Operator: Greetings and welcome to the CV Sciences' Second Quarter 2019 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; and Joerg Grasser, Chief Financial Officer. 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 may 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 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. Finally, please make note that on today’s call management will refer to non-GAAP financial measures in which CV Sciences’ excludes certain expenses from non-GAAP – from its GAAP financial results, pardon me. 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 measures. This afternoon, 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 as the Company provides a summary of the results on this call. I would like to now turn the conference call over to CV Sciences' Chief Executive Officer, Mr. Joseph Dowling. Following these remarks, we will open up for Q&A for the analyst community. Please go ahead, sir.

Joseph Dowling: Thank you very much. Good afternoon, everyone, and thank you for joining our call today. I am joined today by Joerg Grasser, our Chief Financial Officer. I will begin today with the highlights of the second quarter and then I will let Joerg run through our financials. I will finish off our prepared remarks with comments on our business development before opening the line for Q&A with the analysts. We are very pleased with our second quarter results, reflecting the growing market for hemp-based CBD products and our growing distribution, international food, drug and mass retailers. We generated 36% year-over-year growth and 13% sequential revenue growth to $16.9 million during the second quarter. We continued to deliver strong gross margin and positive operating cash flow. During the quarter, we began shipping two 945 Kroger Stores in 17 states and have since expanded distribution to an additional 400 stores across five additional states. Our distribution with Kroger includes four SKUs of topical products, including our original and Extra Strength Balms and two PlusCBD Oil Roll-Ons. In total, we expanded our distribution to 4,591 stores nationwide as of June 30, up from 3,308 stores at the end of the first quarter and more than doubled the total at the end of fiscal 2018. We continue to see strong interest across existing and new channels of distribution and continue to test our products and pilot programs with additional retailers. As the market for CBD products continues to develop, we see opportunity to not only increase distribution, but expand our product offerings within existing retailers. As you are aware, to date the food, drug and mass channels have been focused only on topical CBD products. Our 2019 product innovation plan includes 17 new products, including additional topical products to expand our near term opportunity in the FDM channels. However, over the long term we anticipate retailers expanding their product offering of CBD products to include ingestible’s particularly as the regulatory landscape evolves both on a state-by-state level and at FDA. This future expansion would increase our opportunity to grow sales per store. Currently ingestible’s account for a majority of our total revenue, yet much of our new distribution has been specific to topical products. We have a significant opportunity to maximize our sales per store as the CBD landscape continues to evolve. We believe that recent state level regulatory successes, such as the passage of Senate Bill 57 in Ohio, House Bill 1325 in Texas and the positive progress of California's AB 228 are positive steps towards reducing hemp law ambiguity that has caused retailer disruption on a state-by-state basis. As has been the case over the last few quarters, we continue to see a sales impact as these ambiguities have persisted, particularly in California ahead of expected passage of AB 228. Despite these market-by-market challenges and significantly increased competition, we generated strong sequential growth over the first quarter of 2019 and continue to see a favorable trajectory for distribution and sales growth over the long term. While this growth will certainly not be in a straight line and will be choppy from quarter-to-quarter, we are confident in our future growth opportunities as reflected in our recent announcement of a capacity expansion that I will touch on in a moment. During the second quarter, FDA held its first ever hearing on CBD. Our Senior Vice President of Science and Regulatory Affairs, Dr. Duffy MacKay, presented safety data at the hearing and stressed the importance of identifying and separately regulating different CBD product categories, including drugs, foods and dietary supplements. We remain in full support of FDA in its efforts to develop a regulatory framework for the sale of hemp-derived CBD products, and we'll continue to deliver thought leadership, advocacy and support for the development of FDA policy and framework for the category. We also are in full support of FDA’s efforts to police the use of unauthorized health claims by many of our competitors. We pride ourselves in producing the highest quality CBD products and in leading by example with our adherence to compliant marketing and labelling policies. We will continue to be the leader in regulatory compliance and industry support, focused on the long-term growth of the CBD market estimated by many credible sources to potentially be a $20 billion product category in the U.S. alone. Our focus on quality, education and regulatory compliance are key reasons our plus CBD brand continues to be the number one selling hemp-based CBD product in the natural products retail channel according to the data aggregator spends. Now let me turn it over to Joerg to run through our financials.

Joerg Grasser: Thank you, Joe and good afternoon everyone. I am pleased to report on our strong second quarter results. During the second quarter, we generated 36% revenue growth to $16.9 million compared to $12.3 million in the second quarter of 2018. On a sequential basis our revenue increased 13% over the first quarter of 2019. We now have 14 consecutive quarters of sequential revenue growth at a sequential quarterly revenue CAGR of 16%. As Joe noted, our growth was driven by rising consumer interest in and demand for hemp-based CBD, hence a further expansion of our retail distribution footprint, as well as the impact of our new product launches. We ended the second quarter with PlusCBD Oil branded products sold in 4,591 retail stores nationwide, up 133% year-over-year from 1,968 retail stores at the end of the second quarter of 2018. We saw growth across each of our distribution channels, including our online sales which accounted for 15.7% of our second quarter revenue. Our strong year-over-year revenue growth translated into a 33% increase in gross profit, both gross margin continuing to improve sequentially to 70.9% in the second quarter, up from 70.8% in the first quarter of 2019. In the second quarter, we generated adjusted EBITDA of $3.6 million more than double our adjusted EBITDA of $1.5 million for the first quarter of 2019. To support our continued revenue growth, we have made investments in additional management resources and business systems that we expect to leverage as our growth continues. We also increased R&D by approximately $1.3 million to support both our specialty pharmaceutical and consumer product segments. On a GAAP basis for the second quarter of 2019 we reported net income of $1.2 million or $0.01 per share compared to net income of $3.2 million or $0.03 per fully diluted share in the second quarter of 2018. Adjusted net income for the second quarter of 2019, which excludes $2.1 million of non-cash stock based compensation expense was $3.4 million or $0.03 per fully diluted share. This compares to adjusted net income in the prior year period of $3.6 million or $0.03 per fully diluted share. We continue to generate strong operating cash flows, driving further expansion of our cash balance. We ended the second quarter of 2019 with $15.2 million of total cash, up from $13.6 million at the end of the first quarter of 2019 and $12.7 million at the end of fiscal 2018. Cash from operations during the second quarter of 2019 was approximately $2.7 million and $3.5 million for the first half of 2019. Inventory at the end of the second quarter amounted to $9.1 million, up from $8.7 million at the end of the first quarter and $8.6 million at year end. Inventory increased mostly for finished goods to support our future growth. We continue to increase our cash balance, while scaling up inventories to gain market demand. Now, I will turn the call back over to Joe to discuss business development.

Joseph Dowling: Thank you, Joerg. Our business development activities remain robust. As we noted last quarter, we are currently in conversations with multiple additional national retailers and in some cases in pilot programs with retailers. We expect to see additional new distribution wins over the coming months and quarters and are launching new products to support expanded distribution within existing retailers. We plan to launch additional new products next month in conjunction with the Natural Products Expo East tradeshow bringing our total new products for 2019 to 17. To support our growth, we recently announced the expansion of our operations with a new production and warehouse facility. The facility totals more than 45,000 square feet and will expand capacity for CBD oil production, warehousing and fulfilment by more than 500%. This facility is in San Diego and should be operational in the fourth quarter of this year. Additionally, we have now executed supply agreements for the current growing season with hemp farmers in Wisconsin, Illinois, Indiana and Kentucky to provide domestic hemp supply and ensure that we have the incremental supply needed to support future growth. We also anticipate that we can realize some savings, particularly in transportation and logistics, as we work to establish a reliable and safe U.S. supply of hemp. We have also identified supply chain partners to extract here in the U.S., while continuing to refine and process oil at our San Diego production facilities. We also continue to support research through both our own investments and R&D and we will also continue to provide our PlusCBD Oil products to researchers to build the body of knowledge on the potential benefits of CBD. In June results were presented from a randomized controlled clinical trial, sponsored by CV Sciences, demonstrating that PlusCBD Oil can improve sleep, help reduce appetite and enhance quality of life in humans. This study was the first ever of its type. It was conducted by the Center for Applied Health Sciences and presented at the International Society of Sports Nutrition 16th Annual Conference and Expo in Las Vegas. We believe that continued research into the efficacy of CBD use is critical to the long term growth of the category. While this is the first study of its kind, a randomized clinical trial that provides scientific evidence on the benefits of our PlusCBD Oil, we plan additional clinical research that can expand our understanding and potentially be used as scientific evidence to substantiate future PlusCBD Oil marketing claims. Now a brief update on our drug development operating segment. Our preclinical program for our lead drug candidate CVSI-007combining cannabidiol and nicotine in treatment of smokeless tobacco use in addiction continues to make progress. We remain confident in the potential of our drug development program and the multi-billion dollar opportunity of addressing the huge unmet need of treating smokeless tobacco use and addiction. We anticipate that in Q4 of 2019 we will be presenting initial results from our preclinical studies and discussion on our clinical strategy. We will keep you posted on the timing of those announcements. Finally, I want to provide a brief update on our efforts for NASDAQ up-list. As is customary, the process has included lengthy, detailed communication between the company and NASDAQ. We continue to be fully engaged with NASDAQ to satisfy all standards and requirements to obtain listing on its exchange. Recently, we engaged world class legal counsel to assist us in this process and ensure that CV Sciences has all of the attributes and corporate governance policies in place to facilitate listing on the NASDAQ exchange. I can assure you that this is among our top areas of focus, as an organization and we continue to be actively engaged with NASDAQ to complete this process. 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 driving long-term shareholder value. I am also pleased to note that in July a final order was issued dismissing with prejudice a shareholder litigation suit that was filed against the company in 2014. The resolution of this case included no payments by the company or any of the defendants. With that, I would like to turn the call over to the operator for questions from the analyst. Operator?

Operator: Thank you, sir. [Operator Instructions] Our first question is from Mike Grondahl with Northland Securities. Please go ahead, sir.

Mike Grondahl: Yeah. Good evening, Joseph and Joerg. First question is just on with CVS Pharmacy and Kroger, you’re topical only in those stores. How do we kind of think about first store sales levels kind of compared to your legacy CVS size stores?

Joseph Dowling: Mike. This is Joe. I think it's so early in the process with both CVS and with Kroger that it's hard for us to report on that kind of a question. As we get through I think a couple of quarters I think we'll have better visibility. But as it stands right now, it's so early in the process. We just don't have enough information to respond in a meaningful way.

Mike Grondahl: Got it. Okay. And then in the past you've talked a little bit about the international opportunity and some discussion there kind of - kind of what's new with international retailers?

Joseph Dowling: So we think long term that this is a global opportunity. We are in the process of having discussions with those international opportunities and much like here in the US where on a state-by-state basis there's a patchwork of regulatory issues. The same is true [ph] globally. Certain countries in Europe are further along in terms of having CBD products on the shelf and others are lagging and so much like here in the U.S. on a state-by-state basis. But we're getting out in front of the opportunity as much as we can to take advantage of the opportunity which many people think doubles or triples the potential market size that we have here in the U.S.

Mike Grondahl: Got it. And then you did reference some pilots that you're currently doing with the national retailers. Have you disclosed how many different pilots?

Joseph Dowling: No we haven't. They're small and they're early. And so we're not in a position where we can disclose those yet, Mike.

Mike Grondahl: Got it. But are they - is multiple national retailers involved, just trying to get a sense for you know kind of the magnitude or the number of retailers?

Joseph Dowling: Yes, it is multiple.

Mike Grondahl: Okay. Thank you, guys.

Operator: Our next question comes from Scott Fortune with ROTH Capital Partners. Please go ahead.

Scott Fortune: Good afternoon. Congrats on the quarter. Want to follow up…

Joseph Dowling: Thank you.

Scott Fortune: On the large retailers here and currently you have - kind of seen the sell-through and re-orders for that with your four SKUs that are in distribution channels for the large retailers. How that's progressing from that side of thing?

Joseph Dowling: Yeah. Scott, thank you for the question. The - and much like the question that Mike asked, it's really so early in just shelf placement with both CVS and Kroger that sell through is difficult to answer. Yes, we have some preliminary data in terms of velocity, but it's just not - it's not enough information that we can talk about it publicly yet.

Scott Fortune: Okay. And then move away from that. How do your independent channels doing, from a store growth it seems like we're seeing a little more competition, you mentioned more competition, kind of how are your products kind of moving on the independent channel and then your online sales and marketing effort to drive online sales too?

Joseph Dowling: Yeah. You're correct. Competition has increased significantly and it's not only there for the FDM channel, but it's there also for the Natural Products channel. And as I mentioned in the prepared remarks, we think in the short term that could create some choppiness in terms of our revenue, but for the long term we're very optimistic. But yes, there are hundreds of brands today where there several years ago were a few.

Joerg Grasser: And Scott, this is Joerg. In addition to the question on the online retailers, we mentioned in our prepared remarks that our percentage of online retail in the current quarter was 15.7%. And this is significantly increased from a year-over-year basis.

Scott Fortune: Okay. And on those efforts, I know we see some expenses kind of popping up on the sales and marketing side, as you continue to build out your brands. What are some of the initiatives on the sales and marketing side? And do we see those expenses kind of continuing moving forward as we look out for the second half here?

Joseph Dowling: I think there will be continuous investment on the sales and marketing side as we continue to evolve our brand to properly position it for long term growth. And so I don't think that's an investment area that will ever stop. In terms of supporting all of our channels and all of our products from a sales standpoint, really the same answer, I think you're going to see continuous investment, whether it's in systems or people to support sales across all channels.

Scott Fortune: Okay. And then last question for me, it's really the - regarding the FDA and a potential update. Obviously that inflection point seems like a large retailers are waiting for to include ingestible products. Any color or kind of update from your guys standpoint from a late summer, preliminary communication from the FDA from Athens [ph] what kind of regulatory situation gone from them. And also USDA side of things?

Joseph Dowling: Yeah, from our standpoint, we - I think are encouraged by some of the signals from FDA that they are looking to potentially provide some guidance in September. I think we were also encouraged by a former commissioner Gottlieb's op ed piece where he was strongly encouraging FDA to take action. We agree with that and we have to believe that he has some insight into what they are capable of doing and so we're encouraged by both the comment from FDA, as well as Dr. Gottlieb's op ed really encouraging them to do something quick.

Scott Fortune: Okay. I'll leave it at that. Thank you.

Operator: Our next question comes from Michael Lavery with Piper Jaffray. Please go ahead.

Michael Lavery: Thank you. Just following up on that FDA note, Gottlieb obviously not still in charge, but certainly well informed and connected and one of the things he had suggested or sort of seemed to be pushing forward was petitions for new dietary ingredients as a pathway. Is that something you've been preparing for, how do you think you’re position there, is that something you think is likely to be a path you would pursue?

Joseph Dowling: It is a path that we would pursue. I think that Dr. Gottlieb was strongly suggesting that that was a regulatory sort of not requirement, but perhaps and that really aligns well with the existing regulatory framework for our industry. So we've been positioning for this for a while. As you know a couple of years ago we made the decision to invest in all the toxicology work to achieve. And the only company to achieve self a firm [ph] grasp. Obviously that's one component of being able to get an NDIN process going. There are other steps and we are pursuing all of those steps as well. So yes, we are going down that path Mike, and we think that's a good direction for FDA to go.

Michael Lavery: And just a tiny bit related to that. And also just that the growth and distribution gains, what's the right way to think about some of your growth versus profitability, obviously you have investments to make, but a good baseline starting point. How should we think about just the tension between those going forward, is there simply some operating leverage from some of these distribution gains or are there incremental costs upfront and just how might the margin pacing look?

Joerg Grasser: Yes. This is Joerg. So on a gross margin basis, so definitely we see some margin compression in the near term and this comes from probably from three different areas. Number one is we you see an overall increase in our FDM business and that's typically lower margin business. Number two, there is increased competition in our core business and number three, we are ramping up our new warehouse and manufacturing facility here in San Diego. So definitely the sell off - there is some margin pressure in the mix [ph]

Michael Lavery: And is that - any sense of when that tips back, the other way is that a couple of quarters or maybe even more like a year?

Joseph Dowling: It's very difficult to predict. For example, so the ramp up of our warehouse and production facility that's a couple of quarters. It's probably more than a couple of quarters in regards to when we can realize some additional fixed cost absorption associated with our leverage off increased volume.

Michael Lavery: Okay. That's helpful. Thank you very much.

Operator: Our next question is from Mike Grondahl with Northland Securities. Please go ahead.

Mike Grondahl: Yeah. Just two more, guys. The last couple of quarters some of the regulatory stuff in various states cost you a couple million on the top line. Is it still a fair way to think about it?

Joseph Dowling: It's hard to quantify the dollar amount Mike, it's significant though. It's not only has been a headwind just in terms of momentum with retailers in the states that have been troublesome, but keep staying on the shelf in certain retail locations in Ohio, California, Texas and other states. And then the sell-through has sort of come to a halt in certain places. So yeah, it's cost us a significant amount of revenue over the last several quarters and going into the fourth quarter of last year as well. We're confident though, the long term you know, as we stated in the prepared remarks. We just think that the regulatory framework in those states that have been problematic, especially the big states like California, Ohio, Texas and others. We're confident long term that those will get resolved and we will more than realize the revenue that that has been temporarily not included.

Mike Grondahl: Great. And then the capacity addition that you've done in San Diego, kind of the - you know, the 500% expansion, is that just looking you know out at the sales funnel and the retail backlog and just saying hey, we believe we can grow by leaps and bounds and we got to be ready for this. What’s kind of the thought process?

Joseph Dowling: So the total addressable market for this product category is hard to forecast, but it seems like the range that most everybody that's credible is putting out. There is somewhere, let's just say in the $10 billion to $20 billion range just for the United States. And so the players that are going to be able to take advantage of that long term opportunity are the companies like CV Sciences that have a trusted brand like PlusCBD that have scale and that can fulfill and have the trust not only of consumers but of retailers. And so we think it's important to get ahead of that today to take advantage of when that opportunity starts to ramp up. It's impossible to say when the next inflection point is going to be. It could be that FDA is aggressive and we get a regulatory framework in September that clearly defines the rules for everybody. I think that would be a tremendous upside potential for our company and for those companies that have done what we have done, which is to invest in scale, really evolve and polish their brand. Do the safety work that we have done and instill in consumers the quality and trust that we have also done as a company and as a brand. And so, all of that investment is in advance of this opportunity that we see.

Mike Grondahl: Got it. Okay. Thanks a lot, guys.

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

Operator:

Joseph Dowling: Thank you very much for joining us today. We are pleased with the strong growth we generated during the second quarter and look forward to continued growth as we enter the second half of 2019. Have a great day.

Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.