It was a wild day for CV Sciences Inc (OTCMKTS:CVSI) on Monday, with a huge leap higher out of the gates (up as much as 40% in the early going) followed by a massive 63% afternoon decline, closing the session down by about 36%. Momentum seems to have lit the fire in the early going. But there’s no doubt about what drove the afternoon decline.
Citron Research, the public face of short-seller Andrew Left, put out a tweet claiming that the company might be headed for a financial fraud case. The real question here is this: who is the fraud? Is it CVSI or is it Citron? The evidence that Citron presented was just a lack of acceptance of patents. But CVSI has been running on sales growth, which doesn’t seem endangered by a lack of accepted patents. Mr. Left is notorious for similar “attacks” on high-momentum stocks. So, this is a case potentially for the SEC.
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.
According to company materials, “CV Sciences, Inc. (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. CV Sciences, Inc. has primary offices and facilities in Las Vegas, Nevada and San Diego, California.”
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As noted above, the stock has been running higher on strong sales growth following the submission of an application for an uplist to the Nasdaq. Admittedly, those long the stock above $5-$6/share, must have known the crowded bus they were sitting on. But, so did Citron’s Andrew Left.
It’s a bit like seeing a vulnerable balloon floating by, and knowing you have a way to profit from sticking it with a needle. While CVSI’s surge higher has been based on sales growth, the speculative fervor surrounding this stock has surely ramped up over the past few weeks. It would appear as though Citron found a way to expose some doubt and rebalance the speculative interest.
The result was a price shock on the downside on Monday afternoon. And time will tell how this pattern plays out. As we see it, the overall thesis was not about IP. It was about sales growth in a high-growth market space (CBD). That could present a fresh opportunity on the pullback.
At this time, carrying a capital value in the market of $608M, CVSI has a significant war chest ($7.2M) of cash on the books, which is balanced by about $867K in total current liabilities. CVSI is pulling in trailing 12-month revenues of $33.3M. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 202.5%. As more color becomes clear on the name, we will review the situation and update our take. Sign-up for continuing coverage on shares of $CVSI stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!
Disclosure: we hold no position in $CVSI, either long or short, and we have not been compensated for this article.