Emblem Corporation


Period Ending: Oct 31, 2016 Jul 31, 2016 Apr 30, 2016 Jan 31, 2016
Total Assets 4.65 0.78 0.82 0.84
Total Liabilities 4.14 0.09 0.04 0.03
Total Equity 0.5 0.69 0.79 0.81
Income Statement Oct 31, 2016 Jul 31, 2016 Apr 30, 2016 Jan 31, 2016
Total Revenue 0 0 0 0
Gross Profit
Operating Income -0.18 -0.1 -0.03 -0.02
Net Income -0.18 -0.1 -0.03 -0.01


Cash Flow Oct 31, 2016 Jul 31, 2016 Apr 30, 2016 Jan 31, 2016
Period Length: 9 Months 6 Months 3 Months 12 Months
Cash From Operating Activities -0.13 -0.07 -0.02 -0.03
Cash From Investing Activities
Cash From Financing Activities 0
Net Change in Cash -0.13 -0.07 -0.02 -0.03

* In Millions of CAD (except for per share items)


Price Target 2017 : $5.25          Analyst Consensus : BUY         Market Sentiment : Bullish


 

About Emblem Corporation

 

Emblem Corp. is a licensed producer (LP) and distributor of medical marijuana. The Company is working to develop three verticals, including marijuana production, healthcare services (through GrowWise), and pharmaceuticals. It is currently producing at an annualized rate of approximately 660 kg. The Company was originally incorporated as KindCann Holdings Limited in October 2014, changed its name to Emblem in September 2016, and completed its qualifying transaction in December 2016.

 Strong Balance Sheet Supports Expansion to 11,600 kg Annual Capacity :

Including the recently completed special warrant financing, we estimate that EMC has approximately $40M in cash available to fund expansion. Its facility in Paris, Ontario, is currently producing at an annualized rate of almost 700 kg. The Phase 2 expansion should triple capacity with commissioning expected in April, and the Phase 3 expansion should take total capacity to 11,600 kg (almost 16x current levels). The Company also has in-themoney warrants/options outstanding that could generate an additional $36.5M in proceeds, which could be used to fund a Phase 4 expansion to 21,100 kg. That capacity could bring run-rate revenue to approximately $180M.


 Vertically Integrated Model with Strong Management Depth :

Emblem owns a 50% stake in GrowWise, which operates education centres where patients receive personalized advice on product selection, including varieties offered by other LPs. Mr. Harvey Shapiro, the CEO of GrowWise, was the Co-founder and CEO of Dynacare, the third largest provider of clinical laboratory services in North America, which was acquired in 2002 for almost US$500M. Emblem is also developing a Pharmaceuticals division headed by Mr. John Stewart. He is the former President and CEO of Purdue Pharma Canada and Purdue Pharma USA, one of the largest privately held pharmaceutical companies in the world. We estimate that management and the board own a combined 14% of the basic shares outstanding, having invested $6M out-of-pocket to date.


 The Cannabis Market is set to Rapidly Expand with Recreational and Pharmaceutical Opportunities :

As we discuss more thoroughly in our industry report published today, the medical cannabis market has expanded far faster than many expected, creating product demand that LPs are racing to meet. Health Canada reports that almost 100,000 patients have registered with LPs, and that number has been growing at 30-40% sequentially over the past several quarters (i.e., at an annualized pace of roughly 200%). While a number of LPs are undertaking significant capacity expansion plans, we expect demand growth to absorb that capacity as it becomes available. Pending the introduction of legislation this spring, the recreational market could be 10x the size of the medical market in terms of users. Finally, the opportunity for the development of cannabis-based pharmaceutical products is also significant, particularly in pain management applications where alternatives to opioids are in great demand.


Production: Emblem operates a purpose-built indoor facility in Paris, Ontario. The Company’s fully funded Phase 2 expansion plan should triple annual capacity to 2,100 kg with commissioning expected in April 2017. The Phase 3 and 4 expansion plans could take annualized capacity to 21,100 kg.

Healthcare Division: GrowWise: Emblem owns a 50% interest in GrowWise, which operates 10 education centres in Canada where patients can receive advice on the use of medical marijuana from qualified Canadian medical practitioners. Physicians can direct patients to these centres for more information, which should also give physicians greater comfort in prescribing medical marijuana. These centres direct potential patients to LPs, including Emblem. Emblem has the option of acquiring the unowned 50% interest from White Cedar during the 15-day period prior to July 26, 2019, at a price equal to half of the net book value at that time. As of late November, GrowWise had registered over 700 patients.

Pharmaceuticals: Emblem is working to develop pharmaceutical formulations that use cannabinoids as the underlying active ingredient, and expects to submit multiple pharma formulations for Health Canada approval by Q417. This business is headed by Mr. John Stewart, who is the former President and CEO of Purdue Pharma Canada and Purdue Pharma USA. Purdue is one of the largest privately held pharmaceutical companies in the world, and we believe Mr. Stewart brings a wealth of experience in drug development to the Company.

Recent Financing’s Support Growth: Following financing’s in December 2016 and January 2017, we estimate that Emblem has approximately $40M available to fund capacity expansion. Our estimates assume that Phase 3 takes capacity annual capacity to 11,600 kg, with commissioning expected in Q218. We do not yet include the Phase 4 expansion in our formal estimates as it is not yet fully funded, although it is expected to add another 9,500 kg in annual capacity, bringing total company capability to 21,100 kg. We note that Emblem has in-the-money options and warrants outstanding that would generate gross proceeds of $36.5M if fully converted, which should be sufficient to fund Phase 4.


Source : Echelon wealth partners report