Emerald Health Therapeutics Stock Suffers After Supply Deal Snub

Emerald Health Therapeutics, Inc. (TSXV:EMH) failed to secure a supply deal with the British Columbia Liquor Distribution Branch

SmallCapPower | July 17, 2018: Emerald Health Therapeutics, Inc. (TSXV:EMH) shares fell more than 25% last week after the Canadian cannabis producer failed to secure a supply deal with the British Columbia Liquor Distribution Branch (BCLDB). Last Wednesday (July 11), the BCLDB announced the signing of MoUs with 31 licensed cannabis producers across the country, including 12 local ones. Among the notable left offs was Emerald Health, one of the first licensed producers in B.C. that received its cultivation license back in February 2018. Major producers that featured in the preferred suppliers list included Aurora Cannabis, Hydropothecary, MedReleaf, and Canopy Growth.

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Post the development, shares of Emerald Health fell 6% on Wednesday. Emerald Health released a corporate update on Thursday to assuage investors, but shares fell another 7% and accelerated the decline to nearly 13% on Friday. Investors seem to be spooked by the absence of supply agreements with any Canadian province for Emerald Health. The Company was also not part of the preferred suppliers list in Alberta. Failure to secure a deal in its home province will likely turn out to be a major blow to Emerald Health.

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Despite this near-term setback Emerald Health, with its focus on product innovation and expanding growing space, appears well positioned to target both the medical and recreational markets. Emerald Health tried to deliver the same message to investors with its corporate update a day after it was denied the B.C. supply contract. The news item provided an update on Emerald Health’s differentiated strategy and progress, and focused on three things – production innovation, branding & sales, and production and raw material sourcing. While product innovation detailed the Company’s focus on creating new products and patented novel ideas, Branding & Sales dealt with initiatives on its creative campaign that will uniquely position Emerald products in the marketplace (communication around this product line will be released in August). Regarding sales, Emerald Health also noted that it has been in frequent discussions with all the provincial cannabis distribution agencies across Canada and has had multiple tours of high-level executives of these agencies to allow them to see the magnitude and quality of the company’s production capabilities. Regarding production, Emerald Health has completed and received a cultivation license for one quarter of the 1.1 million sq ft at the Pure Sunfarms JV facility. Additionally, Emerald Health owns Agro-Biotech, a Québec-based licensed cannabis grower with a 75,000 sq. ft. indoor facility.

Additionally, Emerald Health may be included in the next list of preferred suppliers as BCLDB noted that it will continually expand purchasing requirements post legalization.

Emerald Health is an ACMPR licensed producer that sells dried cannabis and cannabis oil for medical purposes. To serve the upcoming recreational market, the Company is rapidly expanding capacity at its 50%-owned Pure Sunfarms JV.  Emerald Health currently trades at a market cap of $348 million on the TSXV.

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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