We have had a love/hate relationship with Emblem Cannabis (EMC.V) since it appeared on the Canadian cannabis markets.
We liked that they were clients of ours when they went public. We liked that they have a nice shiny cannabis growing license. We like that they have 22k sq ft of growing space, which is around half what Aurora (ACB.T) currently grows with.
We like that they have a pharma bro in the board room, the guy who helped launch Oxycontin, and who is now trying to replace that with primo weed.
Here’s what we haven’t liked: Everything else.
This is a company run by people who appear mentally unwilling to market themselves to investors in any way, shape or form. Oh sure, they’ve spent money on IR firms, but they haven’t made moves, put out news of note, or engaged with folks like us (or anyone else we know of) to get in the national investor conversation.
Here’s the Emblem chart (left) and the Aurora chart (right).
See if you notice something here.
In November to December, when every single fucking cannabis company on the Canadian exchange, from top to bottom, licensed to spurious, was making a concerted upward run, Emblem was stagnant. No news, no moves. It just sat.
In late December, people started to notice it was undervalued and jumped on it, but almost within days it not only dropped back to where it started, it dropped to BEYOND where it started, now trading at a 52-week low.
Scratch that: It’s trading at a historic low.
A week ago, CEO and President Nick Dean put out a shareholder update, which was a big deal because it was the first time I can remember the company actually talking to investors in a year.
“Having just completed my first quarter as your new president and chief executive officer of Emblem, I would like to start by thanking the many groups who have made this exciting evolution of our company possible. The incredible support of our shareholder base and the significant efforts of our world-class management team have allowed us to quickly pivot our approach. This strategy strengthens our current position as a leading medical cannabis company, while creating a brand-leading division launch within the burgeoning adult-use market, slated to begin in Q3 2018.”
In the update, he talked of several initiatives the company is pursuing – international sales, expansion of its oil extraction facilities, recent financings.
But the stock, in the time since, has crashed. So much for “the incredible support of our shareholder base.”
But if you go out into the world of smallcap investors, you find a lot of people talking about how they’re buying Emblem because it’s so darn cheap. Yet, the charts keep headed downward.
I know the sector is being red today, but with all the red we got with Emblem, I didn’t think we could go lower! LOL. When sector is green, Emblem can’t follow the trend, and when the sector is red, we follow the trend. Very hard to understand. Where is the management?
— Jason Spatafora (@WolfOfWeedST) March 28, 2018
Equity.Guru’s Braden Maccke, last week:
Emblem Cannabis (TSXV:EMC) produced and sold 53.9 and 50.8 kilograms of marijuana in the past two quarters. They have about a $150M market cap.
Emerald Therapeutics (TSXV:EMH) has sold marijuana in the past few quarters, and even grew some of it. They haven’t published the volumes, and they haven’t returned EG calls and emails looking for volume numbers, either. They outsource an un-revealed portion of that production from other Licensed Producers. There is no way to know what their under-construction greenhouses at two sites will produce in terms of volume going forward, when it will produce that notional volume, or whether or not it will be licensed for sale by Health Canada.
But, at 4 million square feet in size, the proposed facility will be enormous.
The company has a market cap around $680M, more than four times that of Emblem.
This is bonkers.
Emblem has a $140m market cap right now and just raised $85m.
In contrast, Matica Enterprises (MMJ.C), which has no license to speak of and certainly nowhere near that much cash, has a market cap of $81m.
There have been rumours while this has been going on, but they come straight out of conspiracy theory central casting. One was that TGOD was going to buy Emblem and was running down the price to make that easier. Adding to the conspiracy theory – the team bringing TGOD public also brought Emblem to the markets a few years prior.
But they also brought Organigram (OGI.V) a few years before that, another underperformer that appears to me to be waiting for someone to acquire it.
I asked TGOD folks about the likelihood of an acquisition of EMC and got a very straight, public NOPE, so I believe them.
But at this market cap, someone should be making a run at the thing. Let’s say you had to offer a $200m to get them, or a 30% premium to the current market cap, half stock and half cash, and for that you get real production and a working facility. I can’t see how that would be perceived poorly on either side.
In fact, I think it would add what was being spent to make the acquisition to the market cap of the acquirer.
Let’s say Aurora went in for Emblem and in doing so bought themselves an extra 50% on their current production. You can’t convince me they wouldn’t go from their current $4.6m cap to $4.8m on the announcing of such a deal.
As for why it hasn’t happened yet – that comes down to the negative stigma of Emblem’s performance over the last year. They have no market goodwill, no track record of growth, a few thousand patients that won’t count for much when rec use is a thing and liquor boards are the sales point for everyone, no brand that people will recognize outside of the investor community, and a lot of that corporate update I mentioned above went to talking about things the company was fixing, such as management changes and facility retrofits and plans that should have happened a year ago, not things it was finishing building or successes it has had.
The focus over the last 120 days has been that of assembling a world-class executive leadership team. […] We are also making improvements to our existing closed-box cultivation facility, with retrofits to three grow rooms nearly complete in order to provide greater environmental control for our production team. […] We have appointed Ellis Don as the construction manager of our purpose-built 170,000-square-foot greenhouse, with construction slated to begin within four to six weeks, contingent on site-plan approval from the County of Brant.
The company has put together a pharma sales force that is selling oil to prescribing doctors, but once again, that’s weed 1.0 work, not the 2.0 that’s coming where those oils will need to be water soluble so they can go out to the general non-smoking non-medical consumer.
One big sell on the update was this:
To bring these brands to market, we have recently hired the services of a multiple award-winning advertising agency, No Fixed Address (NFA), as Emblem’s agency of record. We will enter the market well in advance of legalization to start a groundswell of demand and anticipation for our products once they are available on shelf. The scope of services NFA will provide include:
“Create and execute a national PR [public relations] strategy to help Emblem Corp. launch our adult-use recreational brand ahead of the proposed date for legalization;
“Create and execute a series of experiential/activation campaigns with Emblem’s adult-use recreational brands;
“Ultimately, create enough awareness that Emblem’s recreational brands will be the first products that consumers try when the legal market comes into effect.
Yawn. ‘Experiential campaigns’? We talking free samples at liquor stores here? Discount coupons in Supermarket Saver? A virtual reality experience that simulates being ‘ass nailed to the couch’ shit-faced?
Marketing of brands will be rough trade with rules in place that make packaging uniformly boring and actual marketing campaigns illegal. It’s likely going to come down to discounts and shelf space deals in the end, and one doesn’t need a bunch of hipsters talking about social media synergies to make those deals happen.
While you knuckleheads are thinking about paying someone to formulate a strategy regarding getting your brand out to the market, HIKU (HIKU.C) had gone and bought the only recognizable brand out there, Tokyo Smoke, with bricks and mortar presences on Main Streets across the country. They also brought Aphria (APH.T) in on the deal as a big fish investor. They also did deals with Van Der Pop and Dosist, Quebec brand Maitri, they’re opening retail stores in Manitoba, and forming strategic alliances in Jamaica.
Hey Emblem, HIKU started later than you, has one third of your production space, went public after you, doesn’t yet even have it’s sales license, and it has more than doubled your market cap at $315 million.
In short, HIKU has EATEN YOUR FUCKING LUNCH.
If there’s a nefarious motive behind some group, somewhere, driving down EMC stock value so they can grab it all on the cheap later, so be it. If it’s a straight short selling situation, so be it.
In fact, most companies on the weed side are down right now, as we said they would be back in early January.
But almost all of them had a hard run upwards for two months before that – Emblem didn’t.
Almost all of them had material and substantial plans for growth that they enacted in the year prior – Emblem didn’t.
Almost all of them have marketed themselves to investors and competed for the massive dinero that was available for enthusiastic gamblers who have, frankly, slapped dollar dollar bills y’all down on just about any piece of crap with a weed leaf tacked onto it, with almost no regard to whether they were investing in a company or a market swing – Emblem hasn’t.
So please, someone, somewhere, buy Emblem. Take it over for your couch change, slap some new faces and strategy into it, start talking honestly and grandly to the investor crowd, build an ACTUAL shareholder base that supports the thing and let slip the dogs of war, for a god damned change.
— Chris Parry
FULL DISCLOSURE: We have no commercial arrangement, for or against, Emblem Cannabis and none of our people own stock in the company, short stock in the company, or give a red rat’s ass whether it ultimately goes up or down. But it’d be nice if the people who have trusted in its executives got some reward for their cash and patience.
Of the companies mentioned in this piece, HIKU is an Equity.Guru marketing client and we do own stock in that company.