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Saturday, November 28, 2020

The Market Share “Jump” Strategy for Emerald Health Therapeutics Inc (OTCMKTS:EMHTF)

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It’s interesting to take a look at the evolutionary pathways being taken by various cannabis companies, with Emerald Health Therapeutics Inc (OTCMKTS:EMHTF) providing a good case in point. The company just filed its financial statements and management discussion and analysis for the three and six months ended June 30, 2018. And, as you can clearly see, the point here is all about strategic expansion and future planning.

“I am proud of the success we’ve had scaling our business so far this year,” said Chris Wagner, CEO of Emerald Health Therapeutics. “Since the start of the second quarter, we acquired and began cultivating cannabis at our Quebec-based licensed producer Agro-Biotech, substantially increased our licensed cannabis production area at our Pure Sunfarms joint venture to roughly 420,000 square feet, and obtained from Health Canada Pure Sunfarms’ sales license. We signed our first provincial supply agreement with our home province of BC on terms we were very happy with. We also announced a term sheet for a strategic alliance with Factors Group, Canada’s largest nutritional supplement marketer and manufacturer, which we expect to significantly expedite our plans to process large quantities of biomass to extract and encapsulate bioactive compounds from cannabis and other plants.”

Emerald Health Therapeutics Inc (OTCMKTS:EMHTF) trumpets itself as a licensed producer of medical marijuana under the Access to Cannabis for Medical Purposes Regulations, which allows the company to produce and sell medical marijuana and cannabis oils to clients and other licensed producers.

Individuals may become clients of the company by registering with the company through its secure online portal or via telephone after the individual has received a medical document signed by a licensed health care practitioner setting out the daily quantity of dried marijuana, in grams, that the practitioner authorized for the person.

According to company materials, “Emerald Health Therapeutics Inc (OTCMKTS:EMHTF) operates through Emerald Health Botanicals Inc., a wholly owned subsidiary and Licensed Producer under the Access to Cannabis for Medical Purposes Regulations. Botanicals is authorized to produce and sell both dried medical cannabis flower and medical cannabis oil in Canada. Botanicals currently operates an indoor facility in Victoria, BC, and is progressing on expansion plans for a 32-acre property in Metro Vancouver and a partnership with Village Farms, called Pure Sunfarms, utilizing a 25-acre existing greenhouse complex in Delta, BC. Botanicals is one of Canada’s most medically focused licensed producers, with a team highly experienced in life sciences product development and large-scale agribusiness. Its vision is to be a leading provider of cannabis products through its production capabilities, proprietary genetics, value-added products and branding, and superb customer experience. Emerald Health Therapeutics is associated with the Emerald Health group, which comprises multiple companies advancing diverse botanical, nutraceutical and pharmaceutical products that may provide wellness and medical benefits by interacting with the body’s endocannabinoid system.”

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As noted above, the company put out its report card. And as you could see from the cited management commentary, we aren’t really focusing on the raw numbers. The numbers aren’t special. But this is all about the process of expansion. It’s about the future.

So, while the revenues are fine (but hardly “wow”), the story here is really about the strategic moves the company has been making to cement in place a more competitive position through market share acquisition.

A good example is the company’s joint venture, Pure Sunfarms, which it notes “continues to move towards achieving its goal of large-scale, high-quality, low-cost cannabis production. On July 27, 2018, Pure Sunfarms received its cannabis sales license from Health Canada. Additional space continues to be developed for cannabis production at the Pure Sunfarms’ 1.1 million square foot (25-acre) greenhouse facility located on a 50-acre parcel of land in Delta, British Columbia (“Delta 3”), with the entire 1.1 million square foot Delta 3 site expected to be in production in 2019.”

Now commanding a market cap of $478.8M, EMHTF has a significant war chest ($72.7M) of cash on the books, which is balanced by about $26.3M in total current liabilities. One should also note that debt has been growing over recent quarters. EMHTF is pulling in trailing 12-month revenues of $1.1M. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 15.7%. As more color becomes clear on the name, we will review the situation and update our take. Sign-up for continuing coverage on shares of $EMHTF stock, as well as other hot stock picks, get our free newsletter today and get our next breakout pick!

Disclosure: we hold no position in $EMHTF, either long or short, and we have not been compensated for this article.

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