This Monday, Emblem Cannabis is set for what is predicted to be one of the biggest cannabis IPOs of 2016. The Company’s upcoming RTO on the TSX Venture Exchange has investors clamoring. This fevered anticipation is fueled by Emblem Pharmaceuticals CEO, John Stewart.
Stewart is the former President and CEO of Purdue Pharma, the same company that brought us Oxycontin, and because of this, is expected to bring big pharma money and influence to a nascent medical marijuana market.
Using a unique three-pronged market approach, Emblem is positioning itself to launch as a major player in a sector with the potential for exponential expansion.
Emblem’s Investor Relations rep, Danny Brody, went on Reddit yesterday for an AMA session and answered a flurry of questions.
Brody got right to business extolling Emblem Cannabis’ biggest competitive advantages
“Definitely our pharmaceutical division and management team. Having 3 lawyers as founders, plus John H. Stewart heading our pharmaceutical division, we’ve put together a very powerful team. In any company it all comes down to management and their ability to execute. Harvey Shapiro sold his last company for $1 billion, and John is one of the most influential pharmaceutical executives in North America, who spent 39 years with Perdue. He has Extensive experience in formulation development, clinical trials and medical communications – a very large asset to our team.
Also management has invested $6 million of their own capital to get the business off the ground, so their interests are completely aligned with shareholders.”
When questioned why investors should jump in now and stay long when it comes to Emblem Cannabis, Brody attributed it to the company’s unique market approach.
“It really depends what you’re looking for and see value in – if you want a wholesale producer you’ll look at Supreme, if you want a low cost producer you’ll look at Aphria, if you’re looking for Organic you’ll look at Organigram, if you’re looking for a massive hybrid greenhouse producer you’ll look at Aurora, or someone who covers the whole spectrum you’ll look at Canopy. Personally, I own all of the above for all of the above reasons, also we’re all friends and speak to each other very regularly. We are all in this together, and learning together… a brand new industry.
If you’re looking for a unique opportunity with a management team that’s second to none, and a pharmaceutical vertical that’s focused on not just the medical marijuana market, but the largest pharmaceutical markets in the world – pain and sleep, that’s where I feel we really stand out and provide investors with a unique alternative. Additionally we’re still building to a very large capacity in preparation for recreational. 21,000KG x 1,000 x $8.50, you’re starting to get some pretty big numbers.”
With a growing medical and recreational marijuana market across the globe, participants were curious about Emblem Cannabis’ plans for world domination. Was Emblem going to follow CGC’s plan of expanding internationally prior to legalization?
“I can’t comment on any international plans for Emblem itself, but we are watching the industry closely.”
When grilled about the immensity of the task of bringing 26 strains to market, Brody recognized the difficulty, but remained confident.
“You’re not kidding! Bringing 4 strains to market is a daunting task! We’ve got some fantastic growers, some fantastic consultants, and a very enthusiastic and passionate team of growers behind every strain.
We’ve had our growing pains like any licensed producer but the trick is to work through them, and come out stronger. We’ve now been growing for over a year and continually getting higher and higher yields from our plants. We’re getting very good at growing, and patients are speaking highly of our products thus far.
As with any expansion we’d have to do it in stages, to instantly take on 12,000KG would be too difficult. We’ve got stages planned for each additional phase of production to make sure that we can scale up without sacrificing quality.”
Once Brody discussed expansion, participants wanted to know more. How would Emblem Cannabis compete with the production scale of Canopy, Aphria and Aurora?
“We’re committed to growing a very high quality product in an indoor environment. All our expansions will remain indoors as well. We’re not focused on growing as much as humanly possible, but we still have a very aggressive expansion plan. 21,000KG is a very large amount of marijuana and we’d only build to that capacity with the approval from Trudeau that we’ll see a recreational market. With a three vertical approach, we’d like to position ourselves towards the higher end side of the market, with a strong focus on pharmaceutical formulations.”
Brody was once again confident when questioned about how the company would solve its capital issues as it continues to grow into its goal.
“Good question – this business is extraordinarily capital intensive. To grow a high quality product to health Canada standards is not easy but – we’ve got a very strong capital markets team in house, and we have taken so many steps to make sure we are well capitalized going forward to ensure the success of the business. I’ve been marketing and sharing our story on the road for over 6 months, creating awareness and very strong capital markets partners. That’s all we can do, and work through the problems when they arise.”
Participants were eager to discover projections in regards to patients in the first year as well as where Brody thought Emblem Cannabis would be in five years.
“I’d have to double check – but we’ve invested heavily in our patient acquisition strategy, and have been seeing patients for over 1.5 years with our GrowWise clinics. They have seen thousands. You’ll see our peers buying up these clinic networks like Canvas RX, and Marijuana For Trauma, and Canabo just going public. To be in this business you need to know where your patients are coming from, and we think we’ve got a great vertical established here with GrowWise.
It’s hard to comment where we’ll be in 5 years, the industry is changing so fast everyday. We just need to keep working as hard as we are on all aspects of the business to make this a success.”
So just where is Emblem Cannabis going to focus its marketing efforts?
“We are targeting all of the markets, we’ve got a significant plan to stay in medical, which is why we’ve invested in our GrowWise clinics, a significant plan for recreational, which is why we’re expanding our capacity to 21,000KG, and a significant plan for pharmaceutical which John Stewart is running.
It’s our belief that the medical market will move away from dried flower to more standardized pharmaceutical dosage formats, allowing patients to ingest their medicine like other medicine, and doctors to titrate their patients; meaning move them up or down with respect to dosing depending on how patients react. Right now it’s difficult to do that as there are so many variables with consumption.”
Canopy Growth Corp is a 1200 pound gorilla right now and participants wanted to know how Brody thought Emblem was going to go toe-to-toe with the industry giant.
“It’s hard to compete with Canopy, they’re big now that they can instantly just raise $60 million in 7 minutes, and acquire anyone that’s now competitive with them. Our focus is not only creating a strong brand for recreational, but expanding heavily into the pharmaceutical side where we can create standardized dosage medication in pill format, and begin taking market share from the more addictive opioid market. No one has ever overdosed from marijuana.”
Speaking of CGC, Supreme, Tweed, et al, Emblem Cannabis is entering public life at the height of the MMJ market, meaning it can raise more capital and give off less equity. One participant wanted to know if this gave Emblem an advantage over its over-diluted competitors.
“Great question – and the answer is no – not even close.
With the base case scenario a recreational market is estimated at 4.2 billion, if you reverse engineer those numbers to figure out how many grams need to be produced and sold at an average price of $6.00, it’s 700 million grams, or 700,000KG. The Canadian industry is producing less than 50,000KG (combining oils and flowers) which means we collectively as an industry, need to go up 15x to reach THE BASE CASE recreational market. That’s why we are all raising so much capital to expand. The money is chasing the guys with the ability to expand, and the guys who are able to expand will have such a strong foothold on the market, it’s my belief it’ll be hard for the smaller producers to compete.”
When questioned about intellectual property in regards to process or product, Brody kept his cards close to his chest.
“There are certain patents available with respect to our pharmaceutical division, I don’t want to disclose too much about what we are working on though as I’m sure you can understand.”
Before the thread came to an end, Brody was asked to comment on Canopy’s recent $430 million acquisition of Mettrum and if he saw more this kind of activity down the road in the Canadian MMJ space.
“Great question. I feel the acquisition of Mettrum is an indication of things to come. M&A will be large in the space, with only 36 licenses and a handful of guys capable of expanding to any significant capacity, this will just be the beginning I feel. Larger companies will scoop up the guys with patients, productive capacity, and any companies working on unique aspects of the business. I also think there could be some mid size companies merging businesses to rival the giant.”
It will be interesting to see how the market receives Emblem Cannabis when its IPO finally launches on Monday, you may want to keep your eye on it. As always do your due diligence before making any investment decision.
–Gaalen Engen
http://twitter.com/gaalenengen
FULL DISCLAIMER: Emblem Cannabis is an Equity Guru client.