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The Cannabis Company that’s Driving “Sustainable Profitability”

Dave Jackson Dave Jackson, Stockhouse
2 Comments| April 27, 2021

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(Click image to play video)

Getting well and staying well is the goal of everyone. But the ways and means of achieving a state of mental and physical wellbeing alludes millions of us. Luckily, certain forward-thinking, compassionate companies are committed to creating new consumer experiences with distinct recreational, medical, and wellness-oriented cannabis products.

Vancouver BC-based Emerald Health Therapeutics Inc. (CSE: EMH, OTCMKTS: EMHTF, Forum) is one such company, priding itself on improving people’s lives through science-driven innovation and product differentiation & excellence.

In this exclusive video podcast, Stockhouse Media’s Dave Jackson was joined by company President and CEO Riaz Bandali to get investors up-to-date on all things Emerald Health Therapeutics


SH: To start off with, can you tell us a little bit about yourself and the history of the company?

RB: Sure. I'd be happy to. So I joined Emerald health in August 2019. I actually was brought in to help reposition and restructure and refocus the company as we move forward and get it into a place where we can grow. My experience-based prior to joining Emerald was about 25 years. It was all in the health and life sciences sector. I spent eight years as a venture capitalist, helping to build and finance, very innovative companies, all focused on the science and the biotech segments of business. And then I spent 17 years as an executive running operations for large health and life sciences companies with P and L responsibility. And those companies were focused on serving primarily large biotech and pharma clients that everyone knows. With regards to the company, the company has actually been one of the oldest Canadian licensed LPs. It actually was licensed around having the framework that was based on the medical framework that Canada had in place.

In about 2015, we had a group of people who joined the company who had a strong background in biotech. And one of the things that they put together was actually a joint venture and it was a joint venture that was focused on large scale, low-cost cultivation. It ended up being one of the most successful enterprises in the Canadian cannabis landscape. And we divested of that business last year. And that divestment really put us in a good position to clean up our financial position and really focus in on an innovative growth strategy, which I'm excited to talk to people about today.

SH: Can you update our investor audience and your E-M-H shareholders on all the new company developments, especially in the wake of COVID-19?

RB: Yeah, absolutely. And I'm delighted to do that. When I talked about positioning the company for success, obviously there were several months that were focused on re-strategizing around what the company is doing, restructuring some of the company's operations as was the par for many of the cannabis companies that we retained through the last 18 months. Now we put together a very clearly defined strategy and that strategy really focuses in on the evolution of cannabis products beyond purely cannabis 1.0 products into innovative cannabis 2.0 products and newly developed thought processes around what cannabis 3.0 starts to look like.We do that because we're very passionate. We understand science and we understand innovation. When we utilize science and innovation, we can bring together products that really resonate with a consumer base that we've spent a fair amount of time, really trying to identify, identify their needs, identify their purchase drivers, identify how their purchase decisions are changing. And what we've realized through that process is that we can effectively target a consumer base. That is a very big segment of the market. Most consumers are actually trending towards having health and wellness and medicinal applications of cannabis, being a core driver for what they actually purchase cannabis for. At Emerald, we're very excited and very passionate about health and wellness. It's built into our fiber or DNA. We all come from health and life sciences. And so serving those customers and serving those customer needs are something that we think Emerald can excel in.

SH: You just closed one cannabis production plant in Greater Vancouver, whilst focussing on your premium craft cannabis operations in Quebec and a research & product development facility in Greater Vancouver, BC. Can you explain the reasons behind this initiative for our investor audience and its benefits?

RB: Sure. I'd be happy to. One of the things that we've really done over the last little while when it comes to Emerald Health Therapeutics is really think about what the key features are when we look to build our business. And when we look to build our business, the things that we're really focused in on is one, having a good base of cannabis 1.0, dried flower and oils that helps provide a sustainable revenue stream. But our real focus and a real passion as I spoke about was actually understanding and thriving in the science behind the endocannabinoid system and developing products that are going to be very applicable to our target markets. And when I talk about science, I mean, things like bioavailability and pharmacodynamics and a dose response curves and predictive variance. Very science driven features that help design products that have a capability and a predictability that's desired by the consumers that we are targeting and by predictability and variability, what I mean by that is that they have defined onset, defined duration, and defined offset effects.

And that helps consumers actually control their cannabis consumption experience and for consumers and target markets that are really using cannabis for a specific and a defined purpose, the ability to control their consumption experience, we think is going to be very, very important. We also are looking at a base of potential cannabis users who are intrigued by the health, wellness, and medicinal aspects of cannabis, but who don't use cannabis right now. For them to cross the chasm and actually utilize cannabis, they're going to need to be able to be comfortable with the product formats that they're using. They're going to need to be comfortable with the science behind the product. They're going to need to be comfortable with the fact that they will be able to control their cannabis consumption experience. So as we think about those attributes, and we think about what Emerald can bring to the table, we really think that we can actually serve those needs well.

If that's our focal point, we think it's important to understand what we do well, and I've just described that. But conversely, we also thought it was very important to understand these segments of the market that we weren't going to focus in on. And one of those segments is large-scale, capital-intensive, low cost cultivation. And so we made the strategic decision about six months ago to move out of that segment of the market. It led to our decision to divest of our joint venture asset. It also was the decision that drove us to say, we didn't need the cultivation capacity we had in Greater, in the Greater Vancouver area. We have cultivation defined scale craft cannabis production capability out of Quebec. So we made the decision to close the operation in Greater Vancouver.

SH: Reaching out beyond North America, you recently announced a partnership with a Spanish greenhouse grower for GMP-certified cannabis. This may be news to many investors. Can you unpack the benefits of this JV?

RB: Sure. So over the last five years, we've actually gained a lot of knowledge around cannabis cultivation, the construction of cannabis cultivation facilities, the regulatory framework around operating in the cannabis business, as well as understanding the medicinal aspect of the cannabis plants, as well as strains that actually provide medical benefits. And we were able to structure a partnership whereby we partnered with a team that's very well experienced in Spain on rolling high quality agricultural products that wanted to diversify their revenue base into an area of higher growth. We have a lot of familiarity and we've actually got demonstrated success with our joint venture on executing on similar models.

But the thing with this partnership is we were able to structure it in a way that provides a lot of flexibility to Emerald and it shareholders. We can access EU GMP, certified cannabis that's at medical grade that we can use and sell throughout Europe and in other parts of the world where EU GMP certification is absolutely necessary. We have the ability to provide this company with strains that when they actually utilize the strain, and if they develop hybrid genetics, we get those strains at no cost. We also have the capability to utilize this product at a very fixed cost and a very attractive cost that actually is variable. So as their cost structure improves our price structure for what we purchased this cannabis at also improves over the course of the next three years. We've been able to lock that in and we were able to do so without having to put in any capital to build out the facility and without any minimum commitments with regards to what we were going to buy. So we see all of those facets actually serve us very well as we look to serve the European market.

If you couple, what we've done with that partnership with another partnership with Stenocare that we already have in place in Europe, that's really focused in on providing medical products that we actually sell in the Canadian marketplace right now and getting them into select countries in Europe. The first one of which is Sweden, we think we've got two partners that have a strong operational base and a capability set that can work with us in Europe. And we think that's important because we think that the cannabis sector and the business is actually very territorial and somewhat protectionist and having partners that actually have strong operations based in Europe is going to be pivotal to be able to service the European market well for the long-term.

SH: Riaz, your corporate deck states “Balancing daily responsibilities and taking time for self-care can be a struggle; sometimes you need a little help relaxing your mind and body.” How do your products and technology precisely help achieve this?

RB: So, as I said, Emerald is very passionate about science and by science, we also understand what factors modulate the endocannabinoid system and the endocannabinoid system is your body's system of wellness and homeostasis that the cannabis plant and other functional botanicals act on to provide benefits such as decreasing pain, reducing anxiety, providing relaxation sensations as well. And we understand the modulation of that system very, very well. We understand what parts of the cannabis plant give you those targeted benefits. We also understand what other functional botanicals impact that system. When you combine that understanding with something that we termed to be defined dose capability, and by defined dose capability, what I mean is what I was referencing before, the ability to actually build products that are predictable. They have a defined onset, a defined duration and a defined offset. So you take the knowledge we have about the endocannabinoid system and cannabis, the endocannabinoid system of other functional botanicals, as well as our defined dose capability. We can actually develop very novel products that can provide the benefits such as increasing the relaxation, improving your sleep, but in a very, very innovative way. And sometimes we're able to actually get that innovation to the point where we can actually patent the innovation. And so about half of our patent portfolio is based on being able to combine the understanding of how you stimulate the endocannabinoid system with cannabis, as well as with functional other botanicals that help get targeted states of wellness, the people who are looking for that from their cannabis consumption experience.

SH: Riaz, when you talk about consumers with a purpose and specific target markets, what do you mean exactly by that?

RB: We at Emerald think it's very important to understand what consumer segment that you're trying to service. So over the course of last three months, we've worked with a very reputable third-party consulting firm to really take a look at the current cannabis consumer marketplace. And we've been able to define that marketplace into six segments of which we are targeting two segments. The first segment that we're targeting we've called medical pursuers. And these are people who purchase cannabis because they want to benefit from the wellness aspect of cannabis for particular target indications. So again, it could be the reduction of pain, it could be improving their sleep. These people have a very particular purpose for what they're using cannabis for. And they tend towards utilizing CBD based products. Our second customer segment that we are targeting, we call focused enhancers, and these are people who actually use again, cannabis for a specific purpose.

And that's either to relax or to increase their concentration level while they're actually participating in a particular activity. These people tend towards wanting THC products, but both segments actually have very purposeful reasons for why they're using cannabis. These two segments together are about one third of the current cannabis marketplace. We also are looking at the users I referenced slightly before, and that's a user base of people who are very intrigued by the health, wellness and medicinal aspects of using cannabis, but who don't use cannabis right now. For them to be able to move over and use cannabis products. Again, they want predictable effects. They want to be able to control their cannabis consumption experience. They want to understand the science behind what they're actually using, and they want product formats that they're comfortable with. That isn't combustible formats, that isn't dried flower. It's more things like oils, sprays, tablets and gels.

So that's the third base of consumers that we're looking at with our capability set to be able to serve as well. The last thing I'd mentioned is if you look at those three consumer segments and what their needs are, right, you realize that there is another big segment of the market that's sort of been underappreciated and underserved. And those are actually female consumers of cannabis. I'm not talking about the consumers who've been in place and who've utilized cannabis for many, many years. I'm talking about women who are very intrigued again by utilizing cannabis for health and wellness purposes. We think that's an underserved market. They have very similar attributes and purchase drivers as the three markets that we're serving. And as a unique cannabis company, where six out of eight of my leadership team are all women. We're very passionate about wanting to serve that market very, very well. So that's the markets that we're focused in on.

SH: Big news back in February…you closed the Pure Sunfarms transaction and received a $20 million-dollar-plus payment. How does this affect Emerald’s growth strategy?

RB: Well, the good news Dave is that $20 million payment was actually part of a $81 million acquisition of our equity interest in that joint venture. And so that actually one, it concluded a phase of the company, but it also provided us with the capital that we needed so that we can focus on this very defined role strategy moving forward. We're well capitalized to execute well on our product development initiative, on our partnership’s initiatives, as well as kind of driving growth in all facets of our business. We also were able to bring our balance sheet into a very healthy, pristine position. And when you couple that balance sheet with the fact that we've got zero debt, we've got improving P and L structures, we've got visibility into revenue as we kind of clean up and come through Q1 and Q2 of this quarter that looks like it's got strong potential for growth as we go into Q3 and Q4 and beyond. We think all of those facets come together to leave Emerald very well positioned for growth as we finished the second half of this year and beyond.

SH: The Company looks set for strong growth in 2021. How are you placed to expand operations to meet this demand and improve overall cost structure?

RB: Yeah. So from an operational perspective, you know, we're in a very solid position with regards to being able to access high quality cannabis. We are able to do that from our very customized facility in St. Eustache,Quebec. That facility is very uniquely designed. It's an indoor grow, controlled grow facility that has 21 rooms that we can actually control the micro-environment in, which means we can actually customize and configure that room, the temperature, the humidity and the lighting to be very well tuned to whatever strain we're growing in that room. That facility has the capacity on an annual basis to provide all of the biomass that we need for fulfilling our dried flower commitments into Quebec, which is a very unique market, that really is supportive of LPs that are based in Quebec and that have operations and employment in Quebec.

So we have the ability to fulfill that market and that's target focus for what we do, but we also due to the quality of the cannabis we produce there, have the ability to provide dry flower through the rest of Canada under the Emerald brand and under the Souvenir brand that we have launched there. That facility also gives us the base cannabis that we need to produce are very reputable oils, as well as these innovative products I've been talking about that we're in the process of developing. So from a bio-mass access control of supply chain perspective, we do have what we need from our own facility. But from an operational effectiveness perspective, we also are looking at what we're doing on the facets that we want to focus in on. And I've spoken about those briefly, and those are again, making sure that we have strong product development capability that's grounded in science. So the thing that we take a look at there is really ideation to commercialization and being able to do that in a cost-effective and a time effective manner. At Emerald we're a firm believer in know what you do and know what you do well.

What we do well is we develop products well, we understand science, we understand IP, right? We don’t believe you need to do everything in-house. So we are perfectly fine coming up with an innovative product, getting it to a pilot scale production level, and then utilizing very capable, high quality, high compliant third party contract manufacturers to scale up that product and bring it back to us where we can leverage our sales and marketing infrastructure, which is unique. We've got capability from a sales and marketing perspective all across Canada, and then get the product out to market without having to do all of the elements that are associated with that. And that model has been proven very successfully in many, many industries. It's a smart model of product development it's been used in the health and life sciences sector, where we've come from and many other segments as well.

SH: I know you touched on this a bit earlier, but the what’s your take on the outlook for the industry as a whole, and in particular Cannabis 2.0 and Cannabis 3.0?

RB: So, you know, it's, it's been interesting over the last 18 months to be involved with an industry dynamic, that's going through constant change. It's a nascent industry, and there has been a lot of change. It was the euphoria of 2018 that was catalyzed by that one-time event of legalization of cannabis in Canada followed by, you know, 18 months of nuclear winter, where nobody wanted to talk about cannabis or look at cannabis companies to after November and the US elections of last year renewed interest in the fact that cannabis is a sector that's being looked at rightly so, as fueling a lot of growth and a lot of GDP growth in a lot of different countries as well. So, you know, we have the opportunity at Emerald to look at all of those facets and try to think about in a very Canadian analogy, not where the puck is at, but where the puck is going.

And from that perspective, we do utilize different you know, systematic methodologies where we do get to learn from other markets. So markets such as Colorado and California and the US have a very big head-start on Canada, about a five-year head-start. And so we look at what's happened in those markets. And what you see has happened in those markets is one, you know, dried flower is always going to be an important part of any cannabis consumer’s product purchase decision. And so we do feel it's important to have that as part of your product offering, but again, we're focused on high quality craft cannabis in the premium end of that marketplace. But what we've also seen in those markets is that that product from dried flower is diversified into other product derivatives, which are viewed as being cannabis 2.0 and now somewhat cannabis 3.0 products. And that's a big focus, as I've mentioned with regards to Emerald. It's driving innovative products that actually meet the needs of our targeted consumer sets with product features and innovation that drive purchase decisions that will lead them to pick Emerald as a product.

The other thing that fits very well with our strategy is if we look at what's happened in those markets is you are seeing people utilizing cannabis products and cannabinoid products for health and wellness purposes. So beyond what was the original basis of, we want cannabis products that have high THC purely for recreational and social purposes. We're seeing that diversification also occur. So a diversification of product formats over the last five years and the diversification into applications and uses beyond just recreational and social. That fits very well with what we're doing in Emerald. And so we think we're very well positioned with regards to the trend line and driving the evolution from cannabis 1.0 products to 2.0 products, and then developing through our health and wellness and our science knowledge, very innovative cannabis, 3.0 products.

SH: I have to mention your stock has had a bit of a roller coaster ride over the past year, although it appears to have established a solid base within the last 12 months. What can you tell our investor audience regarding the current valuation of your stock and why you think it’s a good buy right now?

RB: Yeah. Happy to speak a little bit about that. So again, I think Emerald like many of the public companies in the cannabis space, right, were caught in the euphoria of 2018 around legalization. That euphoria was not built on fundamentals that were related to the business. I think over the last 18 months or so, we've seen that whole sector shake out and everybody talked about what are your business fundamentals? What are you doing that's different? How are you trying to build your business effectively? And that's what we've spent a lot of time thinking about is how are we going to build our business effectively? How are we going to make sure we're in a strong position to succeed? We've taken all of the steps to kind of clean up and restructure the business base. We're in a strong and healthy financial position. So if you look at where Emerald is right now, from a valuation perspective, we've got about a $50 million market cap, and we've got about $25 million in cash.

So we have about a $25 million enterprise value. We've got no debt. We’ve got assets that are completely paid for. We've got a very defined strategy that's very exciting and has the ability to serve very large segments of the current cannabis market, as well as potentially a very large, almost as big as the entire current cannabis market of new users might be converting to use cannabis products in the next year to two years with a base of product and a capability set that's very different from other Canadian LPs who are still very focused on cannabis 1.0 products, high THC strains and cultivars and on recreational and social users. We have a real clear focus on being able to serve that part of the market, but really diversifying our products into products that have attributes that will serve the new parts of the market, current consumers, and an emerging base of customers. And that we think leads to strong revenue growth dynamics that are really well balanced by the fact that we’ve got a very healthy cash position and balance sheet. So we're excited about what we can do at Emerald. We're excited about where we are, and we think there's lots of opportunity for growth and success.

SH: Riaz, you just started trading on the CSE after switching from the TSX Venture. Why did you make this transition?

RB: Yeah, let me be very clear with that. We decided to change to the CSE because a fundamental part of our strategy is being able to be involved with opportunities in the United States. That market dwarfs the Canadian market. We think we have a lot of capability with what we're doing either by ourselves or with a partner to be able to service that market with innovative products, with intellectual property that can give us growth opportunities there. And we're hoping that we will imminently be able to give investors a perspective of what we can do there and that drove the switch to the CSE.

SH: And finally, Riaz, if there’s anything I’ve overlooked please feel free to elaborate.

RB: Well, you know, I think you've done a fantastic job, Dave. I think the last thing I would leave the listeners with is that when you think about Emerald, think about Emerald as a science driven, innovative cannabis company, that's different from other Canadian LPs. We have a purposeful understanding of what our consumer base is looking for. We understand what their purchase drivers are and through our understanding of science and innovation, we've been able to come up with a platform of products that we call defined dose products that gives them what they want. And what they want is a predictable, controllable experience that’s science backed, that gives them the targeted attributes that they're looking for. We’re well positioned to serve that market very well. We're excited about the future of Emerald and we're excited about the evolution of the industry and helping to drive that evidence.

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FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.

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