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VIDEO: Emblem Corp (CVE:EMC) on GreenSpace Partnership

MidasLetter Live
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Emblem Corp (CVE:EMC) (OTCMKTS:EMMBF) (FRA:E0M) CEO Nick Dean shares details about his company’s strategic partnership with GreenSpace Brands (CVE:JTR) (FRA:4G7) to launch a line of CBD health and wellness products. This includes plans for a line of CBD-infused, hemp-based gel caps and cannabis CBD-based gel caps, as well as lotions, edibles, and beverages. Emblem’s partnership with GreenSpace is an industry first because it combines a traditional LP and a traditional consumer packaged goods company. Dean outlines Emblem’s play to acquire all outstanding shares of Natura Naturals as part of its cultivation strategy. Emblem’s recent deal with Akros Pharma gives Emblem an established sales and distribution channel in the Germany market that will operate under the brand name Emblem Germany.

Transcript:

James West:   Hey, welcome back to Midas Letter Live. My guest in this segment is Nick Dean, and he’s the CEO of Emblem Corp., trading on the TSX Venture under the symbol EMC. Nick, welcome back.

Nick Dean:    Thank you James, nice to see you.

James West:   Nick, lots of big news in the Emblem Corporation world. Strategic partnership with GreenSpace Brands, acquisition of Natura Naturals after a strategic investment.

Nick Dean:    Yes, sir.

James West:   Really going on. Where do you want to start?

Nick Dean:    Well, why don’t we start with the most recent announcement, which was GreenSpace.

James West:   Sure.

Nick Dean:    So just yesterday, we announced that we have formed a partnership with GreenSpace Brands to launch a line of CBD health and wellness products. I’ve known Matt Von Teichman for a number of years, and him and I have actually been talking about the opportunity to partner up to create a line of these CBD-based health and beauty products. And over the course of the discussions, we ended up betting out on a strategy.

It’s funny, every time I meet with Matt, I ended up going home and opening my fridge, and there was one of GreenSpace’s products. It’s just they’ve fabulous marketers, fabulous branders, and they’ve got fantastic distribution.

James West:   Really? Okay, so are these products currently available under the current regime, being CBD products?

Nick Dean:    So what we’re planning on doing, actually, is creating a net new line of products and a net new line of brands. So we’re going to be doing a line of hempseed gel caps that we’ll be selling through Matt’s existing retail channels, such as some of the major retailers, grocery stores, natural health food stores, and pharmacy. And with that same brand, we’re also going to create a line of CBD-infused, hemp-based gel caps and cannabis CBD-based gel caps. Now, that’s just the first product that we’re going to launch together; we’re also going to get into lotions, and then ultimately into edibles and beverages. So yeah, it’s a pretty exciting partnership.

James West:   So GreenSpace is not currently just a cannabis brand…

Nick Dean:    No, no, they’re not a cannabis brand.

James West:   Oh, not at all?

Nick Dean:    In fact, GreenSpace is a traditional consumer packaged goods company focused on health and wellness products, organic products. So you may have heard of Rolling Meadow Milks, the grass-fed milks?

James West:   Sure, you see those everywhere.

Nick Dean:    Exactly. Cedar Juice is another one of their products; Love Child is a great organic product for kids.

James West:   Oh, okay.

Nick Dean:    Yeah, so they’re really focused on health and wellness and natural food products.

James West:   Sure, as a brand platform.

Nick Dean:    As a brand platform. And so we think this is an industry first, where a cannabis company, a traditional LP, has actually partnered up with a traditional consumer packaged goods company.

James West:   That actually makes perfect sense. All these cannabis companies are trying to become consumer packaged goods companies – why not just buy one?

Nick Dean:    It does. Right, so we didn’t buy them, we’ve partnered with them.

James West:   Oh, okay.

Nick Dean:    And actually, the way it’s going to work is, we’re making a strategic investment in GreenSpace, basically, to help them launch their CBD line of products. And as a result of that, they’re going to be buying cannabis oils from us, and we’re going to get an ongoing royalty from both the sales of their hemp-based products and their cannabis-based products.

James West:   Okay. How much of an investment in GreenSpace are you making in terms of a percentage of their equity?

Nick Dean:    So I think their market cap right now is between $65 million and $70 million, and we’re putting $2 million in. A million in equity out of the gate, and a million in convertible debt.

James West:   Interesting. Okay, and then, so that’s right: so that’s with GreenSpace brands, and then you also now have made a bid to acquire all the outstanding shares of Natura Naturals.

Nick Dean:    We have, we have. So I think, James, as you and I talked about a few months back, you know, Emblem is incredibly focused on product innovation, creating great brands, and ultimately making sure that we have access to consumer. And I’ve told you, I’ve told crowds before, we don’t have any intentions to be the largest cultivators of cannabis in Canada. But, cultivation was the missing piece of the puzzle. We have a great facility in Paris, Ontario; it’s our Woodsley facility. We’re currently growing about 2,000 kilograms a year out of that facility. But as we look at our ambitious plans to expand this product portfolio across Canada, and then ultimately internationally, we did need to have a cultivation, a firmer cultivation strategy in place.

So effectively, we’ve been talking to the Natura guys for a number of months, and we were initially focusing on a supply agreement. And through that process, we got to know their team, we got to know their growers, we looked at their 32 specific strains, and we thought, you know, maybe there’s a better opportunity to bring the two companies together in a really accretive move for our shareholders and for the company’s growth overall.

So we started with the supply agreement, which we announced, 3,000 kilograms; and from there we said, let’s take this a step farther. And we announced that we will be aiming to close the deal by the end of August.

James West:   Wow, that’s great. So that’s a 662,000 square foot facility?

Nick Dean:    It is.

James West:   Where is that located?

Nick Dean:    It’s located in Leamington, Ontario.

James West:   Leamington?

Nick Dean:    Canada’s capital of the world, yeah.

James West:   Used to be the ketchup capital, and now it’s the cannabis capital.

Nick Dean:    Exactly. So what they were doing is, they’ve got a Phase I and a Phase II buildout. So they’ve built out the first 150,000 square feet retrofit of their existing greenhouse, which produces about 15,000 kilograms a year, which will be coming online later this year. The remainder of the Phase II will take it up to 70,000 kilograms a year in total production out of that facility. So James, as I think you’re aware, we were planning on building a greenhouse ourselves, but through this transaction, we’ve now suspended plans to build the greenhouse ourselves, and instead we focused the efforts on Natura.

James West:   Sure, well, that’s great. So when would Natura’s supply come onstream for you guys?

Nick Dean:    It’s going to come online in Q4 of this year, and then we’re going to, as we build out Phase II, obviously, and we’re building consumer demand in the marketplace, it’s all going to be working unilaterally.

James West:   Wow.

Nick Dean:    Yeah.

James West:   What a cohesive strategy has emerged from Emblem, which was so quiet for so long. That’s fantastic!

Nick Dean:    Yes, sir.

James West:   Then you’ve got supply agreements with Alberta, you’ve got Emblem Germany starting up…

Nick Dean:    We’ve been busy this year. We’ve been busy.

James West:   I mean, it’s like wow. I feel like I’m sitting in front of a whole new company at times.

Nick Dean:    I’m glad to hear that. It feels like a brand new company. We’ve made a lot of changes over the past nine months, we’ve brought in fantastic talent to help us build out our plan. I think, you know, I actually spent the morning with the Natura team; they bring fantastic talent that really complements Emblem’s existing team.

James West:   Oh, great.

Nick Dean:    So yeah, it’s an aggressive plan, and the focus right now is purely on execution: let’s just make sure we’re executing against everything we tell our shareholders and the market.

James West:   Sure. With the CBD-infused health products, now, those are legal in Canada right now, are they not?

Nick Dean:    They are for selling through the medicinal channels. So we cannot label a product CBD and sell it through the traditional retail channels such as a pharmacy, a natural health food store, or a grocery store. So that’s why we’re going to have a two-channel strategy: GreenSpace is going to sell through their existing hempseed oil for now, and we’re going to be selling through our existing partnerships, AGLC Fire and Flower. Hopefully when we learn more about what’s happening with the OCS, in here and Ontario as well, and across Canada.

So yeah, it’s a bit of a dual strategy. You know, we do expect – I don’t have a crystal ball, but we do expect that regulations will change, as they have many, many times so far in this sector, and we do believe that hemp-based CBD products ultimately may be allowed to be sold in more traditional natural health food stores and the pharmacies as over-the-counter products.

James West:   Yeah, it’s interesting to me, because you can buy hemp seeds as a natural food product right now, so technically, you’re buying CBD.

Nick Dean:    You can! Great with fatty acids.

James West:   That’s right. Interesting. So can I ask you, because I’m having a hard time figuring it out…

Nick Dean:    Sure.

James West:   The Premier of Ontario, Doug Ford, has made this overture that he’s going to privatize cannabis sales in Ontario. But has that derailed the process of onboarding cannabis sales for October 17th through the LCBO system?

Nick Dean:    It hasn’t as of yet. So we are still, and I believe a number of LPs, are still in active dialogue with the OCS, and we’re committed to partnering with them, whether it’s a public model, a public/private model, a private model. I think the goal here is to make sure that we’re getting high-quality cannabis products in the hands of Ontarians, and starting to push away the opportunities for the black market, to bring that more online, to make people have safe and accessible access to products. So we’re happy to work with the OCS in whatever format.

James West:   So do you think that the idea of opening up the private market to cannabis sales in Ontario is going to be more effective in eliminating access to black market supplies?

Nick Dean:    I think so. I think, you know, it’s all about building brands that consumers will trust, at the end of the day, and a retail-focused private chain will provide that type of credibility, authenticity and education to the consumer. So I do believe, yeah, this is going to – it’s going to create a free market system, and I think it’s going to create safer access to the cannabis products – high quality cannabis products that Ontarians demand.

James West:   Wow, okay. So then, in the context of an investor looking forward at all your development plans, what’s the financial condition of the company in terms of cash on hand versus what your CapEx requirements and OpEx requirements are going forward?

Nick Dean:    Yeah, so right now, Emblem’s still got a healthy balance sheet. We’ve got about $70 million on hand. Now, we are making these acquisitions, and we are going to be using a significant amount of that cash through the transactions themselves. But we think we’re well-positioned to take the business plan where it needs to go, and then ultimately our cash flow from sales will start to support the business’ growth as we move forward. We feel we’re really well positioned to execute against the plans that we have in front of us.

James West:   So at this point, no plan to tap capital markets?

Nick Dean:    Not – you know, I’ll never say never, but at this point, likely not; we’re going to be leveraging the cash that we have on hand.

James West:   Well that’s great. Then tell me about what’s going on in Germany, then.

Nick Dean:    So we also recently announced an LOI with a group called Akros Pharma. Great group of pharmacists that are actually selling product already in the German market. They’ve got a great wholesale distribution network where they have access to about 20,000 of the pharmacies in Germany. So the joint venture structure is 60/40 in favour of Emblem, and essentially they’re going to be a sales and distribution channel for us, but under the brand name of Emblem Germany.

James West:   Fantastic. So Germany is still strictly medical?

Nick Dean:    Correct.

James West:   And do they have plans to move towards recreational as well, or are they just sort of going to wait and see?

Nick Dean:    I think it’s probably a wait and see at this time. Our focus with our international expansion efforts is medical only, so, you know, Germany is the first entry point for us into international markets. We’re going to be looking at the UK, we’re going to be looking at Australia, we’re going to be looking at Italy, you name it. But it’s really going to be a medical focus first, and we believe that’s where the markets are going to open up initially.

James West:   Okay. So is it safe to then categorize Emblem as primarily medical going forward, and not so much recreational.

Nick Dean:    Yes. So what we are is, we’re a health and wellness company. Emblem was built as a medical company first. We’ve got just over 4,000 patients now and a great line of innovative medical products that we’re selling to our existing patients; that is the strategy. We expect medical will make up around probably 65 to 70 percent of our ongoing revenue, given that internationally, that’s where the market really does open up.

In the adult use space, we will be selling as a health and wellness brand, which ties so nicely with our recent partnership with GreenSpace brands, as health and wellness products.

James West:   Wow, interesting. So how will Emblem get around – and I mean, this is a question I ask everybody – how are you going to get around the restrictions on marketing and advertising?

Nick Dean:    Very creatively.

James West:   By coming on the show more often! [laughter]

Nick Dean:    Exactly, by wearing my T-shirt that I’m not wearing today. No, I do think there’s a lot of opportunities, still, to create brand awareness. We recently launched our adult use brand Symbl, and there have been a number of opportunities from an activation perspective. So, you know, feet on the street: from a PR perspective, so how can we garner that earned media versus owned media. So I do think there’s a lot of opportunities to still build awareness and anticipation for our brands, even with the strict regulations.

James West:   Fantastic. All right, Nick, well that’s an incredible update. I am more interested in Emblem than ever before, and we will be following with interest. Thanks for coming in today.

Nick Dean:    Thanks so much. Appreciate it.

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