The legalization of recreational cannabis in Canada has proved to be a sell the news type of event and we are closely monitoring how the sector trades from here.

Although the recent weakness has been significant, the Canadian cannabis sector is well positioned to capitalize on what has become a global opportunity and we are favorable on the growth prospects heading into 2019.

We have been closely monitoring the Canadian cannabis industry and have been focused on finding companies that are trading at attractive levels and represents a high-growth opportunity. Today, we have issued an update on leading Canadian cannabis producer Emblem Corp. (EMC.V) (EMMBF) which has been trading lower with the market and is well positioned to capitalize on the global cannabis market.

In late 2016, Emblem commenced trading on the TSX Venture Exchange and has been nothing short of an execution story. The Canadian cannabis producer is comprised of three distinct divisions which can create value for each other as well as improve the value proposition of the entire company.

We are favorable on this structure due to the potential synergies that can be created and view this as an attractive aspect of the fundamental story. Its three divisions are focused on cannabis production through Emblem Cannabis, patient education through GrowWise Health, and pharmaceutical production through Emblem Pharmaceuticals.

Emblem: An Underappreciated Growth Story

Emblem represents an underappreciated growth story that has significant potential. We have been favorable on the leverage to Canada’s medical and recreational cannabis market and are monitoring how the team continues to execute.

Earlier this month, Emblem reported a milestone and was approved to supply the provinces of British Columbia and Saskatchewan with premium cannabis products under the company’s adult-use brand, Symbl. This comes after Emblem was approved to supply recreational cannabis to the provinces of Ontario and Alberta and significantly improves the Canadian cannabis producer’s leverage to recreational cannabis market.

A curated range of Symbl-branded dried flower strains and premium cannabis oils are expected to be available in both provinces over the coming months. These supply agreements provide Emblem with important distribution and we expect this to have a significant impact on company fundamentals.

Emblem and Aphria: A Strategic Relationship in the Making

Last month, Emblem signed a strategic supply agreement with leading Canadian cannabis producer Aphria Inc. (APH.TO) (APHQF) to supply 175,000 kg of high-quality cannabis over a five-year period starting in May 2019. This is a significant relationship that will provide Emblem with enough cannabis to satisfy its supply agreements and its medical cannabis patients.

We think this is a strategic relationship and will monitor how the teams execute on this. The supply agreement with Aphria will provides Emblem with significant inventory so the company is able to on-board more medical cannabis patients. During the last year, the number of registered medical cannabis patients at Emblem has significantly increased and this is an important aspect of the story.

Emblem has several catalysts for growth and is highly levered to the smokeless product opportunity. The company has a strategic relationship with Canntab Therapeutics (PILL.CN) that is focused on the development of a patent-pending oral extended release formulation for cannabinoids. The tablets released cannabinoids consistently over a 12-hour period and this would complement to current product offerings.

Smokeless products are a massive part of the cannabis industry and we are favorable on Emblem’s leverage to this. Demand for smokeless products and cannabis oil continues to increase and the company has been a beneficiary of this. We are monitoring how Emblem continues to execute and how the relationship with Canntab adds value to the business.

Focused on the Recreational Retail Opportunity

The last few months have been very significant for Emblem and we are closely monitoring how the team executes from here. Emblem represents a differentiated opportunity and has been focused on enhancing its growth prospects by improving its leverage to Canada’s recreational cannabis market.

Emblem recently took a major interest in the recreational cannabis retail opportunity and announced its intention to purchase approx. $1 million of units of Compass Cannabis Clinic at $0.60 each. Compass and its subsidiary adult-use retail entity Starbuds Canada have 40 confirmed leases for locations across Canada, a mix of operational clinics that are now open, in development, or in preparation with the intended use of becoming retail cannabis stores upon legalization on October 17th.

Starbuds Canada has an aggressive expansion plan across Ontario, British Columbia, Alberta and Saskatchewan. Starbuds Canada has received a cannabis retail license or a conditional license in two provinces along with a dozen retail development permits across the province of Alberta.

Prior to announcing the investment in Compass Cannabis Clinic, Emblem signed a five-year supply and preferred vendor agreement with Compass Cannabis Clinic to become a preferred cannabis supplier through Starbuds Canada. We are favorable on this relationship and see it as a potential value driver for the company. Emblem could see better distribution through this relationship and will monitor how this adds value in future quarters.

An Attractive Growth Story

Emblem has attractive leverage to Canada’s recreational cannabis market and has secured supply agreements in British Columbia and Saskatchewan, Ontario, and Alberta. The Canadian cannabis producer also has a relationship with Shoppers Drug Mart and is laser focused on increasing production capacity to supply these channels.

The relationship with Aphria is significant and it will help Emblem expand its presence in Canada. Following the closing of the agreement with Aphria, the global cannabis producer became a strategic investors in Emblem and we think this relationship could be a major value driver for Emblem.

During the last month, Emblem has been under considerable pressure and the shares have been trading lower with the market. When compared to its peers, Emblem is attractively valued and we are monitoring hoe the shares trade from here. We are favorable on the relationship with Aphria, the strategic investments made in differentiated opportunities, and the growth prospects heading into 2019.