Borislav Tonev

Cannabis Sativa Inc (OTCBB:CBDS) Bounces Above $10 Again

by Borislav Tonev August 1, 2014

July was a tough month for Cannabis Sativa Inc (OTCBB:CBDS, CBDS message board) and its stock. On July 9, the ticker popped, gained an impressive 48% in a single session, and surged past the $10 per share mark. Unfortunately, the hype then subsided and, slowly but surely, CBDS slipped back down. Twenty days after the initial surge, the stock was sitting at $7.50.

Now, it seems to be on the run again. During yesterday's session alone, CBDS managed to jump up by a massive 32% while investors traded more than $3 million worth of shares. It now stands at $10.75 which is its highest close since March.

The reason for the pop is an article which hit the wire about an hour after Wednesday's closing bell. It appeared on MarketWatch, it was written by a contributor called Philip Van Doorn, and it called CBDSa 'real' hot small-cap stock”. Apparently, investors liked what they read, but let's take a closer look at the article and see what got them so fired up.

Mr. Van Doorn sets off by commenting on the general condition of the stock markets and on the differences between the large cap companies and the small cap ones. He makes a reference to CYNK Technology Corp (OTCMKTS:CYNK) and the calamities it went through a couple of weeks ago and that's where we see that he hasn't been too careful when researching this particular stock. He says at one point that CYNK is “headquartered in Las Vegas”, but in actual fact, the latest report tells us that its principal offices are located in Belize. Still, the article is mainly focused on CBDS, so maybe he has done some more research on that front.

Mr. Van Doorn divides his analysis on CBDS in two clearly defined parts – “The bull case” and “The bear case”.

In the first part, he talks about the company's new management team, about the products, about CBDS' plans to become a leader in the booming pot industry, and about the pending patents. In the second one, he mentions the horrific balance sheet, the fact that there isn't a whole lot that could support the overly inflated market cap, and the potentially dilutive financing that the shareholders might face in the near future. Mr. Van Doorn finishes off by saying that if the momentum of the booming marijuana industry proves to be enough to sustain the stock at the current levels, the shareholders might be able to weather the potential dilution.

All in all, after reading the article, we are left with the impression that Mr. Van Doorn does like CBDS. Nevertheless, he seems to have tried to come up with a relatively balanced review of all the pros and cons which, it must be said, is not something you see everyday in Pennyland. But didn't he forget to mention something?

There is one rather big threat that is left outside Mr. Van Doorn's article and we reckon that keeping it in mind before putting any money on the line is rather important.

If you open CBDS' latest 10-Q and scroll down to the “Unregistered Sales of Equity Securities and Use of Proceeds” section, you'll see that during the first quarter of 2014, the company turned $78,112 worth of debt into 3,889,071 shares of common stock. The conversion rate comes in at just $0.02 per share which means that the former note holders could be looking at some huge profits in case they decide to cash in. If they do unleash their holdings on the open market, the stock could be in for a rather steep drop and we can't imagine that Mr. Van Doorn will be too happy to see that happening.

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