Executive Summary / Key Takeaways

• Transformative Capital Restructuring: cbdMD (NYSE American: YCBD) has completed a "Great Reset" of its capital structure, converting all Series A Preferred Stock and $6.7 million in accrued dividends into common equity, eliminating $4 million in annual preferred dividends, and becoming largely debt-free. This significantly improved its balance sheet and NYSE American listing compliance, unlocking strategic flexibility.
• Path to Profitability Demonstrated: The company achieved positive Non-GAAP Net Income and Adjusted EBITDA for the first time in Q1 2025, demonstrating the effectiveness of aggressive cost controls and a strategic shift towards higher-value products, despite a revenue decline in Q3 2025 due to operational diversions and regulatory headwinds.
• Innovative Growth Vectors: YCBD is expanding into the rapidly growing hemp-derived THC seltzer market with its award-winning Herbal Oasis brand, securing new distribution agreements and anticipating significant revenue contribution in the latter half of 2025. It also leverages scientifically validated CBD products and international expansion.
• Differentiated by Science: Through robust human and pet clinical studies and NSF for Sport certifications, cbdMD establishes a strong competitive moat based on product efficacy and safety, positioning itself as a trusted leader in a crowded and often unregulated market.
• Execution Amidst Regulatory Uncertainty: While committed to profitable growth in 2025 and modeling liquidity through fiscal 2026, the company faces persistent regulatory challenges and execution risks in marketing and inventory management, requiring vigilant strategic investment and agile adaptation.

A New Chapter: cbdMD's Strategic Rebirth in a Dynamic Market

cbdMD, Inc. (YCBD) has embarked on a profound transformation, shedding a complex past to emerge as a leaner, more strategically agile entity poised for profitable growth. Once known as Level Brands, Inc., the company has evolved from its 2015 inception into a recognized player in the cannabinoid wellness space, operating core brands like cbdMD, Paw CBD, the functional mushroom line ATRx Labs, and its newest venture, the hemp-derived THC seltzer, Herbal Oasis. This evolution has been marked by a strategic pivot towards an asset-light model, aggressive cost controls, and a steadfast commitment to scientific differentiation, all culminating in a "Great Reset" of its capital structure.

The broader cannabinoid industry, however, remains a challenging landscape, characterized by rapid evolution, intense competition, and a fragmented, often ambiguous regulatory environment. The hemp-derived THC beverage market, in particular, is experiencing explosive growth, with sales more than doubling in 2024 and projected to reach $4.1 billion by 2028, driven by consumers seeking functional, social alternatives to traditional alcohol. This trend presents a significant opportunity, but also underscores the critical need for regulatory clarity, which remains a persistent industry-wide challenge. YCBD's strategic narrative is now defined by its ability to capitalize on these market opportunities while rigorously addressing its internal operational and financial foundations.

The Science Behind the Brand: A Core Competitive Moat

At the heart of cbdMD's strategy is a deep-seated commitment to scientific validation, a critical differentiator in an industry often plagued by unsubstantiated claims. The company's cbdMD Therapeutics division spearheads its research and development, focusing on therapeutic applications and clinical-based claims. This scientific rigor is not merely a marketing talking point; it's a foundational element of its competitive moat.

YCBD has invested in rigorous clinical studies, setting a high bar for product efficacy. A human clinical study conducted at the University of South Carolina on its broad-spectrum blend yielded "positive outcomes from mood improvement, pain reduction and reduction of inflammation in healthy adults." This data, published in a peer-reviewed Sports Nutrition Journal in June 2024, provides tangible, evidence-backed claims for its core products. Similarly, a PET clinical study at Colorado State University School of Veterinary Medicine demonstrated that cbdMD's broad-spectrum hemp extract "positively impacted most of the outcome measures" for dogs' mobility and quality of life, showing improved behavior, increased activity, and decreased pain scores. These studies are designed with "statistically significant participants for double-blind placebo" and "confirm our surveys with biological data," allowing YCBD to pursue structure-function claims akin to typical dietary supplements.

Further enhancing its credibility, YCBD was the "first to commercialize NSF for Sport product in our industry" and the "first brand to certify the gummy," now offering three SKUs with this certification. This designation is crucial for professional athletes and trainers, but also signals a broader commitment to safety and quality for all consumers. Internationally, cbdMD achieved a key milestone in April 2025, with the UK Food Standards Agency (FSA) publishing a safety assessment for its proprietary CBD ingredient (RP793), nearing final regulatory approval. These technological and scientific differentiators allow YCBD to command a premium position, fostering consumer trust and loyalty, and providing a significant competitive advantage against rivals who may lack such robust scientific backing.

The Great Reset: Capital Structure Unleashed

For years, cbdMD's potential was constrained by a complex capital structure, notably its 8% Series A Cumulative Convertible Preferred Stock, which accumulated significant accrued dividends. By Q3 2025, these accrued dividends reached $6.7 million, contributing to a negative working capital position and leading to multiple NYSE American non-compliance notifications regarding stockholders' equity. This multi-class structure not only weighed on the balance sheet but also limited the company's ability to attract new investors and pursue strategic initiatives.

A pivotal moment arrived on April 10, 2025, when shareholders approved a transformative capital restructuring. This involved the automatic conversion of all Series A Preferred Stock, along with its accrued and unpaid dividends, into common stock at a 1:13 ratio, followed by a 1-for-8 reverse stock split, both effective May 6, 2025. This "Great Reset" converted the $6.7 million in accrued dividends into equity, raising the pro forma non-GAAP adjusted book value from approximately $670,000 to over $7 million as of March 31, 2025, comfortably exceeding the NYSE American's $4 million threshold. Furthermore, this move eliminated $4 million in annual preferred dividends and over $50 million in preferred waterfall payouts. The company also became largely debt-free in January 2025, with the conversion of its convertible notes into common stock. This simplified, "clean cap table" has significantly enhanced YCBD's strategic flexibility, making the stock "more investable" and opening the door for future strategic opportunities, including M&A.

Operational Transformation and Financial Performance

The capital restructuring was not an isolated event but the culmination of a multi-year operational transformation. In Q2 2023, cbdMD initiated aggressive cost controls, reducing SG&A by an annualized rate of $24 million and stabilizing direct-to-consumer (DTC) revenue despite lower marketing spend. This disciplined approach began to bear fruit, with Q3 2024 showing significant year-over-year improvements in gross margins, SG&A, operating income, net income, and EBITDA, alongside an 18% sequential revenue increase.

The first fiscal quarter of 2025 marked a historic milestone for YCBD, as it achieved positive Non-GAAP Net Income and Adjusted EBITDA for the first time as a public company. Revenue rebounded sequentially over Q4 2024, and gross margins remained strong at 66%. However, the momentum faced headwinds in Q3 2025. Net sales decreased by 12% quarter-over-quarter to $4.61 million and were down 3% for the nine months ended June 30, 2025, compared to the prior year. This decline was primarily attributed to underperforming DTC business, regulatory uncertainty impacting wholesale accounts, and management's focus being temporarily diverted to the critical preferred stock conversion process.

Cost of sales as a percentage of net sales increased to 38.5% in Q3 2025 (from 34.2% in Q3 2024), mainly due to higher warehouse lease costs and lower overhead absorption. Despite this, operating expenses remained flat quarter-over-quarter and decreased by $1.90 million for the nine months ended June 30, 2025, reflecting continued success in cost reduction initiatives, including the elimination of the HQ office lease. As of June 30, 2025, the company reported $1.10 million in cash and cash equivalents and $2.00 million in working capital. While management models its liquidity runway to be sufficient through at least the end of fiscal 2026, the company acknowledges "substantial doubt" about its ability to continue as a going concern for the next twelve months without improving profitability and securing additional funding. This highlights the critical importance of achieving consistent positive cash flow from operations.

Strategic Growth Vectors and Competitive Positioning

With its capital structure simplified and operational efficiency improved, YCBD is now focused on several strategic growth vectors. The most prominent is the expansion of its Herbal Oasis brand, a hemp-derived THC-infused social seltzer. This brand has already earned national recognition, medaling at the 2025 High Spirits Awards, and has secured distribution across Alabama, Georgia, North Carolina, parts of South Carolina, Florida Panhandle, Tennessee, and Minnesota, with products now available in major retailers like Total Wine, Winn-Dixie, and Piggly Wiggly. While Oasis products carry slightly lower gross margins than its core CBD offerings, management views them as "incremental contribution dollars" and a "volume play" in a booming category.

The company is also committed to expanding its core wholesale business, which saw a 12.2% increase for the nine months ended June 30, 2025, driven by new sales representatives and high-quality partnerships. International expansion is another key focus, with progress in securing sanitary registrations in Central and South America and nearing final UK Novel Food Regulatory Approval. The "clean slate" provided by the capital reset has also opened up M&A opportunities, with YCBD actively evaluating targets that offer "accretive customer base," "cost synergies," or can create value where "one and one equals three," both within and outside the cannabinoid space.

In the competitive landscape, YCBD positions itself as a niche player, leveraging its scientific differentiation and focused brand portfolio against larger, more diversified competitors such as Charlotte's Web Holdings (CWBHF), Tilray (TLRY), Canopy Growth (CGC), and Cronos Group (CRON). YCBD's TTM gross profit margin of 61.20% stands out favorably compared to CWBHF (43%), TLRY (29%), CGC (30%), and CRON (21%), indicating superior product cost control and pricing power. This margin advantage, coupled with its robust clinical research and NSF for Sport certifications, provides a strong competitive moat, fostering consumer trust and potentially allowing for higher average selling prices. However, YCBD's smaller scale compared to these rivals can lead to higher customer acquisition costs and less extensive distribution networks, making it more vulnerable to supply chain disruptions and requiring more agile strategic execution. The evolving regulatory environment, while a risk, could also "negatively affect our smaller competitors and potential reduce competition," potentially benefiting YCBD if it can adapt effectively.

Outlook and Risks

Management is "firmly committed to delivering a profitable 2025," anticipating a return to positive income and EBITDA in the second half of the year. This outlook is predicated on the successful rollout of the Oasis brand, with revenue contributions expected in Q4 2025, and continued improvements in marketing efficiency following recent leadership changes and strategy adjustments. The company has modeled its liquidity runway to be sufficient through at least the end of fiscal 2026, a critical assurance for investors.

However, significant risks persist. The "notable uptick in both state and federal regulatory activity" poses an ongoing threat, potentially limiting consumer choice and market access, and necessitating continuous investment in compliance and lobbying efforts. Operational execution, particularly in marketing and inventory management, remains crucial, as evidenced by the Q3 2025 revenue decline stemming from marketing team weaknesses and intermittent stock shortages. While the capital reset significantly de-risked NYSE American delisting, maintaining compliance requires sustained operational performance. The company's ability to execute its growth strategies, particularly for Oasis, and to integrate potential M&A targets effectively, will be paramount in realizing its long-term value creation goals.

Conclusion

cbdMD stands at a pivotal juncture, having successfully executed a "Great Reset" that has fundamentally transformed its financial and strategic footing. By simplifying its capital structure, eliminating legacy obligations, and achieving initial profitability milestones, YCBD has laid a stronger foundation for sustainable growth. Its commitment to scientific validation provides a unique competitive edge in a crowded market, while the expansion into the high-growth THC beverage segment with Herbal Oasis offers a compelling new revenue stream.

The investment thesis for YCBD hinges on its ability to translate this newfound strategic flexibility and operational discipline into consistent, profitable growth. While the path ahead is not without challenges, particularly from regulatory uncertainty and the need for flawless execution, the company's proactive measures, industry-leading gross margins, and innovative product pipeline position it for a compelling future. Investors should closely monitor the continued rollout of Herbal Oasis, the effectiveness of its revamped marketing strategies, and its ability to maintain operational efficiencies as it strives to deliver on its commitment to a profitable 2025 and beyond.