Should you invest in CV Sciences Stock? Recommendation: Keep Reading
CV Sciences, Inc. ( OTC: CVSI) engages in the development, manufacture, and sale of consumer and pharmaceutical products. It operates through the Consumer Products and Specialty Pharmaceutical segments. The Consumer Products segment includes manufacturing, marketing, and selling of hemp-based cannabidiol products through the PlusCBD brand. The Specialty Pharmaceutical segment focuses on developing cannabinoids to treat medical indications.
CV Sciences: Company Profile
HQ: Las Vegas, NV, USA
Facilities: San Diego, CA, USA
Symbol: CVSI (OTC)
CV Sciences: Neutral Focus
CV Sciences, Inc. operates two distinct business segments: Consumer Products, a division that manufactures, and sells plant-based CBD products to a range of market sectors, and Specialty Pharmaceuticals, a division focused on developing and commercializing novel therapeutics using synthetic CBD (cannabidiol).
Its PlusCBD™ Oil brand is a leading CBD brand sold nationally, in several market sectors including nutraceutical, beauty care, specialty foods, and vape. Its initial pharmaceutical candidate, CVSI-007, combines CBD and nicotine for the treatment of smokeless tobacco use and addiction.
CV Sciences: Neutral Size
Market Cap: US $37.3 mil
Enterprise Value: US $40.2 mil
Number of employees: 78
CV Sciences: Strong Markets
Primary: US states. Its consumer products are derived from hemp-based CBD, which is federally legal.
They also believe the market for treating smokeless tobacco use and addiction will be a multi-billion dollar opportunity—a market that is currently unmet.
CV Sciences: Neutral Operations
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.
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).
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: Weak Financials
- Revenue (Q1 2020): $8.3 million
- Margins: -26.3%
- Shares Outstanding (diluted): 99.9 mil
- EPS (diluted): (0.13)
CV Sciences: Strong Management
CEO: Joseph D. Dowling
CFO: Joerg Grasser
Chief Medical Officer: Dr. Joseph Maroon
Founder: Michael Mona Jr. (Resigned in Jan 2019 due to SEC settlement)
Mr. Dowling was appointed CEO in May 2018 after being CFO since 2014. From 2005 to 2013, he was President and CFO of MediVas, LLC, a biotech focused on drug formulation and delivery, where he led day-to-day operations, drug research and development, product development and commercialization including license agreements with Pfizer, Merck, Wyeth, DSM, Guidant and Boston Scientific. Previously, he was Managing Director at Citigroup, a global financial services firm, and before that held various operating, finance, and accounting roles in both public accounting and in the banking industry.
Mr. Mona Jr. (retired in Jan 2019) was the founder of CV Sciences and had 30 years of management experience in various industries. He and CVSI finally settled with the SEC regarding malfeasance in 2013, but this forced him to retire. He was an industry leader in hemp farming operations and chemical extraction and has established a global supply chain of hemp-derived products. His continued holding of the majority of CVSI shares may be a major sticking point in NASDAQ’s long-delayed response to CV’s uplisting application.
CV Sciences: Neutral Branding
Currently, they have about 50 SKUs, with more in development. It’s Plus CBD Oil™ is one of the top-selling brands of hemp-derived CBD on the market, according to SPINS, a provider of data for the natural, organic, and specialty products industry. (CV Sciences website).
This brand is traceable from seed to sale, is non-GMO, gluten-free, and tested to ensure the quality. It comes in sprays, gummies, drops, balms, capsules, and softgels. CV uses CO2 extraction, a chemical-free extraction process that is environmentally friendly.
Its initial drug candidate (CVSI-007) is a chewing gum containing nicotine and synthetic CBD to support cessation of smokeless tobacco use and addiction. It claims to have achieved promising preclinical results in developing this and other CBD medicines for a range of medical conditions.
CV Sciences: Neutral Valuation
- Current share price: US $0.41
- Price to Sales: 0.79 (Biopharma industry average = 7.5)
- EV / Revenue: 0.85
- 52 week low/high: US $0.25-$4.98
- Price/Book: 1.47
CV Sciences: Weak Financings
CV Sciences: High Risks
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
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