CV Sciences, Inc. (CVSI) CEO Joseph Dowling on Q4 2018 Results - Earnings Call Transcript

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About: CV Sciences, Inc. (CVSI)
by: SA Transcripts
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Earning Call Audio

CV Sciences, Inc. (OTCQB:CVSI) Q4 2018 Earnings Conference Call March 12, 2019 4:30 PM ET

Company Participants

Joseph Dowling - Chief Executive Officer

Conference Call Participants

Mike Grondahl - Northland Capital Markets

Scott Fortune - ROTH Capital Partners

Alan Brochstein - New Cannabis Ventures

Operator

Greetings, and welcome to the CV Sciences' Full Year 2018 Conference Call. At this time, all participants are in a listen-only mode and this conference is being recorded.

With us today with prepared remarks is CV Sciences' Chief Executive Officer, Joseph Dowling. Following the formal presentation, management will take questions from the analyst community.

Before I turn the call over to management, I would like to remind you that during this call management's prepared remarks may contain forward-looking statements, which are subject to risk and uncertainties. And management may make additional forward-looking statements during the Q&A session.

These forward-looking statements are subject to risk and uncertainties, and actual results differ materially. When used in this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to CV Sciences, are, as such, a forward-looking statement. Investors are cautioned that all forward-looking statements involve risk and uncertainties that may cause actual results to differ from those anticipated by CV Sciences at this time. In addition, other risks are more fully described in CV Sciences’ public filings with the U.S. Securities and Exchange Commission, which can be reviewed at www.sec.gov.

Finally, please note, on today's call, management will refer to non-GAAP financial measures in which CV Sciences excludes certain expenses from its GAAP financial results. Please refer to CV Sciences’ 10-Q for a full reconciliation of its non-GAAP performance measures to the most comparable GAAP financial measures.

This afternoon, March 12th, the company filed its 10-K with the SEC and issued a press release announcing its financial results. Participants on this call, who may not have already done so, may wish to look at those documents as the company provides a summary of the results on this call.

I would now like to turn the call over to CV Sciences' Chief Executive Officer, Mr. Joseph Dowling, who will provide an overview of the company's business activities and the developments and then run through the financials of the full year 2018. Following these remarks, we will open up for Q&A from the analyst community. Thank you, sir. You may now proceed.

Joseph Dowling

Thank you very much. Good afternoon, everyone, and thank you for joining our call today. It is my pleasure to report to you on our strong 2018 financial results. 2018 was a significant year for CV Sciences, as we generated 133% revenue growth, reported four consecutive profitable quarters, adjusted EBITDA increased to $14 million from $1.6 million in the prior year and net income increased to $10 million compared to a net loss in the prior year.

We further strengthened our competitive positioning with new product introductions, expanded retail distribution and we became the only company in our industry to achieve self-affirmed Generally Recognized as Safe status, which significantly enhanced the credibility of our company and products. We are well-positioned to capitalize on the growing market opportunity we have ahead of us.

The hemp-based CBD market has grown significantly over the last year, as consumer awareness and favorable regulatory changes have expanded our market opportunity. The passage of the 2018 Farm Bill in December has been significant, clarifying the legal framework for hemp and its extracts such as CBD.

As we enter 2019, the industry has additional regulatory opportunities, as the FDA recently signaled its intention to work with our industry, and perhaps Congress, to potentially assist and expedite a regulatory framework for hemp-based extracts. We have and continue to be fully supportive of FDA oversight of this growing product category. We intend to partner with other leading hemp consumer product companies, trade associations and the pharmaceutical industry, to establish a sensible and responsible regulatory framework, that will allow our industry to achieve its potential.

As this regulatory framework is established, our continued focus on safety and quality will further enhance our industry leadership and brand loyalty. The passage of the Farm Bill has also accelerated our business development activities and expanded the potential for distribution to new food drug, mass merchandise and convenience store retailers. We are at an important stage of the hemp-based CBD market development, and we are well positioned to capitalize on both growing market demand and the benefit of enhanced regulation that supports and ensures the safest and highest quality Hemp-based CBD products for consumers.

Let me turn to our financial results. I am very pleased to report another record quarter and a strong finish to 2018. During the fourth quarter, we generated a 96% revenue growth to $14.2 million compared to $7.2 million in Q4 2017. This growth was driven by rising consumer interest in and demand for hemp-based CBD, new product launches and the further expansion of our retail distribution footprint.

We ended the fourth quarter with plus CBD oil branded products sold in 2,200 and 38 stores nationwide, a 45% increase over the prior year and a 7% increase over the third quarter of 2018. Rising consumer demand and growth across each of our distribution channels contributed to our near triple digit growth during the fourth quarter compared to Q4 2017.

Our plus CBD brand continues to be the number one selling hemp-based CBD product line in the natural products retail channel according to the data aggregator spins. Our strong fourth quarter growth overcame some short-term disruption in three or four states where state level public health directors issued cautionary comments or policy statements on hemp-based CBD accessibility. These conditions impacted retail sales within those states during Q4 2018.

With the regulatory process now at the FDA, we are in a period of state level oversight. The state level oversight has led to differing CBD regulations on a state-by-state basis causing disruption for the industry. We believe this is a short-term issue. This state level disruption occurring in a few states within our distribution network will persist through the first quarter, but we believe this is a short-term matter in nature and a reflection of the evolving regulatory landscape.

Again, let me state, CV Sciences is fully supportive of FDAs efforts to provide a regulatory framework for hemp-based CBD products, which will expand our long-term market opportunity as we continue our commitment to rigorous, safety and quality standards. Our recent senior management addition of Dr. Duffy MacKay to the position of Senior Vice President of Scientific and Regulatory Affairs will enhance our efforts to remain the pioneer in the development of the hemp-based CBD market.

Following 10-years at the Council for Responsible Nutrition, the leading trade association in the dietary supplement industry Duffy will continue his career educating and engaging regulators on our operations as a provider of the safest and highest quality hemp-based CBD products, but also as an expert on all scientific and regulatory matters, bringing credibility to the entire industry.

We are pleased with the early success of our most recent product innovation Plus CBD gummies, which was launched during the third quarter of 2018. The early results have met our expectations and we are now contemplating additional gummy form factors with a focus on smaller sizes such as a 10 count, which would have a more attractive price point within all existing and potential distribution channels including convenience stores.

Our strong year-over-year revenue growth translated into a 134% increase in gross profit in 2018 compared to 2017. Our full-year gross margin of 70.2% was slightly higher than full-year 2017. In 2018, we generated an increase in adjusted EBITDA to $14 million compared to $1.6 million in 2017. Our strong sales growth is providing significant leverage on SG&A, driving our adjusted EBITDA margin up over 21 percentage points to 29% compared to 7.7% for 2017.

For the full-year, we reported 10 million of net income and $0.09 of fully diluted earnings per share compared to a net loss of $4.9 million in 2017. Our operations and organic growth have continued to strengthen our balance sheet, as we ended 2018 with $12.7 million of cash. We generated $12.6 million of cash from operations during 2018 and increased our cash balance by $10.6 million.

Inventory at the end of 2018 amounted to $8.6 million, slightly up from prior year end. Inventories are continuing to be scaled to meet market demand. Overall, we exited 2018 in a very healthy financial position.

As we enter 2019, our business development activities remain robust. The passage of the 2018 Farm Bill has significantly expanded retailer interests from many new distribution channels. We believe distribution is on the verge of broadening to more traditional food, drug, mass merchandise and convenience store retailers. We are intently focused on leading the expansion of hemp based CBD products to a broader retail audience nationally.

I am pleased to announce that thus far in 2019 CV Sciences has received two significant industry awards. First, being named as one of the first companies to receive the U.S. Hemp Authority Certified Manufacturers seal and second that our PlusCBD Oil Gold Softgels were named a Top Pick by ConsumerLab.com. These third-party verifications reflect our focus on quality and industry leadership.

While I noted the appointment of Dr. Duffy MacKay a moment ago, we have made several additional enhancements to our organization thus far in 2019. And we'll be making additional investments to support growth as the year progresses.

In early January, we announced the appointment of Joerg Grasser to the position of Chief Accounting Officer. Joerg brings over 20 years of experience in accounting, finance, financial reporting, internal controls and operations most recently with Ballast Point Brewing, a division of Constellation Brands. This follows enhancements including the appointment of Dr. Joseph Maroon to our board of directors made earlier in 2018. And in May 2018, we settled all past SEC matters.

Moving into 2019, we currently have several initiatives in progress to further build the organization and support future growth. 2019 initiatives include the implementation and deployment of efficiency and automation resources including salesforce to enhance all of our sales and marketing initiatives and support our e-commerce expansion.

In addition, we are also well into the planning phase for an expansion of our manufacturing and fulfillment capabilities to support our growth needs beyond 2019. In fact, negotiations are underway for additional real estate and other infrastructure to support these efforts. We have also worked diligently to secure the hemp based CBD raw material needed to support all of our planned growth in 2019 and even into 2020.

As I stated earlier, we have already commenced efforts to open new larger retail markets and are excited by the level of retailer interest. Our goal is to position the company to be the industry leader in what has been recently estimated by analysts to be a $16 billion category in the U.S. by 2025.

Before we conclude, let me provide a brief update on our drug development operating segment. We continue to make steady progress on our preclinical program for our lead drug candidate CVSI-007, a developmental drug product combining cannabidiol and nicotine in treatment of smokeless tobacco use in addiction.

We believe strongly in the potential of our drug development program and the multibillion dollar opportunity of addressing the huge unmet need of treating smokeless tobacco use and addiction. As we have additional data to present over the coming quarters. We expect to have additional updates on our drug development program.

Finally, I want to provide an update – a brief update on our efforts to uplift to the NASDAQ. We initially announced our application for up listing in July of 2018. And I know this has been a focus of investors, a lot has happened since July including the passage of the 2018 Farm Bill. We have supplied all the necessary documentation and answers to NASDAQ asked of us to-date and we'll continue to respond to any additional questions as the review process continues. We look forward to updating you further in the future.

To close, let me reiterate our confidence in our business, our optimism about the current environment, and demand for hemp-based CBD products, and our commitment to driving growth, maintaining high standards, and shareholder value.

With that, I would like to turn the call over to the operator for questions from the analyst. Operator?

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Mike Grondahl with Northland Capital Markets. Please proceed with your question.

Mike Grondahl

Yes, thank you. Congratulations Joe on the quarter and the year. First question is just could you kind of describe your go-to-market strategy for the retailers post the Farm Bill?

Joseph Dowling

Mike, thank you for the nice comment about the quarter and the year and we appreciate it. Our go-to-market has several different strategies depending on the specific segment of food, drug, mass merchandise, and convenience store retailers, they're all a little bit different and they're certainly all a little bit different than the market that we really started this whole product category with which is the natural product retail channel.

The go-to-market includes many different factors including making sure that we're working very closely with FDMC retailers on the type of products that they're going to be starting with and comfortable with and the number of products that they're going to start with and be comfortable with, but also the regions that they're going to potentially roll that out in the -- specific stores that they might roll that out in and under sort of the specific banners for those FDMC retailers that operate under multiple banners as many of them do. So, it really has to be very flexible depending on the specific channel FDMC, they're all a little bit different. And so -- it's I would say tailored to the individual sort of subsector within FDMC depending on their specific needs.

Mike Grondahl

Got it. In those discussions with national retailers, what are they telling you? Is it product? Is it size? Like what kind of feedback are you getting from them?

Joseph Dowling

They've all been on the outside looking in. I think you can assume that every FDMC retailer has been evaluating this product category even before the Farm Bill was passed and now that the Farm Bill is passed, I think they're looking at it even more seriously.

The thing that I think they need help with more than anything is education understanding this new product. There's a lot of misinformation out there that that I think all of us can see and they're struggling with that like many others are which is why we have such a heavy focus not only on safety and quality that we emphasized during the prepared comments, but education is going to be such a key for retailers, so that they can help their consumers.

Mike Grondahl

Got it. Do you -- in your discussions with these national retailers, do they understand you're like the only wanted at CVSI -- CVSI with the toxicology report with the GRAS certification. Do you feel you get recognized for that? Do the national retailers ask about it? Do they care?

Joseph Dowling

Mike, it's part of the education process. I think that they're starting to understand that more and more many of these retailers are obviously very big and already have to deal with the regulatory framework within the FDA, either from a food standpoint or a drug standpoint. So they're well versed and generally recognized as safe standards and know what that means. But they still are sort of finding their way. And we are certainly helping them understand what that means.

And you're absolutely right about CVSI being the only company in the space, in the product category or industry that has achieved self-affirmed grass status. They understand that it's a very serious effort. It's a very, very good piece of science and it's critical, if we're going to be opening up this market, especially as it's more likely that there will be a regulatory framework that will be worked out with the FDA over time, which will really focus on safety.

Let me interject -- can I interject real quickly, we are in the flight path with -- we're in the flight path of Miramar Air Force Base or Marine Corps Air Station here in San Diego and so they always do this where they decide to start flying right when we're on a call. So if you hear some jets overhead, that's what it is. I apologize.

Mike Grondahl

No problem. I mean, with your safety record in grass certification, I would imagine that you would welcome sort of FDA regulations in a way that would kind of benefit and separate you from many mom and pop shops out there.

Joseph Dowling

We'd like to see other people go through the full battery of toxicology studies that we did. We think that will only help the industry, if others do the same. As I mentioned in my prepared remarks, there are new estimates, even in the last week or two, that put the size of the CBD industry, product category in the U.S. somewhere between, let's say, $12 billion and $16 billion over the next seven to eight years.

And so, in order for that to happen I believe and I think as a company we believe strongly in this, there is going to have to be good behavior by the market participants which starts with safety. The FDAs mission is to oversee the safety of the U.S. food supply. That's their mission, as stated on their website.

And so, I don't think we're going to be in a period of time where it's Wild West like where anything goes and anything can go into a bottle as an ingredient without being tested or knowing the source of where it came from or whether or not it's been adulterated or whether it's an isolate or -- and so on.

And so, I think, we're in a period -- a little bit of a period of Wild West like activity. But I think over time it's going to change. There will be a regulatory framework and I think companies like CVSI that have chosen from the beginning to establish rigorous safety and quality standards, I think, that's going to pay off.

Imagine a big FDM retailer doing supplier due diligence or a vendor due diligence and they start to drill down on, have you done anything to establish the fact that your product is safe and if you can answer that question affirmatively like we can, it's a big plus, as you can imagine, Mike.

Mike Grondahl

Got it. Hey, two more questions. What's your capacity to service large orders, the remainder of this year and next year? Are you capacity constrained at all?

Joseph Dowling

No, we are constantly evaluating our current inventory levels. We're evaluating our raw material purchases constantly. We are expanding our contract manufacturing capability daily, all in anticipation of being able to meet the demand of a market that, as I mentioned earlier, looks to be growing to somewhere between $12 billion and $16 billion by 2025-ish.

And so, we intend to maintain or increase our market share. And we are preparing and scaling to do that including in 2019 and we are ready today. And I think I mentioned in my prepared remarks that we are scaling all of our manufacturing and production capabilities, all of our fulfillment capabilities and automating and creating efficiency throughout the organization to make sure that we can handle the type of demand that we fully expect.

Mike Grondahl

Got it. And lastly, I know you applied to NASDAQ for the uplisting, but what have you applied to the NYSE as well, and if not, why?

Joseph Dowling

So we have not applied to NYSE. We have evaluated doing so and it's possible that we may do that. We are still very optimist or hopeful that we are successful in uplisting to NASDAQ. But in some ways we had always hoped that we could uplist to NASDAQ, and I guess, that's the main reason why. But we're evaluating the possibility of doing that in the near term as a backup if needed. But again, I don't want anyone to hear that as me being pessimistic about the possibility of an uplist to NASDAQ, I'm not.

Mike Grondahl

Got it. Well, hey, we look forward to 2019. Thanks Joe.

Joseph Dowling

Mike, thank you.

Operator

Our next question comes from the line of Scott Fortune with ROTH Capital Partners. Please proceed with your question.

Scott Fortune

Thank you. Good afternoon. Nice quarter.

Joseph Dowling

Thank you, Scott.

Scott Fortune

Real quick, I know obviously there's uncertainty with the FDA, new Commissioner there, but kind of stepped through your sense of working or signalling pathways where they will start regulating CBD and are the large retailers that you're potentially in discussions with in a sense waiting for an FDA framework to be in place or you think they will move forward?

Joseph Dowling

Let me answer that. The second question first. I don't think they're waiting for the FDA to establish framework in order to jump in to this category and the space. Things are changing so quickly Scott. Even with Dr. Gottlieb stepping down, we think that any successor to Commissioner Gottlieb will likely carry on with moving forward with a regulatory framework for CBD.

We have some thoughts on what that looks like. We think there are three lanes that need to be established in order for all that the lanes to be fully realized in terms of really finding the potential of this important plant and crop and product category. And that goes across pharmaceutical. It would go include as a separate category over the counter products including CBD -- hemp based CBD products.

And then I think a third category or a third lane that we see happening as well could well be for cannabis THC based cannabis products. And so we think of this as being kind of a three-lane approach in terms of a regulatory framework.

In terms of the CBD lane, we think it's a really, really important to make sure to align not only the letter, but the spirit of the 2018 Farm Bill and that the hemp that is the starting raw material for any CBD based products, it will be very important that this comes from a food fiber genetic seed strain.

I would tell you that there is a lot of non-food fiber seed strains that are currently supplying raw material to the market in the form of more hybridized marijuana type plants. I'm not sure that that's going to fly. In fact, I don't think it will in the end and I think once there's transparency of raw material sourcing that that will be flushed out. And I think that's going to be a very, very important issue for the FDA to sort of regulate in order for the industry to grow to be whether, Scott, it's 12 billion or 16 billion that I think everyone agrees is going to be big. I don't think the FDA is going to allow a Wild West environment to persist.

Scott Fortune

Okay. Thank you. Follow-up on that about kind of new product development, how many SKUs you have and what kind of products are the international retailers looking for? You know, there's ingestibles and there is also the topical, it seems the topical less risk for the large retailers, kind of step me through the product innovation and development and the demand for it going forward?

Joseph Dowling

Sure. The -- I would agree with you that national FDMC retailers are more comfortable. Not all, but some are more comfortable, starting with topical. And I think you could see that emerging first. But I don't think that edibles will be far behind. But I think they will have to be comfortable with the safety data as they go through their vendor supplier due diligence efforts to consider which products to put on the shelf. And so, we currently -- your first part of your question, we currently have about 50 SKUs and we have a number of new products in development, many of them are in the topical area to really be in a position to address what we see as increased demand from national retailers for that product type.

Scott Fortune

Okay. And your store growth is still coming from health and wellness, independent channels, your doctor offices and e-commerce, do you break those down as percentage of sales yet and then kind of what are the next steps for their growth your new distribution coming on board to continue that growth going forward?

Joseph Dowling

Yeah, so, our retail store account does currently include only national -- natural product retailers. We fully expect that to change in 2019. And I said a lot that I think you can expect to see lumpy or choppy upward trending. And that's a positive thing on store count as FDMC is established and developed. Does that help?

Scott Fortune

Yeah. Well, how big can you get 2,200 kind of within this market into or how large can that potential store growth get to if the health and wellness in the stores and the doctor's offices?

Joseph Dowling

So, if we're currently over 2,200 I think that could be 4,000 or 5,000 quite easily. Doctor offices could grow to a significantly higher number than what we're disclosing as currently over 1,000. FDMC could be 50,000. It's a massive number if you include all convenience stores significantly higher than that. So, I think all of us can see a path to how analysts are trying to determine the total addressable market. And we've seen ranges and the two credible ones that I've seen or two of the credible ones that I've seen are suggesting somewhere between 12 billion and 16 billion, and I can see why.

Scott Fortune

And lastly, you break, have you broken out the e-commerce versus wholesale or product retail sales and then on the fourth quarter the margins, gross margins came off a little bit, kind of let me through what happened there, and I also got further question.

Joseph Dowling

Sure. Sure. The -- we are -- we did not provide channel breakdown yet. We have not done that for any of the quarters during 2018. We're evaluating. We may be doing that in Q1 and beginning in 2019 and obviously, that's coming up very soon. Let's see, what was the second part of your question, Scott. I'm sorry.

Scott Fortune

Gross margin for fourth quarter …

Joseph Dowling

Gross margin? Okay. Yeah, so, in Q4, we made several investments that will position the company to really be able to take advantage of the future growth. And so after adjusting for those investments though, I think the margins were fairly consistent with the other quarters during 2018.

Scott Fortune

All right. Thank you.

Operator

Our next question comes from the line of Alan Brochstein with New Cannabis Ventures. Please proceed with your question.

Alan Brochstein

Hey, Joe, congratulations on the quarter.

Joseph Dowling

Thank you, Alan.

Alan Brochstein

Just follow-up a little bit on the exchange. I’m just wondering, thank you for the update. I know you can't say a lot, but it seems like NASDAQ and New York Stock Exchange American have competitors of yours of sorts listed already. And I'm just wondering is this -- are you bringing this to their attention. Is this something that they're aware of?

Joseph Dowling

NASDAQ doesn't necessarily – and NYSE is the same. They don't necessarily share with you their rationale or they’re -- what kind of discussion they're having inside their walls. I wish they did. But we haven't had that kind of feedback, Alan yet. But -- we just haven't had that kind of feedback.

Alan Brochstein

Hopefully you'll get a level playing field. My other question is just about, I know you're super busy in the United States, but it seems like things are changing all around the world. You guys are good at what you're doing if you thought about doing it in other countries?

Joseph Dowling

Well, it's interesting. The -- I've heard many, many times the largest emerging market on the planet is in the United States and certainly for this product category. That's true. However, I think there are opportunities internationally. We just as a company got back from a very successful expo last week, and we received a lot of interest from international customers, and that is on the heels of regular inquiries that we receive routinely from international opportunities.

We're not ignoring it. It's not something that we have as a major initiative for our company. There's so much opportunity here, Alan that we have to focus on those things that we’re -- that are going to achieve the highest return for our investors. We're not ignoring it. It's an opportunity. It's just not as big as it is here in the U.S.

Alan Brochstein

Okay. And then my last question, obviously, a lot a lot of change in improvement in management, promoted yourself, you've brought in some people. Can you let us know if there's any key hires that you feel like you still need to make in any positions that are going to be filled.

Joseph Dowling

So we're going to continue to add to our senior management team, Alan there's nothing I wouldn't say there's any major holes, obviously, the two key hires that we talked about in the prepared remarks starting with Joerg Grasser, who started late last year.

If you read the press release or have looked at his bio, it's just stellar in terms of very relevant experience that allowed him to get up and running very, very quickly and that was a very key hire for the company.

The other key hires that I mentioned in my prepared remarks, Dr. Duffy MacKay is coming from the most respected trade association in the industry for dietary supplements, and not only does he have credibility but certainly CRN Council for Responsible Nutrition his organization for -- soon to be former organization has just establish relationships within the industry, within the appropriate government agencies that are going to allow us to be a leader in working through the regulatory framework that I talked about earlier. Those are two really, really key hires. There will be others and those will be announced as appropriate.

Alan Brochstein

So, I want to circle back on one other final point. You mentioned that there were some investments that are made in Q4. But I don't think you elaborate on that. Can you just shed a little light on what you did to position yourself better for this year with those investing cash?

Joseph Dowling

Sure, yeah. So we are looking at every single system company-wide. We've had explosive growth, Alan. And in order to make sure that you can fully leverage SG&A going forward, one of the key areas for us is automation and efficiency, and we're going through every single functional area of the company and making sure that we eliminate manual processes and that we really increase our ability to handle the increased demand as this market continues to grow. It's really many different areas. I mentioned salesforce as an example in my prepared remarks. That's a significant investment for the company, not only in dollars, but also just in commitment of time and everything else. So and I won't go into all of the details of what we're doing there because it is significant, but that is an example.

And those other sort of system areas that would include the warehouse management system, lab information systems, quality assurance, quality control systems, all of the things that are going to be required of companies that have scale and that are going to be seen as able to handle the type of orders that are going to come. For example, if anyone in the space is going to be working with an FDMC client or customer, you could be looking at -- and I'll just make up a number, $1 million purchase order. And you might get one a week later from the same customer, in the same amount. And then you start to multiply that by other FDMC customers and efficiency and automation is going to be critical rather than just adding FTE’s every time you grow. And so we are investing in every single area of the company for automation and efficiency and those are some examples.

Alan Brochstein

Got it. All right. Well good luck in the year ahead. Look forward to the update in a couple of months.

A – Joseph Dowling

Thanks, Alan.

Operator

Our next question comes from the line of Sam Ginsberg with Sea Capital [ph]. Please proceed with your question.

Q – Unidentified Analyst

Hi. Thanks for taking my question. Obviously a very decent quarter if you compare it to the other companies that are in the same sector as you. What I'd like to know is, is did Mr. Mona stepping down have anything to do with the up listing and now that you had you Q out, is that potential also to clear the decks for it. I know you talked about this exhaustively, but obviously when you guys do uplift, we believe that it's going to be a tremendously positive reaction to the stock.

And my second question is as far as gummies go, is that a possible hindrance because it's viewed as an edible and we all know what the FDA is saying about, in certain states about the edibles market. And I wonder what your opinion is on that question.

Joseph Dowling

Thank you for the question. First, I’ll address Mike Mona's resignation. It has nothing to do with our uplift to NASDAQ. It was always planned that Mike would step down when the SEC matter was settled back at the end of May of 2018. Mike did not leave the company as an employee, but it was always, it was always planned that he would stay in transition very important relationships especially related to our supply chain throughout the world, but especially in Europe.

And so since that time, we have been working hard to transition those relationships, so it was always planned. It didn't have anything to do with the uplift. And so filing the K or that issue in terms of the impact on our uplift, again NASDAQ doesn't share their thinking or their rationale with us. And so we respond to questions they asked them and so that is the response on Mike and the NASDAQ uplift.

The gummies, we don't see that as an obstacle that the gummies have met expectations in terms of an edible. We think it's an exciting category not only for the national product retailer channel, but also for FDMC. I mentioned in my prepared remarks that we're looking at different form factors, different accounts for our gummies that that would be we think very effective in certain categories including convenience stores. So we see it as an opportunity.

Operator: Due to time constraints, we're done with our Q&A session. And I would like to press the floor back over to Mr. Dowling for closing remarks.

Joseph Dowling

Well I want to thank everybody for taking time today to be on the call, really appreciate everyone's support and look forward to future calls and future updates. Thank you very much.

Operator

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.