CV Sciences recently released its first quarter earnings of 2020, illustrating COVID-19’s widespread consequences on even some of the largest companies in the hemp industry.

The San Diego, Calif.-based cannabidiol (CBD) supplier and manufacturer reported first quarter revenue of $8.3 million, down 45% from the first quarter of 2019. 

Last quarter, the company lowered its 2020 first quarter revenue expectations to between $6 million and $8 million in anticipation of fallout from the coronavirus. While the company slightly surpassed its revenue projections, it still represented a year-over-year decline of $6.6 million and a quarterly decline of 11%. 

CEO Joseph Dowling attributed the sharp revenue decline to, in addition to COVID-19, increased market competition in the natural product category and the ongoing regulatory uncertainty of CBD. 

The revenue declines comes even as CV Sciences’ number of stores has grown by 42%, from 3,308 stores in March 2019 to 5,799 stores as of March 2020. 

Dowling said during a conference call May 8 that the company has taken initiatives, including lay-offs and salary reductions, to save an estimated $10 million across the company.

“We are pleased with our ability to deliver on expectations amid a very challenging environment,” Dowlings said. “To address the changing industry environment, we right-sized our operations during the quarter to reflect near-term business trends. During the first quarter, in connection with our enterprise-wide cost reduction efforts, we reduced our staff by approximately 20%, reduced salaries across our leadership team and implemented other cost savings initiatives across all company operations.”

Dowlings said last quarter that the company “decided to temporarily slow down our drug development efforts while we wait for certainty in terms of the breadth and scope of the patent protection we expect to obtain.”

Perhaps indicative of spending habits brought about by COVID-19, e-commerce sales for the company made up nearly a quarter of net revenue compared with 15% in the first quarter of 2019.

The company is trying to capitalize on those sales with the launch of its +PlusCBD Oil website, where it exclusively sells its products.

CV Sciences also announced it has received an allowance from the U.S. Patent and Trade Office for proprietary CBD and nicotine formulation as a treatment for smokeless tobacco addiction.

Sunflower Hemp Co. is planning to build a 20,000-square-foot CBD extraction facility in Pittsburg, Kan., according to a recent Morning Sun report. The plan is to refine extracted CBD oil into consumer products.

It’s a big moment for hemp in Kansas. Just last month, the U.S. Department of Agriculture (USDA) approved the state’s regulatory plan for commercial production. Now, it’s up to state officials to go back in and approve that plan as a formal operating procedure for hemp farmers next year. Kansas farmers began growing hemp in earnest just last year, and the state intends to continue working under the auspices of its industrial hemp research program in 2020.

The state is accepting applications for the 2020 season until June 1.

In Pittsburg, the city commission is working with Sunflower Hemp Co. leadership to learn more about how this industry will work and how it can benefit municipalities like this small city of 20,000 in the southeast corner of the state.

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“In light of our current economic climate it’s nice that we’re still bringing projects where people are wanting to start new businesses and create new jobs here in Pittsburg and Crawford County,” Director of Economic Development Blake Benson said May 12, according to Jonathan Riley’s reporting from the city commission meeting. The newly legal hemp industry is on one hand an economic engine, a new path forward for American farmers interesting in broadening their agricultural portfolio and finding new ways to navigate a sector in peril. It’s also a potentially disruptive business—one that could rewrite the script on anything from medication to clothing.

Based on conversations happening in Pittsburg (and elsewhere, as the USDA continues to approve new hemp regulations on a state-by-state basis), that much is clear. But there are questions to be asked.

Sunflower Hemp Co. is investing about $1 million into its proposed facility, and owner Colby Terlip is seeking a $110,000 grant to fund the city-mandated fire safety sprinkler system.

The city commission didn’t make a decision on the grant this week, but certainly probed the matter. The underlying issue was a tentativeness on the subject of hemp’s nascent legal status. It’s a new industry, complete with evolving relationships between the business itself and the banking sector and law enforcement. It’s complex on its face. (Kansas does not, for instance, have a state-legal cannabis program in place.)

“I don’t have a problem with it going forward,” Commissioner Larry Fields said, according to Riley’s report. “I think EDAC has been through it, and this is four months old and they’ve seen it; and it’s legal, it’s not illegal.” EDAC is Pittsburg’s Economic Development Advisory Committee.

Much of the conversation with the city commission involved the reiteration that hemp is a legal crop in the U.S. (“Obviously what we’re all talking about is the subject matter,” city manager Daron Hall said. “If Colby was making balloon animals, we probably wouldn’t be having this conversation.”) The relationship between private business and public officials revolves around this education, and Terlip spent time explaining that it’s an increasingly competitive space that requires cooperation from both sides of the private-public split. What level of risk, if any, is the public sphere willing to take on this emerging industry?

“We feel that a lot of players in the game now, their facilities won’t be able to pass those certifications, inspections,” Terlip said. “So that will probably weed some people out when the FDA comes down with what it’s going to take to actually produce a product and put it for human consumption in the retail space.”

Hall pressed Terlip on the U.S. Food and Drug Administration’s ongoing CBD regulation conversations. He asked whether processing CBD oil into edibles products, like gummies, something that Terlip pointed out is not yet permitted under FDA guidance. Another open question.

Last fall, more than 200 hemp growers in Kansas harvested their crops under the first year of the state’s research program. This year, like most U.S. states will see, interest is expected to increase. The back-and-forth conversations between companies like Sunflower and city legislators like those in Pittsburg will become a dominant feature of the early years of hemp in the U.S.

Just days after Collective Growth Corp. had publicly announced its filing with the U.S. Securities and Exchange Commission March 2, chairman and CEO Bruce Linton and co-founder Geoff Whaling set off to begin fundraising. 

They, along with CFO Tim Saunders, were aiming to raise $150 million by the end of March to make their initial public offering (IPO) on the Nasdaq. If all went according to plan, Collective Growth would be able to begin forming partnerships and making acquisitions immediately in an attempt to bolster the entire U.S. industrial hemp supply chain.

But Collective Growth’s founders quickly realized things wouldn’t be going to plan.

“Bruce and I showed up in Toronto on March 11 to start our first round of meetings, and that was the very day the headlines in the newspaper said that it was the largest drop in the economy in 11 years. And the other headline was that oil prices had hit an all-time low,” Whaling tells Hemp Grower. “It was also the beginning of COVID-19.”

Despite some delays, Whaling and Linton say they’ve seen the coronavirus as an advantage to their venture. After postponing their IPO by more than a month, Linton finally got to ring the opening bell—virtually—celebrating its Nasdaq listing and kicking off public trading of the fully funded company May 1.

“COVID has [caused] us, I think, a lot of stresses, but it’s also caused a lot of focus,” Linton said during a livestream video before ringing the bell.

Fundraising Efforts

Collective Growth Corp. is an Austin, Tex.-based special purpose acquisition company (SPAC), meaning it was formed to raise funds to invest into other companies, whether through acquisitions or other partnerships. Whaling says Collective Growth’s goal is to work with companies in more developed hemp markets, like those in Europe, to bring specialized harvesting equipment and decortication and processing facilities to the U.S. The company is aiming to support all facets of the hemp industry, from cannabinoids to fiber, and do it in a timely fashion before too many farmers become discouraged and lose interest. 

But the timeline stalled after COVID-19 hit North America. Linton and Whaling went home before completing that first round of meetings and didn’t start back up again until late April.

When they began again, things looked much different than they had in March, but they moved quickly. 

“We did everything by phone. Bruce [Linton] and I probably had 25 to 30 phone calls over two days. That was on a Tuesday and Wednesday, and by Thursday, we closed the books,” Whaling says. “...Before we went public on May 1, we not only already had $150 million, but we were able to open up another 15% of the stock, so when Bruce and the team rang the bell, we already had stock investments of $172 million.”

The investors are a combination of people Whaling and Linton had already established relationships with from their previous roles in cannabis—including in their time at Canopy Growth—along with institutions and families, Whaling says. 

Whaling attributes the two-day fundraising success, in some ways, to the coronavirus. From its potential as a carbon-sequestering plant to its advantages with domestic production, Linton says hemp may have answers to problems many have been pondering over the past few months.

“People had been sitting at home with their families. They have been seeing bluer skies and not a lot of traffic,” Whaling says. “They knew there were challenges with supply chain issues in America. They knew there was a bigger demand for sustainability. If you look at all those things, hemp provides those opportunities.”

Next Steps

Now that Collective Growth is funded, the company has 18 months to spend 80% of its funding, or it will have to return it to investors per SPAC guidelines.

“We’re working well within that time frame,” Whaling says. “I would like to see us operational within that 18 months.”

Whaling says he and Linton have put together a list of about 100 potential hemp companies to work with around the globe. The companies fall under two groups, Whaling says: those that represent “food to pharma,” and those that have the potential for “sustainable industrial disruption” by replacing or supplementing existing materials with those that are hemp-based.

Whaling says he expects Collective Growth Corp. will begin announcing acquisitions in the next three to four months.

While Whaling anticipates the coronavirus may stifle travel plans to meet with other companies, he largely believes Collective Growth—and the rest of the industry—will come out of it stronger.

“We have worked hard, we are fortunate to have the experience and successes that we have behind us, but if anything for the industry and the other companies that are out there, let our example demonstrate that all things are possible,” Whaling says. “In the most difficult of times, both with a pandemic and an economic challenge, there is money to be invested in our industry. So if you are true to your business model and it will play out, then I would encourage people to stay the path because we’re going to do our part to help build this industry, but it will leave an awful lot of room for others.”