Practical Research Partners Initiates Coverage, UMF Group Inc. (OTC PINK: UMFG), with ‘Undervalued’ View

ORLANDO, FL / ACCESSWIRE / June 21, 2017 / Practical Research Partners is pleased to announce that it has initiated coverage of UMF Group Inc. (OTC PINK: UMFG).

UMF Group Inc. (OTC PINK: UMFG):

We initiate coverage on UMF Group Inc. (OTC PINK: UMFG) with a view of undervalued. UMFG is an innovative medical marijuana company which aims to develop cannabinoid based drugs using proprietary whole plant extraction method. UMFG’s cannabinoid applications (prodrugs) can be administered to enable selective delivery of THC and cannabidiol (CBD) to the gastrointestinal tract. Site-specific delivery could enable oral drug formulations of cannabinoids to provide therapeutic benefits while reducing or avoiding the systemic delivery of psychoactive THC into the bloodstream.

UMFG currently generates negligible revenues (~$12,098 in 1Q17 and $10,237 in FY16), but the prospects look bright considering the rapid expansion of the medical marijuana market. We believe superior efficacy of company’s proprietary platform, faster regulatory approvals and burgeoning cannabinoid based pharmaceuticals market augur well for UMFG. The increasing interest among researchers and healthcare providers regarding the therapeutic uses of marijuana is likely to fuel further growth. With more states easing marijuana restrictions, UMFG represents a unique investment opportunity; however, we caution that the risk remains high.

INVESTMENT HIGHLIGHTS

Targeted delivery ensures greater efficacy: A prodrug is a medication or compound that, after administration, is metabolized (i.e., converted within the body) into a pharmacologically active drug. Prodrugs are typically designed to overcome well-known drawbacks of currently available therapies. UMFG’s prodrug technology enables the selective targeting of specific tissues or organs, including the gut or brain, enabling the drug to have a more targeted effect. As of 2015, there were approximately 15 prodrugs that had been classified as blockbusters, defined as having annual sales in excess of $1 billion.

Low risk regulatory strategy to lead to faster approvals: UMFG plans to take advantage of a more efficient FDA review and approval process that is available for ‘whole plant extracts’, which reduces the need for large and expensive clinical trials. UMFG plans to develop whole plant pharmaceutical products for symptomatic relief of pain, cramping, and muscle spasticity. There is extensive clinical evidence supporting the potential efficacy of cannabinoids for treatment of each of these indications, including thorough clinical trials conducted by independent investigators. Because there already exists independent verification of the active drug’s safety and efficacy, such products may receive marketing approval more quickly than others.

Large Addressable market: The global medical marijuana market is expected to reach a value of $55.8 billion by 2025, according to a new report by Grand View Research. Washington D.C. along with 28 states have legalized marijuana for medical uses. More states are moving towards granting approval for using marijuana in therapeutic applications which is one of the crucial factors driving the demand. Cannabis has long been considered to have medicinal properties, ranging from treatment of cramps, migraines, convulsions, appetite stimulation and attenuation of nausea and. UMFG, with UMFG, with its unique cannabinoid applications, is well positioned to take advantage of the industry tailwind.

VALUATION

Our fair value for UMFG is undervalued. Our thesis assumes that medical marijuana market will witness exponential growth and the company is successful in commercializing its prodrugs. Though the opportunity remains very large; the synthetic cannabinoid pharmaceuticals market has lagged behind so far and we caution investors that it is a high-risk bet.

Stock Details (June 14, 2017)

Ticker

UMFG

Exchange

OTC

Sector

Cannabis

MCap ($ mn)

103.3

View

Undervalued

Key Financials

In $

2016

1Q17

Revenues

10,237

12,098

EBIT

(2,724)

2,956

Share Price Performance

Source: OTC markets

Company History

The company was incorporated in the State of Colorado on 1988 and has changed the name several times. The Company acquired Mobile Airwaves, Inc. a California corporation, on December 13, 2004, concurrent with the acquisition the Company changed its name to Mobile Airwaves Corp. On September 15, 2009, the Company changed its name to American Community Development Inc. Then on February 2, 2017 the name was changed to UMF Group Inc. The company also changed its business from oil & gas exploration to Medical marijuana.

UMF Group Inc. also appointed Nicole Merion, as Director of Business Development. Nicole Merion brings a wealth of scientific knowledge and contacts at the highest levels of academia and production, facilitating UMF Group Inc.’s vision of operating at the cutting edge of technology and research. She also brings a history of production and development to the company and has been working in the Cannabis field for the past ten years.

Business Analysis

UMFG is primarily targeting the burgeoning medical marijuana market via its proprietary cannabinoid applications (prodrugs). The increasing interest among researchers and healthcare providers regarding the therapeutic uses of marijuana is likely to fuel further growth. With more states easing marijuana restrictions, UMFG represents a unique investment opportunity.

Whole Plant Extraction Technology for Prodrug Development: A prodrug is a medication or compound that, after administration, is metabolized (i.e., converted within the body) into a pharmacologically active drug. Prodrugs are typically designed to overcome well-known drawbacks of currently available therapies. UMFG’s prodrug technology enables the selective targeting of specific tissues or organs, including the gut or brain, enabling the drug to have a more targeted effect.

Whole Plant Extracts are more stable and soluble than traditional dried cannabis, extracts, and cannabinoids, so there is less risk of non-psychoactive cannabinoids such as “THC-A” being converted to psychoactive THC or otherwise degraded in the acidic stomach environment. Proprietary extracts enable the passage of cannabinoids through the digestive tract and their eventual release within the large intestine or colon, which enables targeted delivery of cannabinoids for treatment of gastrointestinal diseases. Because this, these extracts can act remain effective for long duration which can also provide patients with long-lasting or overnight relief, a desirable attribute that is unavailable with medical marijuana or with current cannabinoid pharmaceutical formulations.

Site-specific delivery could enable oral drug formulations of cannabinoids to provide therapeutic benefits while reducing or avoiding the systemic delivery of psychoactive THC into the bloodstream. We believe the company’s applications provide superior and differentiated products from the one’s currently present in the market.

The Role of Cannabinoids in Pharmaceuticals: Cannabis contains over 100 different identifiable cannabinoids which have varied effects and could potentially be developed into treatments. However, two, in particular, are of note: 1) THC, which demonstrates psychoactive effects, and 2) Cannabidiol (CBD), which is non-psychoactive. CBD makes up the largest component of the cannabis plant (~40% by weight) and is at the centre of the medical research surrounding the endocannabinoid system. The endocannabinoid system is involved with regulating many basic functions of the human body, including sleep, appetite, metabolism, pain, digestion, reproduction, neural development and many more. Due to its widespread effects in the human body, the endocannabinoid system is believed to hold promise in treating many diseases and conditions.

CBD is known to have antianxiety as well as neuroprotective and anti-inflammatory properties. It has been shown to be effective in treating multiple sclerosis, epilepsy, sleep disorders, anxiety and depression. Though generally well tolerated, there have been instances of administered CBD getting converted into THC within an acidic stomach environment.

On the other hand, synthetic cannabinoids are known to target the endocannabinoid system in a more specific and efficient way. Many synthetic cannabinoids have been approved as drugs. Dronabinol is a synthetic THC drug that has been approved for treating nausea and for stimulating appetite. Nabiximols is a blend of two cannabinoids, THC and CBD, which has been approved in more than 20 countries for treatment of muscle spasticity in multiple sclerosis, and also for treatment of cancer pain in certain countries.

Pharmaceutical Cannabinoid Market: The global medical marijuana market is expected to reach a value of $55.8 billion by 2025, according to a new report by Grand View Research. The US medical marijuana sales are projected to increase at a 13% CAGR to $13.3 billion in 2025, according to New Frontier research. Washington D.C. along with 28 states have legalized marijuana for medical uses. Cannabis has long been considered to have medicinal properties, ranging from treatment of cramps, migraines, convulsions, appetite stimulation and attenuation of nausea and vomiting. In fact, a report issued by the National Academy of Sciences’ Institute of Medicine indicated that the active components of Cannabis appear to be useful in treating pain, nausea, muscle spasms in multiple sclerosis as well as other problems.

There are already several approved cannabinoid drugs, including dronabinol, nabilone and nabiximols. For example, Dronabinol is a synthetic version of THC that can be prescribed to cancer and AIDS patients to combat nausea and appetite loss. Nabiximols is approved for multiple sclerosis.

As more states in the US begin to relax restrictions on medical marijuana, and as interest from the public continues to grow, there is a striking increase in the number of clinical trials being sponsored by academic investigators for use of cannabinoids to treat lucrative, large market disease indications. Given UMFG’s ability to rapidly create proprietary prodrug versions of each these cannabinoids, we expect it to benefit from emerging data, and increasing recognition from the healthcare providers and regulators of the therapeutic effects of cannabinoids.

Fig 1: US Medical Marijuana Market to be ~$13.3 billion by 2025

Source: New Frontier

Fig 2: Status of Marijuana by State

Source: Georgia Care Project

Low risk regulatory strategy to lead to faster approvals: UMFG has produced 5 new extracts so far and have patent applications that include composition matter claims for extracts of cannabis that have been studied extensively in clinical trials, including THC, CBD, and CBDV. The company is looking to approve these proprietary extracts as pharmaceuticals. UMFG plans to take advantage of a more efficient FDA review and approval process that is available for ‘whole plant extracts’ (prodrugs), which reduces the need for large and expensive clinical trials. UMFG plans to develop prodrugs for symptomatic relief of pain, cramping, and muscle spasticity that is the result of serious neurological and inflammatory conditions, such as inflammatory bowel disease and multiple sclerosis. There is extensive clinical evidence supporting the potential efficacy of cannabinoids for treatment of each of these indications, including thorough clinical trials conducted by independent investigators. Because there already exists independent verification of the active drug’s safety and efficacy, such products may receive marketing approval more quickly than others.

UMFG plans to complete preclinical studies necessary in order to launch multiple clinical trials in 2018 that evaluate the clinical pharmacokinetics of drug formulations containing whole plant extracts, as well as their potential for providing symptomatic relief of pain, cramping, and muscle spasticity.

The global market for multiple sclerosis drugs is currently estimated at $17.2 billion in 2014 according to GlobalData. The global market for drugs treating inflammatory bowel disease (IBD) is predicted by Visiongain to reach $9.6 billion in annual revenues in 2017. UMFG is targeting these multi-billion dollar markets with its unique whole plant extract prodrugs.

Cannabis Technology (CannaTech) Solutions: UMFG plans to diversify by providing cannabis related technology solutions to the entire supply chain from seed to sale. UMFG is developing several Information Technology products that cover the array of specialized needs of growers, extractors, processors, or retailers. UMFG’s cannatech platform aims to provide business intelligence and insights such as inventory data, sales data and pricing across various client retailers in real time. Getting visibility into inventory and sales at a location supports forecasting and helping those retailers ensure that they have the right amount of inventory at any given time.

FINANCIAL AND FUTURE OUTLOOK

Revenue/Drivers

UMFG is focused on the expanding medical marijuana market via its proprietary whole plant extraction based cannabinoid applications. The company does not have currently have any commercialized product and as such the revenues are negligible. In 1Q17, the revenues stood at ~$12,098, while the net loss stood at $2,724.

The company currently has no FDA approved product. The company is undergoing pre-clinical trials and expect to launch clinical trials in 2018. As such, we do not expect any near-term revenues. The opportunity looks huge and we believe UMFG with its proprietary extracts is well positioned to ride it.

VALUATION

We have evaluated UMFG by using a relative valuation analysis with peer companies in its sector. As stated earlier in this report, we did not use this analysis to determine the price target. The valuations of companies in this industry appear to be heavily influenced by the large market potential of cannabis-based products, rather than classic fundamental analysis. UMFG does not have pharmaceutical products approved for sale by the FDA. In our view, the key determining valuation catalyst for UMFG is whether the company can quickly get approvals for commercial launch of its products, as well as the overall market sentiment toward the cannabis industry. Important events in the near-term to gage this include clinical results from its trials, and to what extent these can show efficacy, and support the strategy that the delivery mechanism can be formulated for a platform of indications.

The current market cap of the company is just ~$103 million. The company is targeting pain and spasticity related to multiple sclerosis and inflammatory bowel disease, which combined together represent more than $25 billion in market size globally. Comparing to the opportunity size, the current market cap looks relatively small. Also, the peer group’s market cap is in the range of $44 million to $2.5 billion.

Similar companies such as AXIM and Zynerba, which also currently have no FDA approved products and revenues are trading at market cap of $528 million and $237 million respectively. We believe UMFG should also trade in the similar range. Though we note that products of AXIM and ZYNE are already in clinical trial phase. Factoring this, we believe a discount of 30% might be warranted.

Applying a 30% discount to the ZYNE’s market cap, we expect UMFG can command valuation of ~$166 million or $1.91 per share.

Source: Capital IQ

RISKS

Financial resources

We see access to liquidity as a key area to watch for UMFG. The company does not generate cash from its operating activities, and will require substantial capital to bring planned products to market. The company ended 1Q17 with no cash on hand and current liabilities of $218,413.

Technology Risk

The pharmaceutical market is subject to change and innovation, and UMFG is exposed to risk that new technology can be introduced which might be make its existing technology. The market for cannabinoid pharmaceuticals is characterized by new investment and new companies entering the market, and UMFG could be exposed to risk from the innovations of these companies.

Competition

UMFG operates in a highly competitive industry. We expect the company to face significant competitive forces from the existing competitors as well as new entrants.

Regulatory Risk

UMFG operates in a highly regulated industry, and will be unable to market its products in the United States without receiving clearance from the Food & Drug Administration (FDA). Outcomes of the FDA approval process are inherently uncertain and can meaningfully impact future earnings.

MANAGEMENT TEAM

Sean Ross, President

Sean Ross is the President, Secretary, Principal Executive Officer of the company. He was also appointed Chairman of the Board of Directors and as a Director on December 1, 2014.

Nicole Merion, Director Business Development

Nicole Merion was appointed as the Director of Business Development in May 2017. Nicole Merion brings a wealth of scientific knowledge and contacts at the highest levels of academia and production, facilitating UMF Group Inc.’s vision of operating at the cutting edge of technology and research. She also brings a history of production and development to the company and has been working in the Cannabis field for the past ten years.

Disclaimer

We hire the analysts that prepare our Research Reports and pay them cash consideration for their preparation of the reports. Our Research Reports are not an offer to sell or the solicitation of an offer to buy any security and are not to be construed as stock picks or recommendations. Further, the Research Reports do not consider the investment objectives, financial situations, or needs of investors. Investors should consider whether any of the information should have any impact upon an investment decision. The Research Report is for informational purposes only and Readers should seek professional advice regarding use of the Research Report, including tax advice. Readers of the Research Reports assume their own risk in the use of the information contained therein. The Research Reports may contain projections, forecasts and other statements that are forward looking statements. Readers of the Research Reports are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. Although we review the Research Reports, we do not represent that they are accurate or complete and it should never be solely relied upon when considering an investment.

Our Research Reports express the opinions of the analysts we hire. Our analysts believe that all information contained in the Research Reports is accurate and reliable, and has been obtained from public sources that they believe to be accurate and reliable, and who are not insiders or connected persons of the stock covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer. All information in the Research Reports is presented “as is,” without warranty of any kind, whether express or implied, and neither we or our analysts make any representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or regarding the results to be obtained from its use.

You agree that the use of the Research Reports is at your own risk. In no event will we or any affiliated party be liable for any direct or indirect trading losses caused by any information available on the Research Reports. Neither we or the analysts we hire are registered as an investment advisor in any jurisdiction. The Research Reports do not represent investment advice or a recommendation or a solicitation to buy any securities. Think critically about the opinions expressed in the Research Reports, do your own research and conduct your own analysis before making an investment decision, and seek the advice of a security professional. We have been compensated 20,000 for this report. EMC owns and operates PRP.

For Full Disclaimer Please visit http://emergingmarketsllc.com/disclaimer.php

About Practical Research Partners:

“Hype-Free, Leverageable Information for Active Investors”
Practical Research Partners (PRP) combines efficient, insightful research with the widest distribution to active investors available. PRP endeavors to examine a Company’s core industry through a broader sector view and then drills down to comment on the Company’s prospects within. Each Research Report, completed by highly qualified analysts with appropriate credentials and small and microcap strata understanding will detail leading success components or lack thereof for the subject equity.

Disclaimer:

Practical Research Partners (“PRP”), its principals, affiliates, representatives, subcontractors or agents (hereafter referred to as “PRP” or “we” or “us”) prepare and/or assist others in preparing and publishing oral and written information on selected companies (the “Profiled Company” ) and their securities (the “Securities”) in various contexts, including but not limited to corporate and business profiles, alerts, summaries, reports, and press releases (hereafter referred to as the “Information”) through various methods, including but not limited to: (a) double opt-in spam compliant emails; (c) mail and courier; (d) PRP’s website’s at profiling the Profiled Company and otherwise through the worldwide web. In certain cases, we are merely a distributor of such publications, i.e. a Profiled Company’s press release, in which case, as in all other situations, PRP conducts no review of said publications received from any party such as an investor relations firm that directly contracts with a Profiled Company or a third party shareholder. We do not conduct any due diligence whatsoever for any of our publications, whether we act only as a distributor pursuant to an agreement with another publisher or investor relations firm or directly contract with the Profiled Company or third party shareholder; rather, we rely upon the information of the Profiled Company we receive from the Profiled Company or other investor relations firm or third party shareholder, which similarly may not conduct any due diligence upon the Information of the stocks of the Profiled Company qualify as “penny stocks” under the Securities and Exchange Commission’s (“SEC”) penny stock rules and regulations because, among other things, they have a price of less than $5.00 per share. Penny stocks are subject to material risks that you should be acutely aware of, as detailed in the bulleted risk factor section presented below. Please read the full disclaimer here: http://www.practicalresearchpartners.com/Disclaimer.aspx

For more informative reports such as this, please sign up at http://www.emergingmarketsllc.com/newsletter.php

Section 17(b) of the Securities Act of 1933 requires that any person that uses the mails to publish, give publicity to, or circulate any publication or communication that describes a security in return for consideration received or to be received directly or indirectly from an issuer, underwriter, or dealer, must fully disclose the type of consideration (i.e. cash, free trading stock, restricted stock, stock options, stock warrants) and the specific amount of the consideration. In connection therewith, EMC has received the following compensation and/or has an agreement to receive in the future certain compensation, as described below.

EMC has been paid 20,000 by Dedicated Emails for the report referred to in this email. report. EMC owns and operates PRP. EMC does not independently verify any of the content linked-to from this editorial.

http://emergingmarketsllc.com/disclaimer.php

Emerging Markets Consulting, LLC
Florida Office
15701 State Road 50, Suite #205
Clermont, FL 34711
E-mail: jamespainter@emergingmarketsllc.com
Web: www.emergingmarketsllc.com

SOURCE: Practical Research Partners

ReleaseID: 466353