This week, Canada’s recreational cannabis market will open and this represents a major milestone for the global cannabis movements. Canada has been leading this movement and is well positioned to capitalize on the global opportunity as a result of this.

Canada’s early mover advantage in the legal cannabis market has created great opportunities for companies that are levered to this burgeoning opportunity and we have been closely monitoring this.

Today, we want to highlight a Canadian cannabis producer that is in the middle of a major growth cycle, is highly levered to the Canadian recreational cannabis market, and is very undervalued when compared to its peers.

Emblem: An Underappreciated Growth Story

The company, Emblem Corp. (EMC.V) (EMMBF) represents an underappreciated growth story that has significant potential. Recently, the Canadian cannabis producer signed a strategic supply agreement with leading Canadian cannabis produce Aphria Inc. (APH.TO) (APHQF) to supply 175,000 kg of high-quality cannabis over a five-year period starting in May 2019.

Emblem has several levers for growth and we are favorable on this aspect of the story. The company has been laser focused on the smokeless product opportunity and has a strategic relationship with Canntab Therapeutics (PILL.CN) that is focused on this burgeoning opportunity. In September, the companies announced a milestone with regards to the development of a patent-pending oral extended release formulation for cannabinoids. The tablets released cannabinoids consistently over a 12-hour period and we are monitoring this relationship closely.

Last month, Emblem completed an equity investment in DriveABLE Assessment Centres Inc., a global leader in cognitive-based driving evaluations that measure the risk of impairment. Through this investment, Emblem will support DriveABLE as it seeks to tackle the issue of impairment on roads and in the workplace with new mobile technology. This is a significant investment and we are favorable on the focus on this side of the industry and monitoring how it adds value going forward.

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 the recreational cannabis market and has secured agreements with the Ontario Cannabis Store and the Alberta Gaming, Liquor and Cannabis Commission. The Canadian cannabis producer also has a relationship with Shoppers Drug Mart and is laser focused on increasing production capacity to supply these channels.

This is an important aspect of the growth story and we expect to see Emblem further expand its reach over the next few months. 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.

Although Emblem has been advancing its fundamental story, the shares have been under pressure and are significantly undervalued when compared to its peers. We are favorable on the relationship with Aphria, the strategic investments made in differentiated opportunities, and the growth prospects heading into 2019.