To say that Emerald Health Therapeutics Inc (CVE:EMH) (OTCMKTS:EMHTF) (FRA: TBD) has hit rough waters is an understatement. The turbulence continued today as shares extended losses after the company failed to secure a supply deal with British Columbia Liquor Distribution Branch (BCLDB)—even though thirty-one MOUs were doled out.

In isolation, missing out provincially isn’t the worst injustice that can happen. Even Aurora Cannabis Inc. and Aphria Inc. missed out in New Brunswick, for example. But when the authority in the province of origin shuts you out, that’s an entirely different story. Apparently, this fact wasn’t lost on investors.

Of the thirty-one licensed cannabis producers BCLDB enlisted to support to supply its wholesale operations come October 17, Emerald Health wasn’t one of them. Worse, 12 of the 31 enlistees were British Columbia companies, including private entities like WeGrow BC Ltd., Whistler Medical Marijuana Corp., and Experion Biotechnologies Inc. For a Vancouver/Victoria based operation worth $400 million, that isn’t suppose to happen.

Anticipating the poor optics that would ensue, Emerald Health issued a morning press release (11:15 am) to update investors on the company’s progress. Unfortunately, that did little to assuage investors, as the stock continued free-falling after a brief attempted rally failed at the HOD. In the end, EMH stock fell another $0.22 to $2.94/share (↓6.96%). Volume was also brisk, chiming-in at 1,869,175 shares traded and attaining levels not seen since early March. Keep in mind, we are supposed to be entrenched in the mid-summer doldrums, where volume compression is commonplace.

Zooming out just a little bit, the price action is even drearier. Since June 21, Emerald Health has tanked ↓32.26%, leaving its investor base in disarray.

While Emerald Health’s performance has been substandard—even against the backdrop of droning junior cannabis small cap sector weakness—yesterday’s B.C. shutout was particularly puzzling.

According to today’s company update, Emerald Health states:

“We have completed and have our cultivation license for one quarter of the 1.1 million square feet. We are in commercial production and will be harvesting and inventorying product for the October 17 legal adult-use launch date.”

While that commentary hits all the right soundbites, it still begs the question: Why didn’t the company attain any form of supply agreement in the province of British Columbia? Did they choose not to apply for a memorandum of understanding? Did they elect to send harvests elsewhere for some reason or another? Or was JV partner Village Farms International Inc. lack of sales license somehow involved in the equation?

CEO Chris Wagner updates Midas Letter on the conversion of a vegetable growing facility to cannabis grow op

Either way, the optics of getting shutout on home turf looked less than complimentary. Judging by the heavy volume and near-LOD finish, some investors may have chosen to jump out of the boiling pot.

Final Thoughts

Today’s swooning price action may provide a decent entry point for long term believers of the company. While the optics looked sub-optimal, the lack of B.C. MOU means little in the greater scheme.

As the BCLDB noted in their supply agreement disclosure, they will be “continually expanding its purchasing requirements… and expects to issue a product call to invite additional licensed producers to engage as suppliers, shortly after legalization.” In other words, other LPs will be offered a chance to compete soon after cannabis becomes legal. Thus, it’s quite possible Emerald Health will have a seat at the table before the year is out—it just won’t happen right away.

Furthermore, it’s not like the BCLDB awarded huge offtake agreements to a few select suppliers, as SAQ did in Quebec. A full thirty-one entrants were chosen, yet supply quantities remained undisclosed. Thus, the winners & losers are far from cemented at this juncture. It appears that BCLDB made a strategic decision to remain non-committal to suppliers by design.

This, ironically, could work to Emerald Health’s advantage later on as the stragglers get cast aside. Whether they can burrow their way back in will remain an interesting subplot to this unorthodox outcome.