Emblem Cannabis (EMC)

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Emblem Corp: Canada’s Most Undervalued Cannabis Play
Marijuana Trends & ArticlesMar 29, 2017 0 2302
http://marijuanastocks.com/emblem-corp-canadas-most-undervalued-cannabis-play/

With one of the biggest cannabis IPO’s out of the way for the venture market, it’s important to reassess where Emblem Cannabis stands today, and where its headed in the future, in light of all the interim short-term movement. It is often the case, that we find ourselves with too narrow a horizon, and often overlook key fundamentals with all the hearsay of the stock market. I first spoke to Maxim Zavet, President of Emblem, to see where the company stands. I then did a bit of digging on my own. To the goodies!

A Talk With Maxim Zavet, President of Emblem

1. Demand is high, while supply is low, for the medicinal cannabis market (currently). I have heard of stocking problems from other Licensed Producers’ clients. What are you doing to make sure this isn’t the case for Emblem?

Maxim: “We will stop taking registrations to manage supply for our existing customers and only take new registrations when we can supply new customers.”

2. What do you consider your unique value proposition, and how do you intend on translating it into growth?

Maxim: “We have three very distinct verticals 1) High Grade or Premium indoor grown dried flower; 2) Pharmaceutical product development; and 3) Patient education clinics. All of these verticals will create revenue streams and more shareholder value.”

3. John Stewart, and the pharma division of Emblem, have a lot of keen eyes closely watching. When do they begin operations and what will be their primary focus?
Maxim: “We’ve begun our extraction activities under his leadership and hope to be ready to sell Cannabis Oils very soon as the first step, he is also working to create novel formulations and delivery mechanisms from those extractions that we are already producing.”

4. Where do you, as Emblem, expect to be in this space, by the time legalization in Canada is enacted as the law? 2019 likely seems to be the case, where do you expect to be by then as as far as expansion is concerned?

Maxim: “You can expect us to be very competitive in the legalized market with a high quality product at a competitive price. We’ve begun expanding our current facility and will continue expansion as we move closer to legalization. We are getting really good feed back with respect to our branding and we believe that Emblem is going to be a very strong mainstream premium brand.”

5. When supply eventually starts meeting demand, and within the mid-term (let’s say 5 years approx.), if the price of cannabis falls per gram due to that, what safeguards do you have in place to ensure your profit margins aren’t overwhelmingly impacted?

Maxim: “Within the next five years, we feel that if there is downward pressure on the price of cannabis it would be with lower quality greenhouse produced cannabis. This is the case in California where greenhouse product is half the price of indoor premium quality dried flower. Also pharmaceutical like products would not be subject to the same price pressures as dried cannabis would be.”

Favourite Topic: Pesticides

It’s been the concern and cause of a lot of speculation in the industry, as of late. I asked Emblem’s front desk, what they are doing, to protect their product from such pesticides.
The answer: “Hello Hamzah, in regards to the question about pest control, We use organic mites to maintain a healthy plant dynamic so we don’t have to spray our cannabis with chemical pesticides. While Health Canada approves some chemical sprays, we avoid that as they can leave residue on the plant which we do not want to promote.”

Senior Management

Emblem is headed by one of the best senior managements’ in the industry. Gordon Fox, the CEO of Emblem, has practical experience running a successful pharmacy, and handling patients is something he has great familiarity with. Maxim Zavet, the President of Emblem, has traveled the world, studying phenotypes and strains for a living. He is in possession of in-depth knowledge of medicinal marijuana with a long list of contacts around the world. John Stewart, President of Emblem Pharmaceuticals, needs little introduction. He was the man responsible for bringing OxyContin to market during his reign with Purdue Pharma, a drug that rakes in multi-billion dollars annually. Finally, Harvey Sharpio, President of GrowWise Health, served as the CEO for TSX listed Dynacare Inc., a company which was eventually acquired by Laboratory Corp. of America Holdings. This top of the line senior management has invested $6 million of their own, indicating the sort of confidence they have in their operations.

Emblem’s ‘Hybrid’ Double-Edged Sword!

Emblem boasts a model and the experience to back it up, in a way, not many others can. The company has a full-scale grow operation, along with a full-fledged pharma production under way, led by John H. Stewart. The aim is to develop new dosage forms of cannabinoid medication. Gel caps, sprays, trans-dermal patches and pills. Push even a single drug through the market, and this company can fly to new heights. This is the very reason I have been so bullish on Emblem. They also have ‘the’ person to back up their aims in this division.

Production & Expansion

Emblem has invested $11 million in its state-of-the-art facility 60 miles southwest of Toronto, located in Paris, Ontario. The location consists of two buildings, spread across 4.3 acres of land, with a cultivation capacity of 14,500 sqft. Phase 2, subject to and based on initial expentancy, has been completed as of February, 2017, adding 1400kg to their existing 700kg production capacity for a total of 2100kg, for a total of $17.85 million in potential annual revenue, excluding oil sales. Capacity will remain that way until phase 3, which is expected to be complete sometime this year. The scaling out expansion is expected under phase 4, which is expected to be complete by 2018. Emblem plans on having a 12,000kg production capacity by then, with annual potential revenues soaring to $102 million. Emblem, at full production can produce 16,000kg of cannabis, with $136 million in annual revenue.

Greater Profit Margins

Based on phase 2 production, cash cost per gram is set at $1.52, with all-in cost per gram at $2.08 (includes ammortization and packaging). Average sale price is $8.50 per gram, translating into 71% profit margins. Projected operating margin for oil sales is set at a staggering 90%.

Oil Sales

All of this, already, without taking into account oil sales. I expect Emblem to be an industry-leader in this division, fully utilizing their pharma capacities to produce quality product. Within the first 12 months of operations and sales, Emblem expects to rake in $2.9 million in oil sales. The real revelation is in future numbers. For every 100kg of dried flower produced, 20% weight of the remaining plant can be used to produce 10,000 bottles of THC/CBD based oil bottles, translating into $8.1m in potential revenue (harvested 6 times). Simply put, $23.6 million is the potential annual revenue from a single grow room dedicated to oils!

Patient Acquisition

Emblem has out-done it’s own expectations. The company projected an estimate 1,000 patients to have been acquired by March, but that number currently stands just north of 2,000, with 8 days still left in the month. The company has seen a massive growth of 4167% in patient acquisition since operations kicked off. The company has a third prong, apart from cultivation and pharma, which is playing a pivotal role in expediting patient acquisition. GrowWise Health aims to educate the masses about cannabinoid based-treatments, and while doing that, has strategically been positioned to expand the bottom line: growth of the company.

Legal disclaimer: The writer holds a long position in Emblem Corp. (TSXV: ‘EMC.VN’)

And an affiliate of MAPH Enterprises LLC has a share position via private placement of 43,500 shares and 21,750 warrants of Emblem Corp Stock.