CVSI: How a Short Trader & a Law Firm Drove Libertarians to Suicide Last Week

By RUSS J. ALAN

61% of Americans favor the legalization of marijuana.  If all they can get is the legalization of medical marijuana, they believe it’s a step in the right direction.  If all they can get is the legalization of CBD oil (Cannabidiol) derived from marijuana, they are on board.  Even if all they can achieve is the legalization of grass rope, they are all in. Even if the aforementioned legalized CBD oil is not derived from marijuana – which otherwise would contain trace amounts of Tetrahydrocannabinol (THC), the chemical in marijuana that gets you high,  they are in it to win it – let’s say, for instance,  CBD oil derived from hemp, which contains no THC, they are on it like white on a rolling paper and 92% of them are Libertarians.  94% of Libertarians are white, 62% are young and 68% are male.99.97% of libertarians are in favor of the legalization of marijuana or the legalization of anything that heads in that direction even if it means trading in all their other constitutional rights or voting for Ron Paul, whichever is worse.

When all the marijuana legalization and talk started in various states, whether medical or recreational, new startup companies started emerging, selling marijuana, CBD oils containing THC or not in order to get legalized and get their foot in the door of a billion dollar market.  Energy drinks boasting CBD as an ingredient over-ran convenience stores, because you want a lot of energy but you want to still be kinda “laid back” about it.

Emerging cannabis companies in an emerging weed market sector need startup capital, so they go public.  Nobody knows them and they aren’t real sure about how to do Security and Exchange Commission (SEC) reports and stuff so they start out as over-the-counter stocks.  The over-the-counter OTC marketplace (otcmarkets.com) requires on-time SEC reporting so most of the new IPOs don’t get listed there; instead, they start out as pink sheets as penny stocks, or stocks that trade for $5.00 or less, or as in most cases, MUCH less, like actual pennies or fractions of a penny per share.  Some started with big backers and presented their IPOs through NASDAQ or AMEX and later dilution  and other corporate money raising tricks, coupled with the lack of continued investors’ hope caused their share prices to steadily fall for whatever reasons, they ended up on the OTC bulletin board or as pink sheets.  Very few of these startups – a handful – have become profitable since all this noise started.  Most of them have been trading sideways for three or four years and/or are still in the development stages and have not started selling much and are extremely overvalued.

Google “hot marijuana stocks” and you will find long lists of tickers, most which are penny stocks, most are extremely overvalued and rated by analysts as extremely high risk, but you will find a few listed on the NASDAQexchange, even if their share price has fallen under $5 per share, which technically still classifies them as  penny stocks.  Take each ticker and look at the research page on your favorite brokerage website (mine is Fidelity).  Look at the charts and read the news reports and analysts opinions.  Most of the marijuana stocks are losers. If any of the one year charts show any upward activity, it has been since June or July of 2018 – for those of you who didn’t believe in life after death – and a single-digit percentage of them have taken flight and are still climbing – occasionally there are “diamonds in the rough”.

You’ve seen on late night infomercials or heard on radio advertisements how they can teach you how to make money if your stocks rise or even if they fall, the latter of which is betting on a stock’s price to fall by a certain date, or shorting the stock.  Here’s the thing:  The stock needs to be moving in an upward trend.  Nobody shorts a falling stock.  Basically, the investor sees an upward trend in a stock and through analysis or knowledge of the market sector or news or whatever, the investor believes the stock will fall by a certain date, and borrows shares, as arranged by his brokerage firm, and signs an agreement to return those shares on or before a certain date.  The investor pretty much immediately sells those borrowed shares at the high price.  If the stock price continues to rise through the due date to return the shares, he must buy them at the higher price and return them.  If he was correct and the price dropped, he buys the lower priced shares, returns them and keeps the profit.  Now comes the short trader and the marijuana “diamond in the rough”.

You take a CBD company with tens of millions in profits, great quarterly financial reports, a steadily rising share price, earnings per share showing the share price is not overvalued or even close to being, no dilution, no tricks, a great management staff, on-time SEC reporting, great news, and young white male libertarians have been been buying it with every extra dollar they have since it was 25 cents per share, some owning millions of shares.  Yes, this “diamond” is CV Sciences (stock ticker CVSI), and yes, here comes the famous short trader Andrew Left smelling blood.

Andrew Left, through his short seller trading firm known as Citron Research,  publishes reports on firms that he claims are overvalued or are engaged in fraud. Left is known for advising investors on short selling and has often appeared on various media outlets such as CNBC and Bloomberg to talk about his opinions on stocks.  In 2017, Left was called ‘The Bounty Hunter of Wall Street’ by The New York Times.

Citron has launched 51 investigative reports against S&P 500 companies between 2009 and 2015, as well as several Chinese companies, citing allegations of pyramid schemes, ineffective products and accounting or business frauds.  Despite being sued by multiple companies for the reports he has released, Left claims he has never lost a case in the United States. 

When famous short sellers short an amazing company like CVSI, no doubt we are talking about hundreds of thousands if not millions of shares, borrowed, sold at the high and to be returned at or before an agreed upon date, and prior to Left’s tweet heard around the world, it was a stock that was shooting skyward like one of Elon Musk’s rockets, but one tweet from Andrew Left, it became the Challenger explodes.

In the August 21, 2018 Seeking Alpha article written by Villamayor Capital “Citron Pushes Down CV Sciences. Does It [Even] Make Sense??” Seeking Alpha pointed out how undeserved Citron’s action was and called Left’s tweet is a bull case based on rejected patents that the company had not disclosed.  Left called for an SEC investigation. “With Citron tweeting about the intellectual property of CV Sciences, Inc. (CVSI), CVSI has seen its shares going down from $9 to $3.40 in just one day.  After studying the business of CV Sciences, the value erosion seems too large as the company’s core business in not R&D, but the commercialization of Cannabidiol.  The market needs to calm down and study the company’s revenue sources closely.”

One product that CVSI is developing, its proprietary patent-pending drug candidate CVSI-007, a CBD oil based chewing gum to treat smokeless tobacco addiction, had a patent rejection.  So what?  Patent rejections are a hurdle as common as the common cold.  Most all patents get rejected the first couple of tries because of wording, etc.

From CV Sciences Website:  “CV Sciences is in development of CBD-based potential FDA approved drugs. In December 2015, CV Sciences acquired CanX Inc., a pre-clinical drug development company focused on significant unmet medical needs. The initial drug candidate (CVSI-007) is a chewing gum containing nicotine and synthetic CBD to support cessation of smokeless tobacco use and addiction.”

CVSI’s stock had been steadily climbing since early April 2018 from around .42 cents per share until Friday, August 17^th when the price reached $6.81.  On the following Monday, August 20^th, the stock climbed all day long from an open of $6.91 to  $9.20.  Traders on the Yahoo CVSI message board were yelling for profit taking so they could buy the stock on the temporary dip.  Not only were those on the sidelines waiting to buy at the low screaming for a selloff, but so was Andrew Left.  I suppose if it weren’t going to happen on its own, he had to make it happen.  The due date was coming I suppose.

Then at the middle of the day, Citron Research tweeted: “$CVSI misrepresentation by management. The total bull case is based on REJECTED patents the company has never disclosed and continues to hype. Securities Fraud? Another IRTH special” 

Within minutes the price fell to $3.40 – a plung of 43%.  Within the hour, lawfirm Block & Leviton LLP announced the firm was investigating CVIS for possible reporting violations and failure to inform shareholders about its patent rejection.

One investor lamented on Yahoo’s CVSI Message Boardthat he had been busy at work but checked the stock price when it was near its high of $9 and his lot was worth $186,000 and expected it to go much higher.  When he got home he realized the value of his shares lost $94,000.  He was drinking and taking pills and I think a grass rope may have been involved.

August 21, 2018 CVSI shares opened at $4.05, went to a low of $3.69, swung to a high of $5.87 and closed at $5.58.

August 22, 2018:  High of $7.14, closed at $7.13,  on the road to recovery.

August 23, 2018:  Opened at $7.46, down to a low of $5.40, closed at $6.52.

Friday, August 24, 2018:  Low of $5.82, closed at $6.27.  After the close,  the following post hit TD Ameritrade’s CVSI research page:

Securities Class Action Filed Against CV Sciences, Inc. (CVSI) By …
PR Newswire (press release)-Aug 24, 2018
Securities Class Action Filed Against CV Sciences, Inc. (CVSI) By Block & Leviton LLP; Investors Are Encouraged to Contact the Firm …

Millions of CVSI investors got that little gift from Block & Leviton to ruin their weekend.  The stock was sure to selloff Monday morning August 27, 2018.

The Yahoo’s CVSI Message Board, the board that never sleeps, is full of CVSI devotees who will hold the stock no matter what.  There are also short sellers on that page, urging the longs to jump ship.

For the SEC to allow short sellers to post tweets to manipulate a perfectly good stock with wonderful financials to take a nosedive so they can get their profit on a stock that they couldn’t short without their controversy, makes me suspect they too are getting their cut.

For those of you looking for a buying opportunity the week of August 27, 2018 on an undervalued CBD stock, take a look at CV Sciences, ticker:  CVSI.

© RUSS J. ALAN