Emerald Health Therapeutics Quebec Acquisition Makes Sense

Emerald Health Therapeutics, Inc. (TSXV:EMH) will pay a total purchase price of $90 million to the shareholders of Agro-Biotech

SmallCapPower | May 4, 2018: Emerald Health Therapeutics, Inc. (TSXV:EMH) Wednesday announced the acquisition of all the issued and outstanding securities of 8611165 Canada Inc., an Access to Cannabis for Medical Purposes Regulations (ACMPR) Licensed Producer located in Saint-Eustache, Québec, and its affiliate 9353-8460 Québec Inc., which together form Agro-Biotech. Through this acquisition, Emerald Health Therapeutics will be in a better position to serve Québec consumers with quality cannabis products in the anticipated recreational market and fortifies Emerald’s ability to market throughout eastern Canada and nationwide.

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The assets of Agro-Biotech include a Health Canada cultivation license, land, and a 75,000 sq. ft. purpose-built facility. Agro-Biotech brings with it in-depth experience in cannabis cultivation, which complements Emerald’s downstream product development focus backed by the expertise of pharmaceutical industry R&D and clinical development expertise and extensive consumer packaged goods and alcohol beverage marketing experience.

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At present, the 20,000 sq. ft. facility of Agro-Biotech is built, and the remaining 50,000 sq. ft. is expected to be completed by year end. Emerald Health hopes to meet ACMPR sales license requirements before the end of August this year. The production capacity of current operations is estimated at 3,000 kg of cannabis in 2018 and full production capacity is going to exceed 10,000 kg after completion of the facility.

Current yields are 150 grams/ sq ft., with the build-out implying 133 grams/ sq. ft. This would be higher than the average of 100 gram/sq. ft. And, the acquisition has the potential to generate $35 million in additional revenue for Emerald Health, using a wholesale price of $3.5/gram.

Emerald Health Therapeutics’ acquisition of Agro-Biotech expands its capacity to meet increased consumer demand in the second half of 2018 on the back of legalization of recreational cannabis in Canada. The Company is currently retrofitting its 50% owned 1.1 million sq. ft. greenhouse in Delta, BC, which has its cultivation license and is expected to have over 46,000 kg of production capacity by 2019 and more than 75,000 kilograms of growing capacity when the facility reaches full production. Furthermore, Emerald Health is constructing a 500,000 sq. ft. hybrid indoor and greenhouse cannabis growing facility in Metro Vancouver.

As per the acquisition terms, Emerald Health Therapeutics will pay a total purchase price of $90 million to the shareholders of Agro-Biotech in a half cash, half stock deal. One-half of the cash consideration was paid on closing and the remainder will be payable on May 1, 2019. Emerald Health Therapeutics currently trades at market capitalization of $553.98 million on the TSXV with price-to-book multiple of 7.40x.

Disclosure: Neither the author nor his family own shares in the company mentioned above.

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