10-Q: cbdMD Converts Preferred Stock, Addresses Listing Concerns

cbdMD, Inc. reported a 12% decline in Q3 net sales but significantly improved stockholders' equity and NYSE American listing compliance through a preferred stock conversion and reverse stock split.

Summary

• Net sales for the three months ended June 30, 2025, decreased by 12% to $4.6 million compared to $5.2 million in the prior year's quarter.
• Net sales for the nine months ended June 30, 2025, decreased by 3% to $14.5 million compared to $14.9 million in the prior year's nine-month period.
• Gross profit margin for the three months ended June 30, 2025, was 61.5%, a decrease from 65.8% in the same period last year.
• The company reported a net loss attributable to common shareholders of $(1.23) million for the three months ended June 30, 2025, worsening from a loss of $(0.54) million in Q3 2024.
• Net loss attributable to common shareholders for the nine months ended June 30, 2025, improved to $(3.70) million from $(6.55) million in the prior year.
• Stockholders' equity significantly improved to $6.11 million at June 30, 2025, from $1.96 million at September 30, 2024, primarily due to the conversion of preferred stock and accrued dividends.
• A one-for-eight reverse stock split and the automatic conversion of all Series A Preferred Stock and $6.7 million of accrued dividends into common stock were effective on May 6, 2025.
• Cash and cash equivalents decreased to $1.06 million at June 30, 2025, from $2.45 million at September 30, 2024.
• Working capital improved to $2.01 million at June 30, 2025, from a negative $2.23 million at September 30, 2024.
• Adjusted EBITDA for the three months ended June 30, 2025, was a loss of $(623,644), worsening from a loss of $(84,953) in Q3 2024.
• Adjusted EBITDA for the nine months ended June 30, 2025, was a loss of $(606,857), an improvement from a loss of $(1,549,701) in the prior year.
• The company launched Oasis, a hemp-derived THC-infused social seltzer, in Q1 fiscal 2025 and has secured distribution across several states.
• Management noted an uptick in state and federal regulatory activity impacting the hemp and cannabinoid wellness category, requiring increased resources for compliance and lobbying.

Sentiment

Score: 4

Explanation: While the company successfully addressed its NYSE American listing compliance and significantly improved its balance sheet by converting preferred stock and accrued dividends, the core business performance in the third quarter showed a 12% decline in net sales and a worsening net loss. Cash reserves are low, and the company explicitly states substantial doubt about its ability to continue as a going concern. The launch of Oasis and marketing team restructuring offer future potential, but current operational challenges and regulatory pressures are significant.

Positives

• Successfully converted all Series A Preferred Stock and $6.7 million in accrued dividends into common stock, significantly improving stockholders' equity to $6.11 million at June 30, 2025.
• The preferred stock conversion is expected to bring the company into compliance with NYSE American continued listing standards, addressing previous non-compliance notifications.
• Working capital improved significantly to $2.01 million at June 30, 2025, from a negative $2.23 million at September 30, 2024.
• Net loss attributable to common shareholders for the nine months ended June 30, 2025, improved by $2.85 million compared to the prior year.
• Operating expenses for the nine months ended June 30, 2025, decreased by $1.9 million due to cost structure reductions, including the elimination of the HQ office and reduced professional, accounting, and legal expenses.
• Launched Oasis, a hemp-derived THC-infused seltzer, which has received positive early consumer response, including multiple medals at the LA Spirits Awards, and expanded distribution across multiple states.
• Management observed signs of success from marketing changes and strategy commencing in July and through the fourth quarter, with a growing new customer base and key direct-to-consumer metrics trending positively.
• Increased regulation in the hemp and cannabinoid wellness category may negatively affect smaller competitors, potentially reducing overall competition.

Negatives

• Net sales for the three months ended June 30, 2025, decreased by 12% ($0.6 million) compared to the same period in the prior year, primarily due to declining direct-to-consumer performance and regulatory uncertainty impacting wholesale.
• Gross profit margin decreased to 61.5% in Q3 2025 from 65.8% in Q3 2024, partly attributed to increased warehouse lease costs and lower overhead absorption.
• Net loss for the three months ended June 30, 2025, worsened to $(895,272) from a net income of $459,737 in Q3 2024.
• Cash and cash equivalents decreased by $1.39 million to $1.06 million at June 30, 2025, from $2.45 million at September 30, 2024.
• Conservative cash management in the second quarter led to inventory levels dropping below optimal thresholds, causing intermittent stock shortages across several SKUs.
• Significant management attention was temporarily diverted from core business operations to secure shareholder approval for the preferred stock conversion.
• Adjusted EBITDA for the three months ended June 30, 2025, worsened to a loss of $(623,644) from a loss of $(84,953) in Q3 2024.

Risks

• History of losses, potential liquidity concerns, and the need to raise additional capital, raising substantial doubt about the ability to continue as a going concern for twelve months after the financial statements are issued.
• Current capitalization limits the ability to make strategic or accretive acquisitions or attract new investors.
• Reliance on key digital channels for marketing and the ability to acquire new customers at a profitable rate.
• Ability to bring new and compelling dietary ingredients to market.
• Reliance on third-party raw material suppliers and manufacturers, and their compliance with supplier verification programs and testing protocols.
• Potential impact of tariffs.
• Material risks associated with the regulatory environment for dietary ingredients, including CBD, federal laws (FDA, FTC, DEA interpretation), state and local laws, compliance costs, increased litigation risks, and possible changes in the use of dietary ingredients.
• Risks of failing to regain compliance with NYSE American continued listing standards and potential delisting, which could reduce liquidity, market price, investor interest, and access to public capital markets.
• Ongoing state-level regulatory actions have the potential to increase product costs through new labeling and packaging requirements in particular jurisdictions.
• Proposals at federal and state levels (e.g., HB 1 in Texas, HB 328 in North Carolina, and changes to the definition of hemp in the federal appropriations bill) sought to fundamentally alter the definition of sellable hemp-derived products, which could materially affect future revenue and the broader industry's viability.

Future Outlook

Management remains optimistic about market positioning in fiscal 2025 despite industry-wide challenges. The company anticipates revenue contribution from new Oasis distribution agreements in the remainder of the fourth quarter. Regulatory pressure is expected to persist, requiring continued strategic investment to protect market access and consumer choice. The company has a pipeline of cannabinoid and non-cannabinoid products and formulation upgrades for ongoing innovation and product portfolio improvement.

Management Comments

• Management continues to be very focused on our goal of delivering positive earnings through a combination of optimizing our product portfolio, right-sizing our cost structure and investing in marketing that will provide positive return on customer acquisition.
• While we aimed to maintain our revenue levels during the third fiscal quarter, we experienced a decline driven by several identifiable factors.
• Our top priority for the quarter was securing shareholder approval to amend our articles of incorporation and convert the Series A Preferred stock. This strategic move was essential to improving stockholders equity, and our plan to regain compliance with NYSE American continued listing standards and preserve our Common Stock listing on the NYSE American.
• We were successful in obtaining shareholder approval to convert our Series A Preferred Stock; however, the process required significant management attention and temporarily diverted executive management focus from core business operations.
• During the third quarter we rebuilt our marketing team and agency base. During the third quarter we reconstructed our marketing and creative systems and processes along with our customer acquisition funnels and performed significant channel testing. This resulted in a growing new customer base in July and key metrics of our direct to consumer business trending in the right direction.
• Our conservative cash management in the second quarter led to inventory levels dropping below optimal thresholds. Coupled with delays in product testing, this resulted in intermittent stock shortages across several SKUs. To correct this, we have since increased inventory investments to ensure better product availability and to support revenue recovery moving forward.
• The trend is clear: there is a growing and coordinated effort to restrict the hemp and cannabinoid wellness category. In response, management has had to dedicate increased time and capital this quarter to regulatory engagement.
• We remain focused on growing the Company in a smart, profitable manner along with appropriate cost controls.
• Since the elimination of our Series A Preferred Stock we have seen an increase in M&A opportunities and will continue to evaluate opportunities that we believe are accretive to the business and for our shareholders.

Industry Context

The hemp and cannabinoid wellness category is facing increasing regulatory pressure at both state and federal levels, with legislative actions introducing new labeling requirements and proposals to alter the definition of sellable hemp-derived products. This trend creates uncertainty and compliance costs for companies like cbdMD but may also reduce competition by impacting smaller players. The hemp-derived THC beverage market, where cbdMD recently launched its Oasis brand, is rapidly expanding, with projected growth to $4.1 billion by 2028, indicating a significant growth opportunity despite the broader regulatory challenges in the CBD sector.

Comparison to Industry Standards

• The filing does not provide specific comparisons of the company's financial results to industry benchmarks or comparable companies/projects.
• It notes that the hemp-derived THC beverage market, which the company's Oasis brand has entered, is projected to grow to $4.1 billion by 2028, with sales more than doubling in 2024, indicating a high-growth segment.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently the subject of any material pending or threatened litigation or other legal proceedings.

Related Party Transactions

• None.

Stakeholder Impact

• Shareholders: Significant improvement in stockholders' equity and resolution of NYSE American listing compliance issues are positive. However, continued net losses, declining Q3 revenue, and going concern risk remain concerns. The reverse stock split reduced the number of outstanding shares.
• Employees: Leadership changes in the marketing team were implemented to strengthen customer acquisition efforts.
• Customers: Intermittent stock shortages due to inventory issues may impact product availability and satisfaction. New product launches (Oasis) and reformulations aim to enhance customer offerings.
• Suppliers/Manufacturers: The company relies on third-party suppliers and manufacturers, requiring their compliance with verification programs and testing protocols.
• Creditors: The conversion of convertible notes and elimination of preferred stock dividends reduced certain liabilities, improving the balance sheet. However, the going concern risk remains relevant.

Next Steps

• Continue optimizing product portfolio, right-sizing cost structure, and investing in marketing for positive return on customer acquisition.
• Increase inventory investments to ensure better product availability and support revenue recovery moving forward.
• Dedicate continued strategic investment to regulatory engagement, lobbying efforts, and customer advocacy to protect market access and consumer choice.
• Expand sales team and distribution for the Oasis beverage line, anticipating revenue contribution in the remainder of the fourth quarter.
• Continue to assess and evaluate the product portfolio, devoting resources to ongoing research and development for product improvements and new cannabinoid/non-cannabinoid products.
• Pursue relationships with traditional retail accounts and distributors.
• Explore international sales in markets outside the United States, particularly in Central and South America.
• Cultivate additional brands like Paw CBD, ATRx, and Oasis, focusing on education, cross-selling, and customer retention.
• Evaluate M&A opportunities that are accretive to the business and shareholders, especially after the elimination of Series A Preferred Stock.
• Evaluate the impact of the One Big Beautiful Bill Act (OBBBA) on financial position, results of operations, and cash flows for future periods.

Key Dates

Recommendation

While cbdMD has made critical strides in improving its balance sheet and addressing NYSE American listing compliance through the preferred stock conversion and reverse stock split, the underlying operational performance in the third quarter remains challenging with declining net sales and a worsening net loss. The company explicitly states substantial doubt about its ability to continue as a going concern. The launch of the Oasis beverage line and ongoing marketing restructuring offer potential for future growth, but the significant regulatory headwinds in the CBD industry and low cash reserves present considerable risks. A 'hold' recommendation is appropriate for investors who are already exposed and believe in the long-term potential of the new initiatives and cost-saving measures, but new investors should exercise caution given the high risk profile and current operational struggles.

Keywords

CBD, cannabidiol, hemp-derived, THC beverages, Oasis seltzer, Paw CBD, ATRx Labs, functional mushrooms, e-commerce, wholesale, SEC filing, 10-Q, financial results, stock split, preferred stock conversion, NYSE American listing, regulatory risk, liquidity, going concern, Charlotte NC