Emblem beats GMP Securities analyst expectations with the company’s impressive Q3 2018 earnings report
Emblem Corp. (OTC:EMMBF) reported strong financial and operating results last Tuesday for the three and nine months ended September 30, 2018, and analysts in GMP Securities’ equity research group applauded the results with an encouraging review Wednesday and increased their target valuation of the company’s stock. The stock closed up $0.06 Wednesday to $0.94, a 6.49 percent increase day-over-day.
Emblem reported record revenues of 2.3 million Canadian dollars ($1.74 million) which is a 218 percent year-over-year increase and a 50 percent quarter-over-quarter increase. The revenue increase was an effect of their 20 percent increase in active registered patients since the prior quarter. They currently have 4,820 patients as of September 30, 2018, and GMP Securities analysts reported that they feel Emblem’s medical segment is gaining momentum as it has now reached 6,000 as of November 20, 2018.
GMP feels the increase in volume hasn’t caused a decline in quality, stating in the report that “Emblem has not sacrificed pricing in favour of higher patient counts as selling price of cannabis oils was stable QoQ at $14.52 per dried gram equivalent.”
The $14.52 per gram beat the analysts’ expectation which was only $12.50, and they report that this selling price is “one of the highest amongst peers under coverage.”
Emblem ramped up supply agreements
Collaboration is key to remain competitive in any industry, but especially in the fast-growing cannabis industry. Businesses must attain products at the lowest possible cost to keep prices competitive while remaining profitable. Emblem’s success in the last quarter was a result of embracing these concepts and entering into multiple supply agreements to buy cannabis product at a lower cost and to sell at a marketable rate.
To acquire product at the cheapest rate possible, Emblem signed multiple supply agreements with larger industry players that can grow product at a mass scale. As reported in Tuesday’s earnings announcement, the company signed a five-year supply agreement with Aphria Inc. (NYSE:APHA) (TSX:APHA) (OTC:APHQFF) to receive 175,000 kilograms of dried cannabis flower and crude cannabis oil at wholesale pricing beginning in May 2019.
They also entered into a supply agreement with Naura Naturals Inc. to receive an additional 3,000 kilograms of cannabis flower per year which commences in December 2018.
On the sell-side, Emblem signed supply agreements with Alberta Gaming Cannabis Commission, and the Ontario Cannabis Store then managed to fulfill 100 percent of commitments to deliver. These two agreements alone brought in $0.8 million in revenue out of the $2.3 million total reported for Emblem. According to the GMP Securities report, analysts were happy with the company’s decision to be conservative with their supply agreements so that they didn’t overpromise and underdeliver and instead were able to meet 100 percent of obligations. Additionally, Emblem signed a five-year supply agreement with Compass Cannabis Clinic to become their supplier for Compass’ adult-use retail entity, Starbuds Canada.
Optimism about new products and expanded supply
With recreational cannabis now federally legal in Canada, Emblem took advantage of the regulations and launched their first adult-use recreational cannabis brand, Symbl. Additionally, they partnered with GreenSpace Brands Inc. to develop and commercialize cannabidiol-infused health and beauty products for the adult-use recreational market.
According to the GMP Securities, they “expect the company will further bolster its offering of extract products in the coming quarters, including the introduction of its oral spray.” GMP also predicts in their report that Emblem will begin receiving supply from Natura in the next quarter which will further grow its sales volume.
According to the company’s President and CEO Nick Dean, a majority of the quarter-over-quarter revenue increase was “driven by the legalization of adult-use cannabis and our supply agreements in the provinces of Ontario and Alberta.”
“In addition, feedback from patients continues to reinforce that Emblem is a trusted brand of medical cannabis that puts patients’ needs first,” said Dean in a statement. “Medical innovation, supply, and support will continue to be our first and foremost priority, as evidenced by the recent appointment of our new division president, Wayne Kreppner, who brings immense R&D experience to our leadership team. Our commitment to product development and innovation was demonstrated with the recent launch of Atmosphere oral dose-metered sprays.”
— Emblem Corp (@Emblem_Corp) November 20, 2018
GMP improves valuation of Emblem
While their “Buy” rating recommendation remains unchanged from before the third-quarter 2018 earnings report, the GMP analysts increased their target valuation by $0.25 to $2.75.
According to the report, due to the recent price decline in the company, its shares are “entered deep value territory, trading at less than 5x our 2019 EBITDA estimates, making Emblem one of the cheapest names in the sector.”
It says a lot about the stock seeing as many investors view the marijuana industry to be in a “marijuana bubble” with stocks trading on excited investor sentiment more so than based on fundamentals and true growth potential. This could make Emblem a great stock for investors to buy at this time.