The marijuana industry is maturing at an exceptionally quick pace. The legalization of recreational cannabis, a previously taboo product, in Canada last year tossed that idea out the window for good. Now the pot industry has a vibrant future, as evidenced by Cowen Group’s forecast that global sales could hit $75 billion by 2030.
But as investors, we’re also acutely aware that not every company can be a winner. Sure, there’s a lot of money to be made with the legalization of cannabis in various parts of the world, but not every company is going to have the tools or the timing to take advantage of this growth…
Emerald Health has lagged its peers for some time
One such company that’s received little respect from Wall Street is British Columbia-based grower Emerald Health Therapeutics (NASDAQOTH:EMHTF). At a market cap of $372 million as of the end of trading on Monday, Feb. 11, it’s the lowest-valued grower that’s expected to hit at least 100,000 kilograms in peak annual production.
Emerald Health’s big break came in 2017 when it formed a 50-50 joint venture with Village Farms International (NASDAQOTH:VFFIF), known as Pure Sunfarms. Village Farms already had vegetable-growing greenhouses in place, allowing Emerald Health to partner up in order to retrofit these existing facilities to produce cannabis. Not having to build greenhouses from the ground up is a time- and cost-saving measure. The 1.1-million-square-foot facility being retrofit should be producing at least 75,000 kilograms annually when complete and fully licensed.
The problem is that Emerald Health has been lagging its peers. While marijuana sales weren’t exactly robust prior to the legalization of recreational weed on Oct. 17, Emerald Health’s revenue was almost nonexistent. Through the first nine months of fiscal 2018, Emerald Health didn’t even hit 1 million Canadian dollars in revenue, and it only had CA$2.84 million in inventory. By comparison, Aurora Cannabis just reported CA$54.2 million in sales and nearly CA$80 million in inventory in its fiscal second quarter, ended Dec. 31, 2018.
To put it mildly, Emerald Health has had a lot of built-in risk, ranging from obtaining licensing to diversifying its product portfolio away from dried cannabis flower, which runs the risk of being commoditized over time. However, it looks as if many of these risks are…
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