Emerald Health Therapeutics, Inc. (EMHTF)

    Company Overview:

    Emerald Health Therapeutics is a Health Canada Licensed Producer of medical cannabis. A vertically integrated, seed-to-sale enterprise, Emerald has combined core competencies from decades of experience in pharmaceutical innovation with large-scale agriculture expertise. They aim to be at the forefront of developing knowledge and products that provide wellness and health benefits from cannabis.

    Emerald’s multi-phase expansion plan is timed for massive scaling to meet anticipated demand from the legalized adult-use recreational cannabis market, slated for October 17, 2018. In their 50%-owned Pure Sunfarms partnership, 225,000 square feet of a 1.1 million square foot greenhouse has been converted and approved by Health Canada for cannabis production. The rest of the facility is scheduled for completion by year end. Emerald also recently acquired Agro-Biotech, a Licensed Producer in Quebec, whose 75,000 square foot indoor facility will supply high-quality and unique cannabis products for the Quebecois and eastern Canadian markets, where over half of Canada’s population resides.

    With an industry-leading pool of cannabis genetics and a strong focus on product innovation backed by decades of rigorous pharmaceutical industry R&D and clinical development, Emerald is putting in place the components for creating consistent high-value downstream products for both the recreational and medical markets which prove safer, more effective, and less addictive than conventional pharmaceutical medicines. Emerald expects that proprietary intellectual property created through its product innovation efforts will be beneficial in creating competitive advantages as well as consumer confidence and product preference for a growing new wave of adult users.

    Emerald’s leadership is among the industry’s most experienced in pharmaceutical drug discovery, development, production, and distribution. Team members have extensive hands-on experience in clinical research, GMP production practices, regulatory approval processes, and intellectual property creation. Key members of its advisory board have been conducting cannabinoid research for over 12 years.

    Sylva's Take:

    Legal marijuana sales exploded to $9.7 billion in North America in 2017 (Arcview Market Research and BDS Analytics), a 33% increase from 2016. Moreover, Canada recently passed the Cannabis Act, which made Canada the first “wealthy” country to fully legalize the plant.

    Emerald Health is positioned to become a key player in the Canadian market, with 4.8 million square feet of greenhouse grow facility at its disposal. If its Pure Sunfarms joint venture were to exercise its option to acquire the sister greenhouses of its current facility and utilize all of the available square footage, this would be the single largest greenhouse-based cannabis growing complex in the world.

    The company had roughly $74 million CAD in cash as of its May filing, and either has or is in the process of acquiring all of the necessary licenses required to grow and sell cannabis in Canada. The company anticipates being fully licensed and ready to go on October 17th, when the Cannabis Act goes into effect.

    The company’s management team and board of advisors have resumes that would be the envy of much larger companies (Board/Management). Whenever we see something like that, we always ask, “why are all of these highly qualified people working for such a small company?” The answer is usually that they strongly believe in the business. We like to see that.

    Finally, Emerald is taking a unique approach to branding and marketing. Since directly advertising cannabis is still banned in Canada, the company has created a joint partnership called Emerald Health Naturals, that will market and sell a proprietary cannabis-free natural health product line. Since the products are not subject to the advertising ban, they can be advertised freely and sold in grocery stores and pharmacies. Emerald’s own marketing research determined that 6 of 10 cannabis users also use natural health products, so the benefit of this strategy is that the Emerald brand will have tremendous exposure.

    Overall, we believe Emerald’s strong balance sheet, tremendous grow potential, strong management team, and large potential brand exposure, is a great way to play the Canadian cannabis market.