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Enter Symbol
or Name
USA
CA



Emerald Health Therapeutics Inc
Symbol EMH
Shares Issued 151,304,244
Close 2019-08-29 C$ 1.81
Market Cap C$ 273,860,682
Recent Sedar Documents

Emerald Health loses $500,000 in Q2

2019-08-29 07:55 ET - News Release

Dr. Avtar Dhillon reports

EMERALD HEALTH THERAPEUTICS REPORTS SECOND QUARTER 2019 FINANCIAL RESULTS; SALES DOUBLE SECOND QUARTER IN A ROW

Emerald Health Therapeutics Inc. has released its financial results for the quarter ended June 30, 2019. Full versions of the company's unaudited condensed, interim consolidated financial statements and MD&A (management's discussion and analysis) for such period can be found on SEDAR.

Highlights

Second quarter 2019:

  • Emerald's Q2 2019 sales of $5.1-million represents an increase of 94 per cent over the prior quarter and 348 per cent over Q4 2018.
  • Net loss significantly improved in Q2 2019 to $500,000 from $3.7-million the previous quarter, driven partly by the marketing of cannabis products with higher margin, like Sync 25 CBD (cannabidiol) oil, and strong performance of Pure Sunfarms.
  • Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $1.9-million, up $5.4-million from Q1.
  • G&A (general and administrative) stable at $3.3-million over prior quarter, showing more efficiency across all processes.
  • S&M (sales and marketing) was $1.1-million, up $200,000 over Q1 as sales channel infrastructure and staff increased.
  • R&D (research and development) expenses increased, permitting advancement of differentiated defined-dose products targeting next legalization phase.
  • Emerald's share of income from Pure Sunfarms joint venture was $14.5-million, up from $5.8-million in previous quarter.
  • Net loss per common share was 0.3 cent, compared with 4.3 cents in Q1 2019.

Pure Sunfarms 50-per-cent-owned joint venture Q2 2019:

  • Q2 2019 sales increased 125 per cent to $32.4-million over prior quarter.
  • Gross margin was 84 per cent before non-cash adjustments to the fair valuation of inventory and biological assets.
  • EBTIDA was $25-million or 78 per cent; adjusted EBITDA (to eliminate the profit component of inventory held by EHT at June 30, 2019) was $18.3-million, or 57 per cent.
  • Net income before tax exceeded $43.8-million, representing a third consecutive quarter of profitability.
  • Emerald reported $14.5-million as share of net income from Pure Sunfarms compared with $5.8-million in Q1 2019 and $1.4-million in Q4 2018.
  • Net cash flow from operating activities exceeded $6-million. Achieved full run rate in the first 1.1-million-square-foot greenhouse, with all-in production cost at 65 cents per gram based on increased production volume and lower seasonal costs.

In Q2 2019, Emerald has been focusing its efforts on:

  • Helping drive the success of Pure Sunfarms. The company believes that this JV will continue to achieve significant growth from its leadership in the wholesale cannabis market and the expansion of its business model and capabilities to enhance its ability to capture market share in the retail segment of the cannabis market.
  • Completing the licensing efforts and a substantial amount of the buildout of its 100-per-cent-owned facilities in Metro Vancouver focused on indoor and outdoor organic cultivation of cannabis; and St. Eustache, Que., for the production of indoor cultivation of high-quality, differentiated craft cannabis strains. These facilities are both expected to be fully licensed, fully operational and revenue generating by the end of the year.
  • Sales in eight provinces and Yukon, facilitating revenue growth from $2.1-million in all of 2018 to $7.7-million in the first half of 2019.
  • Enabling the extraction of THC (tetrahydrocannabinol) and CBD oil and resin at Emerald's facilities, while concurrently securing third party, large-scale extraction and cannabis value-added product manufacturing relationships, a key part of Emerald's Cannabis 2.0 strategy.
  • Strengthening its intellectual property portfolio and advancing novel products under development that are scheduled for release starting in Q4 2019.
  • Commencing the distribution of novel and proprietary non-cannabis products (Endo product line with proprietary Phytocann complex) that can modulate the endocannabinoid system to improve health and wellness. The Endo product line is being marketed through Emerald Health Naturals (51 per cent owned) with a management team that is very experienced in the nutraceutical business.

"Emerald has a deliberate and sequential strategy for sustainable growth. The completion of our Pure Sunfarms joint venture's first greenhouse and its significant revenue and net income growth make this operation one of our most valuable assets. Combining this with the foundation we have built to synchronize and scale every aspect of our business from production to postharvest processing and product development positions Emerald to see continued financial growth of the company," said Dr. Avtar Dhillon, president and executive chairman of Emerald.

"During the second quarter, we appointed Riaz Bandali as chief executive officer, adding extensive senior operating experience to our team and in-depth insight in the life science industry. Mr. Bandali hit the ground running on July 30, and is working toward an executive strategy to maximize the value of Emerald over the long term," added Dr. Dhillon.

"Emerald is strategically positioned to be a leader in the cannabis industry. As we enter the second half of 2019, we will focus our efforts on refining our business model and scaling our operations to fully leverage and further enable the success of our PSF JV while sharpening our own business strategy, operations and core areas of business. We will complete the buildout and licensing of our two other 100-per-cent-owned facilities, allowing them to become revenue generating in 2020, enhance our brand, as well as our targeted research efforts in novel, proprietary product development, and continue to build on value-added strategic partnerships to enhance profitability, speed up market entry, or provide enhanced expertise in specific areas," said Riaz Bandali, chief executive officer of Emerald. "We believe that these actions will enhance and clearly differentiate our competitive position in the marketplace, while concurrently allowing us to refine our operational model and move towards enhanced and sustained profitability in the future."

Financials results and capital resources

Selected quarterly financial information

The company's unaudited condensed, interim consolidated financial statements and MD&A for the three months ended Jun 30, 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.

Financing

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 common shares and the company established an at-the-market equity program. During Q2 net proceeds from the sale of shares totalled $14.6-million. The company intended to use these proceeds 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.

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. On May 30, 2019, the company renegotiated the terms of the remaining $15-million payable to the vendors, resulting in the payment of $5.0-million in June and $1-million in August, 2019, monthly payments of $1.0-million due every month through November, and a final payment of $5.0-million plus accrued interest due on Dec. 16, 2019. Interest on the outstanding balance began accruing May 31, 2019, at a rate of 10 per cent per annum.

On Aug. 28, 2019, the company announced it had entered into a binding term sheet with a single Canadian institutional accredited investor under which the investor has agreed, subject to certain customary conditions, to purchase 2,500 secured convertible debenture units of the company at a price of $10,000 per convertible debenture unit for gross proceeds of $25-million.

Each convertible debenture unit comprises one 5.0 per cent secured convertible debenture of the company in the principal amount of $10,000 and 5,000 common share purchases warrants of the company.

The convertible debentures will have a maturity date of 24 months from their date of issue and will bear interest (at the option of the company payable in cash or, pursuant to TSX Venture Exchange rules, in common shares of the company) from their date of issue at 5.0 per cent per annum, accrued and payable semi-annually on June 30 and Dec. 31 of each year. The final terms of the convertible debentures will be determined by negotiation between the company and the investor and will include certain covenants relating to the business of the company.

The convertible debentures will be convertible, at the option of the holder, into common shares at any time prior to the close of business on the last business day immediately preceding the maturity date. The convertible debentures will have a conversion price of $2 per common share, a 14-per-cent premium to the closing price of the common shares on Aug. 27, 2019, on the TSX Venture Exchange. If, at any time prior to the maturity date of the convertible debentures, the volume-weighted average trading price of the common shares on the TSX-V is greater than $3.50 for 10 consecutive trading days, the company may force the conversion of the principal amount of the then-outstanding principal amount owing pursuant to the convertible debentures at the conversion price provided the company gives 30 days notice of such conversion to the holder.

Each warrant will be exercisable to purchase one common share at an exercise price of $2 per share for a period of 24 months from the date of issue. If, at any time prior to the expiry date of the warrants, the volume-weighted average trading price of the common shares on the TSX-V is greater than $3.50 for 10 consecutive trading days, the company may deliver a notice to the holder of warrants accelerating the expiry date of the warrants to the date that is 30 days following the date of such notice.

The company intends to use the net proceeds of the offering to repay the outstanding loan to Emerald Health Sciences Inc. and the remainder for working capital.

Corporate update

Production and sourcing

Pure Sunfarms, Emerald's 50-per-cent-owned joint venture

Pure Sunfarms (PSF) completed planting of the final quadrants of its 1.1-million-square-foot Delta 3 greenhouse operation in Delta, B.C., in April and reached its annualized full production run rate of 75,000 kilograms. PSF exercised its option to acquire the nearly identical 1.1-million-square-foot Delta 2 sister facility. It is now moving forward with converting the facility to cannabis production. PSF aims to complete its first harvest at the Delta 2 facility in 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.

PSF received its processing licence for Delta 3, permitting packaging as well as extraction of cannabis for oils, concentrates and edibles, and continues to advance toward completion of its 65,000-square-foot, GMP-compliant and certified processing centre. The project is expected to be completed and in operation by the end of 2019, subject to Health Canada approval. A pending amendment is expected to soon permit the direct sale of branded packaged dried products to provincial distributors.

New organic cannabis operation

Emerald received its Health Canada cultivation licence and preliminary municipal permit for its organic cannabis operation in Metro Vancouver, B.C., enabling it to operate in 15,000 square feet of the first purpose-built 78,000-square-foot state-of-the-art greenhouse. This licensed area is now growing mother plants. A pending amendment is expected to soon enable planting and operations in the full greenhouse.

This 20-acre operation includes 156,000 square feet in two greenhouses and 12 acres of outdoor cultivation, with the goal to organically produce over 20,000 kg of proprietary cannabis strains annually. It is also equipped for cultivation, trimming, drying and bulk bagging. The facility received its outdoor cultivation licence and planted 45,000 organic cannabis seedlings on Aug. 1; the first outdoor harvest is expected to be in the third quarter of 2019. The second greenhouse is expected to be licensed and operational in Q4.

Verdelite

Emerald has submitted its final evidence package to Health Canada for its 88,000-square-foot Verdelite indoor production and processing facility in St. Eustache, Que. Its intent is to utilize the high degree of control allowed in this fully indoor operation to cultivate premium cannabis from its own proprietary strains and sell packaged dried flower and extracted value-added products.

Emerald has dedicated a significant area in the Verdelite facility for advanced postharvest processing and is planning to have on-site extraction capacity operational in the fourth quarter of this year to augment and expand Emerald's existing extraction capacity in Victoria, B.C. Emerald's intent is that the Quebec operation will play an instrumental role in value-added cannabis product manufacturing to serve the market with an expanded product portfolio allowable under the edibles or Cannabis 2.0 legislation that will launch Canada-wide on Oct. 17.

Hemp for CBD oil

Emerald has entered into a purchase agreement with Emerald Health Hemp Inc. for approximately 1,200 acres of hemp chaff annually from 2019 to 2022. Through this agreement, Emerald aims to harvest over 270,000 kg of hemp in 2019, which has the potential to produce over 3,500 kg of extracted CBD oil. The hemp will be processed through extraction, with some going through gel encapsulation given final Health Canada licensing of the factors group manufacturing facility in Kelowna, B.C.

Sales and marketing

Cannabis sales -- adult-use market

Emerald has become an established recreational cannabis supplier to government authorities in British Columbia, Alberta, Manitoba, Ontario, Quebec, Newfoundland and Labrador, Prince Edward Island, and Yukon, and to licensed private retailers in Saskatchewan.

Emerald began distribution of its indica-dominant CBD oil, Sync 25, which offers consumers a smoke-free alternative to standard cannabis products. In the last quarter, Emerald shipped 6,000 40-millilitre units of Sync 25 to the British Columbia Liquor Distribution Branch and shipped 9,960 40 ml units to Alberta and Saskatchewan. Newfoundland has also been introduced to the Sync 25 CDB oil and the company plans to further expand distribution and increase sales of Sync 25.

Emerald Health Naturals

Emerald's 51-per-cent-owned joint venture, Emerald Health Naturals (EHN), introduced a cannabis-free herbal and botanical endocannabinoid-supporting health supplement product line in Canada. EHN's Endo product line features its PhytoCann Complex and is intended to support the endocannabinoid system to help maintain equilibrium in the body. The products are now available in over 250 natural health food stores across Canada, up from 85 in the last quarterly report.

Value-added processing

Factors R&D Technology Inc.

Emerald's strategic manufacturing partner, Factors R&D Technology Inc., has submitted its final evidence package to Health Canada to license a segregated and secured portion of one of its GMP-level natural health product manufacturing facilities for the extraction and encapsulation of CBD from hemp. The facility is being prepared for CBD production and has an annual processing capacity of one million kg of hemp biomass extraction and 600 million units of softgel encapsulation. This partnership complements Emerald's contracts with other third party extraction service providers. Emerald is also working to significantly expand its extraction capacity in Quebec to complement its existing extraction capacity in Victoria, B.C.

Corporate development

On July 30, 2019, the company announced the appointment of Riaz Bandali as chief executive officer. Mr. Bandali has over 25 years of experience in life sciences, with expertise in global operations, strategy development, innovation, M&A, and investment management spanning contract clinical and research services, analytical instrumentation, lab services and venture capital. Mr. Bandali most recently served as president, early phase clinical services, at Syneos Health, an international clinical research organization.

The company also announced that it had appointed Sean Rathbone as chief operating officer and Thierry Schmidt as chief commercial officer.

Conference call

Emerald Health Therapeutics will host its fiscal second quarter 2019 financial results conference call on Thursday, Aug. 29, 2019, at 10:30 a.m. Eastern Time.

To access the audio broadcast, please dial 866-652-5200, or via the Internet. An archived version of the presentation will be available for 90 days on the investors section of Emerald's website.

About Emerald Health Therapeutics Inc.

Emerald Health Therapeutics is a Canadian licensed producer of cannabis products, with strategic initiatives focused on differentiated, value-added product development for medical and adult-use customers supported by novel intellectual property, large-scale cultivation, extraction and softgel encapsulation, as well as unique marketing and distribution channels. Its 50-per-cent-owned Pure Sunfarms operation in British Columbia has reached its full run-rate annual production of approximately 75,000 kg in its first 1.1-million-square-foot greenhouse Delta 3 operation; a second 1.1-million-square-foot greenhouse is planned to be in full production by the end of 2020. Emerald's two wholly owned facilities in Quebec, a high-quality indoor growing and processing facility, and in British Columbia, an organic greenhouse and outdoor operation, are completing construction and are working toward final licensing extension. Emerald has also contracted for approximately 1,200 acres of hemp annually in 2019 to 2022 with the objective of extracting low-cost CBD.

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