Executive Summary / Key Takeaways

• CV Sciences is strategically transforming into a diversified global health and wellness company, leveraging M&A and in-sourced manufacturing to drive profitability and positive cash flow.
• The company achieved its first positive Adjusted EBITDA since Q2 2019 in Q2 2025, alongside its highest gross margin (50.9%) since 2019, signaling a significant turn towards financial health.
• Key strategic pivots include expanding into cannabinoid-free supplements (PlusHLTH) and plant-based foods (Lunar Fox), alongside in-sourcing core manufacturing (Elevated Softgels) for significant cost efficiencies expected in the second half of 2025.
• Despite a fragmented and challenging regulatory landscape for CBD, CV Sciences maintains its #1 position in the natural product retail channel and aims to capitalize on ongoing industry consolidation.
• The outlook anticipates positive cash flow in the second half of 2025, driven by acquisition synergies, operational streamlining, and a robust product innovation pipeline.

A Strategic Pivot in the Health & Wellness Landscape

CV Sciences, Inc. ($CVSI) is undergoing a significant transformation, evolving from its roots as a pioneering hemp-based cannabidiol (CBD) company into a diversified global health and wellness enterprise. Founded in 2010 as Foreclosure Solutions, Inc. and later rebranded to CV Sciences in 2016, the company initially established itself in herbal supplements and hemp-based CBD products under brands like PlusCBD. This historical journey has laid the groundwork for its current strategic pivot, which emphasizes increased scale, continuous cost efficiency, and a clear path to sustained profitability and positive cash flow.

The broader industry landscape presents both opportunities and challenges. The U.S. CBD market, estimated by Brightfield Group at approximately $3 billion in 2024 with potential growth to $4 billion by 2030, remains a significant category. However, it is highly fragmented and competitive, largely due to a lack of clear federal regulatory frameworks. Simultaneously, the global vegan food market is experiencing rapid growth, projected to expand fivefold by 2030, driven by millennials and flexitarians seeking health-conscious alternatives. CV Sciences is strategically positioning itself to capitalize on these trends through targeted acquisitions and product diversification.

The Power of Proprietary Science and Operational Control

CV Sciences' foundational strength lies in its commitment to science-backed natural ingredients and product innovation. Its flagship PlusCBD brand has achieved self-affirmed Generally Recognized As Safe (GRAS) status, a testament to its safety and quality, and its product benefits are supported by human clinical research data and published clinical case studies. This scientific rigor provides a tangible competitive advantage, fostering consumer trust in a market often plagued by inconsistent quality.

The company is strategically enhancing its operational control and technological capabilities through key acquisitions. The May 2024 acquisition of Elevated Softgels LLC, a manufacturer of encapsulated softgels and tinctures, is a prime example. This move enables CV Sciences to in-source the production of many of its own softgel and tincture products, a process expected to be 100% complete by the end of 2025. This in-sourcing strategy offers significant benefits: it provides operational flexibility, allows for lower minimum order quantities (MOQs) for both internal production and third-party contract manufacturing, and accelerates the speed to market for new product development. Management anticipates realizing "efficiency gains and expect to see even greater cost efficiency and gross margin improvement in the second half of 2025 directly from the integration of Elevated Softgels."

Product innovation extends beyond CBD. The company is actively developing new non-cannabinoid products under its PlusHLTH brand, such as Clarity (cognitive enhancer), Peace (for stress), and Reshape (metabolic support). These products are rooted in "rigorous science with clinically proven wellness ingredients," aiming to meet diverse consumer needs and mitigate regulatory challenges in the hemp industry. Furthermore, the U.S. launch of Lunar Fox Food Co. in Q1 2025, leveraging the December 2023 acquisition of Poland-based Cultured Foods, introduces a line of 100% natural, gluten-free, plant-based food alternatives, directly tapping into the burgeoning vegan market. Recent launches like the Aura Collection's effervescent tablets and "Ignite," a men's performance formula, further demonstrate a commitment to diverse, science-backed product development.

Financial Momentum: A Path to Profitability

CV Sciences' recent financial performance reflects its strategic pivot and cost efficiency efforts. In Q2 2025, the company reported revenue of $3.6 million, consistent with Q1 2025, but a slight decrease from $4.0 million in Q2 2024, primarily due to lower unit sales driven by increased state regulations. Despite this, gross margin significantly improved to 50.9% in Q2 2025, marking its highest level since 2019 and a notable increase from 46.0% in Q1 2025. This improvement was largely due to "lower freight, lower inventory losses, and product and channel mix," partially offset by initial costs from Elevated Softgels and Cultured Foods. Operating expenses have seen substantial reductions. Selling, general, and administrative (SGA) expense decreased by 20% year-over-year in Q2 2025 to $1.9 million, driven by lower commissions, payroll, marketing activities, legal fees, and administrative costs.

Research and development (R&D) expense, however, increased due to "product development activity associated with the in-sourcing of our vegan softgels," indicating strategic investment in operational capabilities.

Crucially, CV Sciences achieved a positive Adjusted EBITDA of $59,000 in Q2 2025, its first positive Adjusted EBITDA since Q2 2019. This milestone underscores the effectiveness of its cost-cutting and efficiency initiatives.

For the six months ended June 30, 2025, the company generated positive cash flows from operations of $0.2 million, a significant improvement from negative cash flows in prior periods. While the company had an accumulated deficit of $87.4 million as of June 30, 2025, and generated negative cash flows from operations of $0.9 million in FY 2024, management is actively addressing liquidity. In February 2025, CV Sciences secured $1.2 million in net proceeds from a secured promissory note, and it continues to manage inventory efficiently, reducing it to $4.2 million in Q2 2025 from $4.9 million at year-end 2024.

Competitive Dynamics: Carving a Niche Amidst Giants

CV Sciences operates in a highly competitive landscape, facing both direct and indirect rivals. In the core CBD market, the company maintains its #1 position in the natural product retail channel and has increased its market share, benefiting from "brand contraction" as retailers remove slower-moving brands. Customers are increasingly "sticking with or changing to brands they know and trust," a dynamic that favors CV Sciences' established reputation for quality.

Compared to larger, more diversified cannabis players like Tilray Brands (TLRY) and Canopy Growth Corporation (CGC), CV Sciences' revenue growth and overall scale appear more moderate. Tilray, with its broader global presence and diversified portfolio, often demonstrates stronger revenue growth and cash flow. Canopy Growth, a pioneer in cannabinoid research, likely leads in R&D investment scale. CV Sciences' niche focus on specialized health and wellness products, particularly its science-backed PlusCBD line and targeted direct-to-consumer sales, serves as a key differentiator against these broader players.

In the specialty pharmaceutical space, CV Sciences' drug development program (e.g., CVSI-7.00 for addiction) faces competition from established pharmaceutical firms like Jazz Pharmaceuticals (JAZZ), which has a strong cannabinoid drug portfolio. Jazz likely possesses superior R&D investment and regulatory expertise. However, CV Sciences' focus on specific indications like nicotine addiction could carve out a unique value proposition. Against Cronos Group (CRON), which also focuses on consumer cannabis and CBD, CV Sciences differentiates through its emphasis on pet and beauty care, and its direct sales channels.

CV Sciences' competitive advantages include its strong brand loyalty and proprietary formulations, which can translate into pricing power and recurring revenue. Its in-sourcing strategy through Elevated Softgels is a critical move to improve cost structure and compete more effectively on efficiency. However, its smaller scale remains a vulnerability, potentially leading to higher operating costs compared to larger rivals and slower product development cycles against those with greater R&D budgets. The company's strategic diversification into plant-based foods and cannabinoid-free supplements is a proactive response to these competitive pressures and regulatory uncertainties, aiming to build new revenue streams and reduce reliance on the volatile CBD market.

Outlook and Strategic Execution: Building for the Future

Management's outlook is firmly centered on achieving profitability and positive cash flow in the second half of 2025. This guidance is predicated on several key assumptions and strategic initiatives. The integration of Elevated Softgels is expected to yield "even greater cost efficiency and gross margin improvement in the second half of 2025" as in-house manufactured products begin to be sold. The goal to in-source 100% of softgel and tincture production by the end of 2025 is a critical component of this cost-saving strategy.

Product innovation remains a core driver. CV Sciences plans to launch "several new non-cannabinoid products in late 2025" under the PlusHLTH brand, further diversifying its offerings for human and pet consumption. The U.S. launch of Lunar Fox products is expected to contribute to revenue growth in the plant-based food category, leveraging the Cultured Foods acquisition. The company's M&A strategy, supported by Maxim Group LLC, continues to seek "large and small complementary consumer product companies that will add revenue and allow for operating synergy to increase sales and profitability," as well as opportunities to further in-source manufacturing. This multi-pronged approach aims to increase scale and operating leverage, ultimately positioning CV Sciences for strong profitability and enhanced shareholder value, including the long-term ambition of listing on a major stock exchange.

Addressing the Headwinds: Risks and Regulatory Realities

Despite the positive momentum, CV Sciences faces notable risks and challenges. The "substantial doubt about the Company’s ability to continue as a going concern" highlights the ongoing need for additional investment capital to fund operations and growth initiatives. While recent financing has provided a boost, securing future capital on favorable terms remains critical.

The regulatory environment for hemp and CBD products continues to be a significant headwind. The absence of a clear federal framework has led to a "patchwork of state regulation" that is "extremely challenging and costly" to navigate. California's emergency order in September 2024, effectively banning certain hemp product sales, has already had a "negative impact on our operating results for the three and six months ended June 30, 2025" and is expected to continue doing so. The company is actively lobbying for sensible legislation but acknowledges the ongoing uncertainty.

Legal proceedings also pose a risk. The putative class action (Colette Complaint) regarding product labeling remains stayed, awaiting FDA rulemaking that the agency has indicated it does not intend to pursue. More significantly, the company initiated arbitration in February 2025 against its former legal counsel, Procopio, seeking damages for alleged incorrect advice regarding tax withholdings, with a hearing scheduled for May 2026. Macroeconomic factors like rising inflation and high interest rates could also adversely impact the business by increasing costs and affecting consumer spending.

Conclusion

CV Sciences is at a pivotal juncture, actively transforming its business model to thrive in a dynamic health and wellness market. The core investment thesis hinges on its strategic diversification into cannabinoid-free supplements and plant-based foods, coupled with a relentless focus on cost efficiency through in-sourced manufacturing and synergistic acquisitions. The achievement of positive Adjusted EBITDA in Q2 2025 and improved gross margins underscore the early success of these initiatives, signaling a tangible shift towards financial stability.

While the challenging regulatory landscape for CBD and the need for ongoing capital remain significant considerations, CV Sciences' commitment to science-backed products, operational control, and a robust innovation pipeline positions it to capitalize on industry consolidation and growing consumer trends. The company's ability to execute on its stated goals of achieving positive cash flow in the second half of 2025 through the full integration of Elevated Softgels and continued product launches will be critical indicators of its long-term success and its potential to generate sustained shareholder value in an evolving competitive environment.