Dr. Avtar Dhillon reports

EMERALD HEALTH THERAPEUTICS REPORTS FIRST QUARTER 2019 FINANCIAL RESULTS; DEMONSTRATES CONTINUED GROWTH IN SALES

Emerald Health Therapeutics Inc. has released financial results for the quarter ended March 31, 2019. Full versions of the company's unaudited condensed, interim consolidated financial statements as well as management discussion and analysis for such period can be found on SEDAR.

Highlights:

• Emerald's Q1 2019 sales of $2.6-million represent an increase of 131 per cent over the prior quarter and almost 600 per cent year over year;
• Pure Sunfarms' (50-per-cent-owned joint venture) sales reached $14.4-million in Q1; Emerald's 50-per-cent share is $7.2-million; aggregate pro forma sales including Emerald's proportionate share of Pure Sunfarms' revenue amount to $9-million;
• Emerald net loss improved from $13.9-million in Q4 2018 to $3.6-million in Q1 2019;
• Delivering or approved to supply cannabis to eight provinces and one territory;
• Increased medical client base by 40 per cent and achieved greater percentage of medical sales from oils; revenue comprised approximately 87 per cent dried products and 13 per cent oils;
• Emerald Health Naturals (EHN) (51 per cent owned) now selling non-cannabis natural health products for the endocannabinoid system; its Endo product line is now in 82 stores across Canada;
• British Columbia-based Pure Sunfarms 50-per-cent-owned joint venture:
  • Q1 2019 sales of $14.4-million;
  • Achieved EBITDA (earnings before interest, taxes, depreciation and amortization) of $7.8-million; net income before tax of $16.1-million;
  • Emerald Health records $5.8-million as share of income from Pure Sunfarms, compared with $1.4-million in the prior quarter;
  • Fully planted in 1.1-million-square-foot greenhouse; on track to reach annualized production run rate in first greenhouse of 75,000 kilograms by midyear;
  • Advancing plans to convert a second, nearly identical 1.1-million-square-foot greenhouse in the same complex; this greenhouse is targeted to complete its first harvest in 2020 and annualized full run-rate production of 75,000 kilograms in Q4 2020;
  • Received its processing licence for packaging and extraction.

"Our Q1 sales demonstrate the company's accelerating growth in the market," said Dr. Avtar Dhillon, president and executive chairman of Emerald Health. "As this trend continues, our team is well positioned to create significantly increasing sales for the company. The introduction of SYNC 25, our Emerald-branded high-CBD [cannabidiol] oil for the recreational market, demonstrates our ability to advance differentiated, innovative products to serve the marketplace."

Financials results and capital resources

Selected quarterly financial information

The attached table summarizes selected quarterly financial information for the company, which was derived from annual financial statements prepared in accordance with IFRS (international financial reporting standards) or interim financial statements prepared in accordance with IFRS applicable to the preparation of interim financial statements, IAS 34, Interim Financial Reporting.

                            Q1 2019 KEY FINANCIAL AND OPERATIONAL METRICS 

                                                           Q1 2019           Q4 2018           Q1 2018

Financial results
Gross revenue                                          $ 2,609,559       $ 1,131,853       $   373,218
Cannabis gross revenue
Dry cannabis                                             2,275,231           876,347           152,251
Cannabis oils                                              332,527           231,170           213,872
Other                                                        1,801            24,336             7,095
Gross margin (net of fair-value adjustment)             (2,371,821)       (3,466,535)         (107,955)
Total SG&A (net of share-based payments)                 6,242,128        11,283,031         3,243,996
Net income (loss) (1)                                   (3,648,683)      (13,900,360)       (5,045,420)
Adjusted EBITDA (2)                                     (3,471,449)      (13,051,286)       (3,380,519)
Operational results
Average selling price, net of excise duty
Recreational                                                  4.98              5.19                 -
Medical                                                       7.17              8.10              8.14
Pure Sunfarms financial results
Gross revenue                                           14,359,432         4,669,407                 -
Gross margin (net of fair-value adjustment)              9,283,235         3,313,388                 -
Total SG&A                                               1,328,594         1,278,723           554,234
Net income (loss)                                       11,427,641         7,107,460          (603,585)
Adjusted EBITDA (3)                                      7,760,361          (303,986)         (554,234)

Notes:
(1) Fifty per cent of the net income adjusted for transactions with Emerald Health and for 
fair value and adjusted EBITDA are reflected in Emerald Health net income and adjusted 
EBITDA, respectively.
(2) Emerald Health adjusted EBITDA is calculated by subtracting interest income, gain on 
changes in fair value of biological assets, share of income from joint venture and deferred 
income tax recovery and adding back depreciation, share-based payments, other expenses, 
loss from fair-value changes in financial assets and 50 per cent of Pure Sunfarms adjusted 
EBITDA from Emerald Health net loss and comprehensive loss.
(3) Pure Sunfarms adjusted EBITDA is calculated by subtracting Pure Sunfarms' change in fair 
value of biological asset, non-cash other income ($50,999 in Q1 2019) and fair-value 
adjustment and adding back realized fair-value amounts included in inventory sold, 
amortization expense and provision for income tax (adjusted for $3,750 in Q1 2019).

The company's unaudited condensed, interim consolidated financial statements and management discussion and analysis for the three months ended March 31, 2019, together with other information related to the company, including the company's most recent annual information form (AIF) can be found on SEDAR. Additional information related to the company is available on its website.

Financings

During Q1 2019, the company filed a short form base shelf prospectus in each of the provinces of Canada that qualifies the issuance and secondary sale of $150-million of common shares. The company established an at-the-market equity program on March 27, 2019, and has subsequently raised net proceeds from sale of shares totalling $9.8-million. The company intends to use the proceeds of the financings to finance the completion of capital projects and potential future expansion and acquisitions, including joint venture projects, for research and development, to expand the company's existing extraction capabilities, and for working capital and general corporate purposes.

Corporate update

Production and sourcing

Pure Sunfarms

Pure Sunfarms, Emerald Health's 50-per-cent-owned joint venture, completed conversion of its 1.1-million-square-foot Delta 3 greenhouse operation in Delta, B.C., and secured cultivation licences for the entire 1.03-million-square-foot growing area of the facility. It has completed planting of the growing area and is on track to reach its annualized production run rate of 75,000 kilograms by mid-2019.

Pure Sunfarms exercised its option to acquire the nearly identical 1.1-million-square-foot Delta 2 sister facility. It is now moving forward with its plan to convert the facility to cannabis production at an estimated cost of approximately $60-million. Emerald Health owes an additional $18.5-million of its $25-million obligation for this transaction, with the balance of the conversion cost expected to be covered through operational cash flow. Pure Sunfarms' goal is to at least double annual cannabis production and support its goal to be a high-quality, low-cost producer in Canada. Pure Sunfarms aims to complete its first harvest at the Delta 2 facility mid-2020 and achieve full run-rate production in the fourth quarter of 2020, subject to completion of construction and the receipt of Health Canada licences.

Pure Sunfarms entered into a credit agreement with Bank of Montreal and Farm Credit Canada in respect of a $20-million secured non-revolving term loan with the intent to use the proceeds to finance the final cost of converting its 1.1-million-square-foot greenhouse as well as for general corporate purposes.

Verdelite

Verdelite, Emerald Health's wholly owned 88,000-square-foot indoor grow facility in Quebec, is expected to grow over 5,000 kilograms annually. It is licensed to cultivate and sell cannabis flower as well as extract, manufacture, synthesize, test and sell next-generation cannabis products. Verdelite aims to be at full production by mid-2019 following completion of upgrades to the electrical infrastructure. Approximately $1.6-million of additional expenditures are expected to substantially complete the buildout.

On May 1, 2019, the company announced that the vendors of Verdelite elected to receive $7.5-million of the $22.5-million they were to receive as the final payment for their shares of Verdelite in shares of the company.

Cannabis sales agreements -- adult-use markets

Emerald Health is currently delivering cannabis to government authorities in Alberta, Ontario, British Columbia, Newfoundland and Labrador, Prince Edward Island, and Yukon and to licensed private retailers in Saskatchewan. It has also been authorized to supply cannabis to the Manitoba Liquor & Lotteries Corp.

The company has received its first purchase order from the Societe Quebecoise du Cannabis and anticipates fulfilling it in the second quarter of 2019.

On May 17, 2019, the company announced that it shipped 6,000 40-millilitre bottles of its SYNC 25 CBD oil to the British Columbia Liquor Distribution Branch. This was the company's first sale of extracted product to a provincial authority.

Value-added processing

Factors R&D Technology Inc. (FTI)

As previously announced, the company signed a term sheet to form a strategic alliance with FTI, a division of Factors Group of Nutritional Companies Inc., in which FTI will, subject to execution of binding documentation, provide pharmaceutical-grade, large-scale manufacturing capacity as well as expertise in GMP-level (good manufacturing practice) extraction, soft-gel production and packaging. FTI will agree to provide the company with access to a facility capable of processing up to one million kilograms of biomass annually and soft-gel production capacity of up to 600 million capsules per year. Phase 1 of the Health Canada review of the application process for this facility has been successfully completed and the licensing process is awaiting Health Canada approval.

Emerald Health Naturals (EHN)

On Jan. 10, 2019, the company closed its acquisition of 51 per cent of EHN. Emerald Health Bioceuticals (EHB) granted EHN the exclusive Canadian distribution rights to its endocannabinoid supplement portfolio in exchange for 49-per-cent ownership of EHN.

EHN commenced sales to natural health stores across Canada in May, 2019, of the Endo natural health product line with its non-cannabinoid PhytoCann Complex ingredients that support the endocannabinoid system.

Indena

On Feb. 5, 2019, Emerald entered into a licence with Indena SpA of Milan, Italy, bearing certain exclusivity rights in Canada to use Indena's cannabidiol extraction technology and contract manufacturing services for CBD extraction. In addition, Emerald obtained exclusive use of Indena's proprietary Phytosome technology for the purpose of developing novel cannabinoid-based products with superior utility.

Other key events

On May 22, 2019, the company announced the appointment of Sean Rathbone as chief operating officer.

On May 24, 2019, the company announced that it had been appointed by the American Trade Association for Cannabis and Hemp to lead its international affairs council on CBD and hemp in its engagement with the U.S. Food and Drug Administration regarding policy pertaining to CBD-containing products and associated cross-border trade.

Conference call

Emerald Health will host its fiscal 2019 first quarter financial results conference call on Friday, May 31, 2019, at 10:30 a.m. ET. To access the audio broadcast, please dial 866-652-5200. An archived version of the presentation will be available for 90 days on the investors section of Emerald Health's website.

About Emerald Health Therapeutics Inc.

Emerald Health is a Canadian licensed producer of cannabis. Its 50-per-cent-owned Pure Sunfarms joint venture in British Columbia is licensed and fully planted in the first of its two 1.1-million-square-foot greenhouses.

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