Pure Global Cannabis Stock Looks Compelling

Pure Global Cannabis Inc. (TSXV:PURE), one of the Canadian marijuana stocks, is ready for Cannabis 2.0 and has signed an industrial hemp deal in China

SmallCapPower | November 11, 2019: Pure Global Cannabis Inc. (TSXV:PURE) (OTC:PRCNF), one of the Canadian cannabis stocks, reported Q2/19 financial results on August 29, 2019. Results were highlighted by revenue of $1.0M (was $25K during Q1/19). Today we are going to look at why investors should keep this stock on their radars.

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Company Description

Pure is operated by healthcare professionals, consumer product goods (CPG) experts, and commercial agricultural engineers, whose goal is to create a leading manufacturer of trusted premium quality cannabis flower, bulk extracts, and cannabis CPGs. With Canada as a springboard, Pure aims to become one of the largest cannabis and hemp derived cannabidiol (“CBD”) manufacturers in the world, and become a supplier of choice for global CPG companies and processors who need high quality low cost bulk CBD, cannabis extracts, bulk active ingredient formulations, and white label solutions. Its Brampton additions for cultivation, extraction, and manufacturing are complete and soon to be fully operational upon Health Canada approvals in its already licensed site. To compete on the global stage, Pure has also announced that it is rolling out a similar operation in China several fold larger, where it has obtained licensing through a developer partner (KMT-Hansa or “KMT”), and access to thousands of acres of pollution free farmlands, with thousands of farmers to till those lands.

Figure 1: Pure Global and Appletree Research Partnership

Source: Company Reports

Investment Thesis

Proprietary vertical farming method allows Pure Global Cannabis to grow multiple tiers of canopy space that increase yields and lower costs. Pure Global uses a proprietary vertical farming system that enables the facility to grow multiple tiers of canopy growth space, increasing yield potential by up to 3x from the same square footage, without the use of herbicides or pesticides. Pure Global has filed a patent for its proprietary vertical farming technology.

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Medical first cannabis company. Pure Global Cannabis is committed to researching medical cannabis by leading an evidence-based clinical study on cannabis, in conjunction with Appletree Medical Group. Appletree has 35 clinic locations across Canada with 700,000 registered patients. The goal is to collect thousands of clinical datapoints to identify therapeutic benefits of various cannabis strains. The studies are expected to be published in peer-reviewed journals.

Ready for Cannabis 2.0. On October 24, 2019, Pure Global Cannabis announced that it received its oils sales license from Health Canada, allowing the Company to begin sale of derivative products in December. Earlier this year, Pure Global purchased CO2 extraction equipment and completed construction of its extraction facility. With the new equipment, Pure Global Cannabis can process 10 kg of oil per day, which according to management is equivalent to 10,000 capsules/hour, 10,000 vape cartridges/hour, and 2,000 60ml tincture bottles per hour. Pure Global also has the capacity to offer toll processing and white-labeling services to cultivators, which has the potential to provide the Company with high-value revenue streams.

Recent Highlights

Below are some recent developments over the past six months:

Pure Global Cannabis awarded Health Canada Oils License. On October 24, 2019, Pure Global announced that it had been awarded an amendment to its processing license, allowing its subsidiary, PureSinse, to sell extracts, topicals, and edibles to medical and legal adult consumer markets. This is a positive development for Pure Global, as the Company has submitted 20 SKUs to Health Canada and it is expecting to begin selling its high-margin products towards the end of December 2019.

Pure Global Cannabis inks deal for industrial-scale hemp manufacturing in China. The Joint Development Agreement is with KMT-Hansa Cor, in which both companies are expected to develop processing, extraction, cultivation and manufacturing of hemp and related products for export under Good Manufacturing Process (GMP) standards. The development is expected to be across approximately 17,000 acres of land in the province of Yunnan, China. The licensing process is expected to be complete within the next 60 days while operations are setup.

Figure 1: Example of Chinese Farmland

Source: Company Twitter

PURE creates new extraction subsidiary called PureCanna Solutions. On September 26, 2019, Pure Global Cannabis announced the creation of PureCanna Solutions, which is expected to operate as a business-to-business (B2B) brand that will provide white-label extraction, co-processing, co-manufacturing, tolling, and CBD/THC isolate and extract bulk sales.

Distribution agreement secured to supply the 2000+ retail locations expected in the Canadian cannabis retail market. On March 20, 2019, the Company announced a partnership with Velvet Management Inc. Velvet is a cannabis distribution company that was created by Philippe Dandurand Wines, Canada’s largest wine distributor. Velvet plans on providing product sales and distribution to provincial liquor and cannabis boards across Canada. Velvet has also announced a partnership with The Green Organic Dutchman (TSX:TGOD). This is a significant milestone for PURE as Velvet will have a team 40 dedicated sales professionals servicing the 2000+ expected retail locations, which will help accelerate Pure Global’s go-to-market strategy.

Pure Global Cannabis signs supply agreement with craft cannabis producer. On February 11, 2019, the Company announced it had signed an MOU for a supply agreement with Emerald Plants Health Source (EPHS). Pure Global will purchase 1,000 kg of dried flower from EPHS over 12 months beginning in July 2019. The Supply Agreement is intended to allow the Company to expand its product offerings to medical patients, support product demands from Spark Cannabis Clinic, and diversify its consumer channel strategy with adult-use products.

PURE to acquire Spark Cannabis Clinic. The Company announced on January 29, 2019, that it had agreed to acquire all outstanding shares of Spark Cannabis Clinic. Consideration for the transaction is cash and stock; Pure Global Cannabis will pay $100K in cash and issue 480K shares. Pure Global’s share price as of announcement date was $0.28. Additional consideration of 1,120K shares will be provided based on Spark Cannabis Clinic achieving certain milestones. The clinic is headed by Dr. Sanjeev Goel, and currently has over 2,500 active patients. The clinic began providing cannabis services in September 2017.

Overview of Operations

Pure Global Cannabis operates an 18,000 sq. ft greenhouse located in Brampton Ontario. Phase 2 and three construction are expected to add 41,000 sq. ft of production capacity, in addition to bringing in automated controls and vertical farming methods, which are expected to keep operating expenses to a minimum. The proprietary vertical farming systems enable the facility to grow multiple tiers of canopy growth space, increasing yield potential by up to 3x from the same square footage, without the use of herbicides or pesticides. The Company had filed a patent on a farming method that can be used in vertical farming, which is called multi-ponic. Upon completion, the entire production facility is expected to have a production capacity of 30,000 kg/year.

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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