cbdMD, Inc.: Form 10-Q for the period ended Jun 30, 2026

The following discussion of our financial condition and results of operations for the three and nine months ended June 30, 2026 and the three and nine months ended June 30, 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. In addition, Oasis just expanded into other natural compounds including Kava.

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 revenue growth and 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. During the quarter we continued to make gains year over year in revenue growth, but fell short on profitability.

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 have increased and 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 is underserved with its 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, and an additional $24,000 in costs in the third quarter related to the accounting valuation. Bluebird contributed over $550,000 in revenue for the third quarter of fiscal 2026.

Management continues to pursue other M&A activity and incurred over $100,000 in legal and due diligence expenses on pursuing other transactions that would further diversify the Company's revenue and mitigate certain regulatory risks facing the hemp industry.

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 nine months ended June 30, 2026, 64% and 61%, respectively, 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 likely 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.

Numerous bills in the 119th Congress would repeal, delay, or modify Section 781 of Public Law 119-37 or establish a federal framework for hemp-derived cannabinoid products, including H.R. 6209, H.R. 7024/S. 3686, S. 3474, H.R. 7212, and S. 4315, none of which has advanced beyond committee. Most prominently, on July 22, 2026, Representatives Andy Barr and Angie Craig introduced the bipartisan, White House-supported Lawful Hemp Protection Act (H.R. 9830), which would replace Section 781's restrictions with a permanent federal regulatory framework redefining hemp at up to 1% total THC on a dry-weight basis while banning synthetic cannabinoids, directing the FDA to set per-serving potency limits, restricting sales to consumers 21 and older, imposing federal excise taxes, and requiring permits, testing, and labeling standards. On April 30, 2026, the House passed the Farm, Food, and National Security Act of 2026 (H.R. 7567), which did not modify Section 781's restrictions on finished hemp-derived cannabinoid products; on August 6, 2026, the Senate Agriculture Committee's competing markup failed 10-11 and likewise left those restrictions unchanged. A Senate stopgap appropriations proposal released August 2, 2026 would, through December 11, 2026, temporarily exempt naturally occurring cannabinoids from the revised total-THC definition and the 0.4 mg per-container limit, while restrictions on synthetic cannabinoids would still take effect November 12, 2026. As of the date of this filing, none of these measures has been enacted, and the Company cannot predict the outcome, timing, or ultimate impact of any of them.

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.

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.

Management Priorities

We remain focused on positioning the Company for a changing regulatory landscape. During the second and third quarters, we made progress on the following key initiatives:

• Revenue Maximization: At the end of the third quarter, we added South Carolina distribution for Oasis and transitioned to a new distribution partner in Texas, which more than quadrupled the stores we have access to and we are seeing market growth in the fourth quarter of fiscal 2026. The launch of our Oasis Mixer has been well received and is contributing to brand growth. Our core direct-to-consumer business faced headwinds during the third quarter of fiscal 2026 as we restricted shipping of certain products to a growing number of states, affecting approximately $150,000 of direct-to-consumer revenue. Notwithstanding these restrictions, we continue to optimize our customer acquisition funnel and customer experience to drive both revenue and customer lifetime value.
• Cost control and Right Sizing: Beginning in the fourth fiscal quarter of 2026, we implemented a plan targeting $100,000 to $150,000 in monthly cost savings, or approximately $1.2 to $1.8 million on an annualized basis. These are principally fixed-cost reductions and to date have included payroll reductions, renegotiating and lowering our warehouse lease, and renegotiating or exiting a number of vendor contracts. We have also identified additional supply-chain savings that we expect to begin realizing in our results during the latter half of the current quarter. We believe these actions will improve adjusted EBITDA and contribution margin and extend our cash runway. Separately, we continue to develop contingency plans, including adjusting our product model and carefully managing inventory levels, in the event Section 781's restrictions take effect as scheduled on November 12, 2026 without modification.
• Innovation: Having built core direct-to-consumer and distribution infrastructure, we believe we can leverage these channels to bring additional health-and-wellness products to market, and we see growing consumer demand for non-alcoholic products that help people relax and unwind. During the third quarter of fiscal 2026, we began selling Kava products under our Kavari brand, and as of the date of this filing Oasis has launched a zero-proof Kava beverage as a follow-on to the Oasis Mixer. Together with Kava, we are developing formulations using other botanical ingredients intended to address demand created by legislative changes, and we expect to introduce additional product categories toward the end of fiscal year 2026.
• Acquisitions: Beyond Bluebird, we continue to pursue opportunities 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.

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 $4.6 million for the three months ended June 30, 2026 and 2025, respectively, resulting in an increase in net sales of $0.9 million or 20% quarter over quarter. We had total net sales of $16.2 million and $14.5 million for the nine months ended June 30, 2026 and 2025, respectively, resulting in an increase in net sales of $1.7 million or 12% year over year. This increase is comprised of gains in both our direct to consumer and wholesale business. Direct to consumer included gains related to the revenue added from the acquisition of Bluebird. Our wholesale business continued to trend year over year due to gains with our Oasis brand and other cbdMD brand initiatives. Our team remains focused on being nimble and adjusting to combat revenue losses coming from state level regulatory changes. Despite the pervasive, industry-wide challenges which we are facing, we believe we are better positioned than many of our peers as we look toward the November rule changes.

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 45.3% and 38.5% for the three months ended June 30, 2026 and 2025, respectively, and was 42.7% and 36.5% for the nine month ended June 30,2026 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 $0.6 million year over year, (ii) increase in warehouse labor as we continue to incur repacking projects in response to changes in state regulation, and (iii) $187,437 increase in inventory reserves during the quarter as we prepare for pending regulatory changes.

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 nine months ended June 30, 2026 and 2025:

Our overall operating expenses increased approximately $0.4 million or 11.6% for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025. Payroll costs are up year over year approximately $0.3 million in part due to the acquisition of Bluebird as well as efforts in new product development and additional warehouse staff tied to increased sales and state level product rework. Professional outside services increased approximately $0.2 million as we incurred approximately $30,000 to target the Medicare program, approximately $20,000 in residual accounting valuation expenses related to the acquisition of Bluebird, approximately $50,000 tied to several settlements, approximately $100,000 in professional fees tied to other mergers and acquisition efforts, and further professional fees related to the cbdMD GRAS report. Stock based compensation increased as certain grants vested during the third quarter of fiscal 2026. As previously mentioned, since the end of the third quarter of fiscal 2026, we have implemented changes designed to save over $100,000 in expenses by the end of the fourth quarter of fiscal 2026.

Our overall operating expenses increased approximately $0.8 million or 7.9% for the nine months ended June 30, 2026 as compared to the nine months ended June 30, 2025. The acquisition of Bluebird added approximately $746,000 in labor, marketing and acquisition related legal and transaction expenses during the nine months ended June 30, 2026. We also had approximately $134,000 in expenses related to other mergers and acquisitions activity. Stock based compensation increased as certain grants vested during the third quarter of fiscal 2026. These increases were partially offset by decreases in depreciation expense and property plant and equipment became fully depreciated, and other miscellaneous expenses.

Liquidity and Capital Resources

We had cash and cash equivalents on hand of approximately $2.1 million, working capital of $4.7 million and an accumulated deficit of approximately $181.8 million at June 30, 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 June 30, 2026, approximately 591,207 shares of Series B Preferred Stock and 1,000,000 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 nine months ended June 30, 2026 and 2025, our sources and uses of cash were as follows:

Operating Activities

During the nine months ended June 30, 2026, net cash used by operating activities was $1.9 million compared to the cash flows used by operating activities of $1.2 million for the nine months ended June 30, 2025. The primary components of the cash used by operating activities in the nine months ended June 30, 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 nine months ended June 30, 2026 and June 30, 2025, respectively, and were both related to fixed asset acquisitions.

Financing Activities

Cash provided by (used in) financing activities during the nine months ended June 30, 2026 and June 30, 2025 of approximately $1.9 million and $0, respectively. The cash provided by financing activities during the nine months ended June 30, 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.

Non-GAAP Financial Measure - 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 additional inventory reserve in preparation for pending regulatory changes.

(4) Represents regulatory costs associated with pending legislation.

(5) Represents costs associated with the Bluebird acquisition, preferred stock offerings and review of additional potential acquisition opportunities.

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.