CV Sciences stock surged higher into the close on August 20, 2019.
On August 12, 2019, the CEO Joseph Dowling said that he was disappointed by the market’s reaction to the second quarter earnings report. The fundamentals of our business are strong and our opportunity grows daily as consumer demand for hemp-based CBD products continues to expand at a rapid rate. We are proud of our second quarter results, but like you, we are disappointed by the market’s reaction. We pride ourselves on giving comprehensive quarterly updates, and our discussion of increased competition reflects what we see in our business today. But, as I noted on our second quarter conference call, incremental competition may lead to choppy quarter to quarter results. However, it does not detract from the rapidly growing market opportunity and expanding distribution, which along with our continued investments in our brand and industry leading quality, are the foundation of our long-term growth trajectory. We have worked hard this year to further strengthen our company and fully leverage the power of the PlusCBD Oil brand…CV Sciences pioneered the CBD consumer product industry, and as the regulatory framework emerges, our industry dominance and growth will continue and escalate. We ask that you trust in the long-term vision of this great company, the strong team we have built, and our proven track record of business performance, science-based R&D and regulatory leadership. We believe we are well-positioned to capitalize on the conservatively projected $20 billion plus CBD industry and we look forward to sharing news of future business development successes in the coming months.”
On August 6, 2019, CV Sciences announced its financial results for the quarter ended June 30, 2019. The company report record revenue of $16.9 million for the second quarter of 2019, an increase of 36% over the same quarter in 2018.
The company has had 14 consecutive quarters of sequential revenue growth with retail distribution increasing to 4,591 stores as of June 30, 2019, a 39% increase from March 31, 2019.
The company has broadened its retail presence into the food, drug and mass channel and is in active discussions for further expansion of the PlusCBD(TM) Oil brand.
CV Sciences generated $2.7 million of cash from operations, with total cash balance increasing to $15.7 million at quarter end.
The company has planned a 500% increase in production capacity with the addition of a new 45,500 square foot facility.
“We generated 13% sequential and 36% year-over-year revenue growth during the second quarter, driven by significant distribution gains across both new national food, drug and mass (FDM) channel retailers and broadly across our channels of distribution. Year to date, we have more than doubled the number of retail doors where PlusCBD(TM) Oil products are carried and continue to enjoy a strong pipeline of new distribution opportunities,” stated Joseph Dowling, Chief Executive Officer of CV Sciences. “We have seen a positive response to the innovation we have developed this year, including nine new products launched year to date. We have further innovation scheduled for introduction during the second half of the year and believe there is a significant opportunity to expand our offering within existing retailers, particularly as the FDM channel further develops. To support our anticipated growth, we recently announced a 500% increase in our production capacity.”
“We are particularly encouraged by the regulatory developments we have seen at the state level during the last few months. While there remains ambiguities that continue to impact the CBD landscape on a state by state basis, we have seen positive legislation passed, or in the late stages of passage, in key states across the country. Recent successes in California, Texas and Ohio are just a few examples of the state by state legislative developments that are expanding and strengthening the long-term CBD marketplace. We remain highly confident in the long-term growth of hemp-based CBD and will continue to lead the industry in quality, innovation and both regulatory adherence and support as the market develops,” Dowling said.
CEO Joseph Dowling’s complaint of stock price performance following the excellent second quarter numbers seems to be legit.
Piper Jaffray analyst Michael Lavery seem to agree. On August 12, 2019, Mr. Lavery initiated coverage of CV Sciences with an Overweight rating and $5 price target. The analyst says CV Sciences is the second largest public U.S. CBD company by revenues, and he expects its distribution expansion to drive near-term sales growth. He considers science and regulation to be a core competency for CV Sciences, and also believes that clarity on FDA regulation for other products is a “looming positive catalyst.” Lavery believes the U.S. CBD market could be an $8 billion to $15 billion market in five years.
The daily chart of CVSI stock is still under a Supertrend sell signal.
Until banking regulations get resolved regarding the Federal government and the illegal status of pot, I’m not adding any hemp or marijuana stocks to the long-term buy and hold portfolio. However, a short-term swing trade to $5.50 on a Supertrend buy signal looks like a good gambit.
Disclosure: We do not hold any position in CVSI stock.