PAO Group, Inc. (OTC Pink: PAOG) may benefit from newly introduced cannabis legalization that could help accelerate its ongoing CBD Pharmaceutical Development Program. The relaxing of regulatory oversight could indeed be a catalyst for PAOG to expedite getting products to market. Better still, it can open the opportunity to sign additional research partners and prospective investors who have been reluctant to work in the sector with current laws. Changes could do more than immediately benefit PAOG from a regulatory perspective; it will also set the stage for substantial growth in the back half of 2021.
Also in play will be PAOG's ability to maximize its partnership with Puration, Inc. (OTC Pink: PURA) to build a pharmaceutical-grade indoor hemp grow facility and CBD extraction facility in conjunction with PURA's Farmersville Hemp Brand project in Texas. Other partners in the venture include Alkame Holdings, Inc. (OTC Pink: ALKM) and North American Cannabis Holdings, Inc. (OTC Pink: USMJ). Each brings marketing and logistics expertise to the project.
And its deals are happening at the right time.
Laws Are Changing- That's Good For PAOG
In April, the Texas House of Representatives approved a bill to ease marijuana restrictions, particularly CBD-based therapeutics, PAOG's focus. Adding weight to that news, an article by a popular financial publication said, "President Joe Biden is in favor of decriminalizing marijuana, while Senate Majority Leader Chuck Schumer is ready to push ahead with full legalization efforts even if Biden isn't completely on board just yet." The article goes on to cite data from a recent Pew Research study, "that 91% of people in the U.S. believe marijuana should be legal for either medical or recreational use, with 60% in favor of both." While both could benefit PAOG in several ways, pay attention to the therapeutics side of opportunity.
Last year, PAOG acquired RespRx from Kali-Extracts, Inc. (OTC Pink: KALY), a CBD treatment under development for Chronic Obstructive Pulmonary Disorder (COPD) derived from a patented cannabis extraction method. Since then, PAOG took a significant step forward by hiring Veristat, a contract research organization (CRO) dedicated to the clinical advance of therapies and treatments through regulatory approval.
If laws get relaxed and Veristat on its team, a perfect storm of business opportunity could form for PAOG in 2021.
Recent Milestones Set 2021 For Growth
PAO Group, Inc. has done well this year. Since the start of 2021, shares are higher by approximately 228%. Investors responded well to an update highlighting its plans to expand its CBD-based therapeutics and nutraceuticals program. At least two treatment candidates are making their way through the development process, and both target substantial markets. The first is RespRx, a CBD-based treatment that targets the treatment of COPD. The second is its newest asset, CBD RELAX-RX, a nutraceutical designed to treat anxiety and depression. Combined, the two treatment candidates target a market opportunity that is expected to grow to $25 billion within five years.
As noted, a big push forward could come from Veristat, a contract research organization (CRO) dedicated to the clinical advance of therapies and treatments through regulatory approval. PAOG already noted that Veristat is making substantial progress in validating and supplementing the underlying research behind RespRx. That could be good news for the near term, and announcements updating the progress toward commercialization could ignite a new round of investor interest. The stock did try to break resistance in April but hit a wall at the $0.01 level. However, news of a milestone reached in its RespRx program could pierce that level quickly.
Research Funding Expected
Also, in April, PAOG announced its expectation to close on a deal that would provide research funding and a 25% interest in a cannabis extraction patent. More good news followed with the company saying it's in final negotiations to enter into a partnership to conduct a CBD In Vivo Histological Research Study intending to expedite RespRx through regulatory approval. More value could come PAOG's way through a 25% interest in the underlying patented cannabis extraction technology through which the RespRx formula is derived. Longer-term, PAOG noted it could secure the opportunity to purchase the patent outright, which could provide multiple ways to monetize that asset.
While licensing and partnerships could be in the cards longer-term, for now, the partnership interest in the underlying cannabis extraction process immediately helps expand PAOG's pharmaceutical development reach beyond RespRx and CBD RELAX-RX. Still, never underestimate the value of a good patent.
At face value, the patent could be an enormous revenue-generating asset. PAOG has not shied away from saying that industry professionals believe its extraction process provides an extract comparable to GW Pharma (NASDAQ: GWPH), the pioneer in CBD-based treatment. Thus, without ever bringing a product to the lab, PAOG could monetize the asset through licensing and partnerships, making it possible for PAOG to reap windfalls without bringing any product to market. That could be part of a longer-term strategy. And with GW Pharma getting purchased by Jazz Pharmaceuticals (NASDAQ: JAZZ) for $7.2 billion earlier this year, don't think that PAOG is unaware of its strong hand.
Other deals are also attracting attention.
Video Link: https://www.youtube.com/embed/mlG8HDv06uk
Long-Term View
Taking a longer-term investment perspective, the returns from PAOG could be substantial. Already, PAOG said that its CBD Nutraceutical Development Program could deliver its first product to market before the end of the year. Better still, they have the logistics infrastructure in place with Alkame Holdings, Inc. and North American Cannabis Holdings, Inc. set to fulfill the marketing and co-packing requirements for the launch.
It's likely that as the weeks pass, investors will take a more substantial interest in PAOG shares, especially if the company provides program updates. And with Veristat helping to expedite approvals, positioning ahead of news could be a wise move. History shows that the stock can race higher and a sharp rally in February sent shares sharply higher on substantial volume. Then, in April, a 28% surge was accompanied by the second-highest daily trading volume since March. Both moves show that investors are watching and waiting for news. And when it hits, they act.
Thus, with milestones likely reached in each of the next few months, trading ahead of the pack could be beneficial near and long term.
228% Increase And A Bullish Tailwind
Starting the week, PAOG shares are higher by more than 228% year-to-date. And while the pandemic has done much to slow down program development progress, PAOG is far from stalled. In fact, despite the ongoing pandemic, PAOG secured the work of Veristat, acquired a new asset, and advanced relationships in Puerto Rico to accelerate research and development efforts.
Thus, with two therapeutics in play and a planned expansion of its research programs, PAOG could be in its best position ever to create shareholder value in the coming weeks and quarters. In fact, with its therapeutics targeting billion-dollar markets, its intrinsic value alone from its asset base is more valuable than its current share price. That mitigates much of the long-term risk. Better still, investors could benefit from a move higher in share price from one of several expected near-term announcements.
The investment thesis is straightforward on PAO Group. They have multiple shots on goal, an agreement with a CRO to expedite planned approvals, partnerships, and an acquisition strategy that add substantial value. Combine all of that, and it equals a potentially massive back half of 2021 business. Accordingly, if all stays as planned, PAOG could deliver exponential gains from these levels and set itself up for an even bigger 2022.
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