Too 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 analysts. Operator?
================================================================================
Questions and Answers
--------------------------------------------------------------------------------
Operator [1]
--------------------------------------------------------------------------------
(Operator Instructions). Mike Grondahl, Northland Capital Markets.
--------------------------------------------------------------------------------
Mike Grondahl, Northland Capital Markets - Analyst [2]
--------------------------------------------------------------------------------
Congratulations on the progress. You talked and mentioned that you are in discussions with multiple retailers and you also said that you are currently in a number of pilots. Could you kind of give us a sense, is that a couple, is it several? Just maybe a range for each one of how many exactly.
--------------------------------------------------------------------------------
Joseph Dowling, CV Sciences, Inc. - CEO [3]
--------------------------------------------------------------------------------
I think we've mentioned in the past that you can assume that we're talking to nearly every major FDM retailer. And I know that sounds broad and comprehensive, but with CVS getting in so quickly, those that may not have been as active became much more active as a result of CVS being the first mover.
It's hard to provide exact numbers either on the number of pilot studies that we are doing or how many stores for each of those that might be involved. I think what I've said is that you can assume that we're talking to everybody. And what we are comfortable saying now, rather than providing specific guidance, Mike, is that we do have several pilot programs that are underway.
And in my prepared remarks I indicated that we expect to have more significant wins even during the second quarter that we are hopefully going to be able to report on shortly. And so, I'm not dodging the question, but I want to be careful about not misleading anybody. But I can say generally that we're making a lot of progress on a lot of fronts.
--------------------------------------------------------------------------------
Mike Grondahl, Northland Capital Markets - Analyst [4]
--------------------------------------------------------------------------------
Great and it definitely sounds like more than a couple -- the number of retailers you are talking to and the number of pilots, so that's good. Is the convenience store channel -- is that an end market you're talking to?
--------------------------------------------------------------------------------
Joseph Dowling, CV Sciences, Inc. - CEO [5]
--------------------------------------------------------------------------------
Yes, it is. We think it's a significant opportunity and we are pursuing it aggressively. Depending on how you think about the total addressable market and the number of stores in that channel, it could be as high as a couple hundred thousand depending on how you count the number of stores.
So it is a very significant market. The merchandising and the price points are a little bit different than they are for FDM or the natural products retail channel. But it's still a very significant market and we are excited about that as an opportunity.
--------------------------------------------------------------------------------
Mike Grondahl, Northland Capital Markets - Analyst [6]
--------------------------------------------------------------------------------
Great. And then you do to say in the release too you're making some investments across the organization. What two areas are you maybe spending the most on to kind of support future growth?
--------------------------------------------------------------------------------
Joseph Dowling, CV Sciences, Inc. - CEO [7]
--------------------------------------------------------------------------------
The two easiest ones and the two most significant ones I think will make sense to everybody. We've significantly increased our headcount from one year ago today. At the end of the first quarter in 2018 we had 54 full-time equivalent employees. Today we have 108 at the end of March 31, 2019. So that is a 100% increase.
Some of that is just staying up to pace with the revenue growth, but a lot of it is investment, especially in some senior management positions, including Joerg Grasser, to really position the Company for future growth. So I would say personnel is one big area, Mike. And the other big area is that we are making a significant investment in marketing across all types of marketing whether it is social media, SEO, more conventional print advertising and so on.
One other area besides marketing and headcount would be R&D. We are, again, making investments in R&D in product development, process development, as well as in our pharmaceutical side that, again, we believe positions the Company for strong future growth. And so, those would be the major areas of investment today that we expect to get very good returns on down the road.
--------------------------------------------------------------------------------
Operator [8]
--------------------------------------------------------------------------------
Scott Fortune, ROTH Capital Partners.
--------------------------------------------------------------------------------
Scott Fortune, ROTH Capital Partners - Analyst [9]
--------------------------------------------------------------------------------
Good quarter guys. Real quick on the retail distribution, you have over 3,000 stores. How many of that is coming now that you have mentioned CVS? And how do you expect the rollout from CVS side of things from a regional to a national level to continue throughout the rest of the year here?
--------------------------------------------------------------------------------
Joseph Dowling, CV Sciences, Inc. - CEO [10]
--------------------------------------------------------------------------------
So, CVS is approximately 800 stores and we are part of the discussion on their rollout strategy, but they don't share the entire strategy, Scott. We are working with them very closely, I can say that. I think there is a desire to expand it beyond the initial launch. And I think there is a desire to expand it beyond the initial vertical product types that they are including in the initial offering. So we're excited about that relationship. We think it's only going to increase and be a good thing not only for the industry but for our Company.
--------------------------------------------------------------------------------
Scott Fortune, ROTH Capital Partners - Analyst [11]
--------------------------------------------------------------------------------
So real quick for clarification, 800 stores is included into that 3,308 stores at the end of the quarter?
--------------------------------------------------------------------------------
Joseph Dowling, CV Sciences, Inc. - CEO [12]
--------------------------------------------------------------------------------
Yes.
--------------------------------------------------------------------------------
Scott Fortune, ROTH Capital Partners - Analyst [13]
--------------------------------------------------------------------------------
Okay, okay. And then as far as the products, what number of SKUs and products -- you said balms on the topical side -- are you looking at? And what are the retailers that you have in pilot programs focused on from a product standpoint? It seems like the topicals have a lot of strength and we are waiting for and we will get into FDA clarity to move forward with the other product offerings. Can you step through the products right now on the retail side?
--------------------------------------------------------------------------------
Joseph Dowling, CV Sciences, Inc. - CEO [14]
--------------------------------------------------------------------------------
Sure, yes, it's a great question. You are absolutely right. I think that large food, drug and mass merchandise retailers are starting with topicals. To my knowledge I haven't seen any large retailer that has included other than topicals in the initial launch. And so, I think you're going to continue to see that.
So from our standpoint we've included two SKUs, an extra strength and a regular strength balm in the CVS initial launch. As I mentioned in my prepared remarks, we have under development and ready for launch a new roll-on topical product which we've had very favorable retailer response to. And we're hoping that we can get great shelf placement with that product, whether it's at CVS or other FDM retailers as those are launched.
--------------------------------------------------------------------------------
Scott Fortune, ROTH Capital Partners - Analyst [15]
--------------------------------------------------------------------------------
Okay, and then one more follow-up on the retail side. What are you hearing when you're talking to these large accounts? Is it the critical points or issues that separate you guys, whether it is supply, whether it is GRAS or toxicology statements? As far as due diligence what are they really looking for and how are you guys positioned to meet their needs versus competitors?
--------------------------------------------------------------------------------
Joseph Dowling, CV Sciences, Inc. - CEO [16]
--------------------------------------------------------------------------------
So, I think it is all the things that you mentioned, Scott, from the retailer's standpoint that they are very interested in. Clearly there's a lot of trust in our brand since we really sort of started the retail side of the product category. The fact that we are the only company and having initiated the safety studies and achieved GRAS status and had the foresight and the experience to do that resonates very well with these big retailers.
They understand that issue very well, especially the drug retailers that are, remember, running a pharmacy on top of a retail store. So they understand the importance of the safety data related to our product perhaps better than some of the other retailers. So those things are resonating very, very well.
And brand awareness. I think that consumers, and just kind of moving from the retailer to the consumer side, a lot of the same qualities are important to consumers as they start to better understand product differentiation, the companies behind the products and the quality behind the products as well.
--------------------------------------------------------------------------------
Scott Fortune, ROTH Capital Partners - Analyst [17]
--------------------------------------------------------------------------------
Okay, then moving on to the FDA. You mentioned in your comments you think a lot of retailers are holding off to a little more FDA clarity. What are you hearing from them? I know you guys have talked about the genetics of the seeds of the origin, pure fiber genetic strain.
What is your sense of the FDA as they carve out this pathway for CBD on the retail side in food and beverage and dietary supplement? And a follow-up on that, does California's laws trump the federal laws as far as putting CBD into food and beverages going forward?
--------------------------------------------------------------------------------
Joseph Dowling, CV Sciences, Inc. - CEO [18]
--------------------------------------------------------------------------------
Several questions there. Let me try to take them in some order. First, we are very excited about the public hearings on May 31 that the FDA is holding. And in fact, we have a presentation and speaking slot that will be covered by our Duffy MacKay, Dr. Duffy MacKay, our Senior Vice President of Scientific and Regulatory Affairs.
And we have had a fair amount of interaction with FDA and with USDA. And kind of to your observation or comment, we do think that there will be swim lanes that will be established and right now we are kind of in a period where those swim lanes are blurred where the only guidance is from the Farm Bill.
I think that will change significantly and I think it will start and, as you mentioned, with some guidance from -- not guidance but regulatory framework that will start with USDA and the genetic seed certification that we think is likely to be put in place. I think there's precedent for that in Canada as well as Europe and I don't think USDA will try to break new ground. I think they will look elsewhere where there have been very similar programs in place for quite a while.
As far as California, I would say it's the other way around -- that California Department of Public Health primarily looks to the Fed to try to understand how to proceed. And as with a lot of other states, there's been some confusion and ambiguity and there's some incredible irony.
California was the first state to legalize medical marijuana, yet there's confusion within the California Department of Public Health in terms of enforcement of CBD products. So that is kind of an interesting irony of consumer products that are available.
I think that will get ironed out quickly in the state of California with Assembly Bill 228, which, as I mentioned in my prepared remarks, has already gone through two legislative committees with unanimous support. And there's some discussion that it has a possibility of being enacted as early as July 1.
So, I think that would harmonize California law with I think a lot of the discussion at the federal level in terms of the swim lanes that we think are going to be established to really allow this product category to be realized.
--------------------------------------------------------------------------------
Scott Fortune, ROTH Capital Partners - Analyst [19]
--------------------------------------------------------------------------------
Okay thank you. And last question, just kind of on the quarter-over-quarter growth has kind of been averaging 5%, obviously [out of the] second quarter last year. Is there some seasonality to this? How do you look at the year going forward? Obviously with large accounts coming on board that will essentially change it. But what's your sense of the 5% quarter-over-quarter growth for the last couple quarters here?
--------------------------------------------------------------------------------
Joseph Dowling, CV Sciences, Inc. - CEO [20]
--------------------------------------------------------------------------------
Yes, so we've pretty consistently said that -- and this is in response to are you planning to provide guidance -- that it's very hard to do that because we expect the future quarters to be very choppy and choppy upward. We fully expect that we are going to be able to continue to achieve sequential quarterly growth.
I can tell you that sort of internally our goal -- and this isn't guidance, but internally our goal is to get to a quarterly run rate of -- on an annualized basis of $100 million as quickly as we can. And we are positioning the Company for that and beyond as we speak.
And so, we think that with the expected wins, as I mentioned in the prepared remarks, that we fully expect to be coming over the next several quarters -- that we are going to have that kind of growth. And we are very excited about that prospect.
--------------------------------------------------------------------------------
Operator [21]
--------------------------------------------------------------------------------
Mike Grondahl, Northland Capital Markets.
--------------------------------------------------------------------------------
Mike Grondahl, Northland Capital Markets - Analyst [22]
--------------------------------------------------------------------------------
Joe, so the two SKUs you have at CVS, an extra strength and a regular strength topical, any sense -- if you placed some stuff there at the end of March, any sense on reorders or sell-through or is it just too early?
--------------------------------------------------------------------------------
Joseph Dowling, CV Sciences, Inc. - CEO [23]
--------------------------------------------------------------------------------
I think it's too early, Mike. I would expect that we will have a one to two quarter lag before we have a good understanding and an ability to respond to that question more accurately.
--------------------------------------------------------------------------------
Mike Grondahl, Northland Capital Markets - Analyst [24]
--------------------------------------------------------------------------------
Got it, got it. And the roll-on, that's a couple favorable pilots, a couple smaller retailers. So, just where you are testing the reception has been good. Is that the takeaway?
--------------------------------------------------------------------------------
Joseph Dowling, CV Sciences, Inc. - CEO [25]
--------------------------------------------------------------------------------
The takeaway is that the reception has been good across the board. I don't think there is one FDM retailer that we're speak with that has only -- they've only praised and been very excited about the opportunity for placement of this product on the shelf.
--------------------------------------------------------------------------------
Scott Fortune, ROTH Capital Partners - Analyst [26]
--------------------------------------------------------------------------------
And with that roll-on, if you got a big order for it, is that something you can deliver? Is production in place? Is everything kind of good to go?
--------------------------------------------------------------------------------
Joseph Dowling, CV Sciences, Inc. - CEO [27]
--------------------------------------------------------------------------------
Yes.
--------------------------------------------------------------------------------
Scott Fortune, ROTH Capital Partners - Analyst [28]
--------------------------------------------------------------------------------
Great. Well, that does it for me. Thanks a lot.
--------------------------------------------------------------------------------
Operator [29]
--------------------------------------------------------------------------------
This concludes the question-and-answer session. I would like to turn the floor back over to management now for any closing comments.
--------------------------------------------------------------------------------
Joseph Dowling, CV Sciences, Inc. - CEO [30]
--------------------------------------------------------------------------------
Well, I want to thank everyone for joining us today. We are pleased with the progress we made in the first quarter of 2019 and look forward to the opportunities that lie ahead for the rest of the year. And we look forward to updating you on our next call. And please have a great day. Thank you very much.
--------------------------------------------------------------------------------
Operator [31]
--------------------------------------------------------------------------------
This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.