CV Sciences: Wish We Could Forget Your Troubled Past
Welcome to our Discover Cannabis series, where we publish in-depth research to introduce new cannabis companies to our coverage.
CV Sciences (OTCQB:CVSI) looks like a promising CBD play on a first glance. The U.S.-based CBD company has seen its ups and downs in the past few years as it went through the 2014 bubble when its share price surged to more than $100 before falling back to become a penny stock. Despite fast-growing sales, the troubled history of its management and governance still haunts the company and gave us pause before recommending this stock.
(All amounts in US$ unless otherwise noted)
The company was founded in 2012 and experienced the cannabis bubble of 2014 when its share price shot up to over $100 before crashing back down to become a penny stock for the most part of the next four years until the second half of 2018. The stock surged from its 52-week low of $0.32 to $9.20. The stock currently has a market value of $485 million which puts among some of the largest U.S. cannabis companies by market value. The company is larger than Liberty Health (otcqx:LHSIF), Planet 13 (otcqb:PLNHF), Sunniva (otcqb:SNNVF) and many others.
Part of the reasons behind the strong performance was its burgeoning sales. In the most recent quarter, the company reported sales of US$13.6 million, an increase of 143% from 2017 Q3 while adjusted EBITDA came in at US$4.2 million representing a margin of 31%. The company is benefiting from an explosion of consumer demand for CBD products across the country.
CV Sciences operates two segments: the specialty pharmaceutical segment and the consumer products segment. In the last quarter, all of the sales were derived from the consumer products segment while the specialty pharma segment continues to incur losses from SG&A and R&D expenses. It is unclear to us the timing or viability of the research being carried out by the pharma division and we think the consumer segment will have to continue to fund the R&D and overall corporate overhead in the near future.
The company had $11 million of cash available as of last quarter which should serve as a buffer for the company as it is currently profitable. In July, the company asked shareholders to vote on an amendment that could allow the Board to effect a reverse stock split which is an ominous sign and usually associated with penny stocks such as Isodiol (otcqb:ISOLF). In July, the company also announced that it has applied to list on the Nasdaq Capital Market which would be an up-listing for the OTC-listed stock. Moreover, the company has clearly stated the purpose of the reverse stock split vote was to enable the company to meet the minimum bid price requirement. We are not against the up-listing as it would also provide improved disclosure to existing shareholders. However, using a reverse split to achieve the minimum stock price requirement is not ideal, granted that the company might not need to use the reverse split after a huge run in its share price recently.
Management and Its Past
CV Sciences continues to be haunted by its troubled past including actions taken by its management. The SEC sued the company and its CEO, Michael Mona, Jr., for accounting fraud in 2017 whereby management inflated balance sheet through related-party transactions. Fellow Seeking Alpha author Wallace Lee detailed the lawsuit and other suspicious activities at the company and its management. Michael Mona, Jr. settled the lawsuit and resigned from his CEO and Board roles as part of the settlement which also bans him from serving as public company Officer or Director for 5 years. However, besides the small fine of $50,000, the company actually hired back Mona and kept his pay the same as the new CEO. We recommend investors to read the article and absorb different perspectives before making your own investment decisions.
Just earlier last week, Michael Mona, Jr. actually announced that he will leave the company and cease to be an employee of CV Sciences, potentially paving the way for the company to apply for an uplisting. However, Michael Mona III continues to serve as Chief Operating Officer.
Comparing to Charlotte’s Web
One has to compare CV Sciences and Charlotte’s Web (otcqx:CWBHF) given how familiar the two companies look. We suggest you read “Charlotte’s Web: Best Way To Play The CBD Industry” to familiarize yourself with the company if you haven’t heard of it. We will look at financials, brands, and potential.
On a financial point of view, the two companies both reported substantial revenue growth and positive EBITDA in the most recent quarter. CV Sciences already reported Q3 results with $13.6 million in sales and EBITDA of $4.2 million / 31% margin, whereas Charlotte’s Web reported Q2 sales of $17.2 million and EBITDA of $6.2 / 36% margin. Charlotte’s Web seems to be doing slightly better in terms of revenue and margin.
On a branding level, Charlotte’s Web appears to be winning because of its namesake story and distribution access to over 3,000 retail outlets. CV Sciences continue to suffer from tainted corporate imagery and a smaller distribution network of 2,093 stores. Given the much cleaner story at Charlotte’s Web, we think its brand resonates better with consumers and among investors as well.
Both companies have large potential in the CBD market. It seems to us both companies are executing well and are pushing as hard as they could to fight for shelf space and consumer loyalty. We think the CBD market is large enough to allow multiple winners and it might be too early to call a winner here.
Usually, we would be extra careful and cautious against OTC-listed cannabis stocks especially those ones that came through the 2014 cannabis bubble. However, CV Sciences is posting impressive top-line growth along with strong EBITDA margins. Assuming there are no accounting issues this time we would be open to continue monitoring the stock and track its progress. The company’s founder, Michael Mona, Jr. committed accounting fraud in the past and that’s usually enough reasons for us to stop right here. However, he is leaving the company for real this time. We think investors should take a look at CV Sciences but we would very much prefer Charlotte’s Web at this point given it is a much cleaner story with better corporate imagery.
CV Sciences, Inc. Announces PlusCBD™ Brand Refresh and New Product Launches
PlusCBD™ refresh reflects the brand’s core mission to improve quality of life through nature and science
October 06, 2020 07:00 ET | Source: CV Sciences, Inc. CV Sciences, Inc.
San Diego, California, UNITED STATES
SAN DIEGO, Oct. 06, 2020 (GLOBE NEWSWIRE) — CV Sciences, Inc. (OTCQB:CVSI) (the “Company”, “CV Sciences”, “our”, “us” or “we”), a preeminent leader in hemp derived cannabidiol (CBD) products, today announced a comprehensive refresh of its top selling, flagship PlusCBD™ branded product line and the launch of 30+ new PlusCBD™ products over the next 45 days.
The new PlusCBD™ brand is a refinement and modernization that includes new packaging with a contemporary color palette and a post-modern aesthetic to relay each product’s value proposition across the product offering. The 30+ new product launch includes eight new, innovative products featuring extra strength gummies and maximum strength softgels. All new PlusCBD™ branded products are available on our website at www.cvsciences.com.
The refreshed PlusCBD™ packaging features our new, prominently displayed CV Sciences logo, transparent QR code labeling linked to lab reports to assure customers of the unrivaled quality, and the milligrams of CBD per serving on the label.
The PlusCBD™ brand mission statement is now featured on the packaging: “Modern life is challenging. Our physical, mental and emotional health is constantly being tested. CV Sciences provides research based solutions for the well-being of the planet. Our mission is to improve quality of life through nature and science – and the results speak for themselves. This is health transformed.”
“The CV Sciences team is thrilled to introduce our refreshed PlusCBD™ products that will leverage our brand equity as the safest and most trusted CBD product offering available, all designed to resonate with our existing customers while attracting new consumers,” said Joseph Dowling, Chief Executive Officer. “We conducted extensive market research to create a fresh new look with strong value messaging that will drive long-term brand affinity with a broad consumer audience focused on health and wellness. Our updated brand and products position CV Sciences for continued growth and industry leadership in the hemp derived CBD category.”
The top selling CBD brand on the market, PlusCBD™ showcases the synergistic benefits of full spectrum hemp extract, which constitutes over 500 compounds, including CBD, cannabinoids, terpenes, and essential fatty acids. PlusCBD™ is sourced from sustainable, non-GMO U.S. hemp, grown on small farms in Kentucky, and EU certified hemp cultivated by Dutch farmers with decades of experience.
As the first company to achieve Generally Recognized as Safe (GRAS) status for hemp derived CBD, CV Sciences offers the highest quality products by:
- Sourcing hemp extracts from superior quality U.S. and EU grown agricultural hemp
- Maintaining two third party Good Manufacturing Practice certifications (U.S. Hemp Authority and Eurofins)
- Batch testing in-house and by 3rd party labs throughout the process to preserve product integrity
- Investing in hemp derived CBD research, including CV Sciences published pre-clinical safety studies, multiple published PlusCBD case studies, a randomized clinical trial using Plus CBD, and published post market safety assessment of CV Sciences products.
About CV Sciences, Inc.
CV, or Curriculum Vitae, is Latin for “course of life”, and science is the pursuit of truth. CV Sciences: our name is our mission — improving quality of life through nature and science.
CV Sciences, Inc. (OTCQB:CVSI) operates two distinct business segments: a consumer product division focused on manufacturing, marketing and selling plant-based dietary supplements and CBD products to a range of market sectors; and a drug development division focused on developing and commercializing CBD-based novel therapeutics. The Company’s PlusCBD™ products are sold at more than 6,300 retail locations throughout the U.S. and it is the top-selling brand of hemp-derived CBD on the market, according to SPINS, the leading provider of syndicated data and insights for the natural, organic and specialty products industry. CV Sciences follows all guidelines for Good Manufacturing Practices (GMP) and the Company’s products are processed, produced, and tested throughout the manufacturing process to confirm strict compliance with company standards and specifications. With a commitment to science, PlusCBD™ product benefits in healthy people are supported by human clinical research data, in addition to three published clinical case studies available on PubMed.gov. PlusCBD™ was the first hemp CBD supplement brand to invest in the scientific evidence necessary to receive self-affirmed Generally Recognized as Safe (GRAS) status. CV Sciences, Inc. has primary offices and facilities in San Diego, California. Additional information is available from OTCMarkets.com or by visiting www.cvsciences.com.
This press release may contain certain forward-looking statements and information, as defined within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and is subject to the Safe Harbor created by those sections. This material contains statements about expected future events and/or financial results that are forward-looking in nature and subject to risks and uncertainties. Such forward-looking statements by definition involve risks, uncertainties.
Scott Van Winkle