Emblem Corp (CVE:EMC) (OTCMKTS:EMMBF) (FRA:E0M) CEO Nick Dean shares details of the company’s launch of a new line of oil capsules and its plans for the coming year. Emblem currently has 6000 medical cannabis patients and saw an increase in patient numbers after recreational cannabis was legalized in Canada. Dean believes Emblem’s patient growth is due to the company’s success at meeting its commitment to its medical patients in the current supply crunch. The company’s fixed-price supply agreement with Aphria Inc (TSE:APHA) (NYSE:APHA) (FRA:10E) ensures Emblem has access to quality wholesale product and allows the company to project significant revenue for 2019. Dean has nothing but praise for the performance of Emblem’s signature brand Symbl and highlights the company’s key distribution agreements with Fire & Flower, Starbuds Canada, and Shoppers Drug Mart.
James West: Welcome back, Nick.
Nick Dean: Great to be here. I brought gifts this time – tis the season.
James West: This is just made out of hemp?
Nick Dean: It is not, it is made out of high quality wool, and to symbol our adult use brands, so I’m thrilled to see you wearing them. I’m not sure if that’s allowed, but we’re going to let it go.
James West: I can do whatever I want.
Nick Dean: It may get a little toasty in here but you look great.
James West: Oh, it is getting a little warm, actually. So Nick, let’s start with an update: what’s changed since we were talking to you last?
Nick Dean: We recently launched our new capsules, so that happened this week. So I think the main focus, this is a testament to Emblem’s focus on execution over the last year. Now, we’ve made a lot of changes and our focus to our shareholders and our –
James West: I’m going to take this off. I’m just too hot, because it’s like –
Nick Dean: That’s okay. But our commitment to our shareholders has always been about firm execution, we’re going to deliver on our commitments, and if we make commitments to our patients, we’re going to make sure that we deliver those.
So we made the commitment to patients that we’d have capsules out before the end of the year, and we met that commitment earlier this week.
James West: Okay, so what kind of capsules are they?
Nick Dean: They are, we’ve got three skus: we’ve got the high THC, we’ve got the high CBD, and then we’ve got the blend. They’re 10 milligrams for now, 60 capsules per bottle, but we do have plan to keep listening to our patients, and you know, they’re going to let us know what their needs are moving forward and we’ll introduce new skus.
James West: Cool. I use, I consume about 48 milligrams of CBD each morning.
Nick Dean: I should have brought you some, I don’ know I that’s allowed either, but perhaps I brought the wrong gift.
James West: I’m a patient, so I can do that. So it’s interesting: so from where you sit, has the Farm Bill in the US created any sort of awareness of CBD products as a wellness product, has it created any demand for your products?
Nick Dean: Look, I think there’s already been incredible demand for the CBD products in the marketplace; they were some of the earliest products to sell out. But with regards to some of our skus in Alberta, in Ontario…I think this is raising awareness about, number one, significant opportunities for Canadian cannabis companies now to get into the US even given some of the strict regulations, if we’re listed on the TSXV, for example.
James West: Sure.
Nick Dean: So I think it’s raising a lot of awareness; I think it’s’ a great thing. I think it’s showcasing that the US government is moving closer and closer to full cannabis legalization, I think. So yeah, we’re pretty pleased with it, but I think it does create a lot of opportunities for more CBD-based products moving forward and skus.
James West: Interesting. So how many patients are you at total, right now?
Nick Dean: We’ve surpassed 6,000 so the number’s been growing throughout the year. It’s probably about almost 100 percent growth since start of the year, so just over 6,000 now, and the growth continues, which you know, frankly, we were a little surprised, because we thought the adult use market would come online and we may see some patients attrite into the adult use space. We actually saw the opposite; we saw an increase in patient counts.
So we’re attributing that to a couple of factors: number one, I think we have an incredibly strong medical brand with Emblem; we continue to bring out new product innovations, and finally, we met all of our commitments. So we made sure that we had enough product available to meet all of the ongoing patient commitments even with adult use coming online, which we also met 100 percent of our commitments.
So where some of our competitors may have run dry, or their inventory fell short, I think we may have actually attracted those patients over to Emblem, because we had significant products.
James West: So you’re kind of like a best-kept secret in terms of all the LPs.
Nick Dean: You’ve said that before! I like that, and I think that’s probably true, in keeping with the business we’re building.
James West: Okay, so tell me about your – you’ve got a new president.
Nick Dean: We do. So we recently hired Wayne Kreppner. Wayne Kreppner joined us as our president of our Medical Division; his mandate is product innovation. So help us identify new market opportunities, help us identify new products that we should bring to market, and then obviously help us commercialize those products.
Wayne joined about six weeks ago; it’s pretty funny. So I spend a lot of time, I probably shouldn’t do this, because it can be soul-crushing, but I spend a lot of time reading the forum boards, reading Reddit, and I got a chuckle this last week because there’s a lot of Reddit comments saying, You know, Wayne Kreppner joined, but where is he? We haven’t seen him.
James West: Right.
Nick Dean: So I’m here, I want to reassure shareholders: he’s working!
James West: [laughter]
Nick Dean: He may not be doing interviews right now, but he’s been incredibly busy.
James West: So we’ll bring him on the show when he’s ready.
Nick Dean: Yeah. I think so.
James West: Awesome. Okay, and so you recently visited Aphria’s Leamington facility, and that ended up in a supply agreement.
Nick Dean: So we did. So we signed the supply agreement with Aphria late in the summer, maybe early September, which is probably, we think, one of the largest LP to LP supply deals. And the reason we did this was because we wanted to go to an asset-light model at Emblem and really focus our resources, both human and cash, on product innovation, on building great brands, and then making sure we had distribution lined up.
So Aphria being incredibly good growers became a great solution for us to make sure we had the raw materials to put into our products.
So last week was a tough week for our friends at Aphria, and you know, I think Emblem, given the strong partnership that we have and the reliance on product supply from Aphria, we sort of got pulled down in the market as well as a result. And so we reached out to them and said, you know, we’d love to reassure our shareholders that, you know, everything that might be said over here isn’t true.
James West: Right.
Nick Dean: And so, you know, they invited us up right away. We took a trip down to Leamington last Friday; you know, we didn’t realize it was going to be a three-hour tour, but that’s essentially how long it took, because their facility is so bloody big. But, you know, it’s a world-class facility; state-of-the-art, fully automated. We brought our director of product strategy to evaluate the flower that’s being grown there; he was blown away.
So, incredibly impressive tour. It’s funny: so again, I follow these silly forums all the time, and as I left, I tweeted a picture of Vic and I, I tweeted a picture of the Leamington sign and I tweeted a picture of the front door and just said, you know, I had a great visit, we want to reassure our shareholders. And you know, there’s a funny picture of Vic and I, and I just want to, again, tell the people that are on those forums: we’re not cuddling, it’s an awkward handshake for sure, I’ll give everyone that, but we’re not cuddling – although we both probably could have used a hug in the last week.
James West: Right.
Nick Dean: Yeah, but quite funny to see feedback.
James West: Very cool. Okay, so then, you’ve also reported pretty strong third quarter results.
Nick Dean: Yeah.
James West: Would you like to talk about those for a bit?
Nick Dean: Yeah, so sure. Look, the focus, again, has been on continued revenue growth, it’s been on cost reduction. It’s been on pure execution. So we saw, again, significant quarter-over-quarter growth, and we saw significant year-over-year growth, and that’s going to be the benchmark moving forward. You know, we hope to be able to continue to deliver better results than the previous quarter, and that’s going to be the focus moving forward.
James West: Sure. Okay, so now here comes the tougher questions.
Nick Dean: Sure. Okay, yeah, those were the softballs?
James West: Yeah. So in 2019, everybody is looking to the Canadian LP space. They’re going to start valuing companies on balance sheets, because now we’ve got the medical regime and the recreational regime.
Nick Dean: For sure.
James West: How is Emblem going to perform in 2019? Will there be net income?
Nick Dean: Look, I love that question. So, uh, I love that question, because since I’ve joined the company, we have firmly been focused on fundamentals. So we’ve been focused on building a business that is going to drive revenue, that is going to showcase cost reductions, that’s going to get to cash flow positive quickly. And so we are quite pleased, given the asset-light model we’ve gone, and we have committed pricing from Aphria. And we have a committed pricing from Natura Naturals, who’s another supplier of ours.
So then we have strict cost knowledge in terms of what those raw materials are going to actually generate. So we think we’re going to be able to generate incredibly high margins based on the products that we’re bringing to market. You know, example right now: our dried flower, you know, we’re seeing a significant recognized revenue. When you move up to oils, it’s about $15. When you move up to our oral sprays, it’s about $20 in recognized revenue per gram. As we continue to introduce these new products, we’re going to see higher and higher margins as a result of those products.
So we’re – look, we’re excited about 2019. We expected that as of October 17th, there would be a shift in the market, which we’ve now all seen, and it’s going to move away from promotion of companies to actual, what is that company made of, what are the fundamentals of that company, and is this a viable business. And so we’re quite excited about sharing our results for 2019.
James West: Great. Okay, well, um, so then, where are the opportunities for Emblem in terms of the international unfolding story?
Nick Dean: Yeah, so right now we are in Germany; I think you and I chatted about that the last time I was here, we had just launched our Germany JV. Actually, speaking of where Wayne is, Wayne was in Germany last week meeting with the Emblem Germany folks. That is going to be our first foray into the EU, the European marketplace, so we’re going to star with Germany and then branch out from there.
We’re having conversations in the UK right now, we’re looking at territories like Australia, so international, we expect, is going to be a major component of our business moving forward, and that’s certainly where our resources and our team are looking for growth.
So we recognize Canada is this big, you know, we need to get into these international territories, and frankly, we have a first mover advantage given that we started the business here in Canada.
James West: Sure.
Nick Dean: We’re also – and you asked me about Farm Bill – but we’re, you know, we’ve made no commitments yet, and we’re going to make sure we do everything that’s within the TSXV rules and legislation, but we’d be foolish not to be looking at the US as well. Are there opportunities for us to start looking at strategic partnerships or brands or products? Maybe hemp-based, maybe hemp-based CBD for now? But is there an entry point into the US as well, which is obviously going to be one of the largest markets?
So these are things that we are looking at.
James West: Okay. So are you guys going to need to raise any more capital from public markets to achieve profitability?
Nick Dean: So right now we have a strong balance sheet; so we’ve got about $45 million – a little bit less than that, about $43 million to $45 million still on the balance sheet, which was a result of us moving away from building our own greenhouse and/or acquiring and moving into the supply agreement structure. So right now we feel confident that we have enough cash to run the business. I think I’ve said this to you in the past, you know, we’re not opposed to raising additional funds in the future, but right now, we believe that we’ve got a decent run rate with the cash on hand and the asset-light model.
James West: Interesting. Sure. So the asset-light model is something I’d like to focus a bit more on, because that is attractive to me given that, you know, we have the massive ultra-high-tech growing facilities in Aphria and in Aurora and in Canopy Growth and CannTrust, etcetera.
Nick Dean: Absolutely.
James West: Probably, we don’t need a hell of a lot more capacity in that regard.
Nick Dean: Agree.
James West: So is that going to put you in a position, though, where you’re at the mercy of the growers at some point should supply not really be exceeded by demand?
Nick Dean: Well, look, so we’ve got a five-year agreement with Aphria. So you know, this is not a one-year, two-year, it’s a five-year commitment at fixed pricing over that five years. So we do expect the price of cannabis will come down as that raw material, so we think we’re well-protected there. I think but the point you made is exactly why we moved away: we started looking around and realizing, there is so much cultivation capacity being built up in the country, where can we really win? And we believe we can win in product innovation, and bringing new products to market that are actually dose-controlled, meeting the needs of patients, also meeting the needs of adult-use consumers.
We can tie those to amazing brands like the one you just wore, like Symbl, which is, you know, performing incredibly well in Ontario, Alberta, Saskatchewan, BC, soon to be rest of Canada as we look to 2019. And then, obviously, the distribution. So we’ve got great relationships already in place with Fire and Flower, you know, performing incredibly well in Alberta; we recently announced a partnership with Starbuds, we’ve got our partnership with Shoppers Drug Mart, which just got their license last week.
So that’s where our focus has been, right? Lock up the price for raw material, for the flower itself; make sure we’ve got great products, great brands, and make sure we can actually get those products in the hands of consumers and patients. So we’re feeling very confident.
James West: Okay, well, that’s great.
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