Investors selling PAO Group, Inc. (USOTC: PAOG) stock at current levels may be missing a big part of its story. But, as they say, there’s a buyer for every seller, so the opportunity is not going entirely unnoticed. In-play are at least two recently announced deals targeting a red-hot CBD sector at the right time.
The first deal is with Puration, Inc. (USOTC: PURA) to accelerate a collaborative effort to develop various cannabis-centric applications through a partnership that started when PAOG acquired PURA’s cannabis cultivation business in 2020. Importantly, although taken longer than expected, a dividend distribution of PAOG stock is included in the transaction, and the company said they are awaiting FINRA approval to complete the transaction. While the transaction may be more bullish to PURA shareholders, PAO Group still delivers expertise to the deal. Thus, it’s a long-term win-win.
The two are already advancing a significant project to develop PURA’s Farmersville Brands project. With PAOG’s contribution, Puration is building a 70-acre facility designed to provide interactive, demonstrable education on hemp’s potential to provide environmentally sustainable alternatives to over $1 trillion in existing industrial products. The planned facility is an instrumental part of a cooperative strategy to capitalize on a hemp-derived product’s market expected $15 billion market size by 2027. Over the past several years, hemp has become far more understood in its commercial applications. Moreover, it’s considered the ideal and optimum replacement candidate for products and services currently damaging the environment due to their design.
PAOG’s stake is to assist in the construction and operation of indoor, pharmaceutical grade, hemp growing facilities and maintain a substantial role in the cannabis extraction lab’s operations. Notably, the two will be joined by North American Cannabis Holdings, Inc. (USOTC: USMJ) and Alkame Holdings, Inc. (USOTC: ALKM) to enhance PURA’s Farmersville Hemp Brand strategy.
Thus, seller’s remorse could be in the cards. Moreover, updates on several projects could fuel a rally back toward highs set in February, especially with investors embracing risk back into portfolios after a sector-wide decline last month.
Record Revenues And A Transformative Acquisition
Moreover, PAOG comes with an advantage over most of its nano-cap peers. They are generating revenues. Better still, the expected $300,000 in sales from its cannabis cultivation subsidiary puts PAOG in an enviable position to increase its exposure in other areas of the booming CBD-based therapeutics and nutraceutical sector. In fact, PAOG is already capitalizing on emerging opportunities in each market segment through recent partnerships and acquisitions.
A big boost to its product portfolio came in 2020 when PAOG acquired RespRx. That asset has earned professional praise and puts PAOG in an enviable position to develop CBD-based therapeutics targeting the treatment of patients with symptoms associated with Chronic Obstructive Pulmonary Disorder (COPD).
The debilitating disease is a chronic one and affects more than 60 million people and has an addressable treatment market that surpassed $10 billion in 2016. It’s now the third leading cause of death worldwide, and the market is expected to reach $14.1 billion by 2025. CBD-based treatment could be an alternative therapy that is effective and safer than current pharmaceutical alternatives. That could bode well for PAOG.
Investors embraced the acquisition of RespRx from Kali-Extracts as a potentially transformative deal. And a year later, PAOG is making strides to monetize RespRx through arrangements that could deliver substantial returns in the next few quarters. Remember, like other therapeutics, time to develop is needed, and the process can be daunting. However, as seen in Jazz Pharmaceuticals’ (NASDAQ: JAZZ) purchase of GW Pharma (NASDAQ: GWPH) for $7.2 billion earlier this year, the rewards from patience can be substantial. And it’s important to note that while RespRx is currently targeting COPD, it also has the potential to treat multiple indications where a better and safer standard of care is needed.
Video Link: https://www.youtube.com/embed/mlG8HDv06uk
HODL Can Be Rewarding
Notably, holding GW Pharma stock through the years was no easy task either. But after years of trials and errors, its breakthrough CBD-based epilepsy drug, Epidiolex, took the market by storm. It also changed regulators and big pharma’s views, who initially shrugged off CBD-based pharmaceuticals as a passing fad. That’s no longer the case, and JAZZ may have started a consolidation phase where even the smallest companies can be included. But, to be included, a company needs assets. And PAOG does.
In fact, RespRx has earned patent protection for its innovative cannabis extraction process. Thus, it could become a revenue-generating asset without the need to bring a single product to market. In fact, in a recent interview, the extraction process’s inventor said that his extraction method was professionally recognized as producing better quality CBD extracts than GW Pharma. That news shouldn’t stay unnoticed for long, especially with JAZZ potentially igniting a bidding war for patent-protected extraction processes.
Better still, PAOG owns other assets and agreements in place that invite multiple shots on goal. In fact, beyond its COPD pharmaceutical initiatives, PAOG is advancing a nutraceutical product line that they believe can effectively compete against already marketed, higher-priced brands.
Deals in place are advancing the mission.
Nutraceuticals Program Gets A Boost
Notable for its size, PAOG is engaging with the Puerto Rico Consortium for Clinical Investigation (PRCCI) to develop its proprietary Cannabidiol (CBD) extract into a nutraceutical product. The agreement adds value and, more importantly, positions PAOG to benefit from additional PRCCI expertise that can help accelerate potential nutraceutical marketing approvals. If they are successful in doing so, PAOG, despite its small size, could very well be positioned to market a CBD-based treatment to replace addictive and often harmful prescription drugs.
And with CBD-based therapeutics becoming more mainstream, PAOG believes that through its association with PRCCI, it can earn expedited review and hopeful approval from regulatory agencies.
Thus, the roughly 340% gain in share price since the start of the year may be just the start of a more sustained move higher. Its deals with other companies could help to appreciate its value.
Therefore, the stock’s recent weakness could present an opportunity, especially to investors willing to invest with a long-term investment horizon. Remember, despite the significant advances and popularity, CBD-based medicine is a new science. However, interest by “big pharma” and the approval by the FDA for Epidiolex does send a message that CBD-based therapeutics work, they are safe, and they can be approved for marketing when effective. Many analysts in the space suggest that the FDA will soon embrace the totality of benefits offered by this natural compound.
And that puts PAOG in the right space at the right time. Moreover, like GWPH, they have a similar potential to succeed. Giving time, and having patience, could be very well rewarded.
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