Good afternoon. Welcome to the cbdMD First Quarter Fiscal 2020 Earnings Call and Update. This afternoon, the company issued a press release that provided an overview of its first quarter results, which followed the filing of its report on Form 10-Q. Today’s conference is being recorded and will be available online at cbdmd.com in accordance with cbdMD’s retention policies. All participants on this call will be in a listen-only mode. [Operator Instructions] At this time, I would now like to turn the conference over to Mark Elliott, the company’s Chief Financial Officer. Mark, please go ahead.

Thanks, Jess, and thank you all for joining cbdMD First Quarter Fiscal 2020 Earnings Conference Call. On the call today, we also have our Chairman and Co-CEO, Marty Sumichrast. Following the Safe Harbor statement, Marty will provide an overview of our business, then I’ll provide a summary of the quarterly financial results. Following that, we’ll open up the call 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 Securities Litigation Reform Act of 1995. cbdMD 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, 2019 as amended and has filed with the SEC, 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.com. Any forward-looking statements made on this conference call speak only as of today’s date, Thursday, February 13, 2020, and cbdMD does not intend to update any of these forward-looking statements to reflect events or circumstances that would occur after today’s date. With that, I’d like to turn the call over to Chairman and Co-CEO, Marty Sumichrast. Marty?

Mark, thank you, and thanks to all of those who are listening in on the call this afternoon. I’m pleased to announce that cbdMD reported another record quarter of revenue growth with over $10.14 million in quarterly net sales. In calendar 2019, our first full year CBD sales, we generated over $33 million in total net sales, which was well ahead of our initial expectations of $20 million. Our gross profit margins remain strong at 63.5%. We are fully financed and expect to achieve monthly positive cash flow in the last quarter of calendar 2020. We continue to drive online sales through the use of various digital marketing tactics, athlete and major league partnerships and high-traffic affiliate programs. We currently have over 222,000 active e-commerce subscribers, an increase of over 10% since last quarter. On the brick-and-mortar side of the business, we continue to grow the amount of retail stores who currently carry our brands. We are pleased to announce that our retail reach is now over 5,300 retail doors, an increase of over 1,000 doors since last quarter, and we’ve also increased our international presence and are now currently selling to wholesale customers in 16 international markets, up from 10 markets last quarter. During calendar 2019, we invested heavily in brand development, acquiring brand-building assets as well as our physical infrastructure with the build-out of full-scale manufacturing, distribution, logistics and warehousing facilities. We continue to invest in R&D and testing to ensure the safety and quality of all of our products. Every batch of finished goods are tested with full panel by ISO-certified testing laboratories to ensure the quality and purity of our products as well as to ensure we meet our label claims for potency. In addition to growing our revenues and infrastructure, we’ve also set out to…

Thank you, Marty. I’m going to start with a brief summary of our GAAP-based results. On a GAAP basis, our total net sales for the first quarter of fiscal 2020, which ended December 31, were approximately $10.1 million. This was a 285% increase for the period year-over-year, and this is based upon the pre-acquisition and post-acquisition net sales of the brand, which we acquired in late December 2018. This is also an increase of 6% from our last quarter, which ended September 30, 2019. Gross profit as a percentage of net sales came in at 63.5% for the first quarter of fiscal 2020. This is compared to 64.4% for the comparative period prior year and were an improvement from our last quarter ending September 30, 2019, which was 56.7%. During the balance of fiscal 2020, we expect to maintain our gross profit as a percentage of net sales between 60% and 65%. Our major operating expenses were as follows: We had wages of approximately $3.9 million, expenses of $2.4 million for direct marketing and advertising. This includes social media, events, trade shows, which are all a key part of the strategy in fiscal 2019 in building the brand and creating visibility. We had sponsorship expense of approximately $2.1 million for the quarter, again, part of the strategy in building that brand, and we believe the results indicate this has been accomplished. As Marty mentioned previously, with our brand foundation established in 2019, we are now transitioning from building to leveraging our marketing, advertising, sponsorships and expect to control future expense and commitments for this going forward. We had affiliate commissions of $544,000 as we built multiple channels for reaching our consumers. Merchant fees were $740,000, again, as we processed our sales transactions predominantly online. Our professional services were approximately $513,000,…

Mark, thanks. As you can see, we’ve made tremendous progress and continue to execute our overall plan. With that, I’d like to open up the line for Q&A. Jess?

[Operator Instructions] We’ll go first to Bill Sutherland with Benchmark.

Hey, thanks. Hey, Marty.

Hi. How are you?

I wanted to just think about the revenue progression a little bit. Good quarter, but obviously, sequentially not as big a lift as you’ve seen in past quarters. So how should we think about the forward progression without – I’m not sure if you’re going to be talking about kind of where you think you’re going to be by year-end, but whatever you can tell us as far as color, that would be great.

Yes, yes. Bill, thanks. I mean, look, we’re seeing strong growth online, okay? And we think that continues. At the end of last year, as I tried to say in my remarks, we saw the brick-and-mortar growth tighten up as the FDA came in and made comments there in September and October. We did grow our overall retail base, and we saw a pretty good percent of return customers coming in from our wholesale accounts. But that, I think, is sort of – overall, the entire industry on the retail side saw a downturn towards the end of the year after that. What we’re seeing now is we’re seeing a gradual return, and for us, we’re seeing a couple of things that are really interesting. Internationally, we’re seeing a big pickup. As you know, six, seven months ago, we really didn’t have much of an interest necessarily in the international market, and it kind of came to us and we’ve opened up 16 markets that way. Now, we’ve made an internal choice to now go after international markets. So, we think there’s a couple of markets out there that show big promise, and we’re dealing with a couple of large retailers in those markets right now. So the international market, sort of the brick-and-mortar wholesale, I think, is a very interesting play for us going forward. We think that the big box people that we are continuing to talk to, that we have proposals out to, are going to come in. They obviously were very nervous towards the end of last year, but we think they are coming in. We can’t tell you that they’re going to come in this quarter, but we probably think it’ll start to happen next quarter. And those are – should help dramatically on an increase on the brick-and-mortar side of our business. The online side, as I said, is growing very rapidly. We’re seeing a lot of new developments as some of the larger search engines are allowing us to buy some of the ad words, and so we think we got a really good trend line going. So it was still a good quarter last quarter, and we think we’re sticking to where we are in our conviction of what we think we can do this year.

So you’ve got the expanding store base, Marty, and I guess in this past quarter, maybe revenue per store was off a bit or – and you’re expecting that to start to come back now. Or are you talking about the whole process?

Yes. We’re seeing that coming back. But there was a lot of – the other thing I’ll say there was a lot of competition that came into the market last year, as I tried to say in my remarks. I mean we went from there being a certain amount of competitors such as ourselves, and as you got into last year, that really exploded. And so it got spread out. That – it got spread out amongst a lot of players. Now, what we’re seeing is, and we’re seeing it on a weekly basis, the competition is simply going away. We’re seeing it – some of these – the companies that we were talking to two or three quarters ago now are coming to us because they can’t stay in business. They can’t grow. And so we’re starting to see that, and we think there’s going to be a continued shakeout. And so over the next couple of quarters, that’s going to leave, as I said, a handful of companies such as ours that are going to lead the market. Now, you throw on top of it our ability to brand, and I think what you have is a very strong formula for success. And so being fully financed and being able to execute on our plan at the high level that we’re doing, I think, puts us in a very strong and unique position. I don’t think there’s a lot of companies out there that have our financial wherewithal. We had over $20 million in cash and no debt. So that’s a pretty strong position to be in.

Right, right. Last one from me, With all the expansion, Paw JV with Better Choice, where do you think as a percent of revenue Paw could be, say, by year-end, for instance?

Well, right now, Paw is running at about 6%, 7%, and we think that number will maintain or go up. We think the opportunity with Halo is really an interesting opportunity, because they have a great brand, successful, been around a long time, don’t do any CBD sales. Now obviously, we know how to do it. And so putting their brand together with our brand, so call it Halo powered by cbdMD, is – could potentially be a great new product. They have a great distribution channel in the brick-and-mortar, certainly a lot farther along than what we have, and we have our infrastructure here. And so creating a JV that sort of puts some of our best players on the field and theirs as well, I think, could be a very interesting development. It really doesn’t cost a whole lot of money but could be very successful and drive a lot of revenue.

Okay. Got it. And I’ll follow up…

And that’s independent of Paw. Paw CBD will remain and grow. It’s creating another brand.

Right, right. Okay. Thanks, Marty.

Thanks, Bill.

We’ll go next to Scott Rothbaum at Joseph Gunnar.

Hey, guys. Hey, Marty.

Hi, Scott.

Can you expand a little bit on your Life Time relationship, where the relationship stands as far as your partnership and where there is potential moving forward?

Yes. I mean, we – Life Time was great. I mean we signed that deal. That was a huge coup. We beat out a lot of other players that wanted it. They love obviously the fact that we are best-in-class on the regulatory side, being a New York Stock Exchange listed company. Our athletic – the way we deal with all of our athletes and some of our sponsorships with Bellator, it was just a perfect fit. We launched in October of last year on a marketing PR side of it to get out into the – all the facilities. If you go into the facility, you see us everywhere on all the digital and really got the name out. Now, we’re transitioning into actually putting the products into the different facilities. And we hope here very shortly by the end of this quarter that we’re going to be loading into the facilities, which we think will drive a tremendous amount of sales. So, we really haven’t even tapped in to the sales side of Life Time. We’ve done a lot of coupon codes, and they’ve been a great way to test and feel what the different customers of Life Time are looking for. But you’re hopefully going to see us in the spas, in the cafes, with the nutritionists. We just did the whole Miami Marathon. If you guys go on social media, we ran a minute clip. It was incredible. We just got a ton. We were the lead sponsor of that. So, we’re just getting started with Life Time. We think it is a fantastic company, and we think the potential with them directly is incredible. And of course, that vertical now opens up because a lot of fitness places around the country are – want to carry our product and say, “Wow, if it’s good for Life Time, it’s probably good for us.” So, we’re seeing a nice pickup from that as well.

Thanks for clarifying.

Thanks.

We’ll move next to Private Investor, Barry Rubin.

Yes, thank you. I wanted to thank you for another great quarter and you’ve got a fantastic future. I became a shareholder in January and I bought a nice amount of stock, and I’m very happy. Before I ask my business question, I wanted to thank your Investor Relations person, Mr. Weston, who spent a nice amount of time with me, and he’s a very great credit to your organization. My question is on the…

Thank you. That’s nice to hear.

Yes. No, he was – he spent more than enough time and very gracious, and you don’t find that much anymore. My one business question, if you’d be so kind, in the international market, which you mentioned – I don’t want to put words in your mouth, but it should be a good grower for the future, where do you see a lot of the business coming from? Is it Europe? Is it Asia? And wherever you tell me it is, what is the reason for that particular market to be growing so fast? And thank you again.

Yes. thank you. We’re seeing Latin America. We’re seeing in the Asian Pacific area, we just sent a team out to Japan, very exciting opportunities there. And then in the Great Britain, in Ireland, in those regions, we think that’s a big hub for us. So – and we have a relationship with a distributor in the UK right now who’s seeing tremendous success. So stay tuned, I think. Knock on wood, we’re going to have some decent-sized relationships announced on the wholesale front really start to open up those markets.

Thank you.

thank you.

We’ll go next to [indiscernible].

Hi, good afternoon.

Hi.

Thanks. I just wanted to quickly ask – I want to quickly ask you guys. I know you were talking about international sales and a little bit of your relationship with Life Time Fitness. Have you guys gotten any sort of direction with like a major athlete, like somebody like a tennis star, like a Serena Williams or anything in that nature? Like what would that do as far as online-driven sales?

Yes. So, if you go to cbdmd.com and you go to the Investor tab, you can go and see our, we call it, team cbdMD. We probably have the deepest roster of athletes of any, certainly, CBD company and any cannabis company, I would say, in the world. We’ve got – Bubba Watson is probably our biggest name. We were the first in golf. Bubba has been incredible for us. We have Kerri Walsh Jennings, an Olympic athlete; Lolo Jones. We just got Jorge Masvidal, who is – if you watch MMA, is probably, well, one of – besides Conor McGregor, probably one of the top MMA fighters. And we hope to announce a pretty big name here shortly as well. We’ve been very successful with our athletes, and our athletes provide not only direct ROI when we run coupon codes, but they’re great ambassadors for the brand. And to your point, the international markets recognize some of these athletes. And one in particular that we’re looking to bring on has got a massive international name. So, we – as I said, we didn’t really look at the international markets when we launched and we did this, but now it’s really becoming apparent that, that’s a huge potential. The CBD market internationally is kind of like where the U.S. market was two years ago. So it’s really open. And so with our branding and our machine of marketing, we really are in a good position to take care of it.

Okay. And then secondly, are you guys – I know how you said you’re basically fully funded and can go until you get to cash flow positive in the fourth quarter. Are you guys looking for any additional support or help?

No.

Okay. And then lastly, as far as the last rate that you guys did at $1 a share, I know you said sort of where it’s going to go as far as cost of services. But are you guys looking at – based on your revenue projections, where do you guys see, I guess, as far as top line growth over the next three, four years?

Well, we have made – we’ve come out with guidance where we said we would do about $62 million in this current fiscal year, which ends in September, and that’s the only guidance we’ve given out so far. We obviously expect further growth, but I’m not going to put a number on it at this point.

Okay. All right, that’s all.

Thank you.

[Operator Instructions] We’ll move next Private Investor, Eric Bartolotta. Eric, your line is open if you want to check your mute button. All right. Well, we have no other questions in the queue. With – and at this time, that will conclude our conference call for today. We thank you so much for your participation. Have a wonderful day, and you may now disconnect.