Smallcap Strategy Report.... June 2017....If you have come to the medical marijuana party late or if you are looking for the next “mover”, we have an idea for you. Of course, there have been a number of market movers like Canopy, Aphria and Aurora Cannabis, but there is plenty of room in the market place for other companies to make an impact. The investment thesis driving the cannabis industry is that when recreational use of marijuana becomes legal across the country and perhaps the continent, it will be consumed similar to the way alcohol is consumed. Alcohol is an industry worth upwards of $20 billion in Canada ($200 billion in the USA). That’s why there is so much investment interest in cannabis companies.
We have found a deeply undervalued cannabis stock which has the potential for near term significant gains. The reason for the deep discount is the Company has a sorted past with a former management team running off on tangents and spending shareholder’s money with much disregard. PUF Ventures is listed on the Canadian Stock Exchange and is one of many companies who is working toward receiving a license from the Canadian government to grow and distribute medical marijuana. It started out as a junior explorer, but a new management team is breathing fresh life into the stock as it moves to become a pure cannabis play. 2016 was a turnaround year for the company as the newly appointed interim president and ceo was able to take control of the company and get it moving in the right direction.
Accomplishments in 2016 include:
§ New management team and board of directors;
§ 4 to 1 consolidation of the share structure (painful yes, but very necessary);
§ Raised $$ to keep the company rolling;
§ Sold its remaining lithium exploration property (pending);
§ Focused its activities to become a medical marijuana grower and distributor.
Refocusing the company has been a monumental task and Derek Ivany, the Company’s interim president has done a great job getting it moving in the right direction. As a public company consultant, Mr. Ivany has worked with various publicly traded companies over the last 10 years. He has focused his attention on technology products and is credited for founding VapeTronix, Inc. and several of its proprietary technology platforms around medical marijuana tracking. He has been successful at attracting new management talent to the board of directors, and is close to moving the company to a pure cannabis production and distribution play.
The most important part of the business plan is the purchase a 100% interest in AAA Heidelberg, a private Ontario company that has applied for an ACMPR license. PUF owns 45% of the AAA Heidelberg, and will acquire the remaining 55% if and when a license is received from Health Canada.
There are seven stages to the application process for becoming a licensed producer of cannabis for medical purposes:
1. Applications received
2. Preliminary screening
3. Enhanced screening
4. Initiation of security clearance process (completed October 2015)
5. Review (PUF’s current stage)
6. Pre-licence inspection
7. License granted
In October 2016 the Company provided a Health Canada update. AAA Heidelberg has completed 90% of the buildout of the wholly owned 8,800 square foot facility in London, Ontario. The buildout included the highest level of pharmaceutical standards with state-of-the-art HVAC and a Surna Water Chilled Climate Control system. These systems are the backbone of the facility’s automated control for temperature, light, humidity, carbon dioxide, and special ventilation for bacteria regulation. Grow lights, tracking software and auxiliary hardware are all in place. If and when the Company receives final approval from Health Canada, it will be in a position to grow its first crop within 30 days. If and when the Company is granted a ‘Pre-License Inspection’ (stage 6), Ivany expects to be able to expedite the final license by virtue of having the necessary facility upgrades in place and ready to go.
The Company also owns VapeTronix Inc., a Canadian vaporizer and electronic cigarette company. VapeTronix, Inc. which distributes under the “1313” electronic cigarette brand, a medicinal marijuana mobile application technology, and several research and development projects. Vapetronix generates some revenue and will provide a natural conduit for vertical integration of the PUS’s main product.
When looking at comparable companies, it is obvious that the market has not been kind to PUF. It seems to have been (fairly or unfairly) punished for its Vancouver based exploration company upbringing. We believe that the new management team has put that behind them and is now focused on becoming a strictly cannabis production and distribution company. The market will wake up to the same reality – it’s just a matter of time. We feel that even with the recent increase in stock price, there is much more room to grow. Here is a table of comparable companies:
| Valens GroWorks | CSE: VGW | $1.25 | 51,022,668 | $63,778,335 |
| Beleave | CSE: BE | $1.72 | 25,702,856 | $44,208,912 |
| Vodis Pharma | CSE: VP | $0.62 | 28,460,645 | $17,645,600 |
| MYM Nutraceuticls Inc. | CSE: MYM | $0.27 | 54,046,429 | $14,592,536 |
| PUF Ventures | CSE: PUF | $0.30 | 28,474,155 | $8,542,247 |
These are companies which have not yet received their license but are in the similar 5
th or 6
th stage of the Health Canada process. Each have their own unique qualities and are in the final stages of their licensing application. To us, PUF should have about $16 million market cap as it is in stage 5, nearly finished off the 8,800 square foot facility, and acquired 45% of a total 100% ownership of the of AAA Heidelberg. Furthermore, PUF has received notice from Health Canada that it has been moved from position 17 to position 14 with respect of its Access to Cannabis for Medical Purposes Regulations (“ACMPR”) application for AAA Heidelberg.
So we have a stock that is undervalued, with a near term catalysts of a pre-licensing inspection and receiving its ACMPR license. The history is a bit scattered, but it looks like the new management has righted the ship and is moving forward with a target in mind.
Over the next few months, we expect the company to continue the advancement of its cannabis production and distribution business, adding to its team and IP, while its moves the final stages of the ACMPR application process. If and when the ACMPR license is granted PUF should have upwards to a $50 million market cap.
We feel this is an opportune time to gain additional exposure to the smoking hot cannabis sector as legalized recreational cannabis becomes a reality.
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