16 Apr 2021
A few weeks ago, we highlighted Pure Extracts Technologies Corp. (CSE: PULL) (OTC: PRXTF) (XFRA: A2QJAJ) as an execution story that is flying under the radar.
So far this year, this leading plant-based extraction firm has reported a series of significant developments. Following the granting of a standard processing license from Health Canada, Pure Extracts has been executing flawlessly on a multi-faceted growth strategy and we are favorable on the direction the management team is bringing the business.
Pure Extracts is focused on the cannabis, hemp, functional mushroom and psychedelic sectors. The Company operates a state-of-the-art processing facility that has been constructed to European Union good manufacturing practices (EU-GMP) standards and we are favorable on the diversity of the business. We consider the EU-GMP facility to be a key aspect of the story since it will allow Pure Extracts to export products and formulations (including those currently restricted in Canada) into EU markets, where legislation permits.
Forms Partnership with MSO to Capitalize on Michigan
Last week, Pure Extracts reported a major milestone and signed a letter of intent to form a joint venture with an affiliate of a publicly traded multi-state operator (MSO) to install a cannabis and hemp extraction system in an existing Michigan facility. The MSO initially focused on the cannabis opportunity in Oregon and owns a portfolio of premium cannabis products that can be purchased at more than 100 dispensaries in Michigan.
We are favorable on the amount of distribution the MSO has in Michigan as well as its track record of success in Oregon. Going forward, we expect Pure Extracts to benefit from having leverage to the Michigan market and will monitor how the relationship supports the growth of the entire business.
As it relates to the Michigan joint venture, the companies plan to combine forces and we are favorable on the expertise and assets that are provided by each operator. The MSO’s affiliate adds local permitting, licensing and marketing expertise to the joint venture, while Pure Extracts plans to contribute a mix of equipment and cash to rapidly scale-up to capitalize on the increasing demand for recreational cannabis concentrates and edibles in Michigan.
Going forward, the companies plan to utilize 2,600 sq. ft. of existing space in the MSO’s facility to execute on a unique and targeted growth strategy. From a geographic standpoint, the facility is strategically located in central Michigan and is approx. two hours away from several major markets. We consider the central location of the facility to be of importance since the joint venture will be able to focus on several attractive markets in the state.
Pure Extracts represents a strategic partner and brings proprietary extraction, vape, live resin, and edibles manufacturing capabilities to the joint venture. For several years, we have been bullish on the Michigan market and are favorable on the initial consumer purchasing patterns in it. We believe the joint venture is well positioned to capitalize on a burgeoning cannabis market in the US and consider the opportunity to be a key growth pillar for Pure Extracts.
According to the Michigan Marijuana Regulatory Agency (MRA), during February 2021, Michigan cannabis sales increased 160% from a year ago to $106.2 million in February. After further analyzing the market opportunity, we found that medical sales increased to $38.1 million while recreational sales increased to $68.1 million.
As part of the relationship, the joint venture expects to receive an initial white-label order for live-resin concentrates from the MSO’s affiliate as it continues to build on its track record of offering premium dry-flower products that have already generated traction in the Michigan market.
Pure Extracts expects to start selling products by the fourth quarter and we will monitor how the relationship advances ahead of the planned launch. With around 400 open dispensaries in Michigan, the market provides Pure Extract with a major potential growth catalyst and we will monitor how the brand is able to capture market share over the long-term.
A Multi-Faceted Growth Story with a Favorable Risk-Reward Profile
During the last month, Pure Extracts has come under heavy pressure and we believe the Michigan expansion will serve as a significant catalyst for growth. At current levels, we find the risk-reward profile to be favorable and the valuation to be compelling. We believe Pure Extracts is led by a management team that is focused on creating value for investors and are favorable on the direction the business is heading
We believe the plant-based extraction firm is flying under the radar and are favorable on the industries the business is focused on. By targeting several types of plants (cannabis, hemp, functional mushrooms, and psychedelic mushrooms), Pure Extracts has a large total addressable market (TAM) and we believe the market is missing out on something significant.
Comments