CV Sciences Inc (OTCMKTS:CVSI) is a penny play in the CBD quadrant of the cannabis patch that traced out the infamous Christmas tree on the chart since early October: up from $0.30 for 3 weeks to $0.95, and then down from there for 3 weeks to $0.30.
This is clearly another buy-the-rumor, sell-the-news play – a phenomenon that has largely guided our outlook on the marijuana-related space during the period surrounding the landmark vote on November 8. The steep decline was partly also a factor of the company’s recent 10-Q financials report where we saw a very difficult comp to the Q3 2015 top line (which now paints a picture of a y/y -29% revenue number) in combination with a clear narrowing of operating margins contributed to decline in earnings. However, this may be a forgivable crime, as we will see below.
CV Sciences Inc (OTCMKTS:CVSI) frames itself as a life science company, focuses on developing and commercializing novel therapeutics utilizing synthetic Cannabidiol (CBD).
CVSI operates two distinct business segments: a drug development division focused on developing and commercializing novel therapeutics utilizing synthetic CBD; and, a consumer product division in manufacturing, marketing and selling plant-based CBD products to a range of market sectors, including nutraceutical, beauty care, specialty foods, and vape.
Following the CanX Acquisition in December 2015, CV Sciences commenced its preclinical drug development program during the second quarter of 2016. The Company’s drug development efforts include pursuing synthetic-based Cannabidiol drug candidates in areas that have the potential to provide significant improvements in therapeutic patient treatments with sizable addressable markets.
The company was formerly known as CannaVEST Corp. and changed its name to CV Sciences, Inc. in January 2016. CV Sciences, Inc. has primary offices and facilities in Las Vegas, Nevada and San Diego, California.
CV Sciences Inc is led by Michael J. Mona, JR. founder of CV Sciences, Mr. Mona possesses over 30 years of senior management experience in a range of industries including real estate/construction, industrial farming, chemical processing and consumer products. Mr. Mona is a recognized industry leader in hemp farming operations and chemical extraction and has established a global supply chain of hemp-derived products.
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According to company materials, “CV Sciences, Inc. operates two distinct business segments: a drug development division focused on developing and commercializing novel therapeutics utilizing synthetic CBD; and, a consumer product division focused on manufacturing, marketing and selling plant-based CBD products to a range of market sectors. CV Sciences, Inc. has primary offices and facilities in Las Vegas, Nevada and San Diego, California.”
As noted above, the poor Q3 numbers paint a rough picture here. But, it’s very important to remember that nothing going on right now matters for any of these companies.
Let me say that again: Nothing going on before the expanded legal footprint really matters for these companies. They aren’t just competing with each other. They are competing with any other company out there.
CVSI may well still have a massive advantage when compared to something that is not set to benefit from a 50-100% sector growth trend over the next 3 years.
Now, even that can’t save all of these things. The company has to execute. And frankly, the jury is still out on CVSI. We’ve made clear lately which of the cannabis plays we see as home runs. CVSI is likely overdone to the downside.
It has a business. It has real sales. It doesn’t have a clear history of shareholder abuse in terms of dilutive behavior – there’s only 56M outstanding shares and no reverse splits.
Traders will note a vicious -30% dive during the past week. That said, CV Sciences Inc has a track record that includes a number of dramatic bounces. What’s more, the listing has seen an influx in interest of late, with the stock’s recent average trading volume running approaching 190% beyond what we have been seeing over the larger time frame.
As we so often note, this is a major factor when dealing with a small float play (CVSI has a mere 9M shares rattling around on the market). When you combine rising average volume and a tiny float, it’s a bit like combining a rising temperature and gasoline. Look out.
Earning a current market cap value of $18.1M, CV Sciences Inc has a decent store ($847.43k) of cash on the books, in a pool of total assets a bit less than $26M, which compares with an appreciable load ($2.61M) of total accumulated debt.
CVSI is suffering from “Catalystis Behindis”, which does tend to pass untreated. It also has a very unfavorable comp on the top line in the latest 10-Q. But we would urge you to focus your imagination and due diligence on a world that includes massive legal tailwinds and an expanded end market. That’s what matters here. The poisonous issues in this sector will be about sham companies and dilution right now. CVSI does not appear to suffer from those maladies. That said, always be skeptical first with these stocks. We will too. There may be brighter times ahead, and we will update again soon if we see more concrete signals. For continuing coverage on shares of $CVSI stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!