Hemp-Derived CBD And Functional Beverages Will Drive Long-Term Market Share Gains

Catalysts

About cbdMD

cbdMD develops and markets science-focused, hemp-derived CBD and functional beverage products for humans and pets across direct-to-consumer and wholesale channels.

What are the underlying business or industry changes driving this perspective?

• Scaling of the Oasis functional beverage brand across nine states, with improving case sell through and growing distributor engagement, positions cbdMD to capture accelerating consumer demand for alcohol alternatives. This may support sustained top line growth and higher contribution margins as volume increases.
• Potential federal moves toward Medicare reimbursement for compliant hemp-derived CBD and a broader modernization of cannabis policy favor operators with cGMP manufacturing, robust testing and conservative formulations. This may position cbdMD to gain share as lower quality competitors are pressured and to expand revenue with attractive incremental margins.
• Three consecutive years of operating improvement, continued SG&A reductions and additional negotiated cost savings in early 2026 create operating leverage. Even modest revenue growth could translate into proportionally larger improvements in EBITDA and a potential path toward positive earnings.
• A materially strengthened balance sheet, elimination of over $7 million in accrued preferred dividends, improved working capital and access to a $20 million equity line give cbdMD financial flexibility to pursue strategic partnerships or acquisitions that can add revenue and contribution dollars without significantly increasing leverage.
• Disciplined SKU rationalization toward higher velocity, higher margin products in both cbdMD and Paw CBD, combined with gross margins in the low 60 percent range, provides a foundation for potential margin expansion as demand for wellness-oriented CBD products and beverages grows, which could support improved net margins and cash generation over time.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming cbdMD's revenue will grow by 4.6% annually over the next 3 years.
• Analysts are not forecasting that cbdMD will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate cbdMD's profit margin will increase from -25.5% to the average US Pharmaceuticals industry of 20.9% in 3 years.
• If cbdMD's profit margin were to converge on the industry average, you could expect earnings to reach $4.5 million (and earnings per share of $0.42) by about December 2028, up from $-4.9 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 5.9x on those 2028 earnings, up from -2.8x today. This future PE is lower than the current PE for the US Pharmaceuticals industry at 19.8x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Regulatory volatility around hemp and THC limits, including restrictive language from the November bill that management believes could wipe out all revenue for many firms if not revised, may offset the upside from supportive executive orders and materially constrain long-term category growth, directly pressuring cbdMD's revenue trajectory.
• The core direct-to-consumer channel, which still represents over three quarters of sales, is experiencing a multi year decline in net sales despite higher marketing spend, indicating weakening unit economics that could limit the ability to scale profitably and weigh on earnings and net margins.
• The Oasis functional beverage strategy assumes sustained rapid growth of alcohol alternative beverages and favorable regulation; however, near term working capital is being tilted toward this newer brand, so any slowdown in category adoption or tighter rules on hemp beverages could lead to inventory and distribution inefficiencies that compress gross margins and delay a return to positive earnings.
• Although operating losses have narrowed, the business remains loss making with SG&A still over $14 million and warehouse costs rising. If expected revenue growth does not materialize or cost cuts plateau, the company may require further equity raises that dilute shareholders while operating losses and weak net margins persist.
• Management is framing potential Medicare reimbursement as a multi billion dollar demand catalyst, but timelines, eligibility rules and reimbursement levels are highly uncertain. If the eventual program is smaller, slower or more restrictive than implied, the long term uplift to revenue and operating leverage could be far lower than investors anticipate, limiting improvement in earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $2.0 for cbdMD based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $21.8 million, earnings will come to $4.5 million, and it would be trading on a PE ratio of 5.9x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $1.51, the analyst price target of $2.0 is 24.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.