Emerald Health Oversubscribed Offering to Finance Expansion
April 26th, 2017
News, Top News
Canada’s cannabis industry could surpass $22 billion in size over the coming years, surpassing the country’s wine and spirits industry in size. While there are about 40 licensed producers, many of these companies have already achieved lofty valuations in anticipation of the growing market. The good news is that there are a handful of companies that remain relatively undervalued with plans to significantly grow their footprint.
In this article, we will take a look at Emerald Health Therapeutics Inc.’s (TSX-V: EMH) public offering and its progress in expanding its operations.
Significant Investor Interest
Emerald Health began its public offering on April 10 and ended up issuing 13,170,000 units at $1.85 each for gross proceeds of $24,364,500. The day following the initial closing, the company announced the closing of an over-allotment, adding another $2,758,923 in gross proceeds to the deal.
The units sold in the public offering consist share of common stock and one-half of a common share purchase warrant. The warrant enables the holder to acquire one share of common stock at a price of $2.60 per share for a 24 month period after the offering. If the company’s stock exceeds $3.50 per share for 20 consecutive trading days, the company may accelerate the expiration date to the 30th day after notice is given.
Emerald Health shares trade at $1.28 each right now, which is below the $1.85 unit price and the $2.60 per share exercise price. In other words, investors can purchase the stock in the open market with 100% upside before the warrants start to trigger while benefiting from the $27 million in capital to expand its footprint in the industry. The company’s modest ~$120 million market capitalization (factoring in all shares issued post financing) is also attractive relative to many other licensed producers.
Ambitious Expansion Plans
Canada’s cannabis industry is expected to reach upwards of $22 billion over the coming years, according to Deloitte Canada, driven by the legalization of recreational use. The analyst projects that $8.7 billion will come from the plant’s retail market while ancillary products and services – like growers, testing labs, lighting, and security equipment – will bring in the rest. This market could make the cannabis industry rival the country’s wine and spirits industry in size.
Emerald Health plans to build out its presence in 50,000 square foot expansions based on demand. Initially, the company plans to expand its footprint to 100,000 square feet in 2017 and generate about 10,000 kilograms of dried cannabis per year. Its 32-acre property means that it can continue to expand its presence with up to a million square feet of growing space capable of producing upwards of 100,000 kilograms per year of dried cannabis.
In addition to its production capacity, the company continues to differentiate its products with a very large and diverse library of strains and products that are backed by actual clinical studies. The company’s facilities also grow, extract, and process cannabis to pharmaceutical grade standards, while keeping costs low enough to be very competitively priced. Management’s experience in life sciences and genetics underscores their commitment to quality.
Emerald Health Therapeutics Inc. (TSX-V: EMH) trades with a market capitalization of just $100 million compared to an average of over $500 million for the five largest licensed producers in the space. With nearly $25 million in fresh capital, the company is well-positioned to execute on its ambitious plans to expand to 100,000 square feet this year and produce upwards of 10,000 kilograms of cannabis for sale as dried product or cannabis oils.
The company’s recent inclusion in the first cannabis exchange-traded fund (ETF) – Horizons Medical Marijuana Life Sceinces ETF (TSE: HMMJ) – the stock could further benefit from buying if the fund draws significant assets. Currently, the ETF holds a 2.31% stake in Emerald Health among its 14 stocks targeting the global cannabis industry, which is also a testament to the company’s growing presence in the industry.
This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.
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