CV Sciences Inc (CVSI)

[Det_Robert_Thorne]

Why CannaVest is way, way, way overpriced

CannaVest's closing price on Friday, March 28, was $38.75, down nearly 43% from the $68.10 close on the Friday before, yet it's still overpriced.

Why? It's all in the 10-K filed shortly before the 3/28 close.

In that report, in addition to showing that CANV lost about $1M in the 4th quarter on only about $800K in sales, we learned two important things:

1) By the end of 2Q/14, they will have issued 30M new shares at an average of $1.03/share since November, 2013 (the 10-K announces that they plan to raise another $15M, and Forbes reports it will be 10M shares at $1.50).

But Mona, the CEO, is trying to take it to the bank: He’s been quietly working to sell on behalf of the company a private placement of 10 million shares that can’t trade publicly for six months, according to an internal e-mail from Mona obtained by FORBES. The price: $1.50 a share, or between 2 cents and 3 cents on the dollar of the public value.

That will take the number of Outstanding Shares to nearly 43M shares by the end of June, 2014, and nearly 70% of the OS will be shares sold for $1.50, or less.

2) The fact that CANV lost money in 2013 is relevant, but not paramount, as the market is forward looking. Still, the company doesn't expect to become profitable until mid-2015, yet it is priced as if it is very profitable now, on much fewer shares than the company reported in the 10-Q for 3Q/13.

In that filing, CANV reported approximately 12M shares, and if the number had remained the same, then breakeven in mid-2015 might support a stock price of $7 - $10 now, and somewhat more in early 2015 if it looked like they were on track for a 2015 EPS of $0.25 ($3M in profits)

But by the middle of this year, the share count will be 3.6 times that of September, 2013, so that $3M of 2015 profit works out to an EPS of $0.07, which only justifies a stock price of about $1.95 - $2.80.

Which is why CANV will soon be selling shares for $1.50.