Industry Experienced Weakness in CBD Demand
in 2021 Resulting In Company YOY Decline in Net Sales for
the December 2021 Quarter
Company Anticipates Regulatory Action
Against the FDA With Expected Filing of Citizens Petition
cbdMD, Inc. (NYSE American: YCBD, YCBDpA), one of the nation’s
leading and most highly trusted and recognized CBD companies, and
operator of three of the leading CBD brands -- its flagship brand
cbdMD, its animal health brand Paw CBD and its beauty and skincare
brand cbdMD Botanicals, -- today we announced our financial results
for December 31, 2021, the first quarter of our fiscal year ended
September 30, 2022 and the third full year of operations with our
cbdMD brands, after completing the acquisition of Cure Based
Development on December 21, 2018. In the three calendar years
(2019-2021), we generated $118.7 million in net sales, which
exceeds the initial contracted earn-out revenue target of $113.3
million for the 36-month period.
Despite our three-year growth, our most recent net sales for the
first quarter of fiscal 2022 decreased by 26% year-over-year, from
$12.3 million in the prior year to $9.3 million this quarter. We
believe that this trend started in early 2021 as overall CBD
consumer demand growth started to decline in the US. We believe
that this pullback has stemmed from the lack of regulatory clarity
created by the United States Food and Drug Administration “FDA”.
This product uncertainty has prohibited leading CBD brands such as
ours, access to mainstream retailers, wholesalers and sales and
marketing platforms. We believe that properly manufactured CBD
products such as ours, which adhere to the rigorous standards of
the Food Drug & Cosmetic Act, are safe and should be allowed
for sale in all these retail channels as well as product marketing
on all platforms.
In the coming days, we will be filing, in conjunction with the
Natural Products Association, a Citizens Petition which is a
process provided by the FDA for individuals and community
organizations to make requests to the FDA to amend changes in
healthcare policies. Dr. Swift, our Vice President, Scientific
& Regulatory Affairs, and formerly from the office within FDA
that is responsible for reviewing the safety data, directed the
safety studies performed on our proprietary patent pending broad
spectrum cannabinoid blend. Our dossier is not a “shot in the dark”
and we believe we know the process. The FDA says that they want
good science, and this is it. The Agency has defaulted to “being
confused” over the entirety of the marketplace for hemp and CBD. We
are not asking them to review the safety of all CBD products on the
market. We are calling on them to fulfill their mandate and review
the safety data compiled for our product based upon our conditions
of use. This data was successfully submitted to the UK and EU to
support approval of our products as Novel Foods. The process of
evaluating the safety of a dietary supplement is not unique to any
soil.
We believe it is far past time for the FDA to stop hiding behind
the improperly applied exclusion rule that they are using to deny
Americans access to a robust marketplace of hemp derived products
to help maintain their health in these trying times. We believe
that consumers from all walks of life deserve access to consumer
healthcare products, especially in these trying times. We have
shipped millions of products in the past three years without any
reported adverse events. Our science tells us that our products are
not only safe, but that they help people. Numerous studies about
the benefits of cannabinoids have been coming out over the past
several years and we believe that the real harm to the consumer is
the lack of clarity in our industry, which falls at the feet of the
FDA. While leading brands such as cbdMD go to great expense to
adhere to the existing rules applicable to all dietary supplement
manufacturers and apply the highest standards of care, other
smaller brands flood the market with substandard products and the
FDA is directly to blame for this situation. The longer FDA
continues its irresponsible absenteeism, the more space that will
be occupied by the rogue players. This is evident in the
introductions of competitive products such as Delta 8, which is now
banned for sale in over 30 states and created a negative downward
pressure on the CBD market.
In response to recent weaker sales, we have streamlined
operations by rightsizing and up-skilling our team and reducing our
marketing spend and other expenditures. Our goal is to reduce over
$10 million in SG&A costs in calendar 2022. Despite a healthy
cash balance of approximately $20 million on December 31, 2021, we
are reviewing all necessary measures to conserve cash.
Our gross profit margin for the quarter decreased to 54.4% in
the first quarter of fiscal 2022 from 72.1% in the first quarter of
fiscal 2021, partly due to a $878,000 non-cash inventory charge as
we rationalized several slower moving and expiring product lines.
Without this charge, our non-GAAP Adjusted Gross Profit would have
been 62.2% vs 72.1% in the prior year. This decline is based on
lower manufacturing and operating leverage because of the year over
year declines in sales as well as changes in our product mix.
Our loss from operations increased to approximately $25.1
million compared to $1.75 million from the prior year’s quarter. A
significant part of this loss was due to the fact that we performed
an updated intangible valuation which resulted in a $4.285 million
non-cash reduction to our trade name and a $13.848 million non-cash
reduction to goodwill. Our non-GAAP adjusted operating loss was
approximately $4.7 million, compared to a $523,840 non-GAAP
adjusted operating loss from the prior year’s quarter. This
increase in our non-GAAP adjusted operating loss mainly due to the
decrease in sales and a large marketing spend. As noted above, we
have taken steps to reduce our operating cost during the current
fiscal quarter and have pulled back on our low performing marketing
spends. We reported fourth quarter fiscal 2021 e-commerce, direct
to consumer (DTC) net sales of $7.1 million, a 26% decrease from
$9.7 million in the fourth quarter of fiscal 2020, but only a 2%
sequential decline over the September 2021 quarter. Finally, we
recorded a $5.95 million non-cash gain related to the quarter
reduction of our contingent liability associated with the original
acquisition of the cbdMD business.
We will host a conference call at 4:15 p.m., Eastern Time, on
Thursday, February 10, 2022, to discuss our December 31, 2021,
first quarter financial results and business progress.
CONFERENCE CALL DETAILS
Title:
cbdMD First Quarter 2022 Earnings Call
Event Date:
Thursday, February 10, 2022 - 4:15 PM
Eastern Time
Event Link:
Webcast URL
https://www.webcaster4.com/Webcast/Page/2206/44450
Webcast Replay Expiration:
Friday, February 10, 2023
Participant Numbers:
Toll Free: 888-506-0062
International: 973-528-0011
Entry code (not required): 623328
Replay Number:
Toll Free: 877-481-4010
International: 919-882-2331
Replay Passcode: 44450
About cbdMD, Inc.
cbdMD, Inc. is one of the leading and most highly trusted and
most recognized cannabidiol (CBD) brands with a comprehensive line
of U.S. produced, THC-free1 CBD products as well as our new Full
Spectrum products. Our cbdMD brand currently includes over 130 SKUs
of high-grade, premium CBD products including CBD tinctures, CBD
gummies, CBD topicals, CBD capsules, CBD bath bombs, CBD bath
salts, CBD sleep aids and CBD drink mixes. Our Paw CBD brand of pet
products includes over 45 SKUs of veterinarian-formulated products
including tinctures, chews, topicals products in varying strengths,
and our CBD Botanicals brand of beauty and skincare products
features 15 SKUs, including facial oil and serum, toners,
moisturizers, clear skin, facial masks, exfoliants and body care.
To learn more about cbdMD and their comprehensive line of U.S.
grown, THC-free1 CBD oil and Full Spectrum products, please visit
www.cbdmd.com, follow cbdMD on Instagram and Facebook, or visit one
of the 6,000 retail outlets that carry cbdMD products.
Forward-Looking Statements
This press release contains certain forward-looking statements
that are based upon current expectations and involve certain risks
and uncertainties within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995. Such forward-looking statements can
be identified using words such as ''should,'' ''may,'' ''intends,''
''anticipates,'' ''believes,'' ''estimates,'' ''projects,''
''forecasts,'' ''expects,'' ''plans,'' and ''proposes.'' These
forward-looking statements are not guarantees of future performance
and are subject to risks, uncertainties, and other factors, some of
which are beyond our control and difficult to predict. You are
urged to carefully review and consider any cautionary statements
and other disclosures, including the statements made under the
heading "Risk Factors" in cbdMD, Inc.'s Annual Report on Form 10-K
for the fiscal year ended September 30, 2021 as filed with the
Securities and Exchange Commission (the "SEC") on December 17, 2021
and our other filings with the SEC. All forward-looking statements
involve significant risks and uncertainties that could cause actual
results to differ materially from those in the forward-looking
statements, many of which are generally outside the control of
cbdMD, Inc. and are difficult to predict. cbdMD, Inc. does not
undertake any duty to update any forward-looking statements except
as may be required by law. The information which appears on our
websites and our social media platforms, including, but not limited
to, Instagram and Facebook, is not part of this press release.
1 THC-free is defined as below the level of detection using
validated scientific analytical methods.
Non-GAAP Financial Measures
This press release includes a financial measure that excludes
the impact of certain items and therefore has not been calculated
in accordance with U.S. generally accepted accounting principles
("GAAP"). cbdMD, Inc. has included adjusted loss from operations
because management uses this measure to assess operating
performance in order to highlight trends in our business that may
not otherwise be apparent when relying on financial measures
calculated in accordance with GAAP. The adjusted operating loss has
not been prepared in accordance with GAAP. This non-GAAP financial
measure should not be considered as an alternative to, or more
meaningful than, net loss from operations as an indicator of our
operating performance. Further, this non-GAAP financial measure, as
presented by cbdMD, Inc., may not be comparable to similarly titled
measures reported by other companies. cbdMD, Inc. has attached to
this press release a reconciliation of this non-GAAP financial
measure to its most directly comparable GAAP financial measure.
cbdMD, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2021 AND SEPTEMBER 30, 2021
(Unaudited)
December 31,
September 30,
2021
2021
Assets Current assets:
Cash and cash equivalents
$
19,696,919
$
26,411,424
Accounts receivable
1,108,818
1,113,372
Accounts receivable – discontinued operations
2,625
10,967
Marketable securities
-
33,351
Investment other securities
1,000,000
1,000,000
Inventory
4,867,208
5,021,867
Inventory prepaid
559,708
551,519
Prepaid sponsorship
895,070
1,212,682
Prepaid expenses and other current assets
1,548,181
1,147,178
Total current assets
29,678,529
36,502,360
Other assets: Property and equipment,
net
2,504,220
2,561,574
Operating lease assets
5,296,943
5,614,960
Deposits for facilities
407,708
529,583
Intangible assets, net
18,666,612
23,003,929
Goodwill
42,772,685
56,670,970
Total other assets
69,648,168
88,490,016
Total assets
$
99,326,697
$
124,992,376
CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 31,
2021 AND SEPTEMBER 30, 2021 (continued)
(Unaudited)
December 31,
September 30,
2021
2021
Liabilities and shareholders' equity
Current liabilities: Accounts payable
$
3,673,855
$
2,978,914
Deferred revenue
1,909,139
2,727,612
Accrued expenses
1,117,236
1,151,150
Note payable
60,468
59,470
Total current liabilities
6,760,698
6,917,146
Long term liabilities: Long term
liabilities
93,489
108,985
Operating leases - long term portion
4,571,510
4,859,058
Contingent liability
3,501,000
9,856,000
Deferred tax liability
-
-
Total long term liabilities
8,165,999
14,824,043
Total liabilities
14,926,697
21,741,189
shareholders' equity: Preferred stock,
authorized 50,000,000 shares, $0.001 par value,
5,000,000 and 500,000 shares issued and outstanding, respectively
5,000
5,000
Common stock, authorized 150,000,000 shares, $0.001
par value, 58,277,970 and 57,783,340 shares issued and outstanding,
respectively
58,278
57,783
Additional paid in capital
177,835,993
176,417,269
Accumulated deficit
(93,499,271
)
(73,228,865
)
Total shareholders' equity
84,400,000
103,251,187
Total liabilities and shareholders'
equity
$
99,326,697
$
124,992,376
cbdMD, INC. CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2021 and
2020
December 31,
December 31,
2021
2020
Gross Sales
$
9,856,767
$
13,131,946
Allowances
(534,945
)
(803,643
)
Total Net Sales
9,321,822
12,328,303
Cost of sales
4,328,310
3,430,274
Gross Profit
4,993,512
8,898,028
Operating expenses
11,955,284
10,657,973
Impairment of Goodwill and other intangible assets
18,183,285
-
(Loss) from operations
(25,145,057
)
(1,759,945
)
Realized and Unrealized gain (loss) on marketable and other
securities, including impairments
(33,350
)
542,710
Decrease (increase) of contingent liability
5,950,000
(8,500,000
)
Other income (expense)
70,737
-
Interest (expense) income
(3,234
)
(10,386
)
Loss (income) before provision for income taxes
(19,160,904
)
(9,727,621
)
Benefit for income taxes
-
332,000
Net (Loss) Income from continuing operations
(19,160,904
)
(9,395,621
)
Net (Loss) Income
(19,160,904
)
(9,395,621
)
Preferred dividends
1,000,502
100,050
Net (Loss) Income attributable to cbdMD, Inc.
common shareholders
$
(20,161,406
)
$
(9,495,671
)
Net (Loss) Income per share:
Basic earnings per share
(0.35
)
(0.18
)
Diluted earnings per share
(0.35
)
(0.18
)
Weighted average number of shares Basic:
57,825,367
52,130,870
Weighted average number of shares Diluted:
57,825,367
52,130,870
cbdMD, INC. CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS) FOR THE THREE MONTHS ENDED
DECEMBER 31, 2021 and 2020
December 31,
December 31,
2021
2020
Net (Loss) Income
$
(19,160,904
)
$
(9,395,621
)
Comprehensive (Loss) Income
(19,160,904
)
(9,395,621
)
Preferred dividends
(1,000,502
)
(100,050
)
Comprehensive (Loss) Income attributable to cbdMD, inc. common
shareholders
$
(20,161,406
)
$
(9,495,671
)
cbdMD, INC. CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER
31, 2021 and 2020
December 31,
December 31,
2021
2020
Cash flows from operating activities:
Net (Loss) Income
$
(19,160,904
)
$
(9,395,621
)
Adjustments to reconcile net (income) loss to net
cash used by operating activities:
Stock based compensation
505,466
248,894
Restricted stock expense
508,754
15,279
Marketing stock amortization
220,000
-
Issuance of stock / warrants for service
-
35,712
Inventory and materials impairment
878,142
-
Depreciation and amortization
340,701
232,658
Impairment of Goodwill and other intangible assets
18,183,285
-
Increase/(Decrease) in contingent liability
(5,950,000
)
8,500,000
Realized and unrealized loss of Marketable and other securities
33,350
(542,709
)
Termination benefit
-
305,326
Amortization of operating lease asset
318,017
304,080
Changes in operating assets and liabilities:
Accounts receivable
4,554
(110,072
)
Deposits
121,875
24,000
Inventory
(723,483
)
219,859
Prepaid inventory
(8,189
)
(48,184
)
Prepaid expenses and other current assets
(303,391
)
(310,268
)
Accounts payable and accrued expenses
(127,254
)
(1,500,755
)
Operating lease liability
(321,462
)
(237,952
)
Deferred revenue / customer deposits
3,723
(22,701
)
Collection on discontinued operations accounts receivable
8,342
422,417
Deferred tax liability
-
(332,000
)
Cash used by operating activities
(5,468,475
)
(2,192,038
)
Cash flows from investing activities:
Proceeds from sale of other investment securities
-
540,000
Purchase of property and equipment
(231,030
)
(93,294
)
Cash provided (used) by investing activities
(231,030
)
446,706
Cash flows from financing activities:
Proceeds from issuance of preferred stock
-
15,798,115
Note payable
(14,498
)
(13,564
)
Preferred dividend distribution
(1,000,502
)
(100,050
)
Deferred issuance costs
-
-
Cash provided by financing activities
(1,015,000
)
15,684,500
Net increase (decrease) in cash
(6,714,505
)
13,939,168
Cash and cash equivalents, beginning of period
26,411,424
14,824,644
Cash and cash equivalents, end of period
$
19,696,919
$
28,763,812
Supplemental
Disclosures of Cash Flow Information:
2021
2021
Cash Payments for: Interest expense
$
3,234
$
3,672
Non-cash financial activities: Issuance
of Contingent earnout shares:
$
405,000
$
-
Warrants issued to representative
$
-
$
254,950
cbdMD, Inc. SUPPLEMENTAL FINANCIAL
INFORMATION RECONCILIATION OF NON-GAAP ADJUSTED INCOME
(LOSS) FROM OPERATIONS
Three Months
Three Months
Ended
Ended
December 31,
December 31,
2021
2020
GAAP (loss) from operations
$
(25,145,057
)
$
(1,759,945
)
Adjustments: Depreciation
340,701
232,806
Employee and director stock compensation (1)
1,014,220
264,174
Other non-cash stock compensation for services (2)
-
35,713
Inventory adjustment (3)
878,142
-
Write down of legacy accounts receivable (4)
-
-
Impairment of Goodwill and other intangible assets (5)
18,183,285
-
Accrual for severance
-
403,412
Accrual / expenses for discretionary bonus
150,000
300,000
Non-GAAP adjusted (loss) from operations
$
(4,728,709
)
$
(523,840
)
(1) Represents non-cash expense related to options,
warrants, restricted stock expenses that have been amortized during
the period. (2) Represents non-cash expense related to options,
warrants, restricted stock expenses that have been amortized during
the period. (3) Represents an operating expense related to
inventory loss related to regulatory changes impacting labels and
packaging and obsolete/expired inventory. (4) Write down of legacy
accounts receivable. (5) Represents non-cash goodwill impairment of
$13,898,285 and impairment of the cbdMD trademark of $4,285,000.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220210005813/en/
PR: cbdMD, Inc. Robert Pettway Director of Paid Media
rpettway@cbdmd.com (423) 503-5225
Investors: cbdMD, Inc. John Weston Director of Investor
Relations john.weston@cbdmd.com (704) 249-9515
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