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Emerald Health wows American investors

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Marc Davis
0 Comments|September 14, 2017

Speed. Scale. Science.
 
These are the big drivers for Emerald Health Therapeutics as it vies to be the world’s dominant cannabis cultivator.
 
This is according to Bin Huang, the CEO and President of Emerald Health (TSX.V:EMH) (OTCQX: TBQBF), who addressed attendees of a recent MoneyShow.com investment conferencein San Francisco.
 
There was a packed, standing-room-only audience of around 200 people on-hand at an investment forum which was hosted by the cannabis news site Technical420.com. Not only did Huang make a big impression, but she also made a powerful case for Emerald Health’s vaulted ambitions.

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Until recently, Emerald Health has been best known for being an R&D incubator of proprietary intellectual property in the race to innovate cannabis-based medicinal therapies.
 
This is why it has been such a low-key company — until now.
 
However, the well-financed start-up is no longer in stealth mode. Instead, an enthusiastic audience, mostly made up of US investors, heard first-hand how Emerald Health -- a publicly-traded Canadian licensed producer of medicinal cannabis -- is about to make the ultimate power play.
 
Emerald Health aims to out-do its Canadian and American competitors by out-producing everyone else. To this point, it plans to use its massive future output to dominate the burgeoning and extremely lucrative market for “value-added” oil-based cannabis extracts.
 
That said, there are a few other publicly-traded, licensed cannabis cultivators that have also announced their own plans to capture the lion’s share of Canada’s medical marijuana market, as well as the pending multi-billion-dollar business for recreational pot.
 
So is Emerald Health really a serious contender to be the biggest and best?
 
Read on and decide for yourself.
 
Let’s Start with “Scale”
Each of Emerald Health’s handful of big-time rivals is planning to spend in excess of CDN $100 million to build up to 1,000,000 square feet of state-of-the-art growing facilities. Also, each of these new climate-controlled “cannabis factories” takes considerable time to construct and commission.
 
The fact that these companies can raise so much money without difficulty these days is impressive. What’s not so impressive is that this can only be achieved via some serious stock dilution, which is very much to the detriment of shareholders.
 
Will this also be the case for Emerald Health?
 
Definitely not, according to Huang. Her company has deployed a shrewd leveraging strategy, which is an industry-first. It involves ramping-up output in a big way, and along an aggressive timetable. Indeed, it appears to be an optimal template for seriously scaling-up production, and at a relatively low-cost.
 
It entails a joint venture partnership with one of North America’s largest volume producers of hydroponically-grown supermarket vegetables.
 
Specifically, Emerald Health has teamed-up with Village Farms International Inc. (TSX: VFF). Headquartered in Greater Vancouver, Village Farms had sales of around CDN $206 million in 2016. It is also North America’s largest technologically-advanced, low-cost grower of supermarket produce.

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This strategic alliance means that an existing network of sophisticated greenhouse growing facilities will be re-purposed to produce recreational cannabis — a much more profitable venture.
 
Village Farms will initially contribute 1.1 million square feet of existing state-of-the-art greenhouse capacity to the 50/50 joint venture partnership. This represents a growing capacity greater in size than 20 football fields.
 
This retrofit amounts to savings of at least 50% when compared to building a similar greenhouse capacity. 
 
This significant mitigation of risk has investors particularly excited about this joint venture arrangement. In fact, the scalable retrofit of an initial 1.1 million square feet of greenhouses in the Greater Vancouver area promises to be the proof-of-concept that shareholders are excited about.
 
Assuming all goes according to plan, as much as 4.8 million square feet of greenhouse infrastructure can ultimately be retrofitted to cultivate cannabis via this arrangement.
 
This could yield more than 300,000 kilograms of dried flower cannabis annually. Which is  about half of the anticipated national demand for cannabis per annum once recreational cannabis is legalized next summer.
 
Ultimately, this mega-ambitious business model will allow the company to develop value-added downstream products — namely cannabis extracts — which are very high-margin products.
 
“We want to become one of the biggest extractors of cannabis-based value-added products in the world,” Huang says.
 
In fact, oils that can be ingested as edibles (think chocolate brownies) or in medicinal formats (think gel capsules) are experiencing a doubling of sales in Canada every 90 days.
 
All told, the joint venture partnership represents a “transformational opportunity”, according to Huang.
 
Speed: Leveraging the Early-Mover Advantage
The joint venture partnership with Village Farms will allow significant economies of scale to be realized as yields get increasingly larger. This promises to make growing costs less than $1 per gram.
 
This exponential growth of output can also be achieved on an expedited timeline. The initial retrofit is expected to commence this November once Village Farms’ tomato crop is harvested. The first cannabis crop in the re-purposed growing facility is expected to be harvested as early as the middle of next year.
 
This gives Emerald Health a distinct early-mover advantage.
 
This is very strategic. With a looming multi-billion dollar legal recreational market in-the-offing, the company wants to be in pole position to capture significant market share.
 
In fact, there exists an unprecedented opportunity to earn brand loyalty among as many as an estimated eight million Canadians.
 
This mainstreaming of cannabis consumption is expected to be worth up to CDN $10 billion a year, according to investment industry analysts. It bears repeating that this new marketplace will open up as early as next summer. 
 
Using Scientific Innovation to Unlock a Multi-Billion-Dollar Market
An accomplished scientist, Huang is also very focused on making Emerald Health a key player in Canada’s burgeoning big-dollar medical marijuana market.
 
With aPhD in plant cell biology, as well as an MBA, she certainly has the professional credentials to oversee the company’s commitment to pioneering medicinally-effective, cannabis-based therapies.
 
She also has a strong background as a senior executive with research-focused life sciences companies, and her skill set includes helping to bring pharmaceutical products to market.
 
Now she hasassembled a team of similarly talented scientists and researchers to advance Emerald Health’s pipeline of cannabis-based products.
 
Huang comments, “Our team has a great depth of experience in the biopharmaceutical industry, especially with developing innovative medicines.”
 
In particular, the company’s scientists are using advanced plant genetics to develop optimal cannabis strains and cannabis oils that can be dialled-in to treat specific types of pain and sleep disorders.
 
This steadfastness to the company’s core competency can be seen in Emerald Health’s undertaking to develop 100,000 square feet of state-of-the-art, indoor growing facilities in Greater Vancouver.
 
The new operation will also include a laboratory to incubate the company’s intellectual property, specifically plant genetics and innovative products.
 
The company’s existing pilot facility in Victoria will continue to focus on R&D, manufacturing oils and servicing medical patients.
 
Both of these operations are intended to operate independently of the joint venture arrangement with Village Farms. In fact,this new indoors in-development facility is where all of Emerald Health’s cannabis-based oils are expected to be manufactured.
 
Huang sees a big future for medicinal oils, which command very high margins. To this end, Emerald Health expects to become a leading brand.
 
“Ultimately, we're aiming to provide innovative, standardized pharmaceutical dosage medicinal cannabis in a pill or capsule format,” she says.
 
Investment Synopsis
Emerald Health’s smart application of leverage for high-impact, expedited expansion promises to be a powerful strategy for success in the capital-intensive business of growing vast quantities of premium-grade cannabis.
 
It certainly represents a key differentiator that should allow Emerald Health to be ready to fully embrace a looming multi-billion-dollar recreational market for cannabis.
 
The fact that this can be done cost-effectively also offers the company another major competitive advantage.It will also allow the joint venture partners to be among Canada’s lowest-cost producers.
 
Hence, Emerald Health’s joint venture partnership with Village Farms is a game-changing differentiator that should ensure that significant market share is captured in the early going.
 
Ultimately, much of the company’s revenue growth will be derived from the mass-production of high-margin cannabis oils. And this is where the company aims to out-perform all of its competition.
 
Furthermore, let’s not forget that Emerald Health is also poised to become a market leader — perhaps even a household name — in the blossoming medical marijuana sector.
 
In summary, Emerald Health is poised to capitalize on several different market verticals which should generate lucrative revenues streams for many years to come.
 
In this regard, it’s not hard to see how Emerald Health is an investment opportunity that has unlimited upside potential within the next 24 months, and beyond.

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