Cv Sciences Inc

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brendan Hawkins. Thank you. You may begin.

Thank you, and good afternoon, everyone. With us today with prepared remarks are CD Science's Chief Executive Officer, Joseph Dowling, and Yorg Grasser, Chief Financial Officer. After prepared remarks, we will take questions from the analyst community. I'd like to remind you that during this call, management's prepared remarks may contain forward-looking statements. These forward-looking statements are subject to risk and uncertainties that may cause actual results to differ materially from those anticipated by CV 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 CB Sciences' press release from just a few minutes ago for a full reconciliation of its non-GAAP performance measures to the most comparable GAAP financial measures. This afternoon, 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 cvsciences.com. I would like to now turn the call over to CVSciences Chief Executive Officer, Mr. Joseph Dowling. Joe?

Thank you, Brendan. Good afternoon, everyone. Thank you for joining our call. This afternoon, we issued a press release reporting results for our first quarter ended March 31, 2025. We are pleased with our progress as we move closer to profitability and positive cash flow. Significant highlights during Q1 included we generated revenue of $3.6 million, slightly down from $3.9 million for the fourth quarter to 2024. Our Q1 gross margin of 46% represents our continued ability to achieve a healthy gross margin. We continue to maintain our number one position in the natural product retail channel and we have also increased our market share in this important sales channel as well. During Q1, we began to more fully adapt our product innovation efforts to include more non-cannabinoid products to more fully diversify our product offering. We also continue to execute on our M&A strategy and are beginning to realize some of the initial benefits from our acquisition of elevated soft gels, especially with the in-source manufacturing of many of our products previously produced by contract manufacturers. I would like to start with a few comments on the goals, execution, and implementation of our M&A strategy. We have several goals with our M&A strategy, primarily to increase our scale with greater revenue, but also to increase our cost efficiency. We are looking for opportunities to increase revenue profitably with transactions that can leverage our assets, including our brands, people, process, and our distribution. We are also looking at transactions that can increase our cost efficiency, including assets that allow us to further in-source manufacturing even though we have historically outsourced the majority of our manufacturing. We believe the timing is right for us to have more control over the manufacturing side of the supply chain. Our most recent transaction of elevated soft gels provides us with an immediate opportunity to insource manufacturing of a significant number of our products. We expect to see improved cost efficiency and gross margin in the second half of 2025, directly from the integration of elevated soft gels. We are also expanding the contract manufacturing capability of the elevated facility and are investing in equipment and people to achieve this goal. Our investment in cultured foods achieved an exciting milestone during with the U.S. launch of Lunar Fox, an all-new line of plant-based foods offering sustainable, vegetarian-friendly nutrition alternatives for our customers. Lunar Fox products are 100% natural, gluten-free, and respond to growing demand for vegan products, a fast-growing category driven by consumers seeking alternative, healthy, conscious products. LunarFox products are now available at select retailers and from the company's new website at LunarFoxFoods.com. Next, on product development, we are adapting our innovation and new product development in several ways. First, we will continue to develop new cannabinoid products that adapt to the changing regulatory environment but that also consider exciting new formats and formulations. A recent example is the recent launch of our new Fizz effervescent tablets launched in Q1 under our Aura collection. This exciting new Fizz tablet format can be added to water or seltzer, allowing consumers to enjoy the benefits of an uplifting Fizz with a zesty lemon flavor. We are excited to have our new Fizz tablet join the Aura collection, which also includes our Illuminate and Serene gummy products. Alongside our legacy and new cannabinoid products, we will be emphasizing and developing new non-cannabinoid products that will be positioned under our Plus Health brand. We believe there are numerous innovative formats and formulations to develop for both human and pet consumption and are hopeful to launch several new products during the balance of 2025. We are adapting to a more diversified product offering, which will include both cannabinoid and non-cannabinoid products. We will continue to innovate and launch new products that are responsive to our customers and their specific needs states, including for anxiety, pain, sleep, and other disorders. We will continue to develop products with strong science that support our product claims, always keeping in mind the trust and loyalty of our customers. We believe that adapting our product innovation and development will not only meet consumer demand, but will also mitigate some of the regulatory challenges to the hemp industry. However, let me be clear. We remain bullish on the US hemp and CBD category. The US CBD market is still a huge market segment. According to the Brightfield Group, the leading CBD market research firm, The CBD market alone in 2024 generated $4.4 billion in sales. Brightfield estimates that the top 20 CBD companies represent approximately 20% of the total market in 2024. In addition, Brightfield estimates that approximately 1,500 CBD companies share approximately $2 billion of the total market. Just a few years ago, Brightfield estimated that more than 3,000 CBD companies were operating in the United States. That number has been cut in half in just a few years. We believe that further market contraction represents an opportunity for CV Sciences to take market share from smaller CBD companies as the market shrinks the number of competing brands. Now, moving on, other operational objectives achieved during Q1 included. Our cost efficiency efforts continue to result in a lower overall company cost structure with efficiency gains and cash savings in numerous areas, including SG&A. Our steady and healthy gross margin of 46% in Q1 demonstrates our commitment to continuous improvement in operating a cost-efficient company. On the revenue side, our goal is to increase the scale of our company through organic growth and through our M&A strategy as I previously discussed. Brand contraction continues to help us take market share in B2B channels as retailers continue to remove slow-moving brands. In the natural product retail channel, We are still the number one selling brand and continue to see market share concentration of the top four brands in the 60% range. Customers are sticking with or changing to brands that they know and trust, and we continue to be at the top of the list in the natural product retail channel. Our B2C sales channel continues with steady improvements. We are seeing good results in all critical B2C KPIs, including a focus on the recurring revenue from increased subscription orders. We believe that further brand contraction, increased education, and consumer trust in our company and strong brand will all help grow the B2C channel. On regulatory matters, we recognize that numerous states have passed legislation that are unfavorable to the CBD category. We will continue to be involved in lobbying efforts to advocate for hemp-based products, including to push Congress and state governments to make progress on sensible regulations. At the federal level, we would like to see rescheduling of cannabis to Schedule III status and would also like to see banking reform. Both of these reforms would help the hemp industry. At the state level, we will continue to fight for a sensible and consistent framework in as many states as possible. A sensible framework will help advance our industry and would create an environment where quality companies and products are trusted politically and by consumers to produce safe and quality products in a responsible way. But we are not standing still. We recognize the regulatory challenge and are adapting to this reality. We are positioning ourselves to compete in the current environment in spite of these regulatory challenges. We are doing this in numerous ways, including by streamlining our operations and increasing our cost efficiency to align the company for growth and profitability. We have made great progress in structuring a lean, cost-efficient organization that is positioned to leverage our company's strengths and assets. We will continue to use our strong operating platform to utilize an M&A strategy to acquire assets that add revenue, increase our scale, and provide operating leverage and efficiency. We will continue to evaluate inbound and outbound M&A opportunities that support our strategic plan of achieving these goals. We are making good progress.