I can't believe whoever built this sweet boat didn't sheath the whole thing in FB cloth and epoxy.
Start with rough sandpaper (80 grit) and work your way to finer paper after removing the varnish (120, 220). Or you could try starting with a very sharp scraper (2.5 inch Red Devil), but use a file to sharpen often, very often. You must keep it razor sharp!
Then evaluate the rotten/punctured sections. They may be salvageable by simply filling in with thickened epoxy and smoothed out before fiberglassing. Of course, it's not going to look pretty with varnish over the repaired spots, so I would suggest painting it rather than varnishing.
URCHIN Portable Anchor
Canoe Pack Liner
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