Executive Summary / Key Takeaways

• CV Sciences is executing a strategic pivot beyond its core CBD business into diversified health and wellness sectors, including plant-based foods and non-cannabinoid supplements, while enhancing operational efficiency through in-sourced manufacturing.
• Recent acquisitions of Cultured Foods and Elevated Softgels are central to this strategy, aiming to increase scale, add new revenue streams (Lunar Fox plant-based foods, contract manufacturing), and significantly improve cost structure and gross margins, particularly in the second half of 2025, through in-sourcing.
• Despite a challenging and fragmented market characterized by regulatory uncertainty and intense competition, the company has maintained relatively stable quarterly revenue around $3.9-$4.0 million and demonstrated improving gross margins and reduced operating cash burn.
• Management targets achieving profitability and positive operating cash flow in the second half of 2025, contingent on realizing acquisition synergies, executing the in-sourcing strategy, and continued cost control.
• Key factors for investors to monitor include the successful integration of acquisitions, progress on in-sourced manufacturing cost savings, regulatory developments in the U.S. market (especially state-level restrictions), and the company's ability to secure additional capital to fund operations and growth initiatives amidst going concern uncertainty.

Setting the Scene: A Wellness Company in Transition

CV Sciences, Inc. (OTCQB:CVSI) operates within the dynamic and evolving health and wellness industry, primarily known for its hemp-based cannabidiol (CBD) products under the PlusCBD brand. The company's journey began over a decade ago, evolving from its initial corporate structure to become a player in the burgeoning CBD market. Today, CVSI is strategically repositioning itself as a broader consumer wellness company, expanding its focus to include herbal supplements and plant-based foods. This evolution is a direct response to the inherent challenges and opportunities within the industry, particularly the complex and often unpredictable regulatory landscape surrounding hemp and CBD in the United States.

The market for hemp-based products is characterized by fragmentation and intense competition, stemming largely from the lack of a clear federal regulatory framework and a patchwork of differing state regulations. This environment not only creates confusion for consumers and retailers but also allows for the proliferation of both licensed and illicit market operators. Despite these headwinds, CV Sciences has managed to maintain a significant presence, holding the number one position in the natural product retail channel for hemp extracts and consistently increasing its market share in this segment. Management notes that market contraction, which has seen the number of U.S. CBD companies shrink significantly in recent years, presents an opportunity for established, trusted brands like PlusCBD to gain further share.

CV Sciences' overarching strategy is centered on achieving profitable growth by increasing scale and enhancing cost efficiency. This involves a multi-pronged approach: diversifying its product portfolio beyond CBD, pursuing strategic mergers and acquisitions, and improving operational control and cost structure, notably through in-sourcing manufacturing. This strategic pivot is crucial as the company aims to position itself for potential future opportunities, including a possible listing on a major stock exchange, which requires demonstrating greater scale and sustained profitability.

Competitive Dynamics and Strategic Positioning

In the competitive landscape, CV Sciences faces rivals ranging from large, diversified cannabis companies to smaller, niche CBD players and broader wellness firms. Key publicly traded competitors include Canopy Growth (CGC), Tilray (TLRY), Charlotte's Web Holdings (CWBHF), and Cronos Group (CRON). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, CVSI holds an estimated 2-5% aggregate market share in the CBD/nutraceutical sector.

Comparing financial performance, CVSI's gross margins have shown resilience, trending in the mid-to-high 40s (Q1 2025: 46.0%, FY 2024: 45.6%), which compares favorably to some larger competitors like CGC (FY 2024: 27%) and TLRY (FY 2024: 28%), and is comparable to CWBHF (FY 2024: 43%). This suggests a relative strength in product mix, pricing, or cost of goods sold management within its specific market segments. However, CVSI's revenue growth rate has lagged some competitors, with FY 2024 revenue slightly down year-over-year ($15.7 million vs. $16.0 million in FY 2023), while CGC and TLRY reported higher growth rates in their respective recent fiscal years (CGC ~18%, TLRY ~25%). This highlights CVSI's challenge in scaling revenue in a tough market compared to competitors pursuing aggressive M&A or broader market strategies.

CVSI differentiates itself through a focus on science-backed products and specific certifications. Its PlusCBD products emphasize quality and are supported by human clinical research and GRAS (Generally Recognized As Safe) self-affirmation. This focus on safety and efficacy provides a competitive edge, particularly in the natural products retail channel where consumer trust is paramount. Against competitors like Charlotte's Web, which also emphasizes natural products, CVSI's GRAS certification offers a distinct advantage in regulatory compliance and market access efficiency. While larger players like CGC and TLRY possess greater scale and broader distribution networks, CVSI's targeted approach in nutraceuticals and pet products, coupled with its developing plant-based food line, allows it to carve out specific market niches.

Technological Differentiation and Innovation

Central to CV Sciences' strategy and competitive positioning is its commitment to science and product innovation. While the company doesn't disclose specific proprietary "technology" in the sense of a unique manufacturing process or compound synthesis method with quantifiable performance metrics like yield percentages or cost per unit advantages over alternatives, its differentiation lies in its rigorous approach to product development, formulation, and validation.

The company emphasizes "proven, science-backed, natural ingredients and products." For its core PlusCBD line, this includes investing in human clinical research and achieving self-affirmed GRAS status for its hemp extract. This GRAS status is a significant differentiator in the CBD market, providing a level of safety validation that many competitors lack. While specific quantifiable benefits in terms of bioavailability or degradation rates compared to rivals are not detailed, the strategic implication of GRAS is clear: it enhances consumer trust, facilitates broader retail distribution, and strengthens the brand's premium positioning, potentially supporting higher average selling prices and contributing to its relatively healthy gross margins compared to some competitors.

CV Sciences' R&D efforts are now expanding beyond cannabinoids. The launch of the PlusHLTH line of cannabinoid-free supplements (Clarity, Peace, Reshape) demonstrates a strategic move to diversify its product offering and tap into the broader natural supplements market. These products are based on "clinically proven wellness ingredients," leveraging the company's scientific approach to address common health concerns like cognitive function, stress, and metabolism. While specific target metrics for the performance of these new formulations are not provided, the stated goal is to meet growing consumer demand for targeted, science-backed natural products and create new revenue streams leveraging existing distribution channels. Several new cannabinoid-free products are in development for launch in the first half of 2025, expected to provide incremental revenue.

Furthermore, the company maintains a drug development program focused on CBD-based therapeutics, with a lead candidate (CVSI-7) for smokeless tobacco addiction, patent-protected in 10 countries. While this program is currently paused internally due to capital constraints, the company continues to seek collaboration partners. This represents a potential long-term asset and a different dimension of technological leverage compared to its consumer product focus, although its immediate impact on the investment thesis is limited given the paused development.

The "so what" for investors is that CV Sciences' focus on science, validation (like GRAS), and targeted innovation provides a qualitative moat in a market often criticized for unsubstantiated claims. This approach supports brand loyalty and premium positioning, contributing to margin resilience. The expansion into non-cannabinoid products diversifies revenue risk associated with regulatory uncertainty in the CBD space and opens up new market opportunities.

Strategic Evolution and Operational Execution

CV Sciences' strategy is actively evolving, marked by recent acquisitions and operational adjustments. The acquisition of Cultured Foods in December 2023 brought a European plant-based food business into the fold, providing immediate access to the EU market and, crucially, a platform for launching plant-based products in the U.S. market under the new Lunar Fox brand, which commenced its U.S. launch in Q1 2025. This diversification into the fast-growing vegan food market is a significant strategic step, leveraging CVSI's existing U.S. distribution infrastructure.

The acquisition of Elevated Softgels in May 2024 is equally strategic, focused on operational efficiency and expanding capabilities. This acquisition provides CVSI with an in-house manufacturing facility for softgels and tinctures. Historically, the company outsourced most of its production. In-sourcing is expected to yield significant cost efficiencies and improve gross margins. Management anticipates recognizing these cost savings in the second half of 2025 as in-house manufactured products are sold. The Elevated Softgels facility is also intended to grow its third-party contract manufacturing business, adding another revenue stream. The goal is to in-source 100% of softgel and liquid tincture production before the end of 2025.

Operational execution has also focused on cost control. The company has implemented strategic cost reductions across the board, including employee headcount, vendor spending, and delaying expenses related to the drug development program. SG&A expenses have decreased year-over-year (FY 2024 vs. FY 2023, Q1 2025 vs. Q1 2024), reflecting these efforts. Realigning warehouse fulfillment operations in 2024 also contributed to lower shipping costs. These cost efficiency measures are critical to improving the bottom line and moving towards profitability.

Financial Performance and Liquidity

Reviewing recent financial performance, CV Sciences has demonstrated relative stability in its top-line revenue over the past several quarters, hovering around $3.9-$4.0 million (Q1 2025: $3.61 million, Q4 2024: $3.9 million, Q3 2024: $3.9 million, Q2 2024: $4.0 million). While FY 2024 revenue ($15.7 million) was slightly down from FY 2023 ($16.0 million), maintaining this level in a declining market where many competitors face significant sales declines is notable and attributed partly to contributions from recent acquisitions and market share gains.

Gross margins have been a point of strength, generally improving or remaining healthy (Q1 2025: 46.0%, Q4 2024: 43.2%, Q3 2024: 46.0%, Q2 2024: 47.0%). This is attributed to product and channel mix, reduced freight costs, and operational efficiencies. The slight dip in Q1 2025 gross margin compared to Q1 2024 (46.0% vs 46.3%) is noted but remains within a healthy range.

Operating expenses, particularly SG&A, have decreased (Q1 2025: $2.14 million vs. Q1 2024: $2.44 million), reflecting ongoing cost reduction efforts. This, combined with stable revenue and healthy gross margins, has led to an improvement in operating results. Q1 2025 saw a small operating income of $11 thousand, a significant improvement from an operating loss of $620 thousand in Q1 2024. This improvement was notably boosted by a $522 thousand benefit from the reversal of accrued payroll taxes related to a past issue with a former executive, highlighting that core operating profitability is still a work in progress. Adjusted EBITDA loss has also narrowed significantly over recent quarters, nearing breakeven in Q2 and Q3 2024 before widening slightly in Q4 2024 and Q1 2025 (Q1 2025: $(311) thousand loss, Q4 2024: $(400) thousand loss, Q3 2024: $(75) thousand loss, Q2 2024: $(6) thousand loss).

Liquidity remains a critical focus area. As of March 31, 2025, the company had cash of $0.8 million and working capital of approximately $0.7 million.

The company generated negative cash flow from operations of $0.1 million in Q1 2025, although this was an improvement from $0.5 million used in Q1 2024. The accumulated deficit stood at $87.1 million as of March 31, 2025.

Management explicitly states that these factors raise substantial doubt about the company's ability to continue as a going concern and that they are dependent on additional investment capital for the near future.

To address this, the company is pursuing various financing options. In February 2025, it secured a secured promissory note with an institutional investor, receiving net proceeds of $1.2 million. This followed the repayment of a prior note with Streeterville during Q1 2025. The company intends to position itself to raise additional funds through capital markets, debt, or lines of credit.

Outlook and Risks

Management's outlook is centered on achieving profitability and positive operating cash flow in the second half of 2025. This target is predicated on the successful execution of its strategic initiatives, particularly the realization of synergies from the Cultured Foods and Elevated Softgels acquisitions and the cost savings expected from in-sourcing manufacturing. Continued cost control across operations is also a key assumption. The company anticipates some modest cash usage in the very near future as it invests in integrating acquisitions and scaling in-sourced production before reaching positive cash flow.

Growth drivers for this outlook include organic growth from new product launches (cannabinoid and non-cannabinoid) planned for 2025, increased market share capture in the consolidating CBD market, expansion of the contract manufacturing business at Elevated Softgels, and the development of the Lunar Fox plant-based food line in the U.S.

However, significant risks and challenges could impact this outlook. Regulatory uncertainty remains paramount. The lack of federal clarity and restrictive state-level regulations, such as California's emergency order impacting certain hemp product sales (extended through March 2026), pose ongoing threats to revenue and market access. The intense competitive environment means pricing pressure and market share battles will continue. The company's dependence on raising additional capital is a material risk; there is no assurance that funds will be available on favorable terms or at all, which could adversely affect operations and viability. Legal proceedings, while some are nearing resolution or stayed, could still present liabilities or consume resources. Changes in trade policies and tariffs could also impact costs.

Conclusion

CV Sciences is undergoing a significant strategic transformation, seeking to leverage its established position in the hemp extract market while diversifying into broader health and wellness categories and enhancing operational efficiency. The acquisitions of Cultured Foods and Elevated Softgels are pivotal to this strategy, providing new revenue avenues in plant-based foods and contract manufacturing, and enabling cost reductions through in-sourced production.

While the company faces substantial headwinds from regulatory uncertainty, intense competition, and the need for external capital, recent financial trends show progress, including stable revenue in a challenging market, improving gross margins, and reduced operating cash burn. Management's target of achieving profitability and positive operating cash flow in the second half of 2025 is ambitious but grounded in the expected benefits from executing its in-sourcing and synergy realization plans. Investors should closely monitor the company's progress in integrating its acquisitions, achieving the projected cost savings from in-house manufacturing, and successfully navigating the complex regulatory environment, alongside its efforts to secure necessary funding. The success of this strategic pivot will ultimately determine CV Sciences' ability to transition from a company facing going concern doubts to a sustainably profitable player in the evolving wellness industry.