Revenue from CannaVEST Deal is Legitimate
Slyder009: They'll likely pay the entire $35 million in FCLS stock. This may worry some investors since CannaVEST doesn't appear to have sufficient value and earnings to maintain its stock price at around $5 if MJNA decides to sell many of its FCLS shares in the future. However, if you do some simple calculations using information MJNA has provided in the past and external information regarding the production costs and sale prices of CBD oil, you can see that the $5 PPS is reasonable. Examine the calculations below.
Justification of MJNA’s Projected 2013 Revenue from the CannaVEST Deal
I looked on the Alibaba website to find the selling price of hemp oil that has not been standardized to contain a certain percentage of CBDs. Many Chinese and Indian factories sell it for between $25 and $60 per kilogram. Standardized CBD oil containing the CBD concentrations that MJNA has mentioned are generally sold for between $180-$450 per kilogram. It has been suggested by some that the CBD oil produced by MJNA (technically by CannaVEST now) is of a quality that warrants prices much higher than this. I’ve seen prices between $1,000 and $2,000 mentioned, and I’ve even had someone emphatically insisting that it will go for $2,500. However, I don’t have good sources to back up these high prices, and I doubt that MJNA would want CannaVEST to sell them the CBD oil at such high prices, so I’ll just stick with the $180-$450 per kg figure in my calculations below.
In short, if CannaVEST can sell its CBD oil for between $180 and $450 per kg, MJNA's seemingly arbitrary valuation of FCLS at $5 per share seems reasonable if one assumes even a small amount of growth in CannaVEST’s oil production capacity during the next year or so. MJNA mentioned in the June 28th shareholder update that they will be able to produce oil at a rate of 6,000 kg per year by January 13, 2013. At the time of the June 28th shareholder update, they also already had some oil on hand, but I’ll stick with the 6,000 kg/year figure just to be conservative. If MJNA's oil production is 6,000 kg in 2013, that's $1,080,000 in revenue at $180/kg and $2,700,000 in revenue at $450/kg, giving CannaVEST revenue per share of between 15.4 cents and 38.6 cents (assuming 7,000,000 outstanding shares). For the sort of high-grade, standardized CBD oil being produced, production, testing, and so on can eat up 50% of this revenue, leaving CannaVEST with earnings of between 7.7 and 19.3 cents per share. At a PPS of $5 for FCLS, this gives a P/E value of between 64.82 and 25.92. I think these P/E figures are not too high for a company that is still in the beginning stages of its growth and expansion. It seems safe to assume that CannaVEST’s hemp farm acreage and oil production rate will increase considerably in the next year or two, which will actually render the P/E values low if the PPS for FCLS is held at $5. So, perhaps MJNA and CannaVEST's seemingly arbitrary valuation of FCLS shares at $5 per share is not so unrealistic after all (it seems conservative), which means the projected $35,000,000 in revenue from the CannaVEST deal is real.
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