cbdMD Inc

Our Company

General

We own and operate the nationally recognized CBD (cannabidiol) brands cbdMD and Paw CBD as well as our ATRx Labs brand of functional mushrooms. We believe that we are an industry leader producing and distributing dietary supplements and topical products, with an initial focus on hemp derived products including broad spectrum CBD products and full spectrum CBD products. Our mission is to identify and formulate products with novel, compelling ingredients and blends to enhance our customer’s overall quality of life while bringing education, awareness and accessibility of high quality and effective products to all. We source cannabinoids, including CBD, which are extracted from non-GMO hemp grown on farms in the United States. Our innovative broad spectrum formula utilizes a clinically studied hemp extract blend, containing CBD, CBG and CBN, while eliminating the presence of tetrahydrocannabinol (THC). Non-THC is defined as below the level of detection using validated scientific analytical methods. Our full spectrum and Delta 9 products contain a variety of cannabinoids and terpenes while maintaining small amounts of THC that fall within the limits set in the 2018 Farm Act. The ATRx brand was launched to bring non cannabinoid products to market, starting with non-psychoactive functional dietary mushrooms such as Lion’s Mane, Cordyceps and Reshi. In addition to our core brands, we also operate Therapeutics to capture the Company’s ongoing investments in science related to its existing and future products, including research and development activities for therapeutic applications and Proline Global that houses some of our newer brands.

Our cbdMD brand of products includes an array of high-grade, premium every day and functional CBD products, including tinctures; gummies; topicals; capsules; drink mixers and ready to drink cans; and sleep, focus and calming aids. In addition, we have clinical based claims and industry leading strength and concentrations to drive product efficacy.

Our Paw CBD brand of products includes a line of veterinarian-formulated products including tinctures, chews, topicals products in varying strengths and formulas. Paw CBD products have undergone the National Animal Safety Council’s rigorous audit and meet their Quality Seal standard.

Our ATRx brand was developed using the power of functional mushrooms to provide consumers a complementary natural ingredient solution for immunity, focus, digestive health, cognitive and mood benefits.

cbdMD, Paw CBD and ATRx products are distributed through our e-commerce websites, third party e-commerce sites, select distributors and marketing partners as well as a variety of brick-and-mortar retailers.

Recent Developments

Management’s efforts to drive shareholder value have been two fold: (i) deliver positive earnings through a combination of optimizing our product portfolio, rationalizing our cost structure, and growing revenue; and, (ii) simplifying our capital structure.

During fiscal 2024 we continued to make some sweeping changes to our cost structure and re-tooled our marketing efforts, all while launching our new line of nootropic functional mushrooms ATRx Labs. Year over year we improved GAAP operating loss by approximately $19.2 million, including impairment loss of $13.2 million in fiscal 2023, and our non-GAAP adjusted EBTIDA by $3.2 million. In addition, we reduced the cash consumed in fiscal 2023 of $4.9 million to approximately $0.7 million during fiscal 2024, including a significantly lower amount during the second half of fiscal 2024.

During the second quarter of fiscal 2024 we re-attempted to convert the Series A Preferred stock to common stock through a shareholder vote to amend our Series A Preferred Stock designation. Ultimately, we were unable to secure the required votes needed to approve the amendment, and we canceled the shareholder meeting. While we did not successfully get the vote needed, we received productive feedback and continued to have dialogue with preferred shareholders during the remainder of the year. We believe the combined market capitalization of both our common and Series A Preferred is being impacted due to our current capital structure. Our goal is to simplify our capital structure and we believe it will help unlock additional equity value and open up more strategic activity for the Company. We are planning a new proposal to our shareholders in the current fiscal year for the automatic conversion of our Series A Preferred Stock.

During the fiscal fourth quarter of 2024 the Company continued to make progress despite some short-term revenue impacts. A few items that impacted the quarter include: (i) During the fourth quarter, one of our agencies made a recommendation which unexpectedly resulted in a sharp decline in emails delivered. We have reacted accordingly to address the issue and have seen deliverability and metrics began to rebound during early fiscal 2025, however we believe this had greater than $200,000 impact to our direct-to-consumer revenue during the quarter. (ii) We continued to face ongoing down time on various digital marketing platforms tied to the CBD category. To help offset this ongoing challenge, we made a change to our marketing resources during the summer. As a result, we have seen our SEO rankings improve significantly and we are now ranking atop a number of key high-traffic, strategic terms resulting in strong gains on high-intent traffic during the first quarter of fiscal 2025. (iii) A number of our larger international wholesale clients faced a new regulatory registration requirement which ultimately impacted sales for approximately 100 days, most of which overlapped the fourth quarter. We have since seen wholesale demand rebound toward the end of October and continues to strengthen as of the filing of this report.

We have spent significant resources focused on state and national regulatory matters and believe lack of a clear regulatory framework has a negative impact and limits the opportunity for CBD companies that act with integrity and invest in responsible quality and safety standards. We continue to believe in the long term benefits of hemp-derived cannabinoids, but see a longer-term horizon for federal regulatory clarity. As a result, during fiscal 2024 the Company has focused on expanding into categories that do not have as many regulatory and channel hurdles.

During November of 2024, the Company launched its new functional mushroom line of products with its Super Gummy under the ATRx brand available on ATRxlabs.com and Amazon. At our core, we believe in natural health and wellness solutions and we believe in the benefits derived from functional mushrooms in addition to hemp. During April 2024 we successfully launched the ATRx Platinum line in GNC.

Growth Strategies

We continued to pursue many strategies to grow our revenues and expand the scope of our business in fiscal 2024 and beyond:

Marketing

cbdMD and its brands are primarily direct to consumer brands and our focus is to grow our base of customers by profitably acquiring new customers while minimizing churn. We employ a multi-channel media approach that allows us to market our brand and products through various distribution efforts, including professional partnerships, social media engagement, podcasts, digital and television advertising, affiliate marketing, search engine optimization, and influencer endorsements. In addition, we work with our retail partners on various marketing efforts to focus on shelf velocity.

During fiscal year 2024 and fiscal year 2023 we spent approximately $4.2 million and $6.9 million, respectively, on brand development, sponsorships and marketing. During fiscal 2023, we took a strategic approach to understanding our customer analytics, focusing on habits, attribution, and opportunities to optimize our customer acquisition costs and improve lifetime value. This ongoing learning process led us to make more informed decisions, reallocating marketing spend to areas with clearer attribution, stronger returns on investment, and greater brand impact. We streamlined spending by eliminating costly sponsorships, athlete endorsement deals, influencer partnerships, and digital campaigns that did not meet these criteria.

Moving forward, we remain committed to thoughtful, data-driven investments to expand our well-established brand. We are placing greater emphasis on consumer, retailer, and regulatory education to build awareness of our superior science, safety, and clinical efficacy. By refining our messaging and outreach, we aim to attract more consumers, engage more retailers, and foster broader regulatory acceptance, always working in the best interests of the company.

Sales

We distribute our products both through our online sales channel as well as through a number of wholesalers and retailers that resell our products both in brick and mortar locations as well as via their online websites. Sales of our products primarily come from online sales at our websites www.cbdmd.com, www.pawcbd.com, www.atrxlabs.com, cbdmdbotanicals.com and www.directcbdonline.com and through our inside sales department. Our inside sales team concentrates on B2B niche specialty retailers as well as wholesale distributors, including international distributors, who we believe can help amplify the reach of cbdMD products and brand recognition at physical retail locations.

During fiscal year 2024, our e-commerce business experienced continued growth, with year over year increases in new e-commerce customers. For fiscal 2024 and fiscal 2023, approximately 80% of sales were e-commerce. While our revenue trends continue an e-commerce increase, we continue to work to expand the stores we serve on our B2B brick and mortar side of our business in addition to distributors that carry our products.

Product manufacturing

We are committed to producing a safe, high-quality product with testing transparency. We only use cannabinoids extracted from hemp grown in the United States in our products. We maintain strict cGMP compliance. All suppliers and manufacturers meet strict quality requirements and are validated producers of hemp under state and federal laws.

Most of our products are outsourced to various manufacturers under short term agreements.

We develop detailed product specifications and utilize several manufacturers with specific formulation and format expertise to deliver finished products within specification. All suppliers undergo a detailed supplier verification process and are required to become GMP certified. Master Manufacturing Agreements and Quality Assurance Agreements are required for all of our critical supply contract manufacturers. All finished goods are tested by the supplier at an independent ISO 17025 accredited third-party laboratory to ensure they meet ingredient label claims, including purity and strength of cannabinoid levels and comply with the THC content requirements in the 2018 Farm Act, before they are released for shipment. We have no long term obligations with any manufacturers or suppliers.

As a consumer goods brand dedicated to providing the highest quality hemp extracted cannabinoid consumer products on the market, we strive to meet or exceed the FDAs Good Manufacturing Practice (GMP) guidelines. These guidelines provide a system of processes procedures and documentation to assure a product is manufactured consistently, in a safe manner, and meets label claims for identity, strength, composition, quality, and purity. Our warehouse operation encompassing 80,000 square feet, is fully GMP compliant and NSF certified. Quality of products is a key tenant of our operations. During the second quarter of fiscal 2024 we renewed our NSF GMP 455-2 certification. We also hold the National Animal Supplement Counsel’s (“NASC”) prestigious Quality Seal Award. In addition, during fiscal 2022 we were the first CBD company to commercialize THC Free SKUs that were NSF Certified Products, which is a prestigious third-party guarantee that ensures what we say is in the product is actually in the product. We also spearheaded NSF’s Certified for Sport (CFS) for cannabinoid products and were the first company to commercialize products under this rigorous program that gives assurances that a person consuming an NSF CFS product will not fail a World Anti Doping Agency (WADA) test for banned substances, thus assuring our customers they can safely consume our CFS products.

Research and development and product enhancements

New product development efforts are focused on both near-term and long-term results for the Company. The key objectives and input points driving cbdMD’s research and development process include current product improvement efforts and new product development activities. Our product improvement efforts include consumer feedback analysis, market research on emerging trends, and feedback from panels of product testers, among others. In the fourth quarter of fiscal 2023 we expanded our feedback analysis to include biometric device monitoring and in fiscal 2024 we concluded a study that demonstrated our Broad Spectrum CBD improves sleep with regular use. The results of this study will be used in marketing and may become the subject of future publications. It also informs future product development and iterations of existing products to improve efficacy. We also conduct in-depth market research campaigns and sample size testing and research. Our new product development activities include market research, projecting future product trends, research and identification of clinically proven, proprietary functional ingredients, and research to develop new product offerings, in-depth product testing, and package and graphic development. The Company is continually exploring exclusive partnerships with well-known and established dietary supplement ingredient manufacturers to include their proprietary and clinically studied ingredients in functional combination products to address specific consumer needs in large market segments.

cbdMD Therapeutics, the clinical research arm of the Company, completed two clinical studies in fiscal year 2023:

In the first quarter of fiscal 2023, the Company concluded a randomized, double blind, placebo controlled clinical trial in healthy adults utilizing its proprietary hemp extract blend which demonstrated significant benefits in many areas, including reduction of pain, reduced inflammation, and improved mood, and these results are further driving the refinement of current products and the development of new products which utilize the same proprietary blend of hemp extracted cannabinoids. The results of this study were published in the Journal of the International Society of Sports Nutrition in June 2024.

In the third quarter of fiscal 2023 the Company concluded a randomized, double blind, placebo controlled clinical study in dogs performed in conjunction with Colorado State University’s veterinary program. Results indicate that our proprietary broad spectrum hemp extract improved mobility, gait, and quality of life in dogs with osteoarthritis. These results provide claims related to our proprietary broad spectrum blend’s efficacy and drive new product development to address the needs of the nearly $2 billion canine arthritis treatment market according to Expert Market Research. The results of this study were published in Frontiers in Veterinary Science in September 2024

The second paper from the Company’s comprehensive safety study was published in the fourth quarter of fiscal 2023. We believe the paper was groundbreaking in the hemp derived cannabinoid industry and was immediately cited in additional safety papers. To our knowledge the data in the publication established cbdMD as only the second company in the world to publish actual clinical safety data on CBD isolates with an extensive number of studies and data in the publication. These papers can be found in Regulatory Toxicology and Pharmacology.

Intellectual property

We hold a portfolio of U.S. trademark applications which are held for current and future product offerings and extended branding capability. The portfolio, includes but is not limited to, the trademarks set forth below:

We currently have filed multiple foreign trademark applications for CBDMD and PAWCBD and have secured marks in the following countries: Chile, Costa Rica, Argentina, Peru, Ecuador, European Union, United Kingdom, Czech Republic, New Zealand, Columbia, Australia, and Switzerland. We continue to prosecute the CBDMD and PAWCBD trademarks in the following countries: Brazil, Canada, China, Spain, Mexico, Norway, and South Africa. Additionally, a growing number of our products hold sanitary registrations in certain Central and South American countries.

The Company’s U.S. Patent Application No.: 17/359,193 is currently under examination. In Q4 2024 the Company filed a response to an office action making several amendments to its claims based on data from the Company’s clinical studies. This patent, if granted, is expected to provide protection in several key areas, including novel formulations for the treatment of mood and sleep disorders.

In addition to our trademarks and our patent filing, we rely on a combination of trade secret laws and restrictions on disclosure to protect our intellectual property rights. Our success depends on the protection of the proprietary aspects of our product development, formulation and knowhow, as well as our ability to operate without infringing on the proprietary rights of others. We also enter into proprietary information and confidentiality agreements with our employees, consultants and commercial partners and control access to, and distribution of, our formulas and other proprietary information.

In addition to www.cbdmd.com, www.pawcbdmd.com, www.atrxlabs.com, and www.directcbdonline.com, we own multiple domain names that we may or may not operate in the future. However, as with phone numbers, we do not have and cannot acquire any property rights in an Internet address. The regulation of domain names in the United States and in other countries is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registers or modify the requirements for holding domain names. As a result, we might not be able to maintain our domain names or obtain comparable domain names, which could harm our business.

Competition

The dietary supplement market is highly competitive, with new products and new brands entering frequently. The Company is attempting to distinguish itself by focusing on hemp derived cannabinoids and seeking to identify new, emerging ingredients with functional efficacy for key consumer need states such as sleep, mood, focus and energy. Specifically, the hemp derived cannabinoid market has remained fragmented with over 2,000 brands in the category and no clear dominant brand in the US. Our competitors of hemp derived cannabinoid products include a combination of public and private companies who operate as combination of e-commerce and wholesale brands as well as brick and mortar retail operations. In addition to cbdMD’s hemp derived CBD and Delta 9 products, there are several other synthetic compounds including, but not limited to delta-8; delta 10 and HHC, that do not have long market history or safety data which have taken market share over the last 2 years. The launch of ATRx and the Company’s functional mushroom line also faces significant competitive pressure as functional mushrooms have emerged as a fast growing segment of the overall dietary supplement market. By focusing on specific functional formulas to address consumer need states, the Company believes it can differentiate itself in the market.

Government Regulations

On December 20, 2018, the President of the United States signed the Agriculture Improvement Act of 2018 (the “Farm Bill”) into law. Among other things, Farm Bill changed certain federal regulations relating to the cultivation. Production, manufacturing, and marketing of hemp. The Farm Bill defined Hemp as “[t]he plantCannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol (THC) concentration of not more than 0.3 percent on a dry weight basis. The Farm Bill removed hemp and derivatives of hemp from the Controlled Substance Act. On January 15, 2021 the USDA issued its final rule regarding the Establishment of a Domestic Hemp Production Program which authorized hemp to be grown and processed legally in the United States and made it legal to transport hemp and its derivatives in interstate commerce.

The Farm Bill recognizes hemp as distinct from its genetic cousin, marijuana, and specifically excluded hemp from U.S. drug laws, but deferred the regulation of consumable and topical products to the US Food and Drug Administration. The Farm Bill allows for each individual state to regulate industrial hemp and industrial hemp-based products or accept the USDA rules. Although no longer a controlled substance under federal law, cannabinoids derived from industrial hemp are still subject to Federal regulation under food and dietary supplement laws, as well as a patchwork of state regulations. We actively monitor the regulations and proposed regulations in each state to ensure our operations are compliant.

In conjunction with the enactment of the Farm Bill, the FDA released a statement about the status of CBD and the agency’s actions to date guide the Company. The statement noted that the Farm Bill explicitly preserved the FDA’s authority to regulate products containing cannabis or cannabis-derived compounds under the FDCA and Section 351 of the Public Health Service Act. This authority allows the FDA to continue enforcing the law to protect patients and the public while also providing potential regulatory pathways for products containing cannabis and cannabis-derived compounds. The statement also noted the growing public interest in cannabis and cannabis-derived products, including CBD, and informed the public that the FDA will treat products containing cannabis or cannabis-derived compounds as it does any other FDA-regulated products — meaning the products will be subject to the same authorities and requirements as FDA-regulated products containing any other substance, regardless of the source of the substance, including whether the substance is derived from a plant that is classified as hemp under the Farm Bill.

As of the date of this report, and based upon publicly available information, to our knowledge the FDA has not taken any enforcement actions against CBD companies. The FDA, however, has sent warning letters to companies demanding they cease and desist from the production, distribution, or advertising of CBD products, only relating to instances that such CBD companies have made misleading and unapproved label claims. We will continue to monitor the FDA’s position on CBD. In December 2020, the FTC announced it was going to seek penalties against companies making deceptive marketing claims and named 6 companies which it had targeted for making egregious and unsupported health claims. On March 5, 2021, the FTC approved the final administrative consent orders with all 6 companies. In April of 2023, the FTC sent a blanket Notice of Penalty Offenses on Substantiation of Product Claims to a group of over 700 companies in the dietary supplement and personal care industries, which named the Company and many of its competitors among the almost 700 other companies. This letter was sent without any proof or claim of violation as a perfunctory matter to establish that the FTC met its burden under applicable law to warn companies before investigating and making claims. To date, the Company has not received any follow-up and does not believe it is the target of any investigation. We are unaware of any further actions, and we will continue to monitor the FTC’s position with regards to deceptive marketing claims.

We are subject to federal and state consumer protection laws, including laws protecting the privacy of customer non-public information and the handling of customer complaints and regulations prohibiting unfair and deceptive trade practices. The growth and demand for online commerce has and may continue to result in more stringent consumer protection laws that impose additional compliance burdens on online companies. These laws may cover issues such as user privacy, spyware and the tracking of consumer activities, marketing e-mails and communications, other advertising and promotional practices, money transfers, pricing, product safety, content and quality of products and services, taxation, electronic contracts and other communications and information security.

The Company is subject to regulations in foreign jurisdictions which establish the rules by which new consumer products may be introduced into commerce, and which vary country by country. In fiscal 2021, we submitted a Novel Foods dossier with both the EU Food Safety Agency (FSA) and the United Kingdom’s Food Safety Agency (UK FSA). “Novel Foods” are foods which have not been widely consumed in the UK or the EU before May 1997. Before a Novel Food can be marketed in the UK or EU, it is required to have a pre-market safety assessment and authorization. The UK has waived the pre-market requirement and is allowing post market submissions for products that were in the marketplace prior to February 2020, which qualifies several products.

As of this filing, the Company is in the Risk Assessment stage of the Novel Food approval process in the UK and on hold in the EU pending further determinations by the EU Food Standard Agency. The Company is one of only a handful of original companies submitting Novel Food applications which have been validated and entered the Risk Assessment phase in the UK. The Company is currently actively selling its products in the UK and strongly believes its products will ultimately be approved once the administrative delays in the UK are cleared. As of the end of Fiscal 2024, the Companies dossier was reviewed and received a favorable ruling of safety, with the final daily serving size still to be determined through further risk analysis by the Agency. Recent statements by the Agency indicate they will be making final determinations sometime in calendar year 2025.

The Company has submitted multiple Sanitary Registrations for its products across several LATAM countries, which is the basis for exporting and selling hemp derived cannabinoids in those countries. In Brazil the company has obtained registration and listing under the 660 exemptions for the personal importation of cannabis products by citizens of Brazil. This authorization allows the Company to work directly with care givers to facilitate the sale of our products to Brazil.

Human Capital

At December 1, 2024 we had approximately 42 full-time employees. There are no collective bargaining agreements covering any of our employees.

We believe that cbdMD’s success depends on our ability to attract, develop and retain key personnel. We believe that the skills, experience and industry knowledge of our key employees significantly benefit our operations and performance.

Employee levels and expertise are assessed and reviewed on a regular basis and management believes it has sufficient human capital to operate its business successfully.

Additional information

Information on the history of our company can be found in Note 1 to the notes to our consolidated financial statements appearing later in this report.

We file annual, quarterly and other reports, proxy statements and other information with the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers such as our company that file electronically with the SEC.

Our corporate website address is www.cbdmd.com. We make available free of charge, through the Investor section of our website, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information which appears on our corporate website is not part of this report.