Canadian marijuana stocks have been on fire recently, and one of the most highly anticipated stocks to begin trading in the space is Emblem Corp.
- Pre-trading interest from investors in Emblem Corp. has been extremely high with shares oversubscribed
- Emblem shares begin trading this week on the TSX Venture Exchange (TSX-V: EMC), with an OTC listing in the U.S. pending
- U.S.-based investors can buy shares of Emblem on the TSX Venture Exchange with major online brokers. Buying shares prior to the initiation of trading on the U.S. OTC market in the coming weeks could prove to be extremely profitable, as a large increase in demand for a float of just 6 million shares will be felt when trading begins on the OTC market in the U.S.
- The Emblem Pharmaceutical division is led by John H. Stewart, who launched 11 new products, including OxyContin while he was President and CEO of Purdue Pharma, one of the largest privately held pharmaceutical companies in the world
Emblem Corp. (TSX-V: EMC) (web site) is a licensed producer of Medical Marijuana in Canada, led by a team of former HealthCare & Pharma Executives who have built & run multi-billion dollar companies and have invested heavily into the company themselves.
Shares issued and outstanding: 65 million
Approximate float: 6 million
Estimated opening share price range: $1.15-$1.50
Booming Medical Marijuana Market
While many sources confirm the hyper-growth of Canada’s medical marijuana industry, the most telling is from the government’s own Health Canada site that reports over 220% growth in registered clients in the Medical Marijuana Program between September of last year to September of 2016.
Data in table below is from Health Canada Market Data: Marijuana for Medical Purposes
|Quarter Ending September 30, 2015||Quarter Ending September 30, 2016|
|Amount sold to clients (kilograms)||1,873||4,733|
|Amount produced (kilograms)||2,142||5,734|
|Amount in licensed producers’ inventories at end of quarter (kilograms)||7.312||13,246|
|Amount sold to clients (kilograms)||N/A||2,420|
|Amount produced (kilograms)||9||3,116|
|Amount in licensed producers’ inventories at end of quarter (kilograms)||7||3,330|
|Total number of clients registered at end of quarter||30,537||98,460|
Health Canada expects clients enrolled in the Medical Marijuana program to grow at a CAGR of 30% over the next 8 years.
Deloitte Sees Potential $22 Billion Recreational Market
Going beyond medical marijuana, the Canadian government has stated it plans to legalize recreational marijuana by the spring of next year.
Just how significant is this?
In Recreational Marijuana Insights and Opportunities, Deloitte estimates the Canadian recreational marijuana market has an absolute base retail value of $5 billion/year with potential upside to over $22 billion/year when license fees, paraphernalia, tourism revenue, etc. are included.
Emblem Corp: The Perfect Management Team and Business Model to Build Shareholder Value
There are two factors that strongly differentiate Emblem from a multitude of other marijuana stocks available to investors; a management team that’s second to none in the space, and a very compelling business model.
Emblem raised approximately $38 million between the company’s founders, early investors, and investors in brokered and non-brokered private placements. The October private placement at $1.15/share sold out in days and was oversubscribed.
A major reason why Emblem’s October capital raise sold out in a matter of days is summed up in one word: Management.
When you look at the senior management team Emblem has assembled, it’s easy to understand the attraction investors have. No other cannabis stock has a pharmaceutical division headed by someone who launched a drug as big as OxyContin, the most popular opioid of the 21st century. Emblem has that in John H. Stewart, who was President and CEO of Purdue Pharma in 1996 when OxyContin was launched.
The founders above own a significant percent of the company and understand the importance of share structure. They also exchanged their original shares for Management Performance Escrow shares with a voluntary, 18 month escrow period. Founders, management, and employees have invested ~ $6 million in Emblem Cannabis Corp. to date.
Emblem operates three distinct divisions which can create value for each other: Emblem Cannabis (the production division), Emblem Pharmaceutical, and GrowWise Health (marijuana education for patients and physicians).
I’ll discuss each of the three divisions and the competitive advantages Emblem has in each of them, below.
Production Division: Emblem Cannabis
Emblem received a marijuana cultivation license from the Canadian government in August 2015 with initial sales beginning in July of this year.
The Company has invested $11 million to date to build a state of the art facility about 60 miles southwest of Toronto, (in Paris, Ontario), which consists of two buildings situated on 4.1 acres of land and includes 14,500 sq. ft. of total cultivation space.
Each grow room is outfitted with dedicated CO2, humidification, & custom HVAC units to provide ideal temperature, humidity, and climate control. With two high quality grow rooms yielding 100% medical grade product, Emblem is testing different methodologies for the Company’s phase 2 expansion to create the ideal balance of quality and quantity.
- Phase 2 expansion is fully funded, and expected to be complete in February, 2017 for a running capacity of 2,100 KG
- Phase 3 expansion is expected to be completed by Q3 2017 for an additional 9,500 KG of production capacity for a total 11,600KG potential running capacity from all phases
- Phase 4 expansion (completion expected in 2018) is planned to meet additional demand from the recreational market. Phase 1-4 would have potential capacity of 21,100KG and generate $179.3 million in sales according to the company
- Most significant for investors is that phases 3 and 4 bring production levels into a range that rivals OrganiGram Holdings (market cap $284 million), Aphria Inc. (market cap $553 million), Mettrum Health (market cap $345 million) and Canopy Growth (market cap $1.2 billion).
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Keep in mind Emblem has just 37 million shares outstanding, so even at $5/share, the market cap would still be far below its peer group.
Medical grade marijuana is preferred, and sells at premium prices. Emblem has a wide variety of strains and categories for sale now, with new product launches pending.
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Emblem has invested $1 million into oil production, and sees demand for cannabis oils, especially high CBD oil, rapidly increasing. This higher cost product, (with estimated 90% operating margin), increases the shelf life of medical cannabis and is attractive to consumers who prefer not to inhale smoke and are looking for an easily controlled dosage.
Emblem estimates potential revenue from a single growth room dedicated to high THC and CBD strains that are ideal for extraction to exceed $23 million @ $135/bottle.
For a tour of Emblem’s new facilities, see: “An Inside Look At One Of Canada’s New Licensed Cannabis Producers“
Emblem Pharmaceutical Division
The second of 3 divisions at Emblem is the Pharmaceutical Division, headed by John H. Stewart.
Stewart, (who has invested about $1 million in Emblem), launched 11 new products, including Biphentin, MS Contin, Zytram and the $2B/year blockbuster, OxyContin.
Beginning in Q2 of next year, Emblem will launch cannabinoid-based medications in strict pharmaceutical dosages in liquid form, gel caps, oral sprays, and inhalers.
Pharmaceutical Division Rational & Opportunities
- Cannabinoids Have Real Therapeutic Value with Cesamet (THC – Lilly), Marinol (THC – AbbVie) and Sativex (THC & CBD – GW Pharma) approved as prescription drugs by Health Canada
- Pharma Companies actively developing NCE’s that target the Endocannabinoid System
- Over 1,000 medical / scientific papers have been published pertaining to the use of cannabinoids
- Evidence of efficacy in patients with chronic pain, neuropathic pain, muscle spasms, nausea, palliative care and PTSD
- Canadian Pain Society recommends cannabinoids as third-line treatment for neuropathic pain
Pharmaceutical Division Advanced Dosage Forms
- Overcome the significant limitations of smoking or vaporization of dried flower
- Provide for dose-to-dose and lot-to-lot consistency, quality and effects
- Change the dosage regimen from grams of dried flower per day to mg per dose / mg per day
- Allow for dosage forms to be targeted to specific purposes- Creating sustained release, and rapid release for pain and sleep respectively
- Opportunity for dosage form related intellectual property
- Will greatly increase both patient and prescriber acceptance of cannabinoid therapy
While the majority of patients currently taking medical marijuana are seeking relief from pain, anxiety, and sleep disorders, there is exciting evidence that marijuana may prevent cancers from spreading (see Scientists Find Cannabis Compound Stops Metastasis In Aggressive Cancers).
And while scientific research is still needed to confirm some of the health benefits of medical marijuana, there is an abundance of anecdotal and early research results that cannabis has great therapeutic value in as many as 50 different conditions (see 50 Unexpected Benefits of Cannabis).
While many publicly-traded cannabis companies are little more than “growers of a commodity” plant, Emblem fully recognizes the potential for medical marijuana going forward, and has the expertise to capitalize on this market opportunity with an early mover advantage.
John H. Stewart explained:
“Cannabinoids and other components of marijuana have real therapeutic value. Emblem is identifying the marijuana strains with the greatest evidence of benefit in various conditions, cultivating those strains at medical grade and developing advanced dosage forms to provide patients with accurate, consistent, high quality and convenient to use cannabis formulations.”
and in a great interview that I strongly urge investors to read, “The Next Big Cannabis IPO“, John Stewart notes that:
“Our high quality cultivation with our pharmaceutical development brings not only the right cannabinoid strain and content to the formulation, but also makes available the formulations best suited for particular therapeutic outcomes.”
Again, having a separate pharmaceutical division headed up by a former President and CEO from big pharma is a huge difference in Emblem vs. marijuana grow companies from an investment perspective.
Consider potential joint ventures and collaborations with global pharmaceutical giants, and you begin to see the potential Emblem offers investors.
Emblem Marijuana Education Division
The third division of Emblem Corp. is GrowWise Health, (web site) and is focused on marijuana education to provide a solution for both physicians and patients in the medical marijuana industry. It is a joint venture with White Cedar Pharmacy, one of the largest dispensing pharmacies on Ontario.
While dispensaries sell marijuana from unknown sources directly on site, cannabis support clinics like GrowWise offer support, education, and help on using medical marijuana and choosing a licensed producer.
GrowWise Education Centers operate in medical clinics and receives referrals when patients are prescribed marijuana. Here, nurses counsel patients on safety and strain selection, and assist patients in registering and placing orders with a licensed producer.
GrowWise has partnered with several preferred licenced providers, and is also expected to be another reliable, consistent source of patients for Emblem.
GrowWise operates two platforms:
- Education centres within incumbent medical clinics
Currently operating in 4 chronic pain clinics & one rehabilitation center, with three additional education centers to be added by end of this year.
- Stand alone medical cannabis clinics
First referral-based cannabis clinic opened in November, 2015, have received referrals from nearly 100 different doctors to date, and is opening two more clinics in 2016.
The GrowWise Health/Education Division will be a source of additional, independent revenue flow from new patient acquisition/referrals at other licensed producers, while also feeding into Emblem’s pharmaceutical and marijuana production divisions.
The GrowWise Health division is a strategically astute business model that allows Emblem to draw additional revenue from several preferred provider competitors while driving internal sales at the same time.
Positive Cash Flow Projected by Q4 2017
Due to the quality and strengths of Emblem’s products, management, and business model, Emblem is conservatively projecting to be cash flow positive by Q4 2017.
Potential Answer to Skyrocketing Opioid Abuse
The revenue projections above do not include the potential revenue from collaboration or JV with government or big pharma in curbing opioid abuse. As we know, high levels of opioid abuse is a growing problem in the U.S. and Canada. There may be a light shining in the darkness of the present opioid abuse tunnel however. The American Journal of Public Health recently published a study that revealed opioid use was reduced in states with legalized medical marijuana (see Study: Opioid Use Decreases in States that Legalize Medical Marijuana). Additionally, Massachusetts has reported success in reducing opioid abuse by utilizing medical marijuana, (see Opioid Addiction Being Treated With Medical Marijuana in Massachusetts)
There is no cannabis stock with a management team as proficient in opioid analgesics as Emblem, and I think this is something both retail and institutional investors will come to realize in the near term.
Expect Surge of Interest & Volume When Shares Begin Trading on U.S. OTC Market
As mentioned earlier, U.S.-based investors can easily buy shares of Emblem Corp. via major online brokers. In most cases the ticker will be EMC.V or EMC:CA. Buying shares early, and prior to the initiation of trading on the U.S. OTC market in the coming weeks could prove to be extremely profitable. There will be an increase in demand for a float of just 6 million shares when trading begins in the U.S.
I’ll be a buyer of EMC.V shares tomorrow and look forward to updating subscribers on the company in the weeks and months ahead!
Best wishes for profitable investing,