CV Sciences: Hemp Stock Recommendation
Compared to some other hemp stocks, CV Sciences Inc’s (OTCMKTS: CVSI) stock price witnessed a lot of movement on June 9, 2020, and closed at a 3.41% loss for the day. The company currently has a market cap of $78.13 million with a year to date returns of -22% and a stock price of $0.78. Do we recommend adding this hemp stock to your portfolio?
Hemp stocks like Aurora Cannabis (NYSE: ACB) and Charlotte’s Web Holdings (OTCMKTS: CWBHF) have seen their fair share of volatility in 2020. At close of trading yesterday, both Charlotte’s Web and Aurora were down by approximately 6%.
Key takeaways from Q1 2020 earnings release
CV’s Q1 2020 earnings released on May 20 hinted towards an increasing e-commerce revenue. E-commerce sales were 24% of total revenue for the quarter ended March 31, 2020, compared to 15% for the same period one year ago. During the quarter, the company reported earnings per share of -$0.05.
One of the key drivers for the boost in e-commerce sales was the launch of a dedicated website for +PlusCBD Oil in January 2020. Since the portal kicked off at the beginning of the year, it had a ripple effect to positively impact online sales for the entire quarter.
When compared to other marijuana stocks, CV Sciences has a strong cash position with an outstanding balance of $7.6 million. The company does not have any debt obligations and is well poised to handle short-term market challenges. Joseph Dowling, the CEO of CV Sciences, also commented that the company is “prepared for additional industry or macroeconomic challenges”. This is good news as many cannabis and hemp companies are struggling to maintain high cash burn rates during the COVID crisis.
A billion-dollar opportunity for this hemp stock
CV Sciences has a leading line of branded, hemp-derived CBD wellness products for sale nationally, revenue that is increasing each quarter, a 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.
In a circular released on the same day as the quarterly earnings, CV sciences announced a grant of approval from the United States Patent and Trademark Office. This patent deals with the treatment of “smokeless tobacco addiction” with a blend of CBD and Nicotine.
Dowling commented on this development by saying that “our proprietary technology and intellectual property, the first-of-its-kind treatment for smokeless tobacco addiction, provides us with significant value and opportunities to commercialize a novel CBD-based pharmaceutical drug addressing a significant unmet medical need”.
The circular claimed that the treatment for this addiction has a global market potential of $2 billion. However, the company has not disclosed the valuation for this patent. Investors can expect a jump in the asset values with the recognition of this intellectual property in the second quarter of 2020.
Cannin CV Sciences Recommendation: Neutral
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.
About CV Sciences
CV Sciences, Inc. 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. The company was founded by H. J. Cole, Michael J. Mona, Jr. and Michael J. Mona III on December 9, 2010 and is headquartered in San Diego, CA.
CV Sciences: Hemp Stock Recommendation
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