RE: The Natural Factors Partnership
The cannabis sector has been on fire recently following the record-setting investment by $50 billion beverage giant, Constellation brands, into Canopy Growth. With rumors swirling that Diageo and others are preparing to follow suit, a speculative frenzy has driven the sector higher as investors place bets on who could be next. Center stage in all this has been cannabis-infused beverages as many executives believe this new product category represents the next wave of consumptions habits. But they may be missing the real opportunitythe $3.7 trillion dollar global health and wellness market. The preventative health, alternative medicine, and beauty segments, alone add up to over $1.7 trillion dollars, and this is where the future of cannabis lies. Although cannabis certainly provides a substitute for alcohol and is set to disrupt that market, the real story is in health and wellness. The potential of cannabis goes far beyond recreational usage to get a buzz. Instead, think of cannabis as an essential supplement for human health. Researchers are discovering just how important the endocannabinoid system is to our health, and how it regulates everything from our organs to immune system to metabolism. Thats why this latest news from Emerald Health Therapeutics (TSX.V: EMH) really got our attention. This is a company we have been following since it was trading at around $1.40. And we are impressed with how well EMH has executed on its expansion plans to date. Becoming an Early-Market Entrant in the Lucrative Nutraceuticals Market Recently we learned that Emerald Health has signed a term sheet outlining a strategic alliance with Factors R&D Technology(FTI), a division of the nutraceutical giant Factors Group of Nutritional Companies Inc. Factors Group is a vertically-integrated farm-to-retail producer and distributor of nutritional supplements and we think this presents an excellent opportunity for both firms. As the largest nutritional supplement company in Canada, Factors knows all about the health and wellness business. The company has been watching the cannabis space closely, and after careful consideration, believes Emerald Health is the best strategic fit for FTI due to its devotion to medical product development and research. FTI will be collaborating with Emerald Health to develop and market both cannabis-based, and non-cannabis-based product formulations to support the endocannabinoid system. image: https://www.stockhouse.com/getattachment/30601d6f-f425-44f6-8a7b-521d99b1e64d/marc2.jpg Emerald Health looks to leverage FTIs expertise and infrastructure in order to accelerate its time to market for new product lines. Emerald Healths Chairman Dr. Avtar Dhillon says: "This strategic alliance with FTI will provide us industry leading expertise and capacity through FTI's proprietary phytochemical extraction technology. Accessing FTI's infrastructure will allow us to dramatically shorten our commercial ramp-up from years to a few months, allowing us to leapfrog competitors attempting to build out their own extraction and encapsulation facilities. He adds: With proven and reliable large-scale production of high-grade value-added cannabis products in place, we have significantly reduced the risks of scaling new manufacturing, quality assurance issues and product recalls that could be expected when going through such operational scaling and the associated learning curve. Dr. Dhillon explains that the health & wellness industry makes a perfect fit for his company now that people are increasingly turning to cannabis-based nutraceuticals to manage their health. FTI gives us a distinct advantage in a market where rapid growth in consumer demand is expected to evolve toward high quality products that deliver precise, consistent dosing and other well-characterized attributes. This is a game-changer for Emerald Health, the Canadian medicinal cannabis industry and, most importantly, our customers, he says. We agree that this alliance provides significant and immediate advantages to both companies as each benefit from the others experience and capabilities. As other cannabis firms seek to leverage the product development, manufacturing, and distribution capabilities of major alcoholic beverage conglomerates in order to go after the beverage market, Emerald Health has teamed up with FTI to target the massive health and wellness industry. Under the terms of this alliance, the companies will collaborate on the research and development, production, and sales and marketing of a variety of new products targeting the endocannabinoid system, as well as production of Emerald Healths current product portfolio. Emerald Health will provide pharmaceutical-grade the cannabis and $5 million to cover the costs of renovating the facilities in order to be in compliance with medical cannabis regulations. It will also issue 25% equity in its joint venture, Emerald Health Naturals to FTI. In turn, FTI will provide the infrastructure and expertise necessary to develop, market, and distribute these new endocannabinoid system wellness products through the companys global network. Included in that infrastructure is FTIs extraction facility that is capable of processing up to 1 million kilograms of biomass annually and producing up to 600 million soft-gel capsules. We believe this is a major benefit. When combined with FTIs decades of experience, it should save millions of dollars and drastically reduce the timeline for product launch, giving Emerald Health a significant head-start over competitors. By combining the highly complementary core competencies of these two companies, the firms are well-positioned to succeed in what could be the most exciting segment of the entire cannabis sectorand potentially the largest. As the medical community continues to better understand the endocannabinoid system and the benefits of cannabis as having an important role in a preventative medicine and wellness routine, this market is likely to expand rapidly. We expect to see a strong focus on CBD products as these can be marketed over- the- counter in many areas where cannabis products containing THC cannot, thereby taking full advantage of Factors Groups global network of retail partners. We are favorable on this alliance and see this as an excellent strategic fit for both companies. We are of the opinion that this relationship may be expanded upon as the benefits of this alliance materialize. While this arrangement has not gotten as much attention as some of the other deals in the sector, we believe it is one that investors should be aware of. By joining forces with FTI, Emerald Health should be able to deliver a broad range of cannabinoid therapies at scale in far less time than would otherwise be feasible. Leveraging off business alliances has worked well for Canopy Growth and Aurora Cannabis in particular. For instance, Relationships are important and so is experience. Canopys relationship with Constellation Brands clearly provides it with an advantage in the development and distribution of cannabis beverages and consumer products. We therefore believe Emerald Healths relationship with the Factors Group lends it a key competitive edge in the development and distribution of cannabis health supplements. Furthermore, we think of this segment as being underestimated by firms and investors, and as having the potential to become the largest of all cannabis categories. As health-conscious consumers come to realize the importance of maintaining the function of the endocannabinoid system, this segment is set for explosive global growth. This strategic alliance places Emerald Health and the Factors Group in a strong position to capitalize on this opportunity, and could set the stage for further collaboration and a deepening of this business relationship. Accordingly, we expect Emerald Health to be a strong performer as it moves into the health and wellness marketplace with a truly dynamic foundation for success in the fast-emerging multi billion-dollar business of cannabis-based value-added products. Contributed by Staff Writer Jeff Khoshaba Editing by Marc Davis www.cannabiscapitalist.ca Read more at https://www.stockhouse.com/opinion/independent-reports/2018/09/04/forget-cannabis-drinks-emerald-health-sees-big-prize-health-wellness-market#cDhERGkm6wvKHg42.99