Earth Science Tech, Inc. (OTC: ETST, Target Price: $4.12)

Transcription

1 Update (August 2, 2017) Equity Cannabis / Hemp CBD Earth Science Tech, Inc. (OTC: ETST, Target Price: $4.12) Earth Science Tech is a biotechnology company focused on research, development, and sale of hemp derived CBD based nutraceuticals, pharmaceuticals and dietary supplements. CBD is one of the more than 85 cannabinoids identified in marijuana and hemp plants and is non-psychoactive with wide array of therapeutic benefits. Hemp derived CBDs provides a legal alternative to marijuana based CBD (which is banned at federal level) and allows the consumer to enjoy CBD without the risk of getting high and breaking any federal laws. ETST recently entered into a JV with Varsity Group, LLC to use their patented Kanna-Blend formula to develop CBD based e-liquids to be sold under ETST s subsidiary, KannaBidoid Inc. The company has already finalized four product labels which will start selling by the end of Aug ETST is also planning to commercially launch MSN-2 medical devices by 1Q18 and commence pre-clinical/clinical studies for its CBD based pharmaceuticals by 4Q17. Agreement with Canadian based CBDQ, an agro-food consultant, to roll out three CBD-based nutraceuticals by the end of 2017 will further strengthen ETST s portfolio. Investment Highlights New partnerships and product launches to boost sales ETST recently entered into a JV with Varsity Group, LLC to use their patented Kanna-Blend formula to develop CBD based e- liquids to be sold under ETST s subsidiary, KannaBidoid Inc. The company has already finalized four product labels for its e-liquids namely 1) Strawberry Lemonade; 2) Lemon Cream; 3) Grape Berry and 4) Apple Pie. These products will start selling by the end of Aug ETST has already received preorders and plans to sell ~4,000 units in the first batch. The new products will strengthen ETST s presence in the fast growing niche recreational vape/smoke space. The recreational vape/smoke market is projected to grow to $4.77 billion by 2025, at a double digit CAGR during ETST is also planning to launch MSN-2 medical device by 1Q18 and has already appointed a communication agency to brand and market the device. The CBD-based pharmaceutical drug portfolio is beginning to see progress with ETST looking to start pre-clinical study for breast cancer treatment and clinical studies for epileptic and non-epileptic seizures by 4Q17. Agreement with CBDQ for roll out of CBD-based nutraceuticals ETST has signed an agreement with the Centre de Développement Bioalimentaire du Québec (CDBQ), to develop manufacturing process for the roll out of three already prototyped CBD-based nutraceuticals which are expected to be launched by the end of This will provide further traction to revenues. New distribution channels and aggressive marketing push to yield strong order flow ETST in a recent update noted that it is on the cusp on finalizing many international distribution channels and partnerships that will provide further boost to revenue stream within the current CBD product line. Earlier established strategic partnerships with Karmavore Superfood, Forzagen and Smart Medicines will continue to help ETST to diversify product offerings and accelerate entry in new markets. ETST is aggressively spending on marketing via presence in high profile magazines (Natural Awakenings) and web portals (MassRoots). We believe these initiatives will help ETST reach more users, gain major brand recognition, and build early demand for its innovative new products. Maintaining price target at $4.12 We are maintaining our price target at $4.12 for ETST. The recent JV with Varsity, agreement with CBDQ and launch of Kanna Blend based e-liquids are positive in our view. Also, ETST noted of finalizing new distributors in the international markets. In our last report, we had noted of continued traction in company s CBD products amid new strategic partnerships and new product launches. Stock Details (7/31/17) OTC: Sector / Industry ETST Price target $4.12 Recent share price $0.54 Shares o/s (mn) 42.6 Market cap (in $mn) 23.0 Cannabis / Hemp CBD 52-week high/low $3.95 / 0.30 Source: OTC Markets, SeeThruEquity Research Key Financial (in 000s, unless specified) FY17E FY18E FY19E Revenues $2,034.7 $8,321.5 $22,003.7 EBITDA ($895.3) ($291.3) $2,266.4 EBIT ($915.6) ($332.9) $2,200.4 Net Income ($1,000.4) ($473.6) $2,059.6 EPS ($) ($0.02) ($0.01) $0.05 Source: SeeThruEquity Research Key Ratios FY17E FY18E FY19E EBIT (%) (45.0) (4.0) 10.0 EBITDA (%) (44.0) (3.5) 10.3 Net margin (%) (49.2) (5.7) 9.4 P/Revenue (x) EV/Revenue (x) Source: SeeThruEquity Research LTM Performace $4.00 $3.00 $2.00 $1.00 $0.00 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Source: OTC Markets SeeThruEquity, LLC. Important disclosures appear at the back of this report. 1 P age

2 ETST provides update on JV with Varsity, progress on CBD-based pharmaceuticals as well as agreement with CBDQ On July 6, 2017, ETST announced that it has entered into a JV with Varsity Group LLC via its subsidiary, KannaBidioid Inc. Varsity Group LLC manufactures high quality e-liquids based on its patented Kanna-Blend formula (Kanna Chill). The joint venture will be a 50/50 partnership, with both revenues and expenses being shared equally. On July 27, 2017, KannaBidioid Inc. announced finalization of four e-liquid product labels based in Kanna-Blend formula. The four products include 1) Hemp + KannaBlend Strawberry Lemonade; 2) Hemp + KannaBlend Lemon Cream; 3) Hemp + Kanna Blend Grape Berry and 4) Hemp + Kanna Blend Apple Pie. KannaBiDioid will launch is website by early August and the first line of products will be available for sale by the end of August ETST expects to sell first batch of 4,000 units completely based on pre-orders and high demand. ETST is also on track to commercially launch MSN-2 medical device by 1Q18. It is already in talks with a communication agency to brand and market the device. The communications agency will help create an attractive name and a new transactional website, to sell the medical devices and associated laboratory tests. ETST looks to start a pre-clinical study partnership with a Canadian university, to develop a breast cancer treatment, as well as a separate partnership with a group of physicians to conduct clinical studies, to help individuals with epileptic and non-epileptic seizures by 4Q17. On August 1, 2017, ETST announced agreement with Canadian based agro-food consultant, Centre de Développement Bioalimentaire du Québec (CDBQ), to help develop manufacturing process for the roll out of its three CBD-based nutraceuticals by the end of Two of these products will be delivered in capsule form (nutraceutical), while the third will be a liquid condiment that is added to day-to-day foods. Once those products have been delivered, ETST will begin working with CDBQ s R&D group to realize new ideas and products. Catering to the fastest growing sub segment of the cannabis industry According to research reports, the North American legal cannabis market stood at ~$7 billion in 2016, with strong growth prospects. The market is expected to reach ~$22 billion by 2020, representing a CAGR of 25%. Eight states in the US have legalized the use of recreational marijuana (cannabis), while 29 states allow marijuana to be used for medicinal purpose. These numbers are expected to rise towards 40 states by 2020 as pending legislation in a number of states is expected to be put into practice in the next several years. However, cannabis still remains illegal at the federal level. If legalized federally, the market could grow to ~$50 billion in the next decade according to forecast by Cowen. CBD pharmaceuticals and nutraceuticals is one of the fasted growing sectors in the legal cannabis industry. Clinical research studies have demonstrated that CBD nutraceuticals have the potential to treat arthritis, MS, chronic pain, PTSD, depression, epilepsy and a myriad of other illnesses and disorders. Exhibit 1: Legal cannabis market projected to grow more than $22 billion by 2025 Source: Hemp Business Journal SeeThruEquity, LLC. Important disclosures appear at the back of this report. 2 P age

3 We are maintaining our price target at $4.12 for ETST We are maintaining our price target at $4.12 for ETST. The recent JV announcement with Varsity Group and the launch of four products under KannaBidioid subsidiary by Aug 2017 are positive in our view. The revenue realization from KannaBidioid subsidiary comes earlier than anticipated in our last model. Also, ETST noted of finalizing new distributors in the international markets. In our last report, we had noted of continued traction in company s CBD products amid new strategic partnerships and new product launches. The company s strategic moves are not yet complete, as ETST has stated that it has plans to aggressively spend on marketing, R&D and enter in new markets via JVs and acquisitions. ETST acquired a company, Kannabidioid Inc., in June 2017 and hence more acquisitions could be likely in future. Given the fact that company is in expansion mode, more capital raising cannot be ruled out in the near term. Going forward, company s ability to generate positive cash flows remains a key area to focus on. Management Team Dr. Michael Aube, Chief Executive Officer and Chief Scientific Officer Dr. Michel Aubé has wide-ranging expertise in the life sciences. As a microbiologist he furthered his graduate studies at Laval University, earning a Master s degree in Cell Biology and Molecular Physiology as well as a PhD in Physiology-Endocrinology. In addition, he created and taught three postdoctoral courses in Immunology. His scientific research in Sexually Transmitted Infections (STIs), Cancer and Stem Cell biology has been published in several prestigious medical journals. Dr. Aubé has received a number of Awards for Excellence from the Network for environmental health research and childhood diseases. Nickolas S. Tabraue, President and COO Mr. Nickolas Tabraue is an industry veteran having 9 years of professional experience in the nutraceutical, dietary supplement field, as well as retail corporate management. Mr. Tabraue is well versed in his skills and knowledge of supplements, retail management, and customer service. His management experience at The Vitamin Shoppe encompassed the management of four different locations, one being the company s highest volume and another included the restructuring of a non-performing high volume store achieving high operating levels in operations, service, inventory compliance, and sales. Sergio Castillo, CMO Sergio Castillo, who moved to Miami when he was only 16, is a current marketing consultant for few firms including Cloud Accounting, La Familia Media, Fresh Press Miami, Goodlife Miami, as well as Abdon Entertainment. He started his first company in 2008 called Goodlife Miami, LLC. In 2010, his second company was started named Fresh Press, LLC. His third company was founded in 2012, called La Familia Media, LLC. As the time passed, he s learned everything it takes to run the marketing for many successful companies, and how he takes his expertise into the field of medicinal marijuana. Gabriel Aviles, Chief Sales Officer Mr. Gabriel Aviles has extensive knowledge in the holistic health, herbal supplements and health food industry. Mr. Aviles specializes in developing and distributing science based nutritional products in the Alternate Medicine and Health Food industry. Mr. Aviles has a strong interest in distributing all natural, herbal, botanicals and alternative medicine type products throughout Florida and other markets. Mr. Aviles has extensive experience as a professional health and supplement advisor as well as food/nutrition adviser. Mr. Aviles is focused on advising and educating consumers on health and wellness issues according to what supplement is best suited for each individual s need. He has a Bachelor of Science (BS) in Alternative and Complementary Medicine and Medical Systems. Some of his interests include Alternative Medicine, Bio Chemistry, Biology, Music, Business, Nutrition, Human Anatomy, History, and Martial Arts SeeThruEquity, LLC. Important disclosures appear at the back of this report. 3 P age

4 About Earth Science Tech, Inc. Earth Science Tech Inc. is a unique Biotechnology company focused on cannabinoid based nutraceuticals, pharmaceuticals and dietary supplements for use in the areas of health, wellness, sports and alternative medicine. It sells its products through its distributors, retail stores and through the Internet. The company comprises of three wholly owned subsidiaries including Cannabis Therapeutics Inc., Earth Science Pharmaceuticals Inc. and Kannabidioid Inc. For more information, visit SeeThruEquity, LLC. Important disclosures appear at the back of this report. 4 P age

5 Contact Ajay Tandon SeeThruEquity (646) Disclosure This research report has been prepared and distributed by SeeThruEquity, LLC ( SeeThruEquity ) for informational purposes only and does not constitute an offer, solicitation or recommendation to acquire or dispose of any investment or to engage in any transaction. This report is based solely on publicly-available information about the company featured in this report which SeeThruEquity considers reliable, but SeeThruEquity does not represent it is accurate or complete, and it should not be relied upon as such. All information contained in this report is subject to change without notice. This report does not constitute a personal trading recommendation or take into account the particular investment objectives, financial situation or needs of an individual reader of this report, and does not provide all of the key elements for any reader to make an investment decision. Readers should consider whether any information in this report is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, many of which are beyond the company s control. Actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain industry, economic, regulatory or other factors. SeeThruEquity is not a FINRA registered broker-dealer or investment adviser and does not provide investment banking services. SeeThruEquity does not accept or receive fees or other compensation for preparing its research reports. SeeThruEquity has not been retained or hired by the company featured herein or by any other party to prepare this report. In some but not in all instances, SeeThruEquity and/or its officers, directors or affiliates may receive compensation from companies featured in its reports for non report-related services which may include charges for presenting at SeeThruEquity investor conferences, distributing press releases and performing certain other ancillary services. The company featured in this report paid SeeThruEquity its standard fee described below for distributing a press release on this report. Such compensation is received on the basis of a fixed fee and made without regard to the opinions and conclusions in its research reports. The fee to present at SeeThruEquity conferences is no more than seven thousand dollars, and the fee for distributing press releases is no more than fifteen hundred dollars. The fees for performing certain other ancillary services vary depending on the company and service provided but generally do not exceed five thousand dollars. In no event is a company on which SeeThruEquity has issued a report required to engage it with respect to these non report-related services. SeeThruEquity and/or its affiliates may have a long equity position with respect to a non-controlling interest in the publicly traded shares of companies featured in its reports, and follows customary internal trading restrictions pending the release of its reports. SeeThruEquity s professionals may provide verbal or written market commentary that reflects opinions that are contrary to the opinions expressed in this report. This report and any such commentary belong to SeeThruEquity and are not attributable to the company featured in its reports or other communications. The price and value of a company s shares referred to in this report may fluctuate. Past performance by one company is not indicative of future results by that company or of any other company covered by a report prepared by SeeThruEquity. This report is being disseminated primarily electronically and, in some cases, in printed form. An electronic report is made simultaneously available to all recipients. The information contained in this report is not incorporated into the contents of our website and should be read independently thereof. Please refer to the Disclosures section of our website for additional details. Copyright SeeThruEquity, LLC. No part of this material may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of SeeThruEquity, LLC SeeThruEquity, LLC. Important disclosures appear at the back of this report. 5 P age