Executive Summary

Q3 2025 missed on growth with revenue down 8.6% year over year to $11.50M as the company intentionally reshaped its B2B channel; gross margin compressed to 38.9% on a $0.5M one-time chargeback reserve and early under-absorption from insourced gummy production .
Cost controls remain the bright spot: SG&A fell 23.3% YoY to $9.73M, and management reiterated ~$9M in annualized cost savings for 2026; Adjusted EBITDA improved to $(2.09)M from $(3.89)M YoY despite lower revenue .
Operational milestones include full internalization of Brightside hemp-derived THC gummy production (multi-million-unit capacity) and expansion of the sleep portfolio (CBN Stay Sleep now #2 gummy); the new Brightside Knockout sleep gummy launched in October with strong initial uptake .
Management expects gross margin to rebound toward historical ~50% in Q4 2025 as insourced production scales; no quarterly call was held this quarter, with the next call planned with year-end results in March 2026 .

What Went Well and What Went Wrong

What Went Well
- Cost discipline delivered: SG&A declined to $9.7M (−23.3% YoY), and the company reaffirmed ~$9M in 2026 annualized cost reductions, supporting the path to positive cash flow in 2026 .
- Manufacturing internalization reached a key milestone, achieving multi-million-unit Brightside gummy capacity to accelerate innovation and structurally lower costs over time .
- Product innovation resonated: sleep lineup expanded to five products; CBN Stay Sleep is the second-best-selling gummy; Brightside Knockout hemp-THC sleep gummy launched with rapid consumer uptake in October .
What Went Wrong
- Revenue contracted 8.6% YoY to $11.50M, primarily due to the strategic B2B restructuring; the shift included a $0.5M reserve against potential customer chargebacks, which directly pressured Q3 revenue and gross margin .
- Gross margin fell to 38.9% (vs. 53.0% YoY; 46.8% in Q2), reflecting the B2B reserve and temporary under-absorption from early-stage in-house production scaling .
- Liquidity trended lower as cash declined to $9.81M (from $15.27M in Q2 and $19.36M in Q1), while the convertible debenture balance stood at $48.82M; management cites multiple pathways to positive cash flow in 2026 but near-term cash remains a watch item .

Financial Results

Key P&L and margin metrics

Metric	Q3 2024	Q2 2025	Q3 2025
Revenue ($M)	$12.59	$12.81	$11.50
Gross Profit ($M)	$6.67	$5.99	$4.48
Gross Margin (%)	53.0%	46.8%	38.9%
Operating Loss ($M)	$(6.02)	$(4.07)	$(5.25)
Net Loss ($M)	$(5.79)	$(6.29)	$(5.82)
EPS (Basic & Diluted)	$(0.04)	$(0.04)	$(0.04)
Adjusted EBITDA ($M)	$(3.89)	$(3.62)	$(2.09)

Notes:

YoY revenue down 8.6% driven by B2B channel restructuring; gross margin impacted by $0.5M B2B reserve and early-stage in-house manufacturing under-absorption .
Management expects gross margin to rebound toward historical ~50% in Q4 2025 as insourced production scales .

Liquidity and balance sheet snapshots

Metric	Q1 2025	Q2 2025	Q3 2025
Cash & Equivalents ($M)	$19.36	$15.27	$9.81
Working Capital ($M)	$25.5	$29.4	$25.6
Convertible Debenture ($M)	$44.75	$48.62	$48.82
Total Liabilities ($M)	$86.96	$73.05	$72.35

Operating expense and non-GAAP

Metric	Q3 2024	Q2 2025	Q3 2025
SG&A ($M)	$12.69	$10.06	$9.73

Segment breakdown/KPIs: The company does not provide segment revenue detail; qualitative KPIs cited include medical channel progress and product velocity within sleep and Brightside categories .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Annualized cost savings	2026	“> $6M” plus manufacturing savings expected to total ~$9M (post-Q2 actions)	~$9M annualized in 2026 (reaffirmed)	Maintained
Gross margin trajectory	Q4 2025	Not previously specified	Rebound toward historical ~50% in Q4 2025 as insourcing scales	New/Clarified
Manufacturing savings	Run-rate	~$3M annualized from in-house gummy production	~$3M annualized; improved absorption expected as scale increases	Maintained
Cash flow	2026	“Multiple paths to positive cash flow”	“Multiple pathways to positive cash flow in 2026”	Maintained
B2B channel shift	Near-term	N/A	One-time ~$0.5M revenue reserve; not expected to recur	New item

Earnings Call Themes & Trends

Note: No Q3 earnings call; company will host two calls per year, next with year-end results in March 2026 .

Topic	Previous Mentions (Q1 & Q2 2025)	Current Period (Q3 2025)	Trend
Manufacturing internalization	Initiated and expanding; Brightside fully internalized; ~$3M annualized savings expected	Full internalization of Brightside hemp-THC gummies; multi-million-unit capacity; scaling to improve absorption	Improving
Cost optimization	SG&A −24.2% YoY in Q1; −31.7% YoY in Q2; actions to reduce 2026 run-rate by >$6M; ~ $9M including manufacturing	SG&A −23.3% YoY; reiterates ~ $9M 2026 annualized savings	Stable/Executing
Product performance: Sleep	CBN Stay Sleep among top sellers; portfolio expansion	Sleep lineup now five products; CBN Stay Sleep is #2 gummy; new Knockout launched in Oct	Strengthening
Regulatory/legal	Favorable federal momentum signaled; advocacy efforts highlighted	Mixed signals: restrictive draft language in funding bill vs public support for CBD; 365-day runway if enacted; active engagement in D.C.	Uncertain but engaged
Medical channel strategy	Emphasis on practitioner channel and clinical validation; DeFloria Phase 2 cleared	Scientific Advisory Board launched; CME plans; continued DeFloria Phase 2 path	Building
B2B channel	Omnichannel expansion in Q1–Q2	B2B restructuring; one-time $0.5M chargeback reserve; pivot to higher-margin distribution	Transitioning

Management Commentary

“Q3 2025 marked continued progress in our strategic transformation… completed the internalization of Brightside gummy production… expanded sleep portfolio… promising early performance of our new Brightside hemp-derived delta-9 products, combined with some positive regulatory signals from Washington…” — CEO Bill Morachnick .
“Third quarter SG&A expenses declined 23.6% year-over-year… position us to deliver approximately $9 million in total annualized cost savings in 2026.” — CFO Erika Lind .
“Gross margin compression resulted from a one-time $0.5 million B2B retail chargeback reserve… and temporary scaling inefficiencies associated with the transition to in-house manufacturing operations… anticipate gross margin to rebound to historical range in Q4 2025.” — Company statement .

Q&A Highlights

The company did not host a Q3 2025 earnings call; next call is planned with year-end results in March 2026 .

Estimates Context

S&P Global consensus estimates were not published for Q3 2025 EPS and revenue; as a result, we cannot quantify an “against-consensus” surprise this quarter (S&P Global)*.
Actuals: Revenue $11.50M, EPS $(0.04), Adjusted EBITDA $(2.09)M (company-reported) .

Table: Against Consensus

Metric	Q3 2025 Actual	Q3 2025 Consensus	Surprise
Revenue ($M)	$11.50	N/A*	N/A*
EPS ($)	$(0.04)	N/A*	N/A*
Adjusted EBITDA ($M)	$(2.09)	N/A*	N/A*

*Values retrieved from S&P Global.

Key Takeaways for Investors

Near-term reset to improve profitability: the B2B restructuring and one-time $0.5M reserve weighed on Q3 revenue/margins, but should improve mix, SG&A leverage, and margin contribution going forward .
Margin inflection watch: management expects gross margin to rebound toward historical ~50% in Q4 2025 as insourced production scales; tracking Q4 gross margin will be a key near-term catalyst .
Cost-down story intact: ~ $9M of 2026 annualized savings (reaffirmed) and SG&A reductions underpin the path to positive cash flow in 2026 if modest growth resumes and manufacturing absorption improves .
Innovation-led growth optionality: sleep portfolio momentum (including Knockout) and Brightside hemp-THC product velocity provide product-led upside if consumer traction persists .
Liquidity/capital structure monitoring: cash declined to $9.81M with a $48.82M convertible debenture; sequential cash flow improvement in Q4 is guided, but cash burn trajectory remains a key risk factor to monitor .
Regulatory path a swing factor: mixed federal signals but a 365-day window if restrictive language advances; company is actively engaged and believes rational, non-intoxicating CBD access remains achievable .
Trading setup: absent consensus estimates and a call, narrative catalysts hinge on Q4 margin rebound, cash flow trajectory into 2026, and continued product velocity in sleep/Brightside; any regulatory clarity could be a step-function catalyst for the category .

Supporting documents and references

Q3 2025 Form 8-K and Exhibit 99.1 Press Release (financials, commentary) .
Q2 2025 8-K and Press Release (trend, prior guidance) .
Q1 2025 Press Release (trend) .
Product and SAB releases (Q3 relevant) .

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