Business Overview and History
cbdMD Inc (YCBD) is a leading player in the rapidly growing hemp-derived cannabidiol (CBD) industry. With a focus on innovation, quality, and customer trust, the company has established itself as one of the most recognized and respected CBD brands in the market.
cbdMD was formed on March 17, 2015 as Level Beauty Group, Inc. In November 2016, the company changed its name to Level Brands, Inc., and then on May 1, 2019, it adopted its current name, cbdMD, Inc. The company operates from offices located in Charlotte, North Carolina.
In October 2019, cbdMD designated 5 million of its authorized preferred shares as 8% Series A Cumulative Convertible Preferred Stock, which ranks senior to the company's common stock for liquidation or dividend provisions.
The company's core business is the production and distribution of a wide range of hemp-derived CBD products, including tinctures, gummies, topicals, capsules, and pet products. cbdMD sources its CBD from non-GMO hemp grown on farms in the United States and utilizes a proprietary broad-spectrum formula that eliminates the presence of tetrahydrocannabinol (THC) while retaining other beneficial cannabinoids and terpenes.
cbdMD operates across three main product segments: cbdMD, Paw CBD, and ATRx Labs. The cbdMD segment offers a wide array of high-grade, premium CBD products, including tinctures, gummies, topicals, capsules, and sleep, focus, and calming aids. These products are formulated with the company's innovative broad spectrum CBD formula, which utilizes one of the purest hemp extracts containing CBD, CBG, and CBN, while eliminating the presence of THC.
The Paw CBD segment offers veterinarian-formulated products for pets, including tinctures, chews, and topicals in varying strengths and formulas. Paw CBD products have undergone the National Animal Supplement Council's rigorous audit and meet their Quality Seal standard, providing pet owners with high-quality, trusted CBD solutions for their furry companions.
The ATRx Labs segment was developed using the power of functional mushrooms to provide consumers with a complementary natural ingredient solution for immunity, focus, digestive health, cognitive, and mood benefits. The ATRx brand aims to leverage the growing consumer interest in mushroom-based supplements as a natural alternative.
Financial Performance and Ratios
Despite the challenges faced by the overall CBD industry, cbdMD has made significant strides in improving its financial performance in recent years. For the fiscal year ended September 30, 2024, the company reported total net sales of $50 million, a slight decrease from the previous year's $50 million. However, the company's focus on cost optimization has led to a notable improvement in its bottom line, with a reduction in the net loss from $23 million in fiscal 2021 to $3.3 million in fiscal 2024.
For the first quarter of fiscal 2025 (ended December 31, 2024), cbdMD reported total net sales of $5.11 million, representing a 12% year-over-year increase and a 4.9% decrease compared to the prior quarter. This growth was driven by a 22% increase in wholesale sales, which offset a 10% decline in e-commerce sales. The company's cost of sales as a percentage of net sales improved slightly to 33.5%, compared to 33.8% in the prior year period, driven by ongoing cost-saving initiatives.
Operating expenses decreased by $1.14 million or 26% year-over-year, primarily due to management's efforts to reduce the company's cost structure, including decreases in staff-related expenses, marketing expenses, and professional/legal fees. The company reported a net income of $15,095 for the quarter, a significant improvement from the $977,000 net loss in the prior year period.
The company's key financial ratios as of December 31, 2024, reflect its ongoing efforts to strengthen its financial position. The current ratio stands at 0.69, indicating a moderate level of liquidity, while the quick ratio of 0.46 suggests a need for further optimization of working capital management. The debt-to-equity ratio of 0.91 highlights the company's reliance on debt financing, which has been partially addressed through the recent conversion of its convertible notes.
As of December 31, 2024, cbdMD had cash and cash equivalents of $1.97 million. The company had no available credit line as of the most recent reporting period. Operating cash flow for the quarter was -$317,949, while free cash flow was -$482,336.
Operational Highlights and Initiatives
Throughout its evolution, cbdMD has remained committed to innovation and product development. In recent years, the company has launched several new product lines, including its Oasis line of hemp-derived THC seltzers, which has garnered significant industry attention and is expected to contribute to future revenue growth.
The company has also made strides in expanding its distribution channels, securing partnerships with national retailers such as Sprouts and GNC, while also growing its e-commerce presence through its own website and third-party platforms. This multi-channel approach has allowed cbdMD to reach a broader customer base and diversify its revenue streams.
In addition to its product innovations and distribution initiatives, cbdMD has prioritized investment in research and development, conducting clinical trials to validate the efficacy of its CBD formulations. The publication of these studies in peer-reviewed journals has helped the company build credibility and differentiate its offerings in the highly competitive CBD market.
Regulatory Challenges and Compliance
The CBD industry has faced significant regulatory hurdles, with the legal and compliance landscape remaining fluid and uncertain. cbdMD has navigated these challenges by closely monitoring the evolving regulatory environment and ensuring strict adherence to all applicable laws and guidelines.
The company's proactive approach to compliance has included the implementation of a robust supplier verification program and stringent testing protocols to ensure the quality and safety of its products. Additionally, cbdMD has engaged with industry advocacy groups and policymakers to promote regulatory clarity and support the responsible development of the hemp-derived CBD market.
Listing and Capital Structure Challenges
In recent years, cbdMD has faced challenges related to its listing status on the NYSE American exchange. In 2024, the company received a notice of noncompliance with the exchange's continued listing standards due to its stockholders' equity falling below the required threshold.
To address this issue, cbdMD has proposed a conversion of its outstanding Series A Preferred Stock, which carries a significant accrued dividend liability, into common stock. This strategic move is aimed at strengthening the company's balance sheet and regaining compliance with the NYSE American's listing requirements. The successful implementation of this plan is crucial for cbdMD to maintain its public market presence and unlock further growth opportunities.
As of January 2025, cbdMD has become debt-free, excluding ordinary course liabilities and accrued dividends, after the remaining convertible notes were converted to common stock. This development significantly improves the company's capital structure and financial flexibility.
Competitive Landscape and Market Outlook
The CBD industry remains highly competitive, with numerous players vying for market share. cbdMD faces competition from both established pharmaceutical and consumer product companies, as well as smaller, nimble startups. Key industry peers include Charlotte's Web, CV Sciences, and Lazarus Naturals, among others.
However, cbdMD's commitment to quality, innovation, and brand trust has allowed it to carve out a significant position in the market. The company's diverse product portfolio, growing distribution network, and investment in research and development position it well to capitalize on the projected continued growth of the hemp-derived CBD market, which is expected to reach over $20 billion by 2025, according to industry analysts.
In the broader CBD industry, market growth has been challenged, with retailers pulling back on shelf space in recent years. However, the hemp-derived beverage category is seen as a fast-growing segment, providing an opportunity for cbdMD to diversify its revenue streams through its Oasis line of products.
Future Outlook and Guidance
cbdMD's management has expressed optimism about the company's future prospects, stating that they are entering 2025 "with momentum, financial discipline, and a clear roadmap for sustainable profitability." The company views its recent financial performance as a "foundation, not a peak," suggesting potential for further improvement.
Looking ahead, cbdMD anticipates "slight increases in our operating costs in the current quarter" related to a lease extension and increased marketing expenses. However, management remains confident in the company's ability to continue its trajectory towards sustainable profitability.
Conclusion
cbdMD's journey in the rapidly evolving hemp-derived CBD industry has been marked by both challenges and opportunities. The company's focus on quality, innovation, and regulatory compliance has allowed it to establish a strong brand and gain the trust of consumers. Despite the industry's regulatory uncertainties, cbdMD remains well-positioned to navigate the path ahead and capitalize on the significant growth potential of the CBD market.
As the company continues to execute on its strategic initiatives, optimize its operations, and address its capital structure challenges, it is poised to solidify its position as a leading player in the natural wellness and hemp-derived CBD space. The recent improvements in financial performance, including the achievement of positive net income and adjusted EBITDA in the first quarter of fiscal 2025, demonstrate the effectiveness of cbdMD's turnaround strategy and provide a strong foundation for future growth.