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Emerald Health Therapeutics Inc (CVE:EMH) CFO on Expanding Extraction Capability

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

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Emerald Health Therapeutics Inc (CVE:EMH) (OTCMKTS:EMHTF) (FRA:TBD) CFO Rob Hill shares details of the company’s Delta, British Columbia operations and gives an update on Emerald’s extraction push. As a result of the company’s joint venture with Village Farms International Inc (TSE:VFF) (NASDAQ:VFF) (FRA:02V), Emerald has converted existing greenhouses in Delta for cannabis production. Hill explains Delta 2 and Delta 3 will be able to produce 150,000 kilos when at full capacity. In addition, Emerald has the option to convert Delta 1 as well. While primarily a medical player, Emerald also sells products in the recreational market. The company has expanded its Quebec operations and is building out its extraction capacity. Hill emphasizes that Emerald is preparing for the legalization of derivative products by increasing its capacity and technical proficiency at extraction in coordination with partner Indena.

Transcript:

Narrator: Emerald Health Therapeutics, Inc. is a Canadian licensed producer of cannabis, with indoor cultivation facilities in BC and Quebec. The company is focused on developing proprietary cannabis products for medical and adult-use customers.

Emerald is part of the Emerald Health Group, which represents a group of companies focused on developing pharmaceutical, botanical and nutraceutical products to provide wellness and medical benefits by interacting with the human body’s endocannabinoid system.

Emerald Health Therapeutics trades on the TSX Venture under the ticker symbol EMH.

James West:   I’m joined now by Rob Hill, CFO of Emerald Health Therapeutics, trading on the Venture Exchange under the symbol EMH. Rob, welcome.

Rob Hill: Hi, James, thank you.

James West:   Rob, it’s been a while since we’ve talked Emerald Health. You guys have announced supply deals with Quebec, you have continued to expand your relationship with Village Farms…why don’t you give us an overview of the whole sort of enchilada, as Vicente Fox says, on what’s going on with Emerald Health today.

Rob Hill: Yeah, well, on the supply side we’ve had great success out of our joint venture in Delta, BC, just outside Delta. It’s Delta 3. We’ve got almost the entire footprint, so 1 million square foot facility done, and it’s producing high quality cannabis. Last week we announced entering into an arrangement to get into the second facility with that same joint venture partner, Village Farms. So that’s another 1.5 million square feet we’re going to be bringing on in the next year or so.

James West:   Wow.

Rob Hill: That’s on the supply and growth side, and we’ve got as well, we launched in February a facility I think we spoke about last time, James. That’s out in Quebec; that’s our Lalique operation. It’s 88,000 square feet of indoor facility, and it’s coming on very nicely. We’re just nearing the complete, final stages of constructions, and it’s an important part of our story, because aside from growing high-quality end product, it’s a real processing centre for us. So a lot of our packaging and processing of cannabis is being held in Quebec, but also in Delta is going to be the process there and that market out of that is the distribution hub for us. So that’s the big next stage, and as well, it’s been a lot about big supply yields various provinces and that territory. So we’re coast to coast to coast. We’ve shifted out as far east as Newfoundland, BC, our home province, obviously, and last week we shifted to the Yukon, so, and we’re continuing to build out relationships as we announced yesterday with Quebec.

We announced Alberta, we’ve got POs with Prince Edward Island, and Saskatchewan, so we’ve been busy.

James West:   No doubt. So are you finding that the competitive environment in Canada is ratcheting up in terms of things like pricing and just shelf space in all of the government and private storefronts?

Rob Hill: Yeah, I think what everyone’s finding in the industry is a challenge has been to get the products from the bulk side of it packaged and processed and onto the shelves, and everybody’s been a little slow coming out of the gate on that. And that’s why, as I mentioned, that our Quebec operation is so important to us, because we’re actually able to get it onto the shelves.

In the near future, though, we will see increased pressure as more and more people are getting those capabilities up, and then we’ll see who can get the most shelf space.

James West:   Sure. With your partnership in Village Farms, Village Farms has a, you know, they’ve got operations in the United States and elsewhere. I’m wondering is the relationship with Village Farms going to expose you to their sort of cross-trans-national opportunity?

Rob Hill: No, Village Farms is an arm’s-length partner, and the joint venture that we jointly own is right now Canadian only. So Village Farms, great story, we love them as a joint venture partner, but they are their own entity, and they are doing some interesting things in the US; but it won’t connect us to the US.

James West:   Sure. Does the relationship with Pure Sun Farms/Village Farms, does it provide sufficient cannabis, or provide for sufficient cannabis supply, for all of your growth strategy?

Rob Hill: I don’t know, actually; we’ve been waiting and seeing. We liked what we saw out of Delta 3, the first site that we completed or are in the process of completing, so that’s why we entered into the next phase, D2. We’ll see how that goes, and we have an option, actually, to do Delta 1, which is an even bigger – it’s a 2.6 million square foot facility that’s currently growing tomatoes for Village Farms, but Pure Sun Farms, the joint venture, has the option to take on that.

So if we need it, we’ve got the flexibility to move into all the growing space I think we could possibly need. But with Delta 2 and Delta 3, when they come online, we estimate that that joint venture will be able to produce upwards of 150,000 kilograms based on our estimates and what we’ve seen to date out of Delta 3.

James West:   Okay, and so what is the primary sort of product segment for Emerald Health? I mean, it struck – it was originally, I thought because of your association with the Emerald Health Biotech, that you were focused strictly on the medical, but it’s clear that you’re obviously taking advantage of the opportunity – and who wouldn’t – of the recreational opportunity. But has that consciously become a bigger part of the strategy than, say, one year ago?

Rob Hill: Well, I don’t think the story has changed, but yeah. Really, James, what we believe is that a lot of consumers of cannabis who are going to be coming through the recreational market are doing so to achieve some kind of therapeutic benefit. They’re sort of, they are purposeful consumers, and they’re probably going to be buying those markets to treat things like difficulty sleeping or difficulty managing pain. And so whether they go through a medical channel or they see a health practitioner and go through that formal channel, or whether they acquire the product recreationally, we still see it largely as a medical play.

But we are definitely selling to both spaces, now.

James West:   That’s interesting, because I am both a recreational user and a patient, but you know, the desired outcome in both cases is the same, and I generally just use CBD for the, you know, for the nervous system benefits of improved attention and, of course, a better sleep. So I’m wondering, from where you sit, do you see that a big portion of the recreational contingent are actually people who looking for the therapeutic benefits, but don’t want to go through the sort of doctor-patient relationship that is required to access cannabis through the medical system?

Rob Hill: Yeah, I really do, James. I think that you’ve nailed it on the head. People just, for whatever reason, they don’t want to have any kind of formal record of going because of the stigma that they still perceive, or whether it’s just flat-out easier to go head out and go and see product that you can go into a cannabis retail store and actually see the product, talk to a budtender, get the information from a person who can help you make the decisions.

But yeah, for sure we see a lot of people just like you, who are going to be looking for some kind of therapeutic benefit. They’ll be acquiring it through their recreational channels.

James West:   Sure. Okay, so what else is there in the timeline in the business plan of Emerald Health Therapeutics that is going to continue to build value in the company for shareholders?

Rob Hill: Well, we talked already about our ability to grow, and we’ve expanded that. We did a lot of great work last year with Delta 3 and acquiring and building out the Quebec operation, and now with Delta 2, expanding that further; but really, we see a lot of – we’re putting a lot of effort into expanding our ability to process and do more than just grow, and it’s ability to not just process and get products out to market, which is a big challenge and very important that we do it effectively and efficiently, but we’re also looking now, because you know, in the not-too-distant future we’re going to see some new legislation passed that allows for edibles and therapeutic creams and vape products, and so we’re looking at developing innovative products that will address that market need, later this year.

So a lot of focus on that. We are increasing our capacity and our technical proficiency at extracting, because we think a lot of those innovative products are going to be based on extracted product. We’re going to see, probably, less and less dried flower being taken to market, James, and we’ll see more products that are the result of an extraction process, and put into some kind of product that is a cream or a vaped product or an edible. And so one of the focuses that we had is developing good partnerships in that space. We announced a month or two back, a relationship with an Italian company called Indina, and they are, I think, among the world experts in extracting, and particularly extracting CBD from industrial hemp. So, low-percentage hemp. Indina is going to help us extract from that using their technology, and of course, we’ve also talked about Factors Group and what a great partner they are, helping us not only extract product but creating the softgel caps that we see a big demand for.

So we’re going to be putting, for example, CBD and other compounds into softgel caps and selling that, and Factors Group allows us the ability to do 600 million softgel caps a year, and Factors Group can handle a million kilograms of dried biomass. We’ve got credible scale and credible ability to get innovative products to market through these partnerships.

James West:   Okay, Rob. Now, what about the international opportunity? Is Emerald Health planning to sort of expand into Europe, Latin America, or take advantage of any sort of international opportunity?

Rob Hill: Yeah. You know, Canada, we love Canada, we’ve been very focused on Canada to date, because it’s a lot of work to get a company like ours up and humming in this market as it’s changing and evolving; and it is the world leader in becoming recreationally legal. But of course, it’s only a small part of the global footprint, and other parts of the world are legalizing, whether it’s – we’re seeing 30-plus countries now legalizing cannabis for medical use, so naturally we’re going to be turning our attention to that at some point. It only makes sense, and we will be developing the intellectual property that we think we can export into these new markets, and I think there’ll be a lot of demand for that.

As well, we’ll be looking for international sources of supply that we can use in that international supply chain. So these are all areas of focus for this year.

James West:   Right. Okay, Rob, let’s leave it there for now. We’ll come back to you in due course. That was a great update.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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