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EMH Update: More Cannabis Expansion + New Direction

Stockhouse Editorial
0 Comments| December 22, 2017

Click to enlargeMany Stockhouse readers and cannabis investors are already familiar with Emerald Health Therapeutics Inc. (TSX: V.EMH, OTCQB: EMHTF, Forum). In a full-length feature article on October 17, 2017; Stockhouse readers were introduced to the cannabis company with “unmatched expansion potential”.

This wasn’t a hollow reference. The Company’s joint venture with Village Farms starts with 1.1 million square feet of greenhouse space. Village Farms has provided an option on an additional 3.7 million square feet of cultivation space.

However, EMH still has more expansion plans in mind. In November the Company reported that its Health Canada application for a fourth cultivation license was moving to the next step in the ACMPR licensing regimen. The application pertains to Emerald Health’s Richmond, B.C. greenhouse facility.

That announcement was preceded by additional significant news: completing its previously announced acquisition of Northern Vine Canada Inc. EMH is acquiring 53% of Northern Vine, a Licensed Dealer under ACMPR regulations. Abattis Bioceuticals Corp. will remain the minority holder in that company with a 47% interest.

Northern Vine has a laboratory facility designed to engage in analytical testing of cannabis products. To find out why this is such important news, Stockhouse recently asked Emerald Health’s Executive Chairman, Avtar Dhillon, to answer some questions on the Company’s most recent developments.

  1. Please briefly outline Emerald Health’s current operations.
Emerald and Village Farms are currently retrofitting a 1.1 million square feet greenhouse facility in Delta, BC for largescale cannabis cultivation. Pure Sunfarms also optioned from Village Farms an additional 3.7 million square feet of existing highly efficient greenhouse space in the same Delta complex.
We are also constructing 150,000 square feet of hybrid indoor and greenhouse growing space in Metro Vancouver to produce cannabis in conjunction with legalized recreational use. This wholly owned facility will be expanded to 500,000 square feet of growing capacity by the end of 2018, with total potential of 1 million square feet. This facility will also house extraction and other processing capabilities as Emerald pursues value-added downstream product development.
Emerald continues to produce medical cannabis for sale as dried flower and oils from its Saanich, BC facility, which also serves as Emerald’s research and product development facility.
  1. What led the Company to launch a major expansion via acquiring existing greenhouse space versus other modes of cannabis expansion?
The Pure Sunfarms facility is a quantum leap for Emerald to secure the right supply of low-cost and quality cannabis for our target markets. It allows us to do this in a manner that is most optimal with respect to time and capital. We already have a strong portfolio of strains with diverse cannabis genetics, and this partnership plays a key role in enabling us to fulfill our production goals with the right type of facilities.
Village Farms has some of the most technologically-advanced greenhouse facilities in the industry. As a large-scale grower, they are also specialists in agricultural product safety, which is a complex science. Greenhouse growing yields a higher-quality, more consistent product. Our partnership leverages all of these existing factors to prepare for recreational legalization in a cost efficient and timely manner.
  1. How long does management estimate will be required to ramp up production on the first 1.1 million square feet of greenhouse space from Village Farms?
We expect to complete conversion of the first 250,000 square feet and submit the confirmation of readiness documentation to Health Canada by February 2018. In parallel with the completion of the initial 250,000 square feet, Pure Sunfarms will continue with the next conversion stages, with the second quadrant expected to be completed in the fall of 2018. We expect our first harvest from this facility prior to adult use legalization in Canada.
  1. Is management anticipating any hurdles from Health Canada in terms of obtaining licensing for this new greenhouse operation?
No. Emerald holds a long-standing rapport with Health Canada since the company is a current Licensed Producer and many of its staff have an existing security clearance, which can be a bottleneck in the approval process. In fact, we already met the initial requirements of the paper-based review from Health Canada’s Office of Medical Cannabis (OMC) for our licensed producer application for the Pure Sunfarms Delta 3 greenhouse facility. The OMC confirmed satisfactory provision of information regarding the security plan, record keeping and tracking systems, QA reports, and security clearance for key personnel, among other items. As part of this process they invited us to submit our final evidence documenting that we have met Health Canada’s requirements, so it is in our court to finish the facility and submit this information.

  1. EMH is also pushing ahead on licensing its additional wholly owned facility, in metro Vancouver which would be the Company’s fourth cultivation license. What is the status of that application, and how is the build-out of its purpose built hybrid greenhouse facility  progressing?
In late November, our licensed producer application for this greenhouse facility also met the requirements of the paper-based review of Health Canada’s Office of Medical Cannabis (OMC). The OMC confirmed satisfactory provision of the same information as for our Pure Sunfarms facility, which included the security plan, record keeping and tracking systems, QA reports, and security clearance, among other items. We aim to harvest from this new 75,000 square feet of cultivation space by 3Q 2018 and plan to have over 500,000 square feet of cultivation space built at this site by the end of 2018.
  1. Once licensing is obtained, what will be the combined production capacity of Emerald Health’s cultivation operations?
We estimate that the 1.1 million square foot Pure Sunfarms facility will generate approximately 75,000 kg of product capability at full capacity. In addition, Sunfarms has the option to expand to 3.7 million square feet in the future – which could provide an extra 225,000 kg of product. This is a potential total future of 4.8 million square feet and approximately 300,000 kg of production capacity.   
As mentioned, we are currently constructing a 500,000-square foot facility in Richmond, BC, which would potentially generate approximately 45,000 kg of product.
By 2020 the first stage of these facilities alone will have functioning production capacity able to generate well over CAD $1 billion at retail prices.
  1. Please provide more details on the Northern Vine acquisition.
Under the agreement, Emerald invested $2.5 million to acquire 53% of Northern Vine and appoint three of four directors. We plan to utilize Northern Vine for cannabis testing, product innovation, and potentially import/export capabilities for cannabis oils.
Our company benefits from their Licensed Dealer, which has much broader capabilities than a Licensed Producer when it comes to carrying out research and development, importing and exporting cannabis oils, and related activities. Northern Vine also provides exposure to the cannabis testing industry, as it currently provides Licensed Producers and registered patients with complete microbiology and chemical analyses to ensure product is safe from bacteria, moulds, pesticides and other toxic materials. This testing can also assess cannabis potency.
The acquisition of Northern Vine sets the wheels in motion on a valuable growth opportunity in the cannabis space.
  1. What is the significance of being a Licensed Dealer versus a Licensed Producer, a designation more familiar to cannabis investors?
Licensed Dealers provide vital information to Licensed Producers (who grow and sell cannabis) and their customers through analytical lab testing of cannabis products. Legally, Licensed Dealers are laboratories that have a Dealers License under the Narcotic Control Regulations to conduct activities with cannabis and other controlled substances. They can conduct research on cannabis and cannabis derivatives in forms that are not covered by the Access to Cannabis for Medical Purposes Regulations (ACMPR); develop innovative products for future market opportunities; and undertake the export and import of non-dried (oil) form of cannabis with other countries that have similar federal laws for legalizing medicinal cannabis use..
  1. Northern Vine also has a laboratory testing facility. What particular uses or revenue streams can be generated from this facility?
The biggest growth driver is the upcoming legalization of adult recreational use in Canada in the summer of 2018. In addition, the medical market continues to grow. Demand in the medical space is forecast to increase 10-fold by 2024. There will be increasing demand for new products – particularly cannabis oils, edibles, and now we’re even seeing alcoholic beverages that also contain cannabis. As such, there will be increased demand for accurate and reliable testing to ensure the safety of these cannabis products, as well as to characterize their potency. We expect that there will be a certain level of increased confidence associated with third party product testing, hence a compelling business opportunity in providing these services.
  1. In broader terms, what is the significance of such testing for the cannabis industry as a whole?
According to a recent estimate, cannabis testing is poised to grow alongside the  rising demand for quality assured medical cannabis and legalized recreational cannabis available throughout more and more of North America. Customers will demand safe, reliable products and will keep coming back to brands that are reputable and scientifically validated. We believe that testing and analytical service providers with sophisticated testing equipment, strong standards, and a positive track record of service will have a unique opportunity to flourish in this marketplace. We believe that for the foreseeable future as we head into legalization of adult use in Canada, the demand for analytical services will exceed supply, creating a potentially great market opportunity for us to grow and expand our analysis services.
  1. Precisely how is management planning to integrate Northern Vine into the Company’s operations?
While Northern Vine Labs will be a part of the Emerald Health group, it will build out its own management team and staff and business plan an operate in a manner that maintains its credibility as an independent provider of testing and analytical services. At the same time, Emerald will aim to benefit from certain of the unique capabilities associated with a dealer’s license.
  1. Please outline where you see EMH positioned in the cannabis industry five years from now?
With completion of our current expansion projects, we are well-positioned to become a leader in the cannabis industry – not only in Canada, but worldwide. We believe cannabinoid medicines present an unparalleled opportunity for product development compared to conventional pharmaceutical medicines that are typically more toxic, potentially less efficacious, and often highly addictive. We are scaling our production capacity to be in the top tier of the industry in order to secure safe, proprietary supply, but our particular passion and focus is on product innovation. Our ambition is to apply the many decades of life science industry expertise associated with our company to identify valuable opportunities for highly characterized new products that will result in novel, protectable intellectual property. Our plan is to conduct research that may potentially raise the bar on providing new evidence-based medicinal benefits with more predictable, consistent outcomes. Five years from now we do not expect consumers or investors to ask how big is your growing facility, but instead focus on our portfolio of industry leading products designed for particular population segments and their usage needs, dosage forms and intake preferences. We believe our experience from the pharmaceutical, nutraceutical and retail industries focused on innovating with consumers needs in mind will allow us create a broad range of high value, consumer friendly products for new users as well as previous users. Our aim is to use our integrity and experience in evidence based science to develop high quality  innovative products that provide potential consumer benefit and confidence.

FULL DISCLOSURE: Emerald Health Therapeutics Inc is a paid client of Stockhouse Publishing.


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