The cannabis industry continues to be the hottest sector to invest in as Wall Street has become more favorable on investment opportunities within it.
One of the hottest areas in the cannabis industry has been the Canadian licensed medical cannabis producers which continues to see impressive growth as the number of registered patients has increased at double digit percentages on a month-over-month basis.
Canada Continues to Lead
We are favorable on the Canadian cannabis industry for many reasons but one of the main factors is that medical cannabis is legal at the Federal level. Unlike what we have in the United States, Canadian cannabis companies can use banks and access basic business services for companies to operate more efficiently and effectively.
Earlier this month, we highlighted Emblem Corp as one of the next big investment opportunities as the company gears up for its initial public offering on the TSX venture exchange.
Investment Thesis
Emblem is a licensed medical cannabis producer in Canada uniquely positioned within the rapidly growing medical and recreational cannabis industry. We are favorable on Emblem for the following reasons: 1) Operates three distinct divisions which can create value for each other, 2) It recently completed a capital raise that was oversubscribed and the company has seen remarkably high interest from the marketplace, 3) The company started selling medical cannabis in August and we expect to see significant growth on a month-over-month basis, 4) It is led by a management team that has a proven track record of building successful multi-billion dollar companies, and 5) Its current valuation is attractive as we expect to see incremental growth on a year-over-year basis.
Attractive Operating Structure
Emblem is comprised of three distinct divisions which can create value for each other as well as improve the value proposition of the entire company.
Its three divisions are focused on cannabis production through Emblem Cannabis, patient education through GrowWise Health, and pharmaceutical production through Emblem Pharmaceuticals.
Emblem Cannabis is focused on producing a high-quality, higher-margin product and is working to create the ideal balance of quality and quantity. Its state-of-the-art facility is comprised of three buildings on a 4.1-acre property in Paris, Ontario and the buildings take up less than 20% of the acreage. After phase 2 is complete and online in February, the facility will be able to generate over $17 million a year. Emblem has a planned expansion for its 3rd phase of development as well, which has the potential to take Emblem to almost 12,000KG per year, and even that only takes up 50% of their property.
Emblem received its sales license in August, and has been actively selling its high quality strains into the wholesale market, while finalizing their patient launch, expected in mid-November. Emblem can store over 600Kg of cannabis, which is right below its 700Kg operating capacity. Since inception, Emblem has invested over $11 million into its facility, land and infrastructure.
The company estimates an average sale price of $8.50 per gram when it starts delivery of the product to patients and its all-in costs, at full phase 2 production are $2.08. Emblem feels it can reduce this even further, with economies of scale once phase 3 goes online. Emblem will continue selling its flower at wholesale prices to other licensed producers while beefing up their patient count, for between $3.50-$5 per gram.