cbdMD, Inc.: Form 10-Q for the period ended Mar 31, 2026

The following discussion of our financial condition and results of operations for the three and six months ended March 31, 2026 and the three and six months ended March 31, 2025 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties such as our plans, objectives, expectations and intentions.

Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements because of several factors, including those set forth under Part I, Item 1A, Risk Factors and Business sections in our 2025 10-K, and our other filings with the Securities and Exchange Commission. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report.

Our Company

General

We own and operate the nationally recognized CBD (cannabidiol) brands cbdMD, Paw CBD, and Bluebird Botanicals, as well as functional mushroom brand ATRx Labs, and Herbal Oasis, our line of THC beverages. We believe that we are an industry leader producing and distributing hemp derived solutions including broad spectrum CBD products and full spectrum CBD products. Our mission is to enhance our customer’s overall quality of life while bringing powerful natural plant education, awareness and accessibility of high quality and effective products to all. We source hemp-derived cannabinoids, which are extracted from non-GMO hemp grown on farms in the United States. Our innovative broad spectrum formula utilizes one of the purest hemp extracts, 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 in addition to CBD while maintaining small amounts of THC that fall below the level of detection and are within the limits set in the 2018 Farm Act. In addition to our core brands, we also operate cbdMD 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.

Our cbdMD brand of products includes an array of high-grade, premium everyday and functional CBD products, including tinctures, gummies, topicals, capsules, 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 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, and cognitive and mood benefits.

Herbal Oasis (“Oasis”) is a premium hemp-derived THC-infused social seltzer that blends cannabinoids and nootropic mushrooms to deliver a fast-acting, functional beverage made for presence and connection.

Bluebird is a line of premium full and broad spectrum hemp products.

cbdMD, Paw CBD, Oasis, Bluebird 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 continues to be very focused on our goal of delivering positive earnings through a combination of optimizing our product portfolio, right-sizing our cost structure and investing in marketing that will provide positive return on customer acquisition.

Toward the end of the first quarter of 2026, the Company raised additional cash to bolster its balance sheet with the Series C Preferred Stock and structured an ELOC. Over the last few months, we have seen several instances where the stock price and volume has increased and in the future we believe the ELOC will allow us to prudently take advantage of these situations should they occur in the future.

The Company has continued to pursue several potential acquisitions since the conversion of the Series A Preferred Stock in 2025. In January 2026, the Company acquired the Bluebird brand. The Company believes Bluebird provides (i) a large existing customer base that we believe is underserved with their existing product portfolio (ii) a brand name not defined by CBD, allowing for natural expansion into other natural products, (iii) significant SG&A synergies, and (iv) intellectual property including self-GRAS status on their full spectrum product. During the second quarter of fiscal 2026, the acquisition cost and integration costs created a $75,000 drag on the P&L, however, we estimate Bluebird will contribute over $500,000 in revenue per quarter at healthy contribution margins in the forthcoming quarters.

During the second quarter, the regulatory environment for hemp-derived cannabinoid products continued to evolve materially. H.R. 5371, the “Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026” (the “Act”), signed into law on November 12, 2025, remains scheduled to take effect on November 12, 2026. Section 781 of the Act narrows the federal definition of hemp by shifting to a total THC standard (inclusive of THCA) and limits hemp-derived consumable products to 0.4 mg of total THC per container. It remains unknown whether these sections will go into effect as written, or be replaced, delayed, or amended by subsequent acts of Congress.

While cbdMD was founded using THC-free broad spectrum formulations, a meaningful amount of our revenues is derived from products containing low-dose hemp-derived THC that complies with the original Farm Bill. The majority of the Company's revenue for the three and six months ended March 31, 2026 was derived from products that would comply with the Act's THC limitations; however, a meaningful amount of revenue could be impacted should no changes in legislation occur. The Act, if implemented as currently written, will in all likelihood have a material adverse impact on the Company's business, results of operations, and financial condition. Management continues to evaluate strategic alternatives to mitigate potential impacts, including product reformulation and channel diversification, but no assurance can be given that the Company will successfully adapt its portfolio or that alternative legislation will be enacted.

Multiple legislative measures have been introduced in the 119th Congress that would repeal, delay, or modify Section 781 of Public Law 119-37, or that would establish a federal regulatory framework for hemp-derived cannabinoid products. These include H.R. 6209 (repeal of Section 781); H.R. 7024 and S. 3686 (the Hemp Planting Predictability Act, which would extend the effective date by two years); S. 3474 (the Cannabinoid Safety and Regulation Act); H.R. 7212 (the Hemp Enforcement, Modernization, and Protection Act); and S. 4315 (the Hemp Safety Enforcement Act, providing a state opt-out mechanism). On April 30, 2026, the U.S. House of Representatives passed the Farm, Food, and National Security Act of 2026 (H.R. 7567) by a vote of 224-200; the legislation as passed does not include provisions modifying Section 781's restrictions on finished hemp-derived cannabinoid products. The Senate Agriculture Committee is expected to consider its version of the Farm Bill in late May or early June 2026. In addition, in December 2025, the President issued Executive Order 14370 directing executive branch officials to work with Congress to update the statutory definition of finished hemp-derived cannabinoid products. None of the foregoing legislative measures have been enacted as of the date of this filing, and there can be no assurance that any such measure will be enacted or, if enacted, would modify Section 781 in a manner favorable to the Company. The Company is unable to predict the legislative outcome, the timing of any such developments, or the ultimate impact on the Company.

On April 1, 2026, the Centers for Medicare & Medicaid Services (“CMS”) activated the Substance Access Beneficiary Engagement Incentive (“BEI”), under which approved participants in the ACO REACH Model and Enhancing Oncology Model may furnish eligible hemp-derived products to Medicare beneficiaries, subject to physician oversight, at up to $500 per beneficiary per year. Eligible products must contain no more than 0.3% delta-9 THC and no more than 3 mg of total THC per serving, and inhalable products are excluded. The Company has launched a clinical healthcare channel to support this pathway and believes its clinical research, safety data, and quality systems position us well to participate, although there can be no assurance regarding the timing or scale of provider adoption. We are engaging ACOs and investing in further patient science to enhance our readiness to participate in this emerging healthcare channel and our positioning as a trusted, evidence-based supplier within the federal healthcare-access framework as provider adoption develops. The BEI is the subject of pending litigation alleging procedural and statutory deficiencies; an adverse ruling could limit or eliminate this pathway.

On April 23, 2026, the Acting Attorney General issued a final order, effective April 28, 2026, rescheduling certain narrow categories of marijuana — FDA-approved drug products and state-licensed medical marijuana — from Schedule I to Schedule III under the Controlled Substances Act. An expedited DEA administrative hearing on broader rescheduling is scheduled to conclude by July 15, 2026. The partial rescheduling does not modify the federal framework for hemp-derived cannabinoid products and does not legalize hemp-derived THC products, but the Company believes it signals a broader federal direction toward regulated access and clinical integration of cannabinoid products.

As previously disclosed, our products are regulated by the FDA. The FDA performs inspections to ensure that our facilities remain in compliance with applicable regulations for our industry. In April and May 2026, the FDA completed an inspection of our Charlotte, North Carolina manufacturing facility for dietary supplement GMP compliance. At the conclusion of the inspection, the FDA provided inspectional observations focusing primarily on documentation, recordkeeping, and quality control oversight. No product safety issues or consumer injuries were identified. The Company is in the process of timely responding to the FDA and actively taking actions to address the observations.

Additionally, we continue to see changing rules and regulations at the state level, which is causing ongoing disruption and additional compliance costs. Given the pace and uncertainty of these developments, the ultimate impact on the Company's business, results of operations, and financial condition cannot be predicted with certainty.

We remain focused on growing the Company in a smart, profitable manner along with appropriate cost controls.

Growth Strategies

We continued to pursue many strategies to grow our revenues and expand the scope of our business through the second quarter of 2026 and beyond:

• Product Innovation: Our goal is to provide our customers superior functional based products with greater efficacy claims and absorption. We constantly assess and evaluate our product portfolio, and devote resources to ongoing research and development processes with the goal of improving our product offerings. During 2025, we launched reformulations on several sleep products to enhance their effectiveness and improve taste and expanded into the ready-to-drink beverage product sector under our new Oasis brand. During the first half of 2026, we expanded Oasis’s portfolio to include additional flavors and strengths. Since the acquisition of Bluebird, we have introduced a number of new SKUs to their customer base. We have a pipeline of cannabinoid and non-cannabinoid products and formulation upgrades that are in the queue for ongoing innovation and product portfolio improvement.
• Expand our revenue channels: We continued to pursue relationships with traditional retail accounts and distributors and believe our top brand awareness and effective marketing position us as a preferred CBD partner for key traditional retail accounts as this channel has continued to normalize. In 2025, we developed relationships with beer and alcohol distributors for our Oasis beverage, with current focus in the southeast. Additionally, we are working to participate in the plan outlined by the President’s Medicare reimbursement program launched April 1, 2026.
• International Expansion: We continue to explore sales in markets outside of the United States. We generally partner with local wholesalers and local legal counsel who can help navigate the laws and regulatory requirements within their jurisdiction. We continue to pursue key wholesale accounts in a number of international markets.
• Cultivate Additional Brands: We continue to operate and attempt to grow the Paw CBD business. During fiscal 2024, we launched our nootropic mushroom line under the ATRx brand. During the first quarter of fiscal 2025, we launched a new line of hemp derived and nootropic beverages under the Oasis brand which we continued to expand distribution of Oasis during the second quarter of fiscal 2026. We believe there are ongoing opportunities with these brands to focus on education, cross-selling and customer retention.
• Acquisitions: We evaluate acquisitions (M&A) where we believe (i) there is an accretive customer base that can lower our cost of customer acquisitions through either a complementary direct to consumer base or wholesale channels, or (ii) the target has a profitable business or easily attainable cost synergies that can quickly help contribute and accelerate profitability of our Company. During January 2026, we acquired the Bluebird brand. We continue to evaluate additional opportunities within our industry as well as complementary industries that can further propel our business forward.

Results of operations

The following tables provide certain selected consolidated financial information for the periods presented:

We record product sales primarily through two main delivery channels, direct to consumers via our E-commerce sales and direct to wholesalers utilizing our internal sales team. The following table provides information on the contribution of net sales by type of sale to our total net sales.

Net Sales

We had total net sales of $5.6 million and $4.7 million for the three months ended March 31, 2026 and 2025, respectively, resulting in an increase in net sales of $0.9 million or 19% quarter over quarter and 12% sequentially. This increase is comprised of gains in both our direct to consumer and wholesale business. Direct to consumer included gains to the core business in addition to the revenue added from the acquisition of Bluebird. We anticipate Bluebird will add incremental revenue during the third quarter with the benefit of ownership for a full fiscal quarter as well as increased marketing by our in house marketing team. Our wholesale business continued to strengthen this quarter as we made progress with our Oasis brand and other cbdMD brand initiatives. We remain focused on growth and, as of this filing April’s orders remained strong. Despite the pervasive, industry-wide challenges which we are facing, we remain optimistic about our market positioning in fiscal 2026 and continue to seek to diversify revenue.

Cost of sales

Our cost of sales includes costs associated with distribution, fill and labor expense, components, manufacturing overhead, third party providers, and freight for our product sales. Our cost of sales as a percentage of net sales was 42% and 38% for the three months ended March 31, 2026 and 2025, respectively. This slight increase in cost of sales is mostly attributed to (i) a shift in our sales mix to more wholesale business which grew $0.7 million year over year, and (ii) increase in warehouse labor as we encountered several repacking projects in response to changes in state regulation.

Operating expenses

Our principal operating expenses include staff-related expenses, advertising (which includes expenses related to industry distribution and trade shows), sponsorships, affiliate commissions, merchant fees, technology, travel, rent, professional service fees, and business insurance expenses.

Consolidated Operating Expenses

The following tables provide information on our operating expenses for the three and six months ended March 31, 2026 and 2025:

Our overall operating expenses increased approximately $0.6 million or 17.3% for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The acquisition of Bluebird added approximately $340,000 in labor, marketing and acquisition related legal and transaction expenses during the second quarter of fiscal 2026. Additionally, professional outside services increased as we made investments to target the Medicare program in addition to transaction costs related to the acquisition of Bluebird. Stock based compensation increased as certain grants vested during the second quarter of fiscal 2026. The increase in labor is tied to acquisition of Bluebird, some annual adjustments but also a number of projects during the quarter, notably regulatory related reworks, and offset by savings in rents, and other miscellaneous expenses.

Liquidity and Capital Resources

We had cash and cash equivalents on hand of approximately $2.6 million, working capital of $5.4 million and an accumulated deficit of approximately $180.6 million at March 31, 2026. At September 30, 2025, we had cash and cash equivalents of $2.3 million, working capital of $3.4 million and an accumulated deficit of approximately $179.4 million.

The Company has outstanding quarterly dividend payment obligations under its Series B Convertible Preferred Stock and Series C Convertible Preferred Stock. The Series B Preferred Stock accrues dividends at a rate of 10% per annum, payable quarterly in shares of common stock (subject to the satisfaction of certain equity conditions) or in cash. The Series C Preferred Stock accrues dividends at the same rate of 10% per annum, also payable quarterly in shares of common stock (subject to the satisfaction of certain equity conditions) or in cash. If the Company fails to satisfy the applicable equity conditions, dividends on both series of preferred stock are payable in cash, which could adversely affect the Company’s liquidity position. As of March 31, 2026, approximately 591,207 shares of Series B Preferred Stock and 1 million shares of Series C Preferred Stock were outstanding. The aggregate quarterly dividend obligation, if paid in cash, would be approximately $70,000 based on stated values and the 10% per annum dividend rate.

While the Company is taking strong action and believes that it can execute its strategy and path to profitability, including the Bluebird acquisition, and believes in its ability to raise additional funds, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon its ability to improve profitability and cash flow and the ability to acquire additional funding. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date that these financial statements are issued. These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result in the Company not being able to continue as a going concern.

Cash Flows

During the six months ended March 31, 2026 and 2025, our sources and uses of cash were as follows:

Operating Activities

During the six months ended March 31, 2026, net cash used by operating activities was $1.5 million compared to the cash flows used by operating activities of $0.5 million for the six months ended March 31, 2025. The primary components of the cash used by operating activities in the six months ended March 31, 2026 and 2025 are accounts receivable, inventory and prepaid and other operating expenses.

Investing Activities

Cash used in investing activities was $0.1 million for the six months ended March 31, 2026 and March 31, 2025, respectively, and were both related to fixed asset acquisitions.

Financing Activities

Cash provided by (used in) financing activities during the six months ended March 31, 2026 and March 31, 2025 of approximately $2.0 million and $0, respectively. The cash provided by financing activities during the six months ended March 31, 2026 is attributable to the proceeds from the issuance of preferred stock.

We do not have any commitments for material capital expenditures.

Our goal from a liquidity perspective is to use operating cash flows to fund day to day operations. We remain focused on improving the Company's operating performance and continue to focus on profitability, and growing the Company in order to strengthen its balance sheet.

Adjusted EBITDA (Unaudited)

To supplement the Company's unaudited interim consolidated financial statements presented in accordance with US GAAP, the Company uses certain non-GAAP measures of financial performance. Non-GAAP financial measures are not prepared in accordance with, or as an alternative to US GAAP. Generally, a non-GAAP financial measure is a numerical measure of a company's performance that either excludes or includes amounts, or is subject to adjustment that have such an effect, that are not normally excluded or included in the most directly comparable financial measure that is calculated and presented in accordance with US GAAP. Adjusted EBITDA as presented below is a non-GAAP measure.

The Company defines Adjusted EBITDA as GAAP loss from operations adjusted to exclude (i) depreciation and amortization, (ii) stock-based compensation expense, and (iii) mergers and acquisitions and financing transaction expenses. This measure differs from traditional “EBITDA” (Earnings Before Interest, Taxes, Depreciation and Amortization) because the Company’s reconciliation begins with loss from operations, which is presented before interest expense and income tax expense on the consolidated statements of operations.

Our management uses and relies on Adjusted EBITDA, which is a non-GAAP financial measure. We believe that management, analysts and shareholders benefit from referring to this non-GAAP financial measure to evaluate and assess our core operating results from period-to-period after removing the impact of items that affect comparability. Specifically, we believe Adjusted EBITDA is useful to investors because: (i) depreciation and amortization are non-cash charges that do not reflect our cash-based operating performance; (ii) stock-based compensation is a non-cash expense that can vary significantly based on factors such as share price volatility and is not indicative of core operating performance; and (iii) mergers and acquisitions and financing transaction expenses are non-recurring costs that are not expected to continue in the ordinary course of business. Our management recognizes that the non-GAAP financial measures have inherent limitations because of the excluded items described below.

We have included a reconciliation of our non-GAAP financial measure to the most comparable financial measures calculated in accordance with GAAP. We believe that providing the non-GAAP financial measures, together with the reconciliation to GAAP, helps investors make comparisons between cbdMD and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding GAAP measure provided by each company under applicable rules of the Securities and Exchange Commission.

Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; (iii) it does not reflect the interest expense or cash requirements necessary to service interest or principal payments on our debt; (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; (v) it does not reflect the impact of stock-based compensation upon our overall results of operations; and (vi) other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

(Unaudited)

(1) Represents depreciation of property, plant and equipment and amortization of the Company's intangible assets.

(2) Represents non-cash expense related to options, warrants, restricted stock expenses that have been amortized during the period.

(3) Represents costs associated with the Bluebird acquisition.

Critical accounting policies

The preparation of financial statements and related disclosures in conformity with US GAAP and our discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Note 1, “Organization and Summary of Significant Accounting Policies,” of the Notes to our condensed consolidated financial statements appearing elsewhere in this report describes the significant accounting policies and methods used in the preparation of our condensed consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.

Please see Part II, Item 7 – Critical Accounting Policies appearing in our 2025 10-K for the critical accounting policies we believe involve the more significant judgments and estimates used in the preparation of our consolidated financial statements and are the most critical to aid you in fully understanding and evaluating our reported financial results. Management considers these policies critical because they are both important to the portrayal of our financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters.

Recent accounting pronouncements

Please see Note 1 – Organization and Summary of Significant Accounting Policies appearing in the condensed consolidated financial statements included in this report for information on accounting pronouncements.

Off balance sheet arrangements

As of the date of this report, we have no undisclosed off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation as of the end of the period covered by this report, our principal executive officer and principal accounting officer have concluded that our disclosure controls and procedures were effective to ensure that the information relating to our company, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal accounting officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the 2025 10-K. Investors should carefully consider the risks described in the 2025 10-K, together with all of the other information included in this Quarterly Report, including our financial statements and the related notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section, before deciding whether to invest in our securities. See also “Liquidity and Capital Resources” above for additional discussion of factors that may affect our results of operations and financial condition.