Emerald Health: Transformational Joint Venture with Best-in-Class Greenhouse Grower to Lead Industry with Low Cost Production
June 13th, 2017
News, Top News
The Canadian cannabis industry is projected to reach up to C$22.6 billion over the coming years as recreational legalization goes into effect next year. Despite the enormous interest in the space, the market is expected to experience a supply shortfall through 2020 as producers ramp up production. This has created an opportunity for existing licensed producers to scale up production to generate incremental revenue.
In this article, we will look at Emerald Health Therapeutics Inc.’s (TSX-V: EMH) (OTCQX: TBQBF) new 50-50 joint venture with Village Farms International Inc. (TSX: VFF) (OTCQX: VFFIF), designed to enable large-scale, high-quality, and low-cost cannabis production.
Under terms of the agreement, Village Farms has contributed a 1.1 million square foot greenhouse facility located on a 50-acre parcel of land in Delta, British Columbia. Emerald Health will contribute a total of C$20 million in cash to fund the conversion of the greenhouse into an ACMPR-approved facility.
Village Farms is one of the most experienced greenhouse growers in North America with a combined 750 years of experience on its team. With 1.1 million square feet of production, the facility could produce more than 75,000 kilograms of cannabis each year upon full licensing and conversion. The JV also has the option to acquire up to 3.7 million square feet of additional greenhouse capacity. In aggregate these facilities could allow production upwards of 300,000 kilograms per year.
The deal provides Emerald Health with a low-cost and low-risk way to scale up its production and optimize raw material supply for downstream product development. While most of its peers are focused on new-builds to scale up, Emerald has now partnered with an established operator to rapidly scale without much of the associated execution risk that many of its peers likely face. The joint venture plans to focus its efforts on extraction-based products targeting the recreational marijuana market that’s due to come into effect next year.
The company also continues to advance its 32-acre Lower Mainland, British Columbia facility that will house an initial 50,000 square feet. This indoor facility will remain focused on growing high-quality and unique genetics along with housing lab, research facility, processing, and other associated infrastructure for downstream product development.
Filling the Production Gap
Canada’s cannabis industry is expected to reach up to C$22.6 billion in size over the coming years, according to Deloitte Canada, driven by the legalization of recreational marijuana next year. The retail market could be worth between C$4.9 billion and C$8.7 billion per year, while cultivation, processing, testing, and other services would make up for the difference and yield a market that could reach C$12.7 billion to C$22.6 billion.
With a limited number of licensed producers, many analysts believe that there could be a shortfall of supply as cultivators ramp up production. PI Financial projects that licensed producers would have to cultivate a total of 610,000 kilograms of cannabis to fulfill domestic demand by 2019, but existing capacity could lead to a 200,000 kilogram shortfall. This could lead to significant growth opportunities for licensed producers looking to expand.
Emerald Health believes that its agreement with Village Farms could help close much of that production shortfall if its facility is approved. With an initial 75,000 kilograms per year of production coming online, the company could make a big dent early on before potentially increasing that production to 300,000 kilograms if it exercises certain options. This could in turn create a windfall for the company’s shareholders.
Emerald Health Therapeutics Inc. (TSX-V: EMH)(OTCQX: TBQBF) is uniquely positioned within Canada’s burgeoning cannabis industry. With its new joint venture, the company aims to help close the production gap that could impact the industry, while generating significantly more revenue for the company. Investors interested in the space may want to take a closer look at the stock as it seeks to gain approvals for the new joint venture facility.
For more information, visit the company’s website at http://www.emeraldhealth.ca/.
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