VPR Brands LP (VPRB)

[Potfolio]

$VPRB - Due Diligence and Why Risk/Reward Is Currently Insane

Over the past year plus I've built a very sizeable stake in VPR Brands - with a long term view that the company is extremely undervalued and that appropriate valuation will occur eventually via rise in share price and/or acquisition. If you are reading this I honestly would just consider yourself damn lucky that you're able to read this...complete your own due diligence and make your own decision on if you think this company at a 7 million valuation has an extreme risk/reward opportunity.

Note: Since the company has few resources to focus on IR, I will of my best to share my due diligence.

There are 5 primary reasons I believe the company could very well be worth $85 million or more by the end of 2019. There are 85 million shares O/S so that is $1.00 share price. It currently trades around $0.08 and I've been a buyer between $0.02-$0.15 and every number in between. Longer term $2+ is definitely possible and I will outline that below.

Reasons for value appreciation:

1) The management team extremely experienced, talented, passionate, and they are fully aligned with shareholders.

2. The Vaporizer, CBD/Hemp and MJ markets are in their infancy and this company will have years of tailwinds from a growing market.

3. The company has diversified their business dramatically in the past 6 months and continue to do so where they are practically building multiple >$50M valued businesses at one time.

4. The company balance sheet has been utterly transformed over the past 6 months and is now in good shape.

5. The share structure in 2019 vs. 2018 is going to be a dramatic shift that the market hasn't even begun to appreciate the impact from no more dilution.

Reason #1: The management team extremely experienced, talented, passionate and they are fully aligned with shareholders.

CEO - Kevin Frija
Kevin was former CEO of Vape Corp (now HCMC) and helped them grow from $2M to $30M+ in revenue and they ultimately listed as the first E-CIG company on NASDAQ. The most underrated aspect of the company is the amount of experience and RELATIONSHIPS that Kevin has in the industry. I strongly believe we have only begun to see the beginning of the sales trajectory here...Exhibit A was recently they announced they landed SAM CLUB STORES in 3 states out West.

Videos of Kevin on CNBC when he was CEO of Vapor Corp.
https://www.cnbc.com/video/2013/12/19/e-cigarettes-regulation-will-be-good-for-clarity-ceo.html
https://www.youtube.com/watch?v=rLDDw9l2TPw

COO - Dan Hoff
Dan came over from Vape Corp as well and is one of the best minds in the industry. Here is Dan at a conference a year or so ago. If you watch the YOUTUBE channel for Honeystick you will also see how passionate and customer centric he is.
https://www.youtube.com/watch?v=suyY3Z_WP6o

Gary - Has a long history in sales leadership and has already landed strong retailers and done tons of expansion in Q4 of the CBD Goldline. For example: On Instagram Dion's Quik Mart acknowledged they now carry CBD Goldline in all 12 of their Florida locations. Note: All these sales are incremental in Q4 as the brand was just launching.
https://www.linkedin.com/in/hemp-cbd-gary-rep-282b779/

JD Nazario - Has helped build an excellent branding for CBD Goldline
https://www.linkedin.com/in/cbd-goldline-hemp-jd-nazario-032241160/

Ezequiel Pavlotsky - Landed multiple international distributors.
https://www.linkedin.com/in/ezequielpavlotsky/

I could go on and on about the team but it is clear in the sales growth and margin expansion that they are winning - and just getting started.

Lastly...alignment. Kevin owns approximately 18 million shares which is roughly 20% of the common's. He and Dan are taking normal salaries you would expect for a company this size. They are absolutely linked with shareholders...the way they get paid in the long run is to build a valuable business; PERIOD.

2. The Vaporizer, CBD/Hemp and MJ markets are in their infancy and this company will have years of tailwinds from a growing market.

So we could go into multiple things here...market is set to explode...I've seen 20-30% CAGR growth for the industry for the next 5 years. If you do a simple google search you'll see that this is in the 1st inning of expansion. The key takeaway for me here is...even maintaining their share...there set for massive growth that will drive valuations higher.

3. The company has diversified their business dramatically in the past 6 months and continue to do so where they are practically building multiple >$50M valued businesses at one time.


http://www.drgoodhemp.com/
The newest brand addition to the VPR Brands family. Website under construction. It appears to be aimed at a different audience and has a more "wholefoods"" type feel to the branding IMO. A total guess, but I sure hope this brand was created based on a large retailer feedback on the packaging that they were going for.

CBD Goldline.
https://cbdgoldline.com/
The brand launched very end of Q3 so the first real sales benefit will occur here in Q4 results. I've tried the product and it is top notch.

They are already in convenience stores. See all the photos here.
https://cbdgoldline.com/wholesale-application/

They continue to add product extensions. The latest is the CBD Reserve line --- premium CBD Goldline.

You can see they have been getting traction just on GROUPON online I'm estimating additional $1M+ revenue annually for VPRB.

https://www.groupon.com/deals/gg-goldline-cbd-gummy-bears-from-vape-gods

They also have landed the HEMP gummies on Amazon but appear to be working out some kinks..

https://www.amazon.com/Hemp-Vitamin-Gummies-Strawberry-Colada/dp/B07KGHX9Y5


Other revenue streams include their online retail store:
www.vaporstoredirect.com

As well as their EBAY store found here:
http://www.ebaystores.com/vprbrands

www.vapehoneystick.com
Their main revenue driver in 2018 will be from the HONEYSTICK brand. I've written a lot about this. But recently their product line extension of the bee keeper 2.0 in January 2019 is likely to drive significant volume. It is their best seller and the new 2.0 will drive enormous repeat buyers.


4. The company balance sheet has been utterly transformed over the past 6 months and is now in good shape.

Long story short, according to their filings, they were given $500K+ loan from HCMC (former Vape Corp) because of an infringement of non compete settlement. The $500K was a significant boost and it was at 7%.


5. The share structure in 2019 vs. 2018 is going to be a dramatic shift that the market hasn't even begun to appreciate the impact from no more dilution.

This is such a major deal that unless you are following the stock closely or validating this info for yourself you won't have a clue why the stock price is rising, rising and rising in the 1H of 2019.
$90K of the convertible note remained as of Q2 and was eliminated after Q3. CONSIDER THIS:
- 29.7M shares added in 2018
- 65.9M shares traded 1/1 to 11/3
- 45% of shares traded were from dilution
- Epic supply/demand shift is only STARTING to occur here

Here's the deal. Ove the past 1.5 years the convertible note has wrecked the investment opportunity here until it had completed. But I strongly believe that as the note has ended that even ignoring the "investment factors" that the stock would rise because of natural supply and demand of shares available. HALF OF SHARES TRADED WERE NEW ONES FROM DILUTION WHICH IS OVER! IF JUST SAME VOLUME TRADED AGAIN PRICE WOULD HAVE TO BE SIGNIFICANTLY HIGHER.

Even the last drop from $0.12 to $.05 was only because there was still 1M shares that needed to be released as part of the conversion. If you are following no new shares have been issued in months now and the price continues to rise. There are NO SELLERS right now...and just a matter of time until the price appreciates to an appropriate valuation.


FINALLY...VALUATION. When is the last time you talked CHEAP VALUATION with a MJ/CBD company? But I'm not kidding these guys are cheap!!!!!!

Q4 revenue last year was impacted by many OUT OF STOCK's and the fact the company had cash issues...demand was strong. So the $0.7M of revenue is going to be BLOWN AWAY. I expect the core vaporizer business to be producing $1.3-$1.5M in revenue - similar to the prior quarter...with the addition of CBD Goldline for another $0.2-$0.6M in the QTR...for a total projection of $1.5M to $2.1M. My best guess is we will see $1.75M which is a $7M annual run rate. That means the company is currently trading at 1x revenue annual run rate. THIS IS INSANE.

It's INSANE because with all their recent revenue opportunities there is NO REASON they shouldn't be at 6-7x revenue where similar deals have happened.

I strongly believe CBD Goldline will be $3-$10M in revenue in 2019...just depends the timing of some national retailer launches...Honeystick brand should be $7-$20M...yes, it's a big range but they just got into SAMS CLUB!! Lastly, Dr. Good Hemp...who knows..but that could be worth $2M+....The revenue growth opportunities are all over the damn place in 2019 and a very MINIMUM target is $12M.....and could do $20M+. At 6-7x revenue you get to $1.00 share price on the low end.

Not to mention PROFIT...these guys should be able to leverage their cost structure very well online...an through these national relationships...at 30% operating leverage...going from $6M to $12M in sales is incremental $6M revenue and $2M Operating income. At $2-3M OI in 2019 they could easily be getting a 25x multiple on that...likely 30-40x with the growth rate....meaning valuation of $1-2.

I could be half wrong here...and still have a 5x bagger at current share price. The risk/reward is compelling. Management is strong and has the relationships in the past (i.e. see the family dollar vape corp deal 5 years ago that Kevin put together) and you'll see why I keep buying shares at this valuation.


The upside...Kevin puts together a NATIONAL deal and gets $20M+ revenue at a snap of the fingers...INSTNTLY adding $1+ to the share price.

FAMILY DOLLAR DEAL KEVIN PUT TOGETHER AT LAST COMPANY:
https://www.prnewswire.com/news-releases/vapor-corp-launches-krave-king-at-family-dollar-stores-nationwide-236713491.html