CannaVEST Corp (OTCMKTS:CANV) Makes a Grand Leap Forward

On Friday CannaVEST Corp (OTCMKTS:CANV) impressed shareholders with a 16% increase. By the time of the closing bell 222.5 thousand shares had changed hands, which resulted in a close at $3.69.

A certain comment makes grand projections – “$30-$50 a share is possible by April”. But is it really? CANV certainly had no problem sustaining even higher prices at the start of 2014, but will it be able to climb back up to the positions it had lost such a long time ago?

The current surge certainly gives hope to shareholders, as it was quite impressive. It is most likely due to the PR the company issued on Friday, only 15 minutes after the opening bell. Michael Mona, Jr. CEO and President, released a “Letter to Stockholders and Customers”. The letter mainly had to do with the report released by Project CBD. Their report was about “Hemp Oil Hustlers”, and this letter acts as a response to Project CBD’s allegations stated in it.

Mr. Mona discloses that CANV will work with Project CBD, so as to show them how wrong their conclusions were about the company and its products. Mr. Mona hopes to ultimately prove to Project CBD what CANV already knows and believes in – that their “processes and end products are the highest quality in the world”.

CANV filed its latest quarterly on Aug 14. On first glance it shows nothing alarming – there is working capital, cash and net income. We decided to look through the report more thoroughly, and sure enough discrepancies began to pop up.

Let’s start with the financial numbers CANV reported. The net income is quite substantial – $8 million. However, the 10-Q explains that out of these $8 million, $7.89 million came from “gain on sale of equity investment”.

As we explained in our previous article, the “gain on sale of equity investment” comes from CANV selling the 24.97% they had of KannaLife to PhytoSPHERE on June 02. The $7.89 million received are actually 500 thousand CANV shares, which were valued at CANV‘s then-current market price – $16.60. PhytoSPHERE was already in possession with these shares when it gave them as payment to CANV for their 24.97% in KannaLife. It is a bit confusing, but the gist of it is that CANV received 500 thousand CANV shares from PhytoSPHERE for the 24.97% equity investment CANV had in KannaLife.

The revenue situation is far less simpler. CANV‘s reported revenue comes from an agreement with a subsidiary of Medical Marijuana Inc (OTCMKTS:MJNA) – HempMeds PX, LLC. The quarterly states that the agreement was terminated, and this “may have an impact on future revenues”. Unfortunately for investors, the cash supply is also not as impressive as it first seems. The report states that $8.2 million out of the cash supplies ($9.2 million) derive from “common stock issued for cash”. When we looked through CANV‘s reports, it became clear that the company has a tendency of printing shares at quite the discounts. One such case is found in April, when even though CANV was hovering between $19 and $38, they still saw it fit to issue 781 thousand shares priced at $1.50 each.

Share printing is not the only issue CANV has. The company was a defendant in a case for ‘damages resulting from fraud arising out of a land transaction’, which it eventually lost. Now, Michael J. Mona Jr, and several other company representatives, owe $17.7 million to the plaintiff, Far West Industries.

Do your own due diligence before deciding whether or not to commit to the stock.