CV Sciences: Is this Penny Hemp Stock A Strong Buy?
The industrial hemp market is projected to grow from $4.6 billion in 2019 to $26.6 billion by 2025. The growth of the hemp market is attributed to the increased consumption of hemp-based products due to various health benefits. But, the complex regulatory structure for the usage of industrial hemp in different states and countries is expected to encumber hemp market growth. As industrial hemp continues to gain in global popularity, our analysts monitor the best hemp stocks to invest in. In the following article, we’ll evaluate CV Sciences to see if this hemp stock is a strong buy.
CV Sciences: What does this company do?
CV Sciences, Inc. (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, 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 consumer products 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. Should you buy this exciting hemp stock?
CV Sciences: Strong Markets, Strong Management
CV Sciences operates exclusively in the US. 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.
- 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.
Bottom Line: Is CV Sciences Penny Hemp Stock A Strong Buy?
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 – driving this hemp stock’s value up over 1000% in a single year. 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!
Although this hemp stock has some great potential, we remain neutral on this hemp stock investment for now. We think that with the widely-predicted rapid CBD market growth pushing them ahead like a tailwind, they should achieve their revenue targest 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: Is this Penny Hemp Stock A Strong Buy?
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