Improving Outlook for CANV

11/18/2015 10:05 am EST

Focus: CANNABIS INVESTMENTS

Michael Berger

President & Founder, Technical420.com

During the last week, several cannabis companies announced financial and operating results for the third quarter of 2015. While some companies have announced improving numbers, many have missed analyst expectations, notes Michael Berger of Technical420.com. We have been able to recognize consistent trends at many of these companies and some of these trends have some raised red flags.

One of the companies we have become more favorable on is CannaVest Corp. (CANV). The company develops, produces, markets, and sells raw materials and end consumer products containing the hemp plant extract, cannabidiol (CBD). CANV is currently establishing pilot hemp growing operations in the United States with the goal of establishing domestic industrial hemp operations in the future. CANV refines CBD into its own PlusCBD Oil brand and it also resells raw industrial hemp product to third parties. The company’s subsidiaries include: US Hemp Oil, LLC, and CannaVest Laboratories, LLC.

CANV has entered into supply agreements with two European farmers who supply the company with raw material. The first contract is for 2,600 kilograms of product, which is currently scheduled to be delivered through December 31, 2015. The second contract provides CANV with up to one million kilograms of raw product. CANV owes the suppliers a total of $900,000. Under the contracts, CANV has rights for the raw material through October 2018.

Strong Top-Line Growth in the Third Quarter

During the third quarter, CANV saw significant revenue growth and the company generated $4,151,180 in revenue. During the same period last year, CANV generated $1,859,961 in revenue at a lower gross margin. CANV attributed the higher revenue to the fact that they cancelled its previous agreement with Medical Marijuana Inc. (MJNA), which required them to sell all of its products to MJNA’s subsidiary. We expect to see continued top-line growth as the company continues to increase distribution through multiple sales channels.

Although CANV saw significant top-line growth during the quarter, the company still reported a $989,549 net loss. One of the reasons for the loss is due to CANV incurring much higher selling, general, and administrative expenses. This does not come as a surprise because of the company’s change from a single distributor sales model, which was used during 2014.

Unlike many cannabis companies, CANV has a decent amount of cash on its balance sheet. The company ended the quarter with over $1.1 million in cash and more than $8.5 million in inventory.

Where Do Shares Go From Here?

During the third quarter, CANV saw strong top-line growth, and we expect this trend to continue to grow as CANV continues to penetrate the United States CBD market. CANV offers a number of high-quality products that have seen high re-order rates from retailers in the United States.

CANV saw shares trade down after announcing these results, and we are monitoring shares closely. On November 3, CANV traded as high as $1.00 and shares have fallen by more than 20% since then. Although this dip seems significant, CANV is up 30% from its lows on October 5. Investors should keep an eye on CANV for a potential investment opportunity.

Michael Berger, Founder and President, Technical420.com

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