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05 Apr 2021
During the last month, Pure Extracts Technologies Corp. (CSE: PULL) (OTC: PRXTF) (XFRA: A2QJAJ) has reported several significant developments and is an opportunity that we are closely following.
From forming strategic partnerships to purchasing cannabis biomass to launch a line of cannabis 2.0 products, Pure Extracts has been executing on a series of initiatives that leave us bullish on the near and long-term outlook.
Over the next quarter, we expect Pure Extracts to report additional milestones and are favorable on how the management team has been advancing the business. So far this year, the company has been nothing short of an execution story and find the risk-reward profile to be favorable at current levels.
Forms Strategic Joint Venture with Psyence Group
Last week, Pure Extracts reported to have signed a letter of intent to form a joint venture with Psyence Group Inc. (CSE: PSYG) to develop superior techniques to extract psilocybin from psychedelic mushrooms. The joint venture will also focus on the development of advanced formulations that contain psilocybin for the long-term treatment of psychological trauma and the mental health consequences that are associated with it.
We consider Psyence to be a strategic partner for Pure Extracts and are favorable on the expertise that it brings to the joint venture. Psyence is one of the world’s first psychedelic mushroom companies to operate a federally legal commercial cultivation and extraction facility in Southern Africa. The management team is comprised of doctors and scientists who are working to make breakthrough developments in palliative care, neurology, neuroscience, and drug development.
Pure Extracts brings additional strategic assets to the joint venture and has a strong Canadian network of psychedelic mushroom experts. From cultivation to research & development, the company works with Dr. Alexander MacGregor and his team at the Toronto Institute of Pharmaceutical Technology (TIPT) and we are favorable on this aspect of the platform.
Pure Extracts operates a state-of-the-art processing facility and it recently submitted an application to Health Canada for a Dealer’s License. We believe the granting of a Dealer’s License to be one of the most significant potential growth catalysts for Pure Extracts and we are favorable on how the story has advanced.
As it relates to the joint venture, the companies plan to maximize the use of their combined infrastructure and networks to accomplish near-term milestones. With Pure Extract’s leverage to Canada’s and Psyence’s network in South Africa, Lesotho and Jamaica, the joint venture has the necessary expertise to rapidly develop natural psychedelics and novel drug delivery systems.
Another attractive aspect of Psyence is related to the leadership team’s experience in structuring and conducting clinical trials. One of the company’s near term goals is to participate in a human clinical trial that is based in Canada. We believe the relationship with Pure Extracts could support Psyence’s goals and will monitor how the partnership advances from here.
The partnership with Pure Extracts is expected to facilitate the importation of Psyence’s standardized psychedelic mushrooms into Canada. The relationship provides Psyence with the opportunity to further optimize its extraction methods and produce products that are needed for safe clinical research. Through the joint venture, the companies want to be able to provide the highest quality and most innovative psilocybin products for Canada.
Psyence is highly committed to conducting clinical research for the development of transformational treatments for mental health disorders, with a particular focus on oncology palliative care. We are favorable on the quality of the partnership with Pure Extracts and consider this relationship to be an important aspect of the story.
Purchases Cannabis to Launch a Vape and Edible Product Line
A week before the Psyence relationship was announced, Pure Extracts reported to have purchased over 500 kilograms of high potency dry cannabis flower. The purchase comes ahead of planned launch of its Pure Pulls vapes and Pure Chews edible gummies. We are bullish on the growth prospects that are associated with the launch of these products and expect it to serve as a major revenue driver for the platform.
We believe that Pure Extracts will be able to capitalize on the increasing demand for cannabis 2.0 products in Canada and will monitor how the story advances from here. The management team highlighted the demand for these products in British Columbia, Alberta, Saskatchewan and Ontario, and expects the shipment to generate more than $1 million of revenue.
The launch of the product line comes at an important time for business and we expect Pure Extracts to record impressive growth in the current quarter. One of the reasons we are confident in the launch of the product line is related to the amount of infrastructure and distribution that is in place. We expect the products to generate significant traction in the markets they are launched in and will monitor how revenues ramp higher on a quarter-over-quarter basis.
Acquires State-of-the-Art Processing Technology
A few weeks ago, Pure Extracts reported to have ordered a state-of-the-art cosolvent injection system (CIS) from Vitalis Extraction Technology Inc. This will improve the capabilities that Pure Extracts has and will make it one of the first companies in the world to have the innovative system.
The CIS has been developed to enhance the Vitalis carbon dioxide (CO2) extraction systems to achieve dramatically faster throughput capacities while producing higher-quality cannabis extracts. The Vitalis CIS has been designed to achieve the optimal ethanol cosolvent flow rate ranges for both cannabis and hemp extracts while balancing extract quality with efficiency.
Pure Extracts and Vitalis have a long history of collaboration and we are favorable on the existing relationship between the businesses. The machinery will allow Pure Extracts to ramp-up production much faster than expected while still producing premium cannabis oil extracts and we will monitor how it supports revenue growth on a going forward basis.
An Execution Story that is Trading for a Discount
During the last quarter, the cannabis and the psychedelic sectors have come off its 2021 highs and the recent trend has been mixed. We believe that Pure Extracts represents a differentiated growth opportunity that has significant potential growth catalysts and will monitor how the story continues to advance.
At current levels, we believe that Pure Extracts has a compelling valuation and is an opportunity that we are excited about. The management team has been working tirelessly on the formation of strategic partnerships and are favorable on this aspect of the story. Going forward, we believe the business is well positioned to capitalize on burgeoning markets and will monitor how the management team is able to position the platform for success.
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