Emblem Corp (CVE:EMC) (OTCMKTS:EMMBF) (FRA:E0M) CEO Nick Dean has nothing but praise for the performance of the company’s recreational brand, Symbl, since legalization. Emblem focused on key Canadian rec markets in Alberta, Ontario, and Saskatchewan and has fulfilled 100 percent of its supply commitments. Dean credits the company’s marketing strategy of supplying large quantities of 1 gram packs to provincial retailers, allowing customers to try Symbl products with less risk, as a brand advantage and key to Symbl’s success. Emblem has finalized its agreement with Acnos Pharma to launch Emblem Germany and is finishing construction on its product innovation centre and GMP certified lab in Paris, Ontario. Emblem expects to use this facility to export cannabis to Germany beginning in Q3 of 2019.

Transcript

Fraser Toms: Hey, welcome to Midas Letter Live. I’m joined with Nick Dean, who’s the CEO of Emblem Corp., trading on the TSXV under the symbol EMC. Nick, how’s it going today?

Nick Dean: It’s going well, Fraser, thanks for having me.

Fraser Toms: Great. We were talking a little bit off camera about the rec space, so I thought it would be good to dive into that right away.

Nick Dean: Sure.

Fraser Toms: Myself and others in the office have been scouring the internet forums and saw some things such as, Emblem is third among sales in the adult use space. Can you comment on that?

Nick Dean: Yeah, I can neither confirm nor deny the factuality of those forum boards right now, but all indications are that our Symbl brand is probably one of the top-selling brands in Ontario, at least, which is where that forum information is talking about.

So we’re incredibly excited. You know, we did a lot of planning in advance to really focus on what were the key markets Emblem was going to focus on with our adult-use strategy. And Ontario, largest Canadian market, was obviously a market we wanted to have a firm presence in, as well as Alberta and Saskatchewan. So that was a really focused effort, and in some ways, it was a conservative approach. You know, we intentionally didn’t spread ourselves too thin across the country out of the gate; we said let’s focus.

And as a result of that, we actually were able to achieve 100 percent of our commitments to the provinces in which we had supply agreements, and I think that’s why we’re seeing pretty good sales out of the gate.

Fraser Toms: Yeah. Well, one thing that jumped out at me for sure is, I was looking at the website and refreshing it and monitoring over the first few days, and Symbl was dominating the front page. And I was kind of wondering, how did that happen, how did you guys do that? And if you have insight as to how that happened…

Nick Dean: Sure, yeah. So I mean, we didn’t have previous discussions with the OCS around placement on the website.

Fraser Toms: So it wasn’t rigged?

Nick Dean: It wasn’t rigged, ha ha. But what it comes down to is sort of marketing fundamentals, right? Like, I think it comes down to the fact that we’re really focused on the right pricing strategy, we focused on the right promotion, and we focused on the right packaging. So we intentionally went with a bright blue packaging box that we thought would stand out really nicely on white backgrounds. And whether that white background was on the OCS website or whether that white background was in a retailer’s shelving unit. So I think that stood out.

Number two, we priced it in a way that we knew we would be able to access probably a larger number of consumers. And so I think that was some of the restrictions you could focus on as well: make sure that you get the pricing right, so that it will attract the right audiences.

We’re really pleased, we did not rig it, but yeah, it sort of comes down to the marketing fundamentals. And then, of course, we were promoting the brand in advance. So, you know, we had – our goal as a leadership team was, we want to drive a ton of anticipation for our brand in advance of legalization, so that when that does open up, consumers are running in the door and asking for Emblem’s products, this one being Symbl. And I think we achieved that, from our billboards to our online strategy to our influencer strategy and to our PR strategy.

Fraser Toms: Another thing about what I was noticing and wondering about is the quantities and things like that, that you’d see pop up on the website. What were the restrictions, and what do you think worked best for you guys?

Nick Dean: Yeah, it’s a great question. The other thing that we did was, we were able to provide a large quantity of 1-gram packs. Now they’re incredibly difficult to package, and I think a number of LPs have been having challenges with coming up with the right manufacturing line and the right supply chain line to actually deliver one-gram packages. So I think Emblem was one of only a few LPs that were able to provide those 1-gram packages to both the OCS the AGLC, and when you think about a new market, people want to experience a product before they over-commit to large quantities. So the fact that Symbl is offering 1-gram packs across our three different strains, I think that’s been a strong reason why the brand and the product is selling like we’re seeing it.

Fraser Toms: Yeah, I mean, that makes sense to me, and instead of having, like, a massive garbage bag of weed that it would take you your whole lifetime to get –

Nick Dean: Well yeah, and then you don’t like it, right? Some people, they just don’t want to overcommit to, you know, 3.5 grams 7 grams, 15 grams, they want to commit to something that they can sample, they can decide if they like it, and then they can move on from there and maybe make a larger purchase next time.

Fraser Toms: And so for Ontario, the in terms of like, an amount that you committed to as a company, what was that initial amount, and how does it work moving forward? Because it looks like there’s products running out here and there, and then how doe s that get renewed?

Nick Dean: So look, I’m not going to share the specific quantities, but what we did do, again, is we committed quantities that we knew we could deliver. So, we wanted to make sure that when the OCS or the AGLC sent us their purchase order, we were able to fulfill on that. This is the start of a new relationship, and first impressions mean everting. And we wanted to make sure that the OCS saw us as a valued partner, and they knew they could rely on us to deliver on our commitments.

So that was a big part of our focus was, be conservative – which is also, like I said, why we focused on only three provinces to begin with. The other thing we did, and you raised this, we are hearing about supply challenges in the industry right now. Something that we did intentionally as well is, we set aside product for our patients. We knew there would likely be supply challenges, but we are a patient-first company. You know, we’ve been operating for a number of years, we’ve been providing product to patients in need, and we want to make sure that those patients didn’t come up empty0handed as a result of the adult use market coming online.

And so we created a large inventory of our dried flower, of our oils products, of our new oral sprays, so that we would be able to deliver our commitment to our patient first, while still delivering our commitment to the province. So that’s something that we were incredibly proud of, and I think it comes down to the team and how good they were at planning an advance of the adult use coming online.

Fraser Toms: Okay, great. Last rec related question I had, you mentioned the provinces you’re in; are you looking at any other ns the near future to try to get in there?

Nick Dean: Yeah, so we’re in Ontario, Saskatchewan – I can’t say it, nobody can say it – Alberta and we will be in BC. So we’ve recently announced the at we’ve got an agreement with BC, so likely that will start in early 2019. But then our plan is tog go Canada-wide. So as more supply comes online through some supply agreements that we’ve stabilised, we will be branching ourselves out across the country.

Fraser Toms: Okay, great, and BC seems 4like a big one, obviously.

Nick Dean: Oh yeah, I think it’ll be big. We want to have a large presence obviously, in BC, we’d love this gave a striking presence in Quebec, and we’d love to have a strong presence on the east coast. but again, it was being focused out of the gate.

Fraser Toms: Okay, so on to medical: just again your recent press releases, you finalized an agreement and launched Emblem Germany in a joint venture with Acnos, did I say that right?

Nick Dean: That’s correct. You did, yeah.

Fraser Toms: Okay, so could you elaborate on that and what that’s going to mean, moving forward?

Nick Dean: Sure. So it’s an incredible opportunity. We’ve been working with the Acnos team now for about a year coming up with this approach and this partnership. We announced the LOI likely about four or five months ago now, so we’re thrilled to announce that we’ve now come to the definitive agreement.

Now we are in the process f finishing our product innovation entre, which is a 30,000 square foot manufacturing R&D product development facility in Paris, Ontario. And within that, we’re going to have a 5,000 square foot GMP certified lab. As a result of that GMP certified lab, we’re going to be able to export product to Germany. Likely as almost finished goods. There will be some level of compounding required once that product lands in Germany, to distribute it to patients in need there, but it really is as a result of us completing that GMP-certified facility, which should take place early in Q1. So we should be in the process of starting to export product, let’s call it early Q3 o 2019.

Fraser Toms: Okay, that sounds good, and GMP certification to me is it sounds like kind of a big deal. Could you just elaborate a little bit on, it sounds like that would be a difficult process to get it approved, and that not everybody and their uncle is walking around with the GMP certification.

Nick Dean: I think that’s correct. I think it comes under good manufacturing processes, and the way that you would design a facility so that what standards are in Canada would also be the same standards in other countries and because those standards are similar, you can then create the export opportunity.

You know, we have a strong pharmaceutical background at Emblem; we have a strong pharmaceutical team that’s joined us from other industries, and so they bring a lot of this knowledge. There are some other LPs that would have GMP-certified facilities, but it’s definitely not everyone so this is a unique differentiator for Emblem. And I think that we’ve gone up within our 30,000 square foot product innovation centre, you know, based in Paris, Ontario, only enhances the strength of what work I’d be able to provide.

I think something else I want to touch on just with Germany though, it’s going to be a really great market for us from a profitability standpoint. So based on the structure of our agreement with Acnos, it’s a 60/40 joint venture, but Emblem’s actually able to sell our product – like I said, the finished goods – to the joint venture at a pretty decent premium, and then as a result of the joint venture structures we do profit sharing at that 60/40 split. So it will be an incredibly lucrative market for Emblem moving forward, and we’re really excited to get it off the ground in early Q3.

Fraser Toms: Right. Another thing that popped out at me here is this wholesale supply agreement with Aphria.

Nick Dean: Yes.

Fraser Toms: Bringing the total supply to almost 200,000 kg over five years. So what’s the nature of that relationship?

Nick Dean: Sure. So we recently signed the largest LP to LP wholesale supply agreement with Aphria, we think, in the world. It’s 175,000 kilogram commitment over five years. You know, we’ve been exploring a number of other opportunities; I think I suggested to James last time that, you know, Emblem has always been known for product innovation, strong branding, and good distribution partnerships. Where we sometimes got criticized was in terms of our cultivation or our funded capacity. And so we were looking for opportunities to solve that; do we build a greenhouse, do we acquire a greenhouse, or, do we, you no, sort of be creative and zig when everyone else is zagging and really allow Emblem to focus on branding and distribution, and let somebody else who’s really incredibly strong at cultivation, take the lead on that.

An so we formed a partnership with Aphria. It’s got price certainty over five years, so we know what our costs are. We will be using that product to develop our value-added products out of our product innovation centres, and we’re really excited about it. Again it gives us that price certainty, it gives us price protection. It’s indexed against prices that could be coming down in the future – so we’re thrilled. And Aphria are great partners and they’re incredible cultivators, so we’re really excited about that incredible partnership with the.

Fraser Toms: Yeah, that’s what I was going to ask: why Aphria over anyone else in a landscape where its super competitive, but at the same time, there’s got to be a bit of a camaraderie there.

Nick Dean: There is. And he structure of the agreement took, we’ve week working with Aphria for a number of years, and the relationship between Aphria and Emblem has already been friendly. And we have had supply agreements with them in the past, where they were providing us with product. So it wasn’t new idea for us to partner with the. We really appreciate their business strategy. The structure of the agreement they know own about five percent of Emblem’s shares outstanding so that was a really unique structure where they were really reinforcing our business structures and our business plan. And to just a really good goal that we were really pleased with. So yeah, we’re thrilled with them.

Fraser Toms: Great, so I think we’ve covered quite a bit I am looking forward to 2019 now you motioned some key things that are going on with Emblem, is there anything else that I didn’t get to that you feel shareholders need to know?

Nick Dean: No, I think the focus we need to reinforce, our focus is going to going be on high margin, value added products with our existing oils, we’re generating revenue of about $15 pe gram; you go up to our oil sprays, we’re generating revenues of about $20 per gram, and we only see that continuing as we continue to introduce new products to the market like our capsule. Untimely, we will we being into the edible space so it’s going to globe our focus – discussion is going to be Canada-wide expansion, our focus is going to be international expansions. So Germany is first, but you know, we’re looking at the IL, we’re looking at other European countries here we’re establishing relationships which may be similar to the one that we’ve established with Acnos.

So I think this is jus the beginning of our Emblem. It’s been a year of reunion, year of change, it’s been a year of really refining or focus and our strategy, and I think 2019 is going to be a wonderful year for us in both the medical space and the adult use space.

Fraser Toms: Great. Sounds like it’s going to be a happy new year. Great so awesome. Well, we’ll leave it there and I’m sure you’ll be back soon and we’ll have another chat.

Nick Dean: Great, thanks, Fraser. .

Fraser Toms: Thank you.