Thomas McGovern

Thomas McGovern asked about cbdMD's growth drivers for fiscal year 2026, specifically inquiring whether the Herbal Oasis beverage brand's expansion or innovation within the core cbdMD brand would be the primary catalyst. He also sought clarification on the year-over-year decline in the direct-to-consumer business, asking if it was due to SKU reduction or changes in customer acquisition and retention KPIs. Finally, he questioned the timeline for Medicare coverage of CBD products and how the company's strategy has adapted to the dynamic regulatory environment.

Answer

Ronan Kennedy, CEO and CFO of cbdMD Inc, stated that while there's opportunity for growth in the core cbdMD brand due to team transformation, the company sees significant growth potential in the beverage side with Oasis, depending on regulatory frameworks. Regarding the D2C decline, he noted that the business is now trending slightly up over prior year periods after organizational changes in early 2025. On Medicare coverage, Kennedy mentioned an understanding of a pilot program starting April 1st, aiming to make CBD available to Medicare consumers, and expressed encouragement that language restrictions in November's bill would be resolved, emphasizing the industry's support for smart regulations.

Thomas McGovern asked about cbdMD's projected growth drivers for fiscal year 2026, specifically inquiring whether growth would be led by the Herbal Oasis beverage brand's expansion or innovation within the core cbdMD and Paw CBD product lines. He also sought clarification on the year-over-year decline in the direct-to-consumer business, asking if it was due to SKU reduction or changes in customer acquisition and retention KPIs. Finally, McGovern questioned the potential timeline for Medicare coverage of CBD products and how cbdMD is adjusting its strategy to the dynamic regulatory environment.

Answer

Ronan Kennedy, CEO and CFO of cbdMD Inc, stated that while there's continued growth opportunity in the core cbdMD brand, the Herbal Oasis beverage side presents significant growth potential, contingent on regulatory frameworks. Regarding the D2C decline, Kennedy explained that after organizational changes in early 2025, the business is now trending slightly up over prior year periods. On regulatory matters, Kennedy noted that a Medicare pilot program for CBD is anticipated to start April 1st, potentially unlocking $30 billion in Medicare spend and driving substantial demand for quality CBD products over the next few years. He acknowledged conflicting regulations but expressed encouragement that federal policy is evolving towards science-based evaluation and healthcare integration.

Thomas McGovern inquired about the commercial rollout and expansion strategy for the Herbal Oasis brand, the timeline for it to become a material revenue contributor, and how the recent capital restructuring would impact future growth initiatives and strategic flexibility.

Answer

CEO and CFO Ronan Kennedy explained that the Herbal Oasis rollout, initially slowed by legislative concerns, is now ramping up with new distribution partners in the Southeast. He anticipates the brand will make a meaningful contribution to revenue by the end of fiscal 2025. Kennedy also stated that the simplified capital structure secures the company's NYSE American listing and makes the stock a viable currency for future M&A, opening up strategic opportunities that were previously hindered.

Thomas McGovern asked for an overview of product category trends, focusing on the Oasis beverage line. He questioned if the strong interest from a national retailer for Oasis signals a broader category turnaround or if the positive trend is specific to the beverage segment, given previous retail pullbacks on other CBD products.

Answer

CEO and CFO T. Kennedy explained that the hemp-derived beverage market is the fastest-growing category in the space. He clarified that the national retailer interest, while currently limited to certain jurisdictions, lends significant credibility to their Oasis line. Kennedy emphasized that the company remains focused on profitably growing its core CBD business, viewing the Oasis beverage as a key additional growth channel.

Thomas McGovern of Maxim Group asked for an update on cbdMD's marketing and customer retention strategies, the expected 2025 revenue mix between e-commerce and wholesale, the outlook for the CBD retail landscape, and the potential impact of the new presidential administration and FDA on regulations.

Answer

CEO Ronan Kennedy explained that marketing strategies are constantly evolving, with a current focus on enhancing subscription and loyalty programs. He acknowledged that the wholesale channel's contribution to the revenue mix could increase slightly in 2025 but stated the goal is to grow both channels. Kennedy expressed skepticism about a significant shift in big-box retail for legacy CBD products without federal clarity, though he noted beverages are seeing more interest. Regarding regulation, Kennedy declined to comment on the new administration, while Dr. Sibyl Swift, a board member, added that while there is hope for a friendly approach to botanicals, it remains a 'wait and watch' situation with the FDA.

Thomas McGovern of Maxim Group inquired about the progress of new school year contracts, the market reception for the new 'Pop and Go' product, and the strategy for re-engaging customers who temporarily dropped Barfresh due to supply issues. He also asked about the company's geographic expansion plans.

Answer

Riccardo Delle Coste, Founder, Chairman, President & CEO, confirmed a positive early response to 'Pop and Go' from large school districts, though some bids are still being finalized. He explained that customers who paused orders due to previous bottle shortages will be brought back on as consistent supply is re-established, as the products are already approved. For expansion, Delle Coste noted that increased manufacturing capacity will support broader penetration across the U.S., with a focus on highly populated states.

The analyst inquired about the primary drivers of the quarter's growth, asking to differentiate the impact of various initiatives like the installation program, the tracking app, and the expanded sales force. He also questioned the company's sales force capacity, asking if the current team is sufficient to both maintain existing customers and expand into new verticals, or if further hiring is anticipated.

Answer

The CEO, Robert Banks, attributed the growth to a combination of factors. The filter tracking app provided crucial visibility, while the service initiatives translated that visibility into action, ensuring customers reordered filters on schedule. He confirmed that the sales force is currently a limiting factor for growth and that the company plans to continue expanding it. They are using a model where seasoned experts focus on acquiring new business, while junior associates manage the existing customer base, a strategy that has proven effective and will be scaled.

Thomas McGovern from Maxim Group inquired about the primary drivers behind Nephros's strong Q2 performance, specifically asking to what extent the filter tracking app, installation services, and expanded sales force contributed to growth. He also asked about the company's growth strategy and whether the current sales force is sufficient to expand into new verticals or if further hiring is anticipated.

Answer

Robert Banks, Director, President & CEO, explained that growth was driven by a combination of the filter tracking app providing visibility and service initiatives turning that visibility into action, which improved customer reorder rates. Banks also identified the sales force size as a key constraint on growth, confirming that Nephros will continue to expand its sales team using a 'hunter-gatherer' model to both acquire new business and service existing clients.

Thomas McGovern of Maxim Group inquired about the reasons for reduced stringency in waterborne risk response, the impact of the new ASHRAE 514 standard, the rollout status of the filter tracking app, and the total number of active customer accounts.

Answer

CEO Robert Banks attributed the decline in emergency response to reduced testing in key territories like Ohio, but noted that upcoming regulations in Ohio and New Jersey could reverse this trend. He also stated that technical issues with the filter tracker app have been resolved, and it is expected to improve reorder rates among existing customers. Banks confirmed that active customer sites reached a record 1,384 at the end of Q2.

Thomas McGovern of Maxim Group inquired about the expected impact of tariffs on 2025 operations, the nature of sales deals that slipped from Q1 to Q2, and the launch timeline for the company's next-generation body contouring device.

Answer

CFO Domenic Penna detailed the potential gross margin impact from tariffs on products from Israel and Europe, estimating a 1-2.5% hit without mitigation. Executive Rajiv Kanishka De Silva clarified that the more significant issue is the indirect effect of economic uncertainty causing distributor hesitancy. Both executives confirmed that delayed sales were a mix of U.S. and international deals, slowed by tighter credit. De Silva also reaffirmed the new body contouring device is on track for a launch in the second half of 2025, with regulatory processes underway.

Thomas McGovern of Maxim Group asked for an outlook on the company's debt reduction strategy for Q4 and 2025, and sought clarification on the status of the MSLP loan and its covenant waivers.

Answer

Executive Rajiv Kanishka De Silva highlighted the constructive relationship with lender Madryn Asset Management, stating a shared goal of reaching a manageable debt level without providing a specific target. He also confirmed that Madryn has been extending covenant relief for the MSLP loan on a monthly basis during capital structure negotiations and expects this to continue until a final solution is reached.

Asked about the company's strategy for continued debt reduction into 2025 and sought clarification on the status of the MSLP loan agreement and its associated covenant relief.

Answer

The company is working constructively with its lender, Madryn, to ensure debt is at a manageable level and expects bridge financing to continue. Regarding the MSLP loan, which Madryn now holds, covenant relief has been extended on a monthly basis during ongoing capital structure negotiations, and this is expected to continue until a final solution is reached.

Thomas McGovern from Maxim Group questioned the pattern of recognizing prior-period arbitration revenue and its predictability for future quarters. He also asked about the operational impact of adding new arbitrators and the expected trend in patient acuity mix and inpatient volume.

Answer

CFO Jon Bates responded that while predicting the exact amount of prior-period revenue is difficult due to timing, the model's accuracy is improving with more data. He noted that adding more arbitrators is a positive development that should help reduce backlogs. CEO Dr. Tom Vo and COO Josh DeTillio added that there is significant capacity to grow inpatient volume by adding specialists and enhancing community reputation, and they expect this growth to continue.

The analyst, speaking on behalf of Anthony Vendetti, asked if the passage of the SAFER Banking Act would move projects from their pipeline into the backlog. He also asked about the impact of Germany's recent cannabis law change on their European strategy and potential revenue in the second half of 2024.

Answer

Executives confirmed that passing the SAFER Banking Act would move projects from their qualified pipeline into the backlog, as it would provide operators with much-needed access to capital. Regarding Germany, they explained that the new law focuses on social clubs, so they don't see significant near-term opportunity. They have downsized their European operations due to market softness and high costs, retaining key experts but releasing the managing director. They do not expect the German changes to impact 2024 revenue.