CV Sciences, Inc. (CVSI) Earnings Call Transcript & Summary

Good afternoon, and welcome to the CV Sciences' Second Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now conference over to CV Sciences. Please go ahead.

Thank you, and good morning, everyone. With us today with prepared remarks are CV Sciences' Chief Executive Officer, Joseph Dowling; and Joerg Grasser, Chief Financial Officer. I would like to remind you that during this call, management's prepared remarks may contain forward-looking statements, and management may make additional forward-looking statements during the Q&A session. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those anticipated by CV Sciences at this time. When used in this call, the words anticipate, could, estimate, intend, expect, believe, potential, will, should, project and similar expressions, as they relate to CV Sciences, are as such forward-looking statements. Finally, please note that 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' press release from earlier today for a full reconciliation of its non-GAAP performance measures to the most comparable GAAP financial measure. Earlier today, August 6, the company issued a press release announcing its financial results. Participants on this call, who may not have already done so, may wish to look at the press release that the company provides a summary of the results on this call. The press release may be found at www.cvsciences.com. Following the prepared remarks, we will open up for Q&A from the analyst community. I would like to now turn the call over to CV Sciences' Chief Executive Officer, Mr. Joseph Dowling.

Thank you, and thank you all for joining us this afternoon. We hope everyone is staying safe and healthy during this public health crisis, and our hearts go out to all those that have been impacted by this pandemic. Each day, we are reminded that our employees face health risk in their daily lives and unique challenges in performing their jobs. That is why a primary focus here at CV Sciences has been and continues to be, keeping our employees safe. Some of the health and safety initiatives and protocols that we've implemented for our employees include: daily health screening, including temperature checks; personal protective equipment use, including mandatory face covering; social distancing protocol and enhanced hygiene practices. We have also implemented remote and rotating work schedules where possible to further protect our employees. We have responded to the COVID-19 pandemic successfully while maintaining our financial flexibility and adapting to the external business challenges. All functional areas of the company continue to perform well, resulting in uninterrupted service to our customers. I could not be more proud of the commitment and dedication to all of our employees during this difficult time. Our mission and values continue to unite us during this challenging time. We are actively monitoring the situation and will adapt as necessary to continue providing the highest quality and safest products to our customers and partners. The current operating environment is very challenging. We are all dealing with COVID-19, and our industry is also dealing with massive competition and regulatory uncertainty. The revenue and financial impact, which Joerg will speak about in more detail, has impacted our company and the entire industry. The question is, how do we get through this? And specifically, what are we doing to make sure we are a leading company in the space when normalization occurs? I spoke about our mission and values, which have evolved over the last 6 months and are now guiding our strategic path forward. Our mission is simple, to improve quality of life through nature and science. Our core values are straightforward: first, provide the best products; second, make positive impacts, including for our employees and our customers; and third, be bold and brave. Last week, true to our mission and core values, we announced the launch of our first immunity product, CV Acute, marking our expansion into the condition-specific dietary supplement category, leveraging our significant product development capabilities. CV Acute is a clinically researched, wide spectrum proprietary plant-based formula to support immune system and respiratory health. It integrates a time-tested traditional Chinese medicine herbal formula with proprietary modern analytical chemistry and extraction techniques. The formula is supported by global medical authorities and hundreds of published scientific studies that demonstrate overall immune system defense to everyday challenges with enhanced support for respiratory Health. Additionally, a World Health Organization report cited the formula's ability to be an effective therapy for respiratory and immune system challenges. And a March 2020 study published in the International Journal of Biological Sciences, highlighted in-vitro evidence, demonstrating that the formula had a preventative effect on SARS-CoV-2, the virus that causes COVID-19. CV Acute is the first of several products that we intend to launch under our new immunity product line over the coming months and quarters. We believe the launch timing of our new immunity line is extremely relevant to consumers across all channels of distribution, given the heightened attention for everyone to focus on their health and well-being during this pandemic. The launch of CV Acute represents a strategic expansion and a natural evolution of CV Sciences as a leading health and wellness company. We intentionally did not include CBD as an ingredient in our CV Acute formula. While we believe that CBD products have demonstrated promise for immune system support, the sales channels to sell ingestible CBD products have been severely restricted. Our strategy will be to launch CV Acute and our entire immunity product line across all sales channels, including major e-commerce retailers, since we will have no restriction as an ingestible product. The first CV Acute products have been shipped to select retailers and are hitting the shelves as we speak. We believe the long-term sales opportunity for our entire immunity product line is very strong. We also believe the cross merchandising opportunities with our CBD product lines will be significant. An additional strategic move that we announced earlier this week was the launch of our newest CBD product line, Happy Lane, which will be broadly available to U.S. consumers through new distribution channels, including the $650 billion convenience store channel. Happy Lane is a hemp-derived 0 THC offering, and each of our initial products will retail for less than $20. The initial offering includes 6 SKUs and multiple form factors, including soft gels, tinctures, roll-ons, chews and gummies. The brand will be available across all channels and has already received a positive response from select retail channels. But as I noted, we believe this is the ideal price point to enter the convenience store channel. Also, the convenience store channel as well as many other channels, require 0 THC CBD as the anchor ingredient for store placement consideration. We believe the $650 billion 150,000-plus store location convenience store sales channel, again, represents very strong long-term sales opportunity for this exciting new product line. In addition to the launch of CV Acute and Happy Lane, and as we discussed last quarter, over the next 30 to 60 days we will begin launching a refreshed and updated PlusCBD product line, which will include modernized packaging, new innovative products and an updated marketing campaign. We believe all of these efforts will further allow us to appeal to our current customer base and broaden our brand to more consumers across all distribution and sales channels. We continue to maintain a high level of confidence in the long-term industry outlook. We are encouraged by the recent Brightfield research, indicating that the top 20 CBD companies accounted for just 17% of the overall CBD market in early 2020, with some 3,000 other competitors crowding 77% of the market. The Brightfield study concludes that a significant contraction of perhaps thousands of CBD companies will not survive through the end of 2020. Anecdotally, we are hearing a similar message from our retail customers as SKU rationalization is clearly underway for the balance of 2020, where only the strongest and most trusted brands will remain on shelf. We believe the addressable market will continue to expand. And in the near future, there will be far fewer companies positioning CV Sciences as one of the leading companies in the CBD category. Let me now switch to our science and regulatory efforts. We continue to lead the industry in advancing CBD science and regulatory compliance. CV Sciences supports FDA's public health mandate and their role as regulators, tasked with balancing consumer access to natural products with consumer safety. We fully agree with FDA commissioner, Dr. Stephen Hahn, that consumers are using hemp-derived CBD products, and it's a fool's game to tell consumers they can't. Observations from the food, supplement and cosmetic industries suggests that consumers expect a responsible, transparent and science-backed industry that is fully FDA regulated. We agree with consumers and that's why we continue to lead the industry in advancing CBD science and regulatory compliance. These efforts help develop a framework for a FDA-regulated industry that consumers can trust. Earlier this week, the Journal of Dietary Supplements first special issue on cannabinoids was published. In this issue, our team of physicians and scientists took the opportunity to contribute to the growing body of scientific evidence on hemp-derived CBD as a nonprescription product. CV Sciences published 2 papers intended to directly respond to FDA's request for "data that may help to address uncertainties and data gaps related to CBD, including real-world evidence to address safety questions." In addition to advancing the science behind CBD safety, we also published on the benefits of CBD. One of the articles in the recent special issue of the Journal of Dietary Supplements "effects of hemp extract on markers of wellness, stress, resilience, recovery and clinical biomarkers of safety and overweight, but otherwise healthy subjects" covered a first of its kind study with participants taking PlusCBD products. The participants in the study had significant improvement in HDL cholesterol compared to placebo, while improvements in measures of stress response, life pleasure, wellness and sleep were also observed. The randomized placebo-controlled trial included important data that demonstrates a strong safety profile for our PlusCBD products. A host of biological measurements were collected. And notably, there were no adverse signals in liver or other biomarkers of health in the group treated with PlusCBD products. This is important data that FDA has been asking industry to provide, and it adds to the growing body of evidence supporting the safety and benefits of hemp-derived CBD by tracking participant experience and health outcomes while taking CV Sciences' proprietary products. The safety of PlusCBD was further underscored in a second article, "post-marketing safety of PlusCBD products, a full spectrum hemp extract, a 2-year experience." This article provided data from a 2-year study, confirming a low rate of adverse effects in millions of consumers taking our PlusCBD products. The data confirmed the absence of any reports of liver toxicity, which has been described in studies using high doses of CBD as a prescription drug. We are very proud to lead the industry in advancing this science and providing the regulatory expertise that we know will be required to compete in a regulated market, which is coming. When I say that a fully FDA-regulated industry is coming, every investor will ask the same question, when? And after carefully factoring all of the data points together, I'm hopeful it is in late 2020 or early 2021, and you better get ready for massive attrition from the fly-by-night companies. Companies that have not prepared for FDA regulation will not be able to compete effectively. But you will hear a sigh of relief from responsible companies in the industry who will be able to operate on a level playing field. The factors that point to FDA action and provide evidence that clear guidelines could come in this timetable include: first, there is new FDA leadership. Dr. Hahn took over in December 2019. By December '20 -- by February 2020, FDA's tone shifted toward an acknowledgment that FDA needs to find a path forward that will balance consumer access and consumer safety. Since Dr. Hahn took over, the agency has been notably active with enforcement against bad actors, while it has shown significant signs of progress, including the recent submission of a CBD enforcement policy to the executive branch for review. This is work that was prioritized despite the challenges of COVID-19. Second, the science is emerging. We now have data to demonstrate that supplements with lower amounts of CBD are safe, while an acknowledgment that higher levels of CBD found in prescription drugs can result in elevated liver enzymes and potential drug interactions. The scientific and public health community recognized this pattern of a little as good, but too much carries risk because this is the same pattern that holds true for many natural ingredients like caffeine, sodium and vitamins. Third, a regulatory framework is emerging. As demonstrated by international regulators, including Australia and the U.K., which have provided a path forward in their regulation of CBD, these countries have reviewed the publicly available CBD data and concluded that CBD can be consumed safely without a prescription, provided certain obvious manufacturing requirements and labeling and dosing guidelines that the responsible industry in the U.S. already embraces. While these factors provide the agency with a road map for a hemp CBD regulatory framework and we are hopeful it will be done in late 2020, early 2021, we also recognize that FDA has competing priorities, and we need to address the issue of rational CBD regulation on all fronts. CV Sciences continues to push state and federal lawmakers to not wait for FDA. For example, the great State of California has convoluted policies that restrict the sale of high quality CBD products for the average consumer's wellness regimen, while it allows for the sale of marijuana for recreational use. We are aggressively working for this to change. We are engaged with the Governor's office, lobbyists and others in a coordinated effort to help the Governor's office understand the missed health benefit opportunity for consumers and the missed tax revenue opportunity for the California economy. Our ACV for natural product retailers in California is approximately 10%, which is very low when compared to our ACV in many other states. Again, this represents a huge tax revenue opportunity for California, especially at a time when state budgets will be looking for new revenues. Despite COVID and our day-to-day responsibilities, we continue to put in extra hours to advance CBD policy in California and other states. At the federal level, we have been coordinating with our peers in the responsible CBD industry on legislation. I can't share all the details, but it is fair to say we are close to agreement on a strong bill that will fix the regulatory hurdles that prohibit the sale of CBD, not because it is unsafe but because one company has a drug that provides high levels of isolated CBD as a treatment. CV Sciences has advocated that we can protect the pharmaceutical industry and ensure that incentives to invest in the required science to develop prescription therapeutics is protected while allowing the supplement industry to operate in a separate lane using hemp-derived CBD. This is how it works for other natural products like fish oil, and we predict the same will apply to hemp extracts. Let me provide an update on our B2B and direct-to-consumer channels. During Q2, we increased our store count to 6,325 nationwide, including expanded distribution of our topical products with a leading southeast supermarket retailer and with 2 other national supermarket retailers. These new FDM retailers are currently selling topical products only, but we continue to establish these relationships and increase shelf space for the long-term opportunity, which will eventually include ingestibles and other form factors. The DTC channel remains a significant area of focus and investment and is a critical component of our overall strategy. We continue to add resources to this important channel, including new personnel and increased capabilities to improve our website experience. We are investing to improve our performance in all key metrics, including site visitors, conversion rates and average order values. We have seen improvement in conversion rates with the launch of our new PlusCBD website. One of our primary areas of focus will be to significantly increase site visitors over the next several quarters. Now I'll move on to our drug development program. Our drug development program achieved a major milestone during Q2, when we announced on May 19, 2020, that the company received its formal notice of issuance from the U.S. Patent and Trademark Office for its drug patent application covering methods of treating smokeless tobacco addiction by administering pharmaceutical formulations containing CBD and nicotine. The patent not only validates our drug development program, but we believe also provides significant potential value to our shareholders as we advance this program. We have since completed our pharmacological and toxicological studies in support of our planned Phase I clinical study. However, global operations and logistics for drug development have been impacted by COVID-19. As a result, we do not have a guidance date for commencing a clinical trial. In spite of these new challenges, we are moving this program forward and believe strongly in the potential success of developing an effective therapeutic for the treatment of smokeless tobacco addiction. So let me recap on the question I mentioned earlier in my remarks, what are we doing to address the current operating environment challenges? First, with new product introductions, such as CV Acute and Happy Lane, which we believe are the right products for the right sales channels, at the right time and for the right price. Also, we have much more innovation to announce over the next 30 to 60 days. Second, we are prepared now to function effectively in a highly regulated environment, which we believe is coming soon. Third, distribution agreements are in place and well established for a regulated market when a full product offering, including ingestibles, are open for mass distribution. Fourth, we are investing in areas where we have gaps, including in our DTC operation. We fully expect to bridge the gap to our market competitors over the next year in this important sales channel. And fifth, we are a lean operation. We met our cost reduction goals established earlier this year that Joerg will more fully describe. We also believe that our asset-light business model continues to make a lot of sense, especially given how quickly and efficiently the supply chain for the CBD category has developed. Before I turn it over to Joerg, I want to stress that while near-term pressures in the sector continue, we remain confident about the continued development and expansion of the CBD industry. We are confident that the current headwinds, including the pandemic, competitive environment and regulatory uncertainty, will resolve. As this occurs, a more normalized and sustainable competitive environment will exist in the most trusted and respected companies like CV Sciences will thrive and take advantage of this growing market. Now let me turn it over to Joerg to run through our financials.

Thank you, Joe, and good afternoon, everyone. During the second quarter of 2020, we generated $5.4 million of revenue compared to $16.9 million in the prior year quarter. Revenue decreased 68% year-over-year reflecting the impact of COVID-19 and increased market competition, which is largely due to the uncertain regulatory environment for CBD. Our revenue decline was mostly in the natural product retail channel as our retail partners needed to either close their stores or saw significantly less foot traffic. We also saw a year-over-year decline in the FDM channel, as we had last year an initial pipeline fill to a large national supermarket retailer, which did not reoccur in the current year. Our e-commerce revenue were impacted by lower website visitors compared to last year. Despite the current macroeconomic challenges, we continue to increase our retail distribution during the second quarter. We ended the second quarter with PlusCBD Oil-branded products sold in more than 6,300 retail stores nationwide, up from almost 5,800 stores at March 31; and up from about 4,600 retail stores at the end of the second quarter of 2019. Of our total retail stores, approximately 3,100 are with FDM retailers. During the quarter, we added 3 new FDM retail partners, as Joe mentioned earlier. Gross margin for the second quarter of 2020 was 43% compared to 70.9% in the second quarter of 2019. The decline in gross margin is a result of increased production cost and lower pricing. We performed the competitive pricing analysis and as a result, reduced our retail prices by approximately 15%. For the second quarter of 2020, we generated an adjusted EBITDA loss of $3.2 million compared to $3.6 million of adjusted EBITDA in the prior year period. So lower EBITDA is a result of our lower gross profit, partially offset by reduced SG&A and R&D expenses. On a GAAP basis, we reported a second quarter 2020 net loss of $4.7 million or $0.05 per share compared to net income of $1.2 million or $0.01 per fully diluted share in the same quarter of fiscal 2019. Adjusted net loss for the second quarter of 2020 was $3.4 million or $0.03. This compares to adjusted net income in the prior year period of $3.4 million or $0.03 per fully diluted share. Let me now turn to our balance sheet. We continue to manage our cash position very carefully and ended the second quarter of 2020 with $8.1 million of total cash compared to $9.6 million at the end of fiscal 2019. Cash used in operations during the first 6 months of 2020 was $4.1 million, of which, we spent approximately $1.9 million on our drug development efforts. We also invested $0.5 million in capital expenditures, mostly for technology to support our e-commerce channel. Inventory at the end of second quarter 2020 amounted to $8.4 million compared to $10 million at the end of fiscal 2019. Inventory decreased due to our sale of finished goods. As we discussed last quarter, we have been focusing heavily on controlling costs and have appropriately rightsized the business. We remain on track to achieve our target of $10 million of annualized OpEx cash savings. We remain confident in our business model with its minimal need for capital investment, allowing us to remain nimble during the current environment. While we continue to anticipate some modest negative operating cash flow in the near term given the challenging environment, we believe our flexible business model will allow us to manage effectively through these challenging times. Now I will turn the call back over to Joe.

Thank you, Joerg. Before we open the line to Q&A, a few final comments. We are not worried about the short-term revenue and financial challenges that we and our industry currently face. We are focused on balancing the uncertainty of this pandemic and ensuring that we don't do anything that slows our innovation pipeline or otherwise inhibits our ability to grow our company and be able to take advantage of this emerging market and meet the needs of our customers. As challenging as the current environment is, we don't see any change to the long-term trajectory of the CBD product category or new categories, including our new immunity line and our ability to be a major player in these markets. We are also confident that FDA regulations will emerge, and we will be there to lead the way with applicable science and regulatory support. Our innovation pipeline is strong. We are expanding into new sales channels, and we are prepared for a regulatory framework here in the U.S., in the U.K., in Europe and other markets that will require demonstration of product safety for market acceptance. Our drug development program is undervalued, and we believe provides significant potential shareholder value as we continue to advance the program. And last, the CV Sciences' community, including our Board of Directors, our employees, our suppliers, our partners and our customers, is united to a cause, to our mission and values and are more convinced than ever of our shared work. With that, we can start the Q&A. Operator?

[Operator Instructions] Our first question comes from Mike Grondahl from Northland Securities.

With CV Acute, the new immunity product, could you talk a little bit about the type of retailers that's made it into? And kind of how available it is in e-commerce channels?

Mike, thank you for joining the call. It's a great question and an exciting question for the company as well. We -- what we can say so far about the launch of CV Acute is that there is a lot of interest, and we think there will be strong demand across virtually all sales channels, whether it's our own internal e-commerce operation or external e-commerce operations as well. But this product will go across all sales channels, and that will include FDM, natural product and other specialty retailers eventually.

Got it. And then on your own website, where would you say that is? Is it where you want it to be? Is the marketing where you want it to be? Or how close are you to kind of having it fully retooled?

Yes. So our e-commerce operation is a huge part of our overall strategy. For our internal e-commerce operations, we are focused on several KPIs, but primarily on site visitors, conversion rate and average shopping cart, those 3. Our conversion rate and average shopping cart KPIs are very strong. Currently, our main focus is to increase our site visitors and doing that requires a combination of digital marketing strategies, including an effective SEO, paid advertisement, affiliate programs, email campaigns, just to name a few. And we're actively pursuing all of those strategies, but they all take time and money to be effective in this very crowded environment. But we are making progress and our investment in our digital strategy is starting to pay off. But -- and this goes back to your other question about CV Acute, Mike, a huge digital strategy gap for all CBD companies is the inability to sell on Amazon. Because of the regulatory uncertainty, Amazon is not allowing CBD to be sold on their site. So now we have our new immunity product line that does not contain CBD as an ingredient, and there's no restriction to be sold on major e-commerce sites, including Amazon. We will be selling our immunity product line on our own website, obviously. But at some point soon, we fully expect our immunity product line will be sold on Amazon through a strategic distribution relationship. We hope to have more detail on this over the next 30 to 45 days. So we not only have an internal strategy, Mike, but we now are able to have a more robust external digital strategy, as I mentioned.

Did you say an exclusive relationship? I kind of missed that.

No, I said through a strategic distribution relationship.

Our next question comes from Scott Fortune with ROTH Capital Partners.

We'd like to follow-up a little bit on the new product line strategy and kind of your support from a marketing level into these new categories from that standpoint? And then kind of step us through kind of the size or the opportunity in the immunity channel and with new products kind of addressing that from that standpoint?

Yes. So let me first talk about the immune product line. The -- as I mentioned on the last question, we believe this new product line will go across virtually all sales channels and that includes FDM, natural products and other specialty retail channels. The immunity addressable market, Scott, it depends on how it's defined, but it's multi billions. And we think that the timing for us to introduce an immediate product line is quite good right now. So the -- and as I also just mentioned, we have additional strategy for this product as well that's not only internal on our own website, but also external with major e-commerce retailers and eventually, including Amazon. And we think that will happen in the short term. The Happy Lane product line, as I mentioned in the remarks, we believe is ideally suited to the convenience store sales channel. We really took a lot of time, not only to make sure that we have the right products for the consumers in that sales channel, but also have them priced appropriately for the consumers that we know that shop in those channels as well. But the Happy Lane product line also is showing a lot of interest in other channels, including FDM and in the natural product channel and in other specialty retail channels. So it's surprising us a little bit in terms of how flexible it is across all sales channels.

Okay. That's helpful. And appreciate the color there. And then just stepping through the quarter kind of in this COVID environment, can you provide a little bit of color on the monthly sales from the end of last quarter in March? April was kind of low there. But where the strength is or from a month-on-month basis since April? And looking into July and going forward here, a sense of picking up? Or how will we look at it moving into the third quarter here?

Scott, this is Joerg. So our monthly sales throughout Q2, they have been relatively stable throughout the quarter. So there was not a huge drop off from April to May or to June. So we're coming in relatively consistent across our 3 different main sales channels.

Okay. So same expectations for third quarter and going forward then?

Yes. Our most recent sales for the month of July have been trending consistent with our monthly sales, which we saw in Q2.

Okay. And then one last question, really, just kind of -- congratulations on the publication and being out in the front from the science-based side of things. And with liver toxicity and everything else that the FDA is looking for, are there any additional FDA updates that peers -- that help the pathway for you guys to point to a positive pathway for the dietary supplement opportunity? Are you guys looking on additional data or evidence from the CV Sciences products to present to the FDA? As a lot of your other competitors are just starting to go down that process for liver toxicity.

Scott, thanks for joining the call. This is Joe. Yes, we are always evaluating where to invest further in science. And we think there are several areas that we can invest in that the FDA is interested in hearing about, but that will also support other strategic initiatives that we have at the company. We -- and obviously, in my remarks, I was very optimistic about FDA taking action to provide regulations for the CBD industry and including the new leadership and Dr. Hahn's it's a fool's game comment. Those kind of statements are typically pretty calculated and often based on closed door discussions. They're generally not off the cuff. Plus, as you mentioned, and thank you for mentioning it on the science that we're doing, but other companies are starting to do it as well as academic institutions. And no one is asking to include concentration levels that approximate drug dosing, which completely avoids the safety concerns that you mentioned about elevated liver enzymes as well as drug interactions. And so we're optimistic that something is going to emerge and then the regulatory framework is emerging in other countries, as I think you know in Australia and the U.K. And a story I can tell you that happened recently, there was a dietary supplement forum recently in Washington, D.C. that our Senior Vice President of Science and Regulatory Affairs, Duffy MacKay, attended and Steven Tave was a panelist. And Steven, if you don't know, is the Director of the Office of Dietary Supplement Programs at FDA and in this forum, in a discussion about CBD, Steven Tave said, we would be willing to sit down with a company that was prepared to make the legal argument that what they are selling is not the article used in the drug. And he went on to say that we, the FDA, would be interested in having that conversation. So again, it's these kind of public statements from senior FDA officials, we don't think, are made by accident and they're not made in a vacuum. And we think in combination, all of these things really give us a lot of optimism that something will come out of FDA. But going back to your question, yes, we do have other studies that we intend to sponsor that will not only sort of support the safety of the ingredient, but also begin to demonstrate efficacy for certain conditions.

Our next question comes from Gerald Pascarelli with Cowen.

So over the past week, obviously, the 2 new product launches. I was hoping if you could just give some color in terms of how long these 2 products have been in the works? And I guess I asked that with the backdrop of just trying to understand how offensive these launches are versus defensive in terms of dealing with the pressure in your core PlusCBD offering?

Thank you, Gerald, for being part of the call. I appreciate the question. What I can tell you, the typical time line from idea to having inventory in the warehouse that's ready to ship to trade is about a 6-month process. It can go a little faster than that, but generally that's about how long it takes, if done properly. And that's R&D, formulation, working on the production of it, making sure that you can get the marketing and packaging materials pulled together, making sure that you have pricing right, that there's a market for it, all that goes into that kind of a time frame. When we were going through the idea phase for these products, we thought and actually based on the research that we did, we knew that these would be incremental revenue opportunities to what we thought was on its own an expanding market, the CBD market that we are -- is our core business. So we didn't really think of it as offensive at the time or defensive at the time. We simply thought of it as this is incremental revenue that is out there that's not being done well by anybody that we know that we can do really good development work on, and we can -- we've had a lot of confidence that our marketing team could pull together very good packaging and merchandising for these new product lines, and we're confident that there was a market out there ready for it. We started the effort on the immunity line really before COVID-19 sort of hit in a big way. And so it wasn't a reaction to that. We just knew that the immunity line would be a good strategic move for us, absent or without CBD as an ingredient, and I talked a bit about that already. So again, we just felt like they were good strategic moves and the incremental revenue opportunity from both of these new product lines would be significant.

That's super helpful. Just one more for me, and this is regarding Happy Lane. So encouraging that you're looking to get into the convenience channel. I was just wondering if you could speak about what inroads you have into the convenience channel, given the consolidated nature of the distribution within that channel when you're talking about the McLanes and the Core-Marks of the world, et cetera? Any color you could offer there, I think, would be helpful.

Yes. The easiest way to answer the question is that we have been in discussion with all the major convenience or distributors for a long time, and those relationships are in place. We had to have the right products for that channel. That channel absolutely requires 0 THC, CBD. We had to make sure that we have that right. So we've been developing the products for a long time. We wanted to make sure that we had the right type of products priced properly for the consumers in that channel, and we think we have that right. But at the same time, in parallel with this, we have been having discussions with the major distributors that I think many of us know. And we are confident that this incremental business opportunity and revenue opportunity is going to start having a good return.

Our next question comes from Aaron Grey with Alliance Global Partners.

So first one for me is more along the lines of PlusCBD, the product line you mentioned, the revamp that you're currently doing right now. So one specifically to ask about the marketing campaign. As you kind of start to roll that out, just see if you could provide some color in terms of like who you're going to be targeting and kind of what that new consumer demographic you might be trying to reach because, obviously, you now have your new CBD brand rollout as well? So just any color in terms of new demographics that you might be targeting would be helpful.

Thanks, Aaron. This is Joe. The -- yes, we did mention in the prepared remarks that over the next 30 to 60 days, we will be rolling out a refreshed PlusCBD product line that will include new products and new packaging as well as a new marketing campaign. The marketing campaign that we've been using for the last really several months, the kind of the '70s campaign that you may be referring to, we think it's been great. We think it's grabbed a lot of attention, and it has been very effective. But we think that over the next 30 to 60 days, you're going to start to see some changes that we think reflect not only our target customer, and that was part of your question, but also where the market is currently. And so I think you're going to start to see that over the next 30 to 60 days.

All right. And then just secondly, just as you're now going to have -- also have Happy Lane and you mentioned that could be extended beyond just the c-store channel potentially, like how do you think about potentially trying to get both of those products in some of the major -- you mentioned the nutritional trend and otherwise, like what would be your strategy there because there's a limited number of SKUs, I'm sure, in the crowded market to get in those additional channels?

We think it's much more elastic as a brand than we had anticipated just based on discussions that we're currently having across all sales channels. And so it's a different price point, it's a different product offering. And we think that whether it's FDM, specialty retailers or natural product retailers, that there will be an appetite, not only for a premium brand like PlusCBD, but a more value-oriented brand like Happy Lane. So we think it can stretch across channels.

This concludes our question-and-answer session. I would like to turn the conference back over to Joseph Dowling for any closing remarks.

Thank you very much for joining our call today. We really appreciate your support. We do remain very confident with our long-term growth opportunity. We will be continuing to focus on building the business for this emerging industry, and we are very excited. Thank you for being part of the call today. Have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.