Cannabis Sativa Inc (OTCMKTS:CBDS) Remains On Our Watchlist

Today, we will be talking again about Cannabis Sativa, Inc. (CBDS), the developer of natural cannabis products. The stock returns have been good since we covered the company, but we have seen some actions engaged by the Board of Directors that we don't appreciate and we want to mention them in this piece.

First of all, we will present, as usual, the stock returns. The fact that the company's share price went from $0.5 as of March 9, 2016 to $6.01 as of today was a great discovery. For those shareholders, who bought shares at that time, the stock returns have been extraordinary. Take a look at it:

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What we do not appreciate

In the beginning of 2014, the share price was as high as $13.72 per share. This fact proves that shareholders believed at that time that the company could be worth two times the amount that is worth right now. In our opinion, the Board of Directors is making bad use of the company's shares and shareholders are exiting the company due to this reason.

There is a large amount of corporate transactions and practices, which we do not welcome. We may not be able to list them all here, but we will try to note the most alarming ones.

Firstly, we do not think that shareholders should appreciate the way the financial accountant, Carolyn Merrill, is paid. We found out that this person is being paid a large amount of money using company's shares. She is receiving $3,000 together with 25,000 shares of common stock per month. We believe that the total amount being paid, approximately $153,000, is worrying, but the fact that this person receives 98% of its salary in the form of shares is even more alarming.

On the top of it, the Board of Directors is issuing shares and diluting previous shareholders on a daily basis. The following is a list of the new shares issued only in the last quarter to pay the directors and consultants. They were extracted from the SEC filings:

• During the three months ended March 31, 2016 - 5,000 shares of its common stock to each of its seven (7) members of Board of Directors.
• During the three months ended March 31, 2016 - 50,000 shares to a consultant.
• During the three months ended March 31, 2016- 87,500 shares to two (2) members of Board of Directors and two (2) consultants.
• During the three months ended March 31, 2016 - 30,000 shares to a consultant.
• During the three months ended June 30, 2016 - 5,000 shares to each of its seven (7) members of Board of Birectors 72,115 shares of its common stock to five (5) consultants, out of which three (3) are also members of the Board of Directors.
• During the three months ended June 30, 2016 - 19,457 shares to a consultant for services
• During the three months ended June 30, 2016 - 25,000 shares to a consultant for services.
• During the three months ended June 30, 2016 - 50,000 shares to two (2) consultants for services.
• During the three months ended June 30, 2016 - 30,000 shares in the form of payment for a liability owed on the Company's joint venture agreement.
• During the three months ended June 30, 2016 - 238,768 shares in the form of payment for liabilities.
• During the three months ended June 30, 2016 - 400,000 shares of its common stock to five (5) consultants, out of which three (3) are also members of the Board of Directors.
• During the three months ended June 30, 2016 - 150,000 shares to a consultant.

In addition, shareholders should not appreciate the special stock dividend of 1.5 restricted common shares for each share held as of the record date of November 16, 2015. We noted that the shares have not been issued as of June 30, 2016, but we just wanted to clarify that if the company continues with this transaction, its image may be damaged, its shares will lose value and many shareholders may sell their holdings.

Also, we dislike the use of shares in the Stock Purchase Agreement with iBudtender, Inc. This third party is receiving $50,000 in cash and 150,000 shares of common stock of the Company. Shareholders may not have noticed yet the transaction, but they will realize once the share price loses value. We believe that shareholders will exit the company if new transactions are paid using shares and this ultimately will result into the decline of the share price.

Issue of debt

According to the last financial statements that were reported for the quarterly period ended in June 30, 2016, the amount of assets exceeds the amount of liabilities and we believe that the company may be able to issue debt to finance its operations. In this document, it was recorded that the company has $3,879,938 in total assets and $334,101 in total liabilities. We believe that the company could issue some debt to obtain cash from banks instead of continuing the share dilution of current shareholders.

Cannabis Sativa, Inc. started operating in 2013, thus the company seems old enough already to present the project to major banks and obtain financing. We have seen other companies operating in the same sector reporting less assets than Cannabis and being trusted by relevant American banks. In addition, we believe that the company has a credible project and that banks will provide financing.

Conclusion

To sum up, in our opinion, the management of Cannabis Sativa has shown a lot of determination so far. It has a clear vision of the key operating milestones that the company needs to achieve. Thus, we appreciate very much the work they have done, especially in getting the share price up. However, we believe that the way the company its financing its operations is wrong. Shareholders will prefer if the company searches other ways of obtaining money for financing its operations different to the capital raising.

If the company changes these bad behaviors and starts treating shareholders as it should, this is a company that we would recommend as a long-term holding. Until then we will just monitor the situation. We will be updating our subscribers as soon as we know more. For the latest updates on CBDS, sign up below!

Disclosure: We have no position in CBDS and have not been compensated for this article.