Cv Sciences Inc

Greetings. Welcome to CVScience's fourth quarter and year-end 2023 conference. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the call over to Brendan Hawkins. Mr. Hawkins, you may now begin your presentation.

Thank you, and good morning, everyone. With us today with prepared remarks are CD Sciences Chief Executive Officer Joseph Dowling and your GRASR Chief Financial Officer. After the prepared remarks, we will take questions from the analyst community. I'd like to remind you that on today's call, management's prepared remarks may contain forward-looking statements. These forward-looking statements are subject to risk and uncertainties that may cause the actual results to differ materially from those anticipated by CD Sciences at this time. When used in this call, the words anticipate, should, could, estimate, intend, expect, believe, potential, will, project, and similar expressions as they relate to CB Sciences are as such forward-looking statements. Finally, please note that on today's call, management will refer to non-GAAP financial measures in which CB Sciences excludes certain expenses from its GAAP financial results. please refer to the CD Sciences press release from earlier today for a full reconciliation of its non-GAAP performance measures to the most comparable GAAP financial measures. This morning, the company issued a press release announcing its financial results. Participants on this call who may not have already done so may wish to look at the press release as the company provides a summary of the results on this call. The press release may be found at cdsciences.com. I'd like to now turn the call over to CD Sciences Chief Executive Officer, Mr. Joseph Dowling. Joe?

Good morning, everyone. Thank you for joining our call. This morning, we issued a press release reporting results for our fourth quarter and for the full year ended December 31, 2023. We are very pleased with our Q4 and full year results as we continue to drive revenue through product innovation, and operating the business cost efficiently as we move closer to profitability and cash flow positive. We recently completed our acquisition of Cultured Foods, a plant-based food company located in Poland, which spearheaded our transition to a global health and wellness company. Also, we continue to evaluate and pursue additional M&A opportunities that will allow us to leverage our strengths and assets. Over the last several years, we have built an efficient and cost-effective consumer products platform, significant highlights during 2023 included. We generated revenue of $16 million for fiscal 2023, compared to $16.2 million for 2022, basically flat year-over-year revenue in a very challenging environment. Our gross margin of 44.3% for the fiscal year 2023 improved significantly from 34.2% for 2022. We further established our number one position as the top selling hemp extract brand in the natural product retail sales channel with a market share of 25%, according to SPNS, the leading provider of syndicated data and insights for the natural, organic, and specialty products industry. Our strong product innovation efforts continue during 2023 with numerous product launches, including our reserve collection extra gummies and soft gels in Q1, our new daily balance line of THC-free gummies and soft gels also in Q1, our reserve collection extra sleep gummies in Q3, and earlier this week, we announced our expanded pet offering with the launch of pet chews for hip and joint health and calming care chews. On the expense side, we continue to operate more efficiently as we reduce operating expenses to $9.9 million for fiscal 2023, a 20% reduction from 2022. And as we have discussed over the last several years, We believe that an M&A strategy is an important component of scaling our business, consolidating our industry, and leveraging our assets and strengths. As announced in 2023, we are excited about our acquisition of Cultured Foods in Q4 of 2023. Cultured Foods is a leading manufacturer and distributor of alternative plant-based vegan foods, which provides us with a foothold in the European Union that will allow us to leverage our key strengths and competencies and represents a key milestone in our transition to a global health and wellness company. Jorg will provide more detail on these financial highlights. Our industry has faced serious challenges since early 2020, and those challenges, including brand saturation, continued inaction by FDA and Congress, and historically high inflation continue to persist. Despite the challenging environment, we have made significant progress to position the company to achieve profitability and free cash flow. We continued our proactive steps during 2023 to address these challenges, and some of the highlights are we continued realignment to make sure we have the right personnel, the right partners, and the resources to optimize our operational effectiveness. Personnel realignment during 2023 for our U.S.-based operations continued. Our U.S. headcount at the end of 2023 was 38, down five positions from the end of 2022. We continuously evaluate every vendor relationship, including contract manufacturers, packaging suppliers, ingredient suppliers, every professional service provider, including legal, accounting, and other consultants to ensure that we have the right partners and are receiving optimal value. Facility, transportation, and shipping costs are significant components of our cost structure that we monitor constantly. Our facility costs were dramatically reduced during 2022 when we moved from a 30,000 plus square foot facility to a facility that is approximately 6,000 square feet. This move alone has resulted in annual savings of approximately $1 million with zero decline in productivity. The timing of this move was ideal and coincided with a hybrid work model resulting from the pandemic that includes both remote and onsite work schedules. Our transportation and shipping costs are an area where we are continuously implementing process change to improve cost efficiency. Over the last couple of years, we have implemented a 3PL warehouse fulfillment model that is constantly scrutinized for cost efficiency, while at the same time improving shipping times and customer service. This is an ongoing effort and an area we believe further cost savings can be achieved. All of these initiatives fully embrace our longstanding commitment to an asset-light business model that can take advantage of an industry that is maturing, becoming more professional and trustworthy. However, we are evaluating strategic opportunities to in-source manufacturing for some of our product form factors that could help achieve further cost efficiencies. We have realized a positive financial impact from these cost efficiency measures, but our commitment to continuous business improvement is constant and we expect further efficiency gains in 2024 and beyond. On the revenue side, our immediate goal is to increase sales. Revenue increases will come from several areas, including organic growth as the CBD category stabilizes, from years of uncontrolled brand expansion and lack of regulation. Increase in market share in our core channels as the number of brands continues to contract. Penetration into new markets such as pet, non-CBD supplements, and plant-based food products. Product innovation will bring new customers to the category and invigorate our existing customer base. strategic M&A acquisitions to add other CBD brands or non-CBD brands or services to our business platform. Significant brand contraction continued during 2023. Retailers and consumers are sticking with brands they know and trust. In the natural product retail channel, we are the number one selling brand and we continue to see market share concentration of the top four brands in the 60% range. Customers are sticking with brands that they know and trust, and our flagship C-plus CBD brand is at the top of the list in the natural channel. Our B2C sales channel continues to improve. Our B2C infrastructure is built for scale and can support nearly unlimited traffic and activity. We continuously improve our merchandising and marketing investment to optimize our B2C ROI. We are seeing results in our critical B2C KPIs, including site visitors, and we have made good progress in our subscription and loyalty programs. Brand contraction, increased education, and consumer awareness and trust will all help grow the B2C channel and we are prepared to grow the channel and take market share as the category evolves. Product development will continue to be important for our growth strategy. Consumers want high-quality brands like our PlusCBD products, but they increasingly want multi-active ingredient products that carry a structure function claim that is backed by science and can be trusted. We continue to address this trend under our wellness line including our sleep, calm, and relief products and our over-the-counter topical line. We will continue to innovate and launch new products that are responsive to our customers and their specific need states, including for anxiety, pain, and sleep disorders. We believe that strong science supports our product claims and will win the trust and loyalty of our existing and new customers. On regulatory matters, we remain active with numerous advocacy groups, including the US Hemp Roundtable, to provide Congress, the FDA, and other federal and state agencies with data and the information needed to advance sensible legislation for both the hemp and cannabis industries. While inaction by FDA and Congress is frustrating, we have seen incremental progress and remain optimistic regarding a regulatory framework. We were pleased with the 2023 announcement by the Department of Health and Human Services recommending cannabis be rescheduled to Schedule 3. And we, along with everyone in our industry, are hopeful that the DEA will agree with and act on this recommendation. We know that CBD safety has long been a concern for FDA. The subcommittee hearing of the House Oversight Committee in 2023 included strong testimony regarding CBD safety, along with regulatory recommendations from industry experts who advocate for FDA and Congress to regulate CBD as a dietary supplement and food and beverage additive. We strongly agree with this recommendation and believe that current regulations governing dietary supplements are the starting point to establish a regulatory framework for the CBD industry. The absence of federal regulation has led many states to enact regulations that are extremely challenging and costly for companies to comply with. This creates confusion for both retailers and consumers and creates an environment where bad actors are allowed to participate. However, We will continue our active involvement at both the federal and state level and will remain persistent in pushing Congress, FDA, and other federal and state agencies to make progress. We all know that a sensible regulatory framework will significantly benefit our industry and consumers, will lead to further investment into scientific research, will attract new investors, and will create an environment where quality companies and products can be trusted to grow the category responsibly. A few comments on our drug development program and treatment of smokeless tobacco use and addiction. During 2023, the company received its formal certificate of grant from the Japan Patent Office for its patent application 7216697 for our drug development asset. This patent covers methods of treating smokeless tobacco addiction by administering pharmaceutical formulations containing CBD and nicotine. CB Sciences has also filed corresponding patent applications that provide similar patent protection in additional key commercial markets with patents already granted in the United States, Canada, Australia, Germany, Great Britain, France, Spain, Netherlands, and Italy. We continue to believe this program and asset have value and we are seeking collaboration partners to financially support this effort. Many of the challenges in our industry continue, but we are positioning our company to compete in the current environment. During 2023, we continue to streamline our operations, increase cost efficiency, and realign the company for growth and profitability. We have made great progress in structuring a very lean, cost-efficient organization that is positioned to leverage our strengths, which includes our employees, the quality of our products, the trust in our brand, and the strength of our distribution. We will be able to achieve profitability and cash flow positives at a much lower revenue number than many of our competitors because of the tough decisions that we have made and our much lower business model cost. Let me pause now, and I will turn the call over to York.