CV Sciences Inc (CVSI)

[Det_Robert_Thorne]

The bill is good and bad.

CANV makes its money from selling CBD oil and products that contain CBD. Whether or not CANV Labs, U.S. Hemp Oil and Plus CBD are separate internal operations, they function as one company handling R&D, procurement, production and now, sales.

The bump in sales it received in 1Q/14 and 2Q/14 were likely due to the startup of the KannaWay multi-level-marketing company, as the initial members made their required membership buys. That MLM saw a big decline over the next few months as many mambers dropped out, and now has perhaps reached some equilibrium at a much lower volume level.

That, along with dumping HempMeds as an exclusive online distributor, likely explains the drop in sales in 3Q/14. There is no trend yet, and "gimmicks" like the KannaWay startup pollute the data.

CannaVest already gets all the hemp it needs from Europe. This bill might allow it to get that hemp a little cheaper, but the problem remains that their process is very expensive because industrial hemp only has 3% CBD to start.

A second issue is that they have bought $5.6M of inventory and have paid another $5.6M for hemp paste that is too be delivered, plus they owe another few million towards the end of the year for the 2015 crop in Europe. They are locked-in.

CANV's only short-term strategic advantage was that due to Phytosphere's initial work in developing a supply chain, it was able to get a one to two-year jump on the rest of the industry.

The problem now is two-fold, competitors (natural and synthetic) and marijuana laws that are making far cheaper CBD from marijuana available to more and more people.

Some competitors are adopting CannaVest's CBD-from-hemp model, and U.S. legality will only aid in the development of competition.

There is also talk of the FDA taking CBD to Schedule II, which would open up the market for the far cheaper Charlotte's Web and R4 marijuana strains, which naturally have the 17% CBD of CananVest's RSHO, and so require much less processing than CannaVest's oils. That's why they're one-fifth the cost.

Finally, if CBD were to go to Schedule II, then that opens up competition from manufacturers of synthetic CBD, which would probably be as cheap as CBD from the marijuana strains (if not cheaper) and is what would end up going into prescription meds.

CANV's only advantage in 2013 was that it was the only game in town. With various legalities happening, the market is moving away from them.