CV Sciences: Featured Cannabis Stock

Cultivation:
They control their supply chain carefully, because it is monitored from “seed to shelf”, and recently received certification from the US Hemp Authority Certified program. They produce their products in a cGMP facility.

Distribution
Direct sales: Yes, online at its pluscbdoil.com website and other online stores
Store networks: Yes, sold nationwide in 2,200+ natural product stores.
Supply agreements: It also sells its hemp-based CBD to wholesale and bulk accounts.

Their CV products are distributed nationally to health food stores, health care provider’s offices, and online. According to SPINS, PlusCBD™ is the #1 brand sold in the natural food store channel. They believe “distribution is on the verge of broadening to more traditional food, drug, mass merchandise, and convenience (FDMC) store retailers.”

CVSI management thinks the total addressable market could be huge. They currently have 5,700 stores. Doctor’s offices could grow to a “significantly higher number” from their current estimate of 1,000. The FDMC market could become 50,000 stores (they currently have none).

Integration/Diversification:
Vertically integrated: Yes, manufacturing product and selling retail.
Horizontally diversified: No. It sells CBD supplements and is researching patented CBD drugs that address specific maladies.

CV Sciences, Featured Cannabis Stock: Neutral Recommendation

CV Sciences has a leading line of branded, hemp-derived CBD wellness products for sale nationally, revenue that is increasing each quarter, and good sales growth. Based on this alone, barring any mistakes, their bottom line should grow significantly in the coming years as the category expands by as much as 50% per year.

Their founder, Michael Mona Jr, had to resign in Jan 2019 after he and CVSI finally settled an issue with the SEC from 2013, which charged him/it of financial misreporting (defrauding investors) regarding when CVSI bought Phytosphere Systems in 2013. The company denied charges but settled to move on. In settling, CVSI paid a $150,000 penalty. Mona agreed to (1) a prohibition from serving as an officer or director of a publicly held company for five years, and (2) paying a penalty of $50,000. His continuing to hold a majority of company shares may be a big issue in NASDAQ’s long delay in the up-listing request.

With this behind them (and we think the company is completely clean now) they should be on a much more positive trajectory. They now have a financial professional as CEO and a product developer/supply chain director as COO. These are strong skills to have at the top. As competition continues to heat up in this industry in the coming years, it will be increasingly hard to differentiate themselves in the eyes of consumers from aggressive competitors. Branding brilliance may be a key. They are currently pushing their organic certification and seed to shelf stories as a way to build their brand advantage on the “purity” idea. This is a smart direction for winning consumers of this kind of product.

In 2018, they received two third party awards that help validate their efforts. They were one of the first companies to receive the U.S. Hemp Authority Certified Manufacturers seal. And their PlusCBD Oil Gold Softgel line was named a Top Pick by ConsumerLab.com.

So, we are both optimistic about their ability to ride the wave of growth, yet circumspect in any company’s ability to stay ahead in a very competitive field.

We like that they are reporting sales growth because it shows financial prudence and concern for investors. But in this fast-growing space, it’s possible that they should be spending more on aggressively building out of their production capacity, and introducing more products, in order to dominate shelf space. This is hard to know, and we suspect they are weighing both approaches wisely.

In a conference call on March 12, 2019, they addressed this positively, saying:

“We are also well into the planning phase for an expansion of our manufacturing and fulfillment capabilities to support our growth needs beyond 2019. Negotiations are underway for additional real estate and other infrastructure to support these efforts. We have also worked diligently to secure the hemp-based CBD raw material needed to support all of our planned growth in 2019 and even into 2020.

In general, we are very positive about this company. So, the big question is, how is their stock valuation? Are they overvalued or undervalued? As Cannin readers will know, this is the whole ball game to the fundamental analysts among us. This week’s technical analysis tells us a grim story!

We think that with the widely-predicted rapid CBD market growth pushing them ahead like a tailwind, they should achieve this revenue in the coming year, and keep growing beyond that level. While their stock price could move up and down before then, when they pass the $70 million annual revenue rate, we think their revenue will justify the current stock price and drive it higher. Look for short term losses followed by significant growth as we round out 2020.

CV Sciences: Featured Cannabis Stock