The legal marijuana boom in Canada has created an incredible growth opportunity for investors to capitalize on the last few years. With each new year comes higher demand for legal marijuana which is significant due to the fact that most of the Canadian licensed marijuana producers do not have enough product to meet said demand. The supply and demand issue is compounded by the regulatory process of becoming a licensed producer (LP) via Health Canada. The process is not an easy one by any stretch. It is capital intensive and the vast majority of applicants do not make it through the multiple steps that can take years due to the speed at which government moves in general. My thesis doesn’t take an advanced degree in economics from Wharton as it’s based off the simplicity of supply and demand; and demand will be high and supply will be low. LP’s in Canada could potentially see a new run of interest off an event such at full recreational country wide, a mandate to crush black markets of cannabis.
Market Caps will swell and investors will chase the dream of Pot Stock riches, but at some point, market caps will need to be justified, but let’s discuss demand and the scaling of operations. To capitalize on this demand, the market has seen several marijuana producers announce major land acquisition as they work to increase production capacity.
Emblem: Levered to Emerging Cannabis Growth Trends
One company following this strategy is Emblem Corp. (EMC.V) (EMMBF) and if you follow me on twitter @WolfofweedST you know I’m long. Full disclosure I currently have 89,850 shares and 21,750 warrants and it is my biggest position in the market; there I said it. Just in case you aren’t up to speed on Emblem Corp here are a few things you should know.
Emblem is a licensed medical cannabis producer in Canada uniquely positioned within the rapidly growing medical and recreational cannabis industry. Emblem operates three distinct divisions which can create value for each other and is led by a management team that has a proven track record of building successful multi-billion dollar companies.
The shares have fallen by approx. 20% since June 1st and before this drop I tweeted (seen here) on 5/30/2017 when the price was $1.68 USD that “I’m long $EMMBF $EMC.V but feel strongly that there will be blood going into June 6-10th but then fireworks.” The reason I tweeted this was because stock from a private placement was going to be freeing up at this time and investors that knew this would likely exit rather than take the drop and longs would wait on the PPS finding a natural bottom to grab the dip. As anticipated on June 6th Emblem hit a low of $1.14 and bounced back briefly to $1.44 USD by June 12th and by late July hit $1.72 USD (49% gain off the low). I 100% traded a portion of my position in the process while keeping nearly 80% of my position on the sidelines and still feel that at its current valuation I AM still very confident that I will see incremental growth based on a few details.
Focused on Increasing Capacity
In late May, Emblem announced a major move when it agreed to purchase two contiguous parcels of land (approx. 80 acres of industrially zoned land combined) that are very close to its current facilities as it prepares for higher demand for cannabis and cannabis derived products.
Emblem plans to break ground on the land in the third quarter to execute on the design and buildout of its initial 100,000 sq. ft. facility. 60% will be dedicated to production and the remainder dedicated to support services and administrative functions. Once operating at an optimal level, Emblem expects this facility to produce up to 20,000 kilograms of dried cannabis a year. This amount is approx. $160.0 million in potential sales based on the current average selling price of $8.00 per gram and production capacity assumptions.
Emblem expects to continue its production capacity expansion plans based on two additional 100,000 sq. ft. production modules. Following the completion of the first module, future facilities will have a higher percentage of space dedicated to cultivation. When the company is growing on the 300,000 sq. ft. space, Emblem can produce up to 70,000 kilograms per year.
The acquisition of the expansion land near Emblem’s current licensed campus reflects Emblem’s core strategy for serving the Canadian medical and adult use markets.
Attractive Long-Term Outlook
Emblem is levered to several emerging growth trends within in the medical marijuana industry and we expect to continued strong growth. The company is also focused on the biotech side of the business which I believe will be a major component of its growth story in 2018. For those that do not know about who the President (and one of its founders) is his name is John Stewart, formally CEO of Purdue Pharma, one of the biggest privately held Biotech firms in the world as well as the makers of Oxycontin. He was the main reason I decided to invest in this company, the fact that they grow cannabis is in my mind a happy forgone conclusion for growth. Here’s a piece on him from BBC.
The licensed medical marijuana producer continues to record strong patient growth and the company will be reporting earnings later this month on the 28th of August. My expectation is for solid numbers, but as a long I think Emblem is barely in the first inning of a multi-decade growth cycle.
My Only Issue With Emblem
I have been pretty vocal about Emblems communication with its shareholders and feel that had they communicated effectively once going public the market would be a stronger for them. With that said I am hoping that they release information related to each division they have and truly break them down for investors that might not understand what they are accomplishing. At the same time I also like that they haven’t put out 18-20 press releases since January (average calculated and counted for a few other LP’s), but 5 releases is a disservice to shareholders. Shareholders know Emblem needs to execute on the business model, but they also know that every public company 100% needs outreach to potential and existing shareholders. We shall see…
Authored by: Jason Spatafora
MAPH Enterprises, LLC | (305) 414-0128 | 1501 Venera Ave, Coral Gables, FL 33146 | new@marijuanastocks.com
