of the transaction costs that were buried in there as well as I think there was some other professional sort of just transition expenses as we made this change. Also, it sort of took us a little bit longer to get some of the marketing ramped up. So we believe we're pretty much fully integrated, had a good March, had a very strong April with the brand. We're realizing some of the synergies already across the team. And we've started to integrate more of the supply chain and have been leveraging sort of some of the product portfolio, and that's been so far well received by that customer base.

Understood. But it'd be correct to say that you guys are still in the process of maybe looking at potential SKU overlap, we could expect to see potential rationalization of certain SKUs? Or have you guys kind of gone through that process already?

Yes. Look, we have. We're working -- we're managing some of that through kind of inventory sell-through. So it will continue to evolve over the year in ordinary course as we look to sort of make sure we can make transitions through inventory and minimize any sort of inventory impairments as we make this transition. But we are seeing that to start the quarter, it's off to a good quarter, a profitable quarter that should contribute to the bottom line.

Got it. I appreciate that color. Next question is on the BEI channel. Obviously, it seems like a very exciting opportunity. You indicated that it's not necessarily a near-term opportunity. But I was wondering if we could dig in a little bit deeper on kind of what are the next steps for this initiative? What are some of the key challenges you're going to face when trying to execute on this initiative? And if you look at a time line, maybe just high level, when you think this could translate to material growth or meaningful contribution to your top line?

Great questions. Look, this is -- while I think there's a lot of excitement, it's still laid out in a way where, I guess I'll say our health care system is a complicated system. And there's a lot of rules and regs that continue to have to be navigated. I think there's also -- given the way it was rolled out. We have to prove that there's also an economic benefit for the participants for them to really be excited about the category. So there's a lot of work still on educating these groups around the science, the safety. You're selling into a medical community that perhaps this was not necessarily on their radar and they're not fully aware of the category. So there's still a lot of education that has to occur. And then there's ongoing science and validation to help provide that hemp products can truly be an alternative that provides a strong care for the patient and can justify the economic expense around it. So that's kind of big picture kind of what's going on across the industry. So there's a lot of work and focus to develop the relationships with the key parties and continue to invest in science and programs that will help justify our products as a valued solution in our health care system.

Great. That makes sense. Now looking at the statewide regulations, you discussed them again this quarter as a meaningful headwind, right? So as we unpack that and just understand that there's no control, I guess, on your level in terms of talking to these guys and saying, hey, look, this is how we see the best way forward. I know that you guys have done everything you can to position yourself as a reliable and science-backed brand. But just curious, how are you dealing with these ongoing challenges? Have you guys done anything strategically to position yourself to stay agile in this dynamic market? And then further, can you talk a little bit about which products you're seeing face the most impact from these changing regulations? Can it be confined to a certain set of products category wise? Or is it just kind of broad-based across the business?

Sure. I'll start with the last question. It's primarily full spectrum products that contain hemp-derived Delta-9 where we are seeing maybe more of the bigger impact is on the Oasis side. Perfect example, Alabama was a very good market for us in the December quarter, but effective or early January, they made a law change that shows that there's a potential pathway, but it was effectively kind of a ban for hemp-derived products. So that sort of category came to a quick halt in Alabama. So we are trying to look at the landscape, look at where we believe there are friendly environment for our category and get as close as we can to key constituents in that state and work with not only our customers and distributors, but make sure that as rules come out, we are working very closely with the states to ensure that sort of our products meet the requirements that they -- that they're rolling out. And I think where we are trying to sort of position ourselves is making sure that we're staying nimble on the supply chain and our inventory to ensure that sort of we can react quickly and as efficiently as possible. If there's a label change in other states, there's scenarios where they might require some label changes and it's not a ban, but product has to be redone, repacked in order to sort of be compliant in the markets.

And we'll go back to Adam Waldo at Lismore Partners.

Just one follow-up, if you don't mind. And I'm going to take you through admittedly a simplistic logic string here, but I'm trying to think about sort of incremental free cash flow margins on sales as you scale going forward. Your gross margins are in the, call it, low to mid-50s depending on the quarter. I think I have a decent sense for how the inventory build is going to go now, but it's a little tough to get my arms around quarter-to-quarter. But would it be reasonable to think about kind of a free cash flow margin on revenue in the 30% range here or a little higher as we go forward? Or is that not really in the ballpark? And if it is in the ballpark, then are we looking at kind of a low $7 million quarterly revenue to be comfortably free cash flow positive?

Adam, our modeling is a much lower breakeven top line. So keep in mind, we had some onetime kind of expenses tied to transaction here this quarter. And then -- so I would say that the incremental is probably a little higher than you outlined without trying to get commit myself to a box that I've got to stay in going forward.

Right, right. Okay. So as you all model it out, you feel your breakeven level of quarterly revenue is south of $7 million a quarter by a margin of comfort. Is that fair, Ronan, without trying to pin you down too much?

Yes. I mean I think it should be well below $7 million.

And we have no further questions at this time. This concludes today's conference call. We thank you for your participation. You may now disconnect.