10-K: cbdMD Navigates Regulatory Headwinds, Secures Capital

cbdMD, Inc. reports reduced operating losses and secures new capital through preferred stock and equity line, while facing significant regulatory challenges in the hemp-derived cannabinoid market.

Summary

• Reported a reduced GAAP operating loss of $2.1 million for fiscal year 2025, down from $3.3 million in fiscal year 2024.
• Maintained its revenue base, with total net sales of $19.19 million in fiscal 2025, compared to $19.48 million in fiscal 2024.
• Successfully simplified its capital structure by converting Series A Convertible Preferred Stock and accrued dividends into approximately 91% of outstanding common stock in April 2025, regaining NYSE American listing compliance.
• Experienced sequential and fourth-quarter fiscal 2025 revenue increases, with momentum continuing into the first quarter of fiscal 2026 in direct-to-consumer and wholesale segments.
• The Oasis brand, a hemp-derived THC beverage line, is expanding distribution across several states but has been an earnings drag due to scaling investments.
• Identified nearly $200,000 in corporate overhead savings to be implemented in early fiscal 2026.
• Faces a significant threat from H.R. 5371, signed November 12, 2025, which limits THC content to 0.4mg per container for hemp-derived consumable products nationally starting November 12, 2026, potentially impacting 40-45% of the company's revenue from full-spectrum SKUs.
• Senator Wyden introduced the Cannabinoid Safety and Regulation Act (CSRA) in December 2025, aiming to mitigate the impact of H.R. 5371, but its enactment is not assured.
• Secured new capital through a Series B Convertible Preferred Security Secured Original Issue 20% Discount Convertible Promissory Note for $1.5 million gross proceeds (aggregate principal $1.7 million) in September 2025.
• Entered into an Equity Line of Credit (ELOC) agreement on December 15, 2025, with C/M Capital Master Fund, LP, for up to $10 million of common stock.
• Issued 1,000,000 shares of Series C Convertible Preferred Stock on December 18, 2025, to two institutional investors for aggregate gross proceeds of $2.25 million (net proceeds $2.21 million).
• The company's ability to continue as a going concern is dependent on improving profitability and securing additional funding, as noted by the auditor.

Sentiment

Score: 3

Explanation: The company is making efforts to improve operational efficiency and has secured new capital, which are positive signs. However, the persistent net losses, the explicit 'going concern' warning from auditors, and the significant regulatory threat to a large portion of its revenue create substantial uncertainty and risk, outweighing the positive developments.

Positives

• Reduced GAAP operating loss from $3.3 million in fiscal 2024 to $2.1 million in fiscal 2025, indicating improved operational efficiency.
• Successfully maintained its revenue base year-over-year, with total net sales of $19.19 million in fiscal 2025.
• Achieved compliance with NYSE American continued listing standards by converting Series A Preferred Stock and accrued dividends, making the company more attractive for M&A.
• Experienced sequential and fourth-quarter fiscal 2025 revenue growth, with positive trends continuing into Q1 fiscal 2026 in direct-to-consumer and wholesale segments.
• The Oasis brand is showing quarterly growth and expanding its distribution network.
• Identified and plans to implement nearly $200,000 in corporate overhead savings in early fiscal 2026.
• Strong focus on product innovation, including reformulations for sleep products and new functional mushroom and beverage lines (ATRx, Oasis).
• Ongoing international expansion efforts, gaining market share in Central and South American countries through sanitary registrations.
• Significant investment in scientific research and clinical trials through cbdMD Therapeutics, providing data for efficacy claims and regulatory dossiers.

Negatives

• Continued to report losses from operations, with a net loss attributable to common shareholders of $(4,375,403) in fiscal 2025.
• The company's working capital position may not be sufficient to support daily operations for the next twelve months, raising substantial doubt about its ability to continue as a going concern.
• Paw CBD brand experienced a year-over-year decline in sales from $1.4 million in fiscal 2024 to $1.1 million in fiscal 2025 due to increased competition and rationalized marketing efforts.
• The Oasis brand, while growing, has been an earnings drag due to scaling investments.
• E-commerce sales decreased by $0.9 million or 6% year-over-year in fiscal 2025, attributed to broader CBD category softness and macro inflationary environment.
• Gross margins for fiscal 2025 were impacted by lower overhead absorption due to lower revenue and a product mix shift from high-margin tinctures to gummies, functional products and beverages, in addition to higher warehouse lease costs.

Risks

• History of losses from operations and no assurance of future profitability, raising substantial doubt about the ability to continue as a going concern.
• Need to raise additional capital to fund operations, which may result in significant financial and ownership dilution to stockholders.
• Recent negative growth rates may continue due to changes in social algorithms, iOS affecting marketing effectiveness, access to certain channels, competitive environment, FDA statements, and inflationary pressures.
• Dependence on maintaining and strengthening brand and generating demand, with negative publicity or failure to meet consumer expectations potentially harming business.
• Difficulty attracting new customers cost-effectively, with marketing campaigns being expensive and potentially less effective over time.
• Challenges in expanding into additional consumer and international markets, including competitive, merchandising, distribution, and regulatory difficulties.
• Fluctuations in the cost and availability of raw materials, equipment, labor, and transportation could cause manufacturing delays or increase costs, harming gross margins.
• Reliance on third-parties for raw materials and manufacturing, with no long-term committed contracts, posing risks of disruption and increased costs.
• Failures in third-party verification and testing protocols could adversely impact product quality, brand reputation, and sales.
• Risk of product inventory expiring prior to sale due to limited shelf life, leading to write-downs.
• Consumers of products containing trace amounts of THC may face adverse consequences (e.g., positive drug tests), potentially damaging the company's reputation and leading to litigation.
• Threats of data loss or other security breaches, despite cybersecurity risk management efforts, could materially affect business and operations.
• Risks related to system interruption and lack of redundancy in computer and communications systems, potentially causing delays, data loss, and reputational damage.
• Future success depends on retaining key management and attracting skilled personnel in a competitive environment.
• Potential future impairments of other intangible assets or fixed assets could result in material non-cash charges to earnings.
• Lack of clarity and potential changes to federal or state laws pertaining to industrial hemp, such as H.R. 5371, could slow the use of industrial hemp and materially impact revenues.
• Final designation of hemp-derived cannabinoids as impermissible adulterants, FDA's refusal to accept them as New Dietary Ingredients (NDI), or FDA's interpretation of Investigational New Drug (IND) Preclusion could negatively impact operations.
• Failure or inability to secure required state or federal regulatory approvals and permits could delay or inhibit business operations.
• Costs associated with compliance with numerous laws and regulations, and increased litigation risks associated with the CBD and Dietary Supplement industries.
• Uncertainty caused by potential changes to legal regulations, including varying state-level potency, labeling, and package size requirements, could increase costs and impact product sales.
• The FTC may pursue enforcement actions against companies selling hemp-derived cannabinoids for unsubstantiated health claims, leading to penalties and reputational damage.
• Risks associated with international regulations, including non-compliance penalties, evolving legal landscapes, and complex financial transaction laws.
• Tariffs on imported packaging materials could increase costs and negatively affect business, results of operations, and financial condition.
• Subject to NYSE American continued listing standards; failure to satisfy criteria may result in delisting, leading to lack of trading market, reduced liquidity, and inability to obtain financing.
• The Series B Convertible Preferred Stock ranks senior to common stock in liquidation, reducing amounts available to common shareholders.
• Change of Control rights of Series B Convertible Preferred Stock may discourage or delay acquisition proposals.

Future Outlook

The company anticipates continued momentum in its direct-to-consumer and wholesale businesses in the first quarter of fiscal 2026. It plans to implement nearly $200,000 in corporate overhead savings during early 2026. The company will continue to pursue product innovation, expand revenue channels, and explore international markets. However, the future outlook is significantly clouded by the potential impact of H.R. 5371, which could affect 40-45% of its revenue from full-spectrum SKUs, with the outcome of mitigating legislation (CSRA) uncertain.

Management Comments

• Management's efforts to drive shareholder value during 2025 were focused on delivering positive earnings through optimizing the product portfolio, rationalizing cost structure, and growing revenue, as well as simplifying the capital structure.
• We were able to essentially maintain our revenue base and we continued to reduce our GAAP operating loss from a $3.3 million loss during fiscal 2024 to $2.1 million during fiscal 2025.
• We accomplished this while still focusing on disciplined cost control, rebuilding our marketing team and launching into the exciting hemp derived THC beverage category with our brand Oasis.
• The vote to convert Series A Convertible Preferred and outstanding accrued preferred dividends was critical to regaining compliance with NYSE American continued listing standards and maintaining our American listing as well as make the Company more attractive for merger and acquisition activity.
• We are now back in compliance with the NYSE Americans continued listing standards and our non-compliance status has been removed.
• We continue to make progress with our Oasis brand, which continues to grow quarterly as we added distributors and improved our sell-through at retailers.
• cbdMD believes trends from late 2025 are continuing in the first quarter of 2026.
• We are seeing momentum in our direct-to-consumer business, wholesale is trending up and we added additional Oasis distribution during the quarter.
• While the Company is taking strong action and believes that it can execute its strategy and path to profitability within its balance sheet, and in its ability to raise additional funds, there can be no assurances to that effect.

Industry Context

The dietary supplement market, particularly the hemp-derived cannabinoid segment, remains highly competitive and fragmented with over 2,000 brands. The industry is experiencing significant regulatory flux, with federal actions like H.R. 5371 posing a substantial threat by limiting THC content, potentially impacting a large portion of revenue for companies like cbdMD. The emergence of synthetic cannabinoids (delta-8, delta-10, HHC) has also taken market share. However, these federal changes could also reduce competition by forcing smaller, less capitalized, or non-compliant players out of the market. The functional mushroom and ready-to-drink beverage segments are identified as fast-growing areas within the broader dietary supplement and CBD markets, respectively, where cbdMD is actively innovating.

Management Changes

Corporate Governance

Legal Proceedings

• A purported collective and class action lawsuit filed by Cynthia Davis in December 2019 against cbdMD and competitors, alleging violations of California's Unfair Competition Law, False Advertising Law, Consumer Legal Remedies Act, and claims for Breach of Express and Implied Warranties. The case has been stayed since March 4, 2021, pending definitive action by the FDA or Congress on CBD regulatory status. The company believes this matter will eventually be dismissed, but there is no timeline for resolution.

Related Party Transactions

• None.

Stakeholder Impact

• Shareholders: Face potential dilution from recent and planned capital raises (Series B notes, ELOC, Series C Preferred Stock). The reverse stock split and Series A conversion aimed to improve listing compliance and M&A attractiveness. Ongoing losses and regulatory uncertainty pose risks to investment value.
• Employees: The company had 42 full-time employees as of December 1, 2025, with additional contractors. Success depends on attracting and retaining skilled personnel. The 2025 Equity Compensation Plan aims to incentivize employees.
• Customers: Benefit from continued product innovation, including reformulations and new functional product lines (ATRx, Oasis). However, regulatory changes, particularly H.R. 5371, could impact the availability and formulation of certain products, especially full-spectrum SKUs.
• Suppliers: The company relies on third-party raw material suppliers and manufacturers, requiring them to comply with GMP, traceability, and testing protocols. Regulatory changes could impact the supply chain for hemp-derived materials.
• Creditors: The company's ability to continue as a going concern is dependent on improving profitability and securing additional funding, which directly impacts creditors' risk exposure. New capital raises provide some liquidity but also introduce new debt/preferred equity obligations.

Next Steps

• File an initial Registration Statement on Form S-1 with the SEC within 30 calendar days after December 15, 2025, covering the maximum number of Registrable Securities for resale by C/M Capital Master Fund, LP.
• Use commercially reasonable efforts to have the Registration Statement declared effective by the SEC at the earliest practicable date and keep it effective during the Registration Period.
• File a Current Report on Form 8-K relating to the ELOC and Registration Rights Agreement transactions within the time required under the Exchange Act.
• Hold a meeting of stockholders by March 31, 2026, to seek approval for a waiver of the Exchange Cap and, if needed, an increase in authorized common stock shares for the ELOC.
• File a registration statement to register shares underlying the Series C Preferred Stock within 30 days following December 18, 2025.
• Continue to monitor and adapt to evolving federal and state regulations regarding hemp-derived cannabinoids, particularly the impact of H.R. 5371 and the potential enactment of the CSRA.
• Implement identified corporate overhead savings of nearly $200,000 during early fiscal 2026.
• Continue product innovation and expansion of revenue channels, including international markets and new brands like Oasis and ATRx.

Key Dates

Recommendation

While cbdMD has shown some positive operational improvements, such as reduced GAAP operating losses and successful capital structure simplification, the company faces significant headwinds. The 'going concern' warning from auditors, coupled with the substantial regulatory threat from H.R. 5371 impacting a large portion of revenue, creates considerable uncertainty. The recent capital raises provide short-term liquidity but also introduce further dilution potential. A 'hold' recommendation is appropriate for investors who are already exposed and believe in the long-term potential of the CBD market and the company's strategic adjustments, but it is not a 'buy' due to the high risks and ongoing unprofitability. New investors should exercise extreme caution given the 'going concern' risk and regulatory environment.

Keywords

CBD, Hemp-derived cannabinoids, SEC filing, 10-K, Financial results, Operating loss, Capital raise, Preferred stock, Equity line of credit, Regulatory risk, FDA, THC limits, H.R. 5371, Cannabinoid Safety and Regulation Act, NYSE American, Listing compliance, E-commerce, Wholesale sales, Product innovation, Oasis beverage, ATRx Labs, Paw CBD, Intellectual property, Going concern, Cybersecurity, Dietary supplements