cbdMD, Inc.

Good afternoon and welcome to CBDMD Inc's September 30th, 2021, fourth quarter and fiscal year 2021 earnings call and update. This afternoon, the company issued a press release that provided an overview of its fourth quarter and fiscal year 2021 results, which followed the filing of its annual report on Form 10-K. Today's conference call is being recorded and will be available online along with our earnings press release covering our financial results and non-GAAP presentation at cbdmd.com in accordance with CBDMD's retention policies. All participants on this call will be in a listen-only mode. The call will be followed by a question-and-answer session. At this time, I would now like to turn the conference over to Ronan Kennedy, the company's Chief Financial Officer and Chief Operating Officer. Ronan, please go ahead.

Thank you, Kate, and thank you all for joining the CBDMD's September 30th, 2021, fourth quarter and fiscal year 2021 earnings call and update. On the call today, we have our chairman and co-CEO, Marty Sumacrest, as well as Dr. Sybil Swift, our vice president of scientific and regulatory affairs. Following the safe harbor statement, Marty will provide an overview of our business, then Dr. Swift will provide an update on the current regulatory climate for CBD, as well as an update from our CBDMD therapeutics division. And finally, I'll provide a summary of the quarterly financial results. Following that, we'll open the call up for questions. We'd like to remind everyone that various remarks about future expectations, plans, and prospects constitute forward-looking statements for purposes of safe harbor provisions under the Private Security Litigation Reform Act of 1995. CBMD cautions that these forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated, including risks described in the company's annual report on Form 10-K for the year ended September 30, 2021, and our other filings with the SEC, all of which can be reviewed on the company's website at www.cbdmd.com or on the SEC's website at www.sec.gov. Any forward-looking statements made on this conference call speak only as of today's date, Friday, December 17, And CBDMD does not intend to update any of these forward-looking statements to reflect events on circumstances that would occur after today's date, except as may be required by federal security laws. With that, I'd like to turn the call over to CBDMD's chairman and co-CEO, Marty Simacrest.

Thank you very much, Ronan, and good afternoon, everyone. We appreciate you joining us today and appreciate your understanding for yesterday's technical delay. Next week will be our three-year anniversary of our company entering the CBD industry with the acquisition of the CureBase Development, the owner of our flagship brand, CBDMD. It's also the three-year anniversary of the passage of the Farm Bill, which decriminalized CBD in the U.S. Three years ago, we were an unknown startup brand competing against thousands of other CBD brands. In 2019, our first year in the CBD business, we grew very quickly to become one of the top 20 CBD brands in America. In 2020, our second year in the CBD business, despite the COVID pandemic, we grew again, this time by over 77%. Now, as we finish our third year, we are firmly positioned at the top of the CBD industry with our three leading brands. According to the Brightfield Group, a leading industry analytics firm, the CBD industry today is approximately a $4 to $5 billion market, and it's broken down into three groups. The first group is made up of the top 20 CBD brands, and they represent approximately 19% of the U.S. CBD market, with CBDMD's market share representing approximately 1.3% of the total U.S. CBD market. The second group is the pharma drug group, which is represented by one main player, Jazz Pharmaceuticals, and their FDA-approved epileptic seizure reduction drug, Epidiolex. And they alone control 14% of the entire market. The third group, which is the vast majority of the U.S. CBD market, is made up of over 2,000 smaller brands, which represent 67% of the entire U.S. CBD market. Compare this to a more mature industry, such as the energy drinks, where the top five established players control 65% of the market. CBDMD, like the overall industry, grew significantly in 2019 and 2020. This year, according to the Brightfield Group, the U.S. CBD market experienced its most challenging year with year-over-year growth rates expected to be nearly flat at 2.5%. Despite this anemic industry growth, CBDMD was able to outpace the industry and we grew net sales by 6% and gross sales by over 10% from 2020. We were able to maintain our product pricing, firm up our product purchasing, which resulted in an increase to our gross profit margin to a record high of 67% in fiscal 2021 from 63% in 2020. Slower than anticipated sales in the second half of our fiscal year, our increased marketing costs in the first half of our fiscal year, which have now been reduced, combined with several product delays, which were caused by supply chain disruptions, as well as setup costs for new distribution channels, coupled with our investment in the therapeutics division, resulted in a gap operating loss for the fiscal 2021 of $19.6 million. While we are now seeing a return in consumer demand as we enter our fiscal 2022 year, and we are optimistic the calendar 2022 will return to higher sales growth rates as new products reach our customers and distribution channels become available, we're withdrawing our previously announced sales guidance for the quarter ending December 31st, 2021. The question before us is what will be the future of the CBD industry in the next three years? What roles will innovation, regulation, and consolidation play? The Brightfield Group estimates the CBD industry will grow at a healthy rate of 21% in 2022, and then nearly double by the end of 2024. In the next three years, we believe that new regulations, which will be promulgated by regulatory authorities, which will have a dramatic effect on many of the 2,000 smaller CBD brands, as they will be unable to meet new best practice regulations. And these new regulations and safeguards are needed in our industry, and there continues to be significant consumer product confusion. Proper guardrails in the CBD industry will allow trusted, safe, and compliant brands to fill the growing demand. Marketing and distribution channels, which up until now have been closed to CBD brands, should open, which will in turn allow greater access to new consumers. This natural evolutionary cycle has been witnessed in countless other industries. We believe that 2022 represents the beginning of a watershed phase in the CBD industry, where relatively few select CBD companies who currently own well-established brands and have the vision the resources and the infrastructure will gain a larger market share of an even larger total addressable market or TAM. With our team of seasoned industry veterans, our strong balance sheet, and our three powerful and leading CBD brands, we believe CBDMD is positioned very well as we enter into this new phase of industry growth and consolidation. Our three goals are, one, to continue to outpace overall industry growth, two, increase our share of the total addressable market, and three, to achieve positive adjusted EBITDA. And, of course, it goes without saying our mission that we always focus on is to bring the highest quality CBD products to our customers. We believe these goals can be achieved with the launch of new innovative products. As a multi-year recipient of Product of the Year awards, CBDMD has regularly been recognized for our outstanding new products. One example of a new product is our CBDMD Botanicals line that was relaunched this past Monday. and it's generated excitement from a number of new national accounts. We plan to increase our U.S. B2B wholesale and distribution channels now that the brick and mortar stores are starting to recover from the pandemic, especially in the food, drug, and mass channel. We recruited consumer products veteran Dave Johnson to become our Senior Vice President of Business Development. to lead our FDM sales effort under the direction of our executive management. We plan to expand into more international markets as registration, regulation, and compliance become clearer. We are currently selling to over 30 international markets, and we are registering our products in several major markets, such as the UK, Central America, Brazil, and Japan. We are also seeing some of our best-selling categories start to expand as more state regulators allow the sale of ingestibles. We have built CBDMD's brand on the back of our innovative marketing efforts. We recently hired Matt Koatman as our new Chief Marketing Officer and he is reinvigorating and realigning our marketing strategy under the direction of our executive management with incredible opportunities for 2022. The brand recognition we have built through our sponsorships, which we believe is the best in class, and we plan to leverage those sponsorships, which we believe will result in more rapid expansion of our retail footprint. We have already started new activations with our industry-leading partnerships with iconic brands CrossFit and Bellator, as well as others. And you'll be hearing much more about those plans coming to life very soon. We are in a unique position to secure co-branding efforts with non-CBD established brands and expand marketing and sales opportunity with global sports organizations as our brands continue to lead the market in brand awareness and social media reach. We continue to explore potential accretive M&A opportunities, such as the purchase of direct CBD online or online marketplace. We continue to obtain official certifications that strengthen our brand's appeal, such as PAW CBD certification from the NASC or National Animal Supplement Council, A non-for-profit group committed to protecting and enhancing the health of companion animals throughout the country. NASC has dedicated itself to safety and quality in the animal supplement space. In the United States, identifying and certifying only the best quality products for animals. Having the NASC certification is a pivotal step to access mass retail distribution. as we believe such certification is a gating requirement for several retailers in this segment of the CBD category. Finally, we are committed to the progress at our CBDMD Therapeutics Division and providing the necessary resources to ensure its success. And with that, it's my pleasure to now turn the call over to Dr. Sybil Swift, one of our managing directors at CBDMD Therapeutics, and the Vice President of our Science and Regulatory Affairs at CBDMD. Dr. Swift was formerly the Associate Director for Research and Strategy at the FDA's Office of Dietary Supplements Program and will now provide an important regulatory update. Dr. Swift, please go ahead.