Emerald Health Assembling Impressive Array of Cannabis Assets
May 8th, 2018
Exclusive, News, Top News
As adult-use legalization of cannabis approaches in Canada, anticipated this summer or perhaps early fall, the industry offers a wide array of companies looking to capitalize on this greatly expanded market. Licensed producers are building out expanded cultivation facilities and investing in retail-oriented brands while trying to establish broad consumer appeal. Companies are anticipating that current trends will hold and consumers will be looking for alternate methods to smoking for the delivery of cannabinoids, opening up high-margin opportunities for retail products. Blockchain technology may provide a method to better manage the complex world of the cannabis supply chain and provide added trust for consumers.
Emerald Health Therapeutics, Inc. (TSXV: EMH) (OTCQX: EMHTF) is a British Columbia-based licensed producer that is checking all of these boxes and then some, building a diversified and vertically-integrated company that is poised to take full advantage of the legalization of cannabis. Long viewed as a science-oriented niche producer, the company is now in a position to be a major player in all aspects of the emergent industry.
Large Scale Production Capacity
Starting off with the most obvious asset, Emerald Health has a whole lot of production capacity either currently in play or coming online soon. The company has substantially completed a retrofit of an existing 250,000 square foot greenhouse in a joint venture with Village Farms International (TSX: VFF), one of North America’s largest agricultural greenhouse operators. The JV, called Pure Sunfarms, is retrofitting an additional 850,000 square feet of existing greenhouse, and the 1.1 million square foot operation is conservatively estimated to have over 75,000 kilograms of cannabis flower production capacity once it is fully built out. Pure Sunfarms received its cultivation license, expects its sales license this summer, and is aiming to reliably produce high quality cannabis at less than $1/gram of production cost. Pure Sunfarms also has an option to convert an additional 3.7 million square feet of existing greenhouses at this Delta, BC location.
Emerald is currently building its own 500,000 square foot hybrid greenhouse facility in the Metro Vancouver area. Its existing Victoria, BC cultivation facility complements all of this large-scale production, and the company is currently licensed to both produce and sell dry and extracted products.
The company recently acquired Agro-Biotech, one of only six currently licensed producers in the province of Quebec. The move adds about 10,000 kilograms of cannabis production capacity at full production, but the most important aspect of this deal may be the geographical diversity it provides Emerald. Quebec is Canada’s second most populous province, with about 8.4 million residents. Agro-Biotech is well positioned to serve Quebec consumers with its local presence and provides a regional hub to distribute product to eastern Canada.
Converting Science to Consumer Products
Apart from selling cannabis flower, Emerald Health is positioned to capitalize on industry trends toward more differentiated and higher margin products based on cannabis derivatives. The company already offers whole plant extracts derived from its own unique variety of cannabis strains, including one of the few THCA oil products on the market. With the company’s broad-based life sciences and R&D expertise, it is very focused on production innovation and the advancement of novel intellectual property with the goal of achieving a product line that leverages opportunities based on unique formulation, delivery, and applications.
Emerald controls 53% of Northern Vine Labs, a licensed dealer in British Columbia. A licensed dealer designation from Health Canada allows the company to provide testing services, import and export cannabis oils, and research and develop cannabis-derived products in ways that licensed producers cannot. This license is helpful for both the development and distribution of cannabis products like beverages, edibles, and personal care products. As the cannabis flower market matures, prices and profit margins are likely to shrink and companies that provide effective higher margin products from derivatives will likely benefit.
A recently-announced deal to market and sell proprietary non-cannabis nutritional products lays the foundation for potential future cannabis-based distribution. In essence, the company intends to distribute endocannabinoid-supporting products through pharmacies, natural health outlets, and grocery stores. On top of providing Emerald a differentiated revenue stream, the deal gives the company potential channels for future distribution of cannabis products should those channels become approved at some point. To be clear, Emerald cannot currently sell cannabis-derived products through these channels. But the roadmap is there should the market mature and regulations change. In the meantime, Emerald is also developing a comprehensive e-commerce platform in conjunction with Namaste Technologies to serve as a retail channel for its customers.
Keeping Track of It All
Cannabis is a highly regulated and high value product that requires meticulous record-keeping in order to ensure compliance. Blockchain technology appears to be well-suited to manage this particular challenge and to offer the many stakeholders in the marketplace, in particular customers, a higher level of trust and confidence in the cannabis products they purchase. Emerald Health is focused on developing a solution to address these opportunities. By tracking each step of the plant’s journey, from seed to sale, with a decentralized, timestamped and unhackable digital ledger, Emerald thinks its platform can transform the industry.
“There are various applications of blockchain technology focused on validating and assuring the source, quality and integrity of products such as diamonds, wine, and art, along with coffee and other food products,” said Avtar Dhillon, MD, Executive Chairman of Emerald Health Therapeutics. “Cannabis is also a prime industry in which to apply blockchain to the supply chain based on the broad spectrum of plant and growing attributes, as well as product innovation potential; the need for licensing as well as high security and confidence; and the possibility to start off such an initiative with relatively small groups of pertinent stakeholders.”
Canada is leading the world in terms of legalizing and regulating the cannabis industry, and the country’s upcoming full legalization of the plant is groundbreaking on many levels. Investors may want to consider Emerald Health Therapeutics as it transforms into a major diversified producer and product innovator.
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