A new supply agreement has PI analyst Jason Zandberg feeling good about Emblem Corp. (TSXV:EMC).
On Monday, Emblem announced it had entered into a memorandum of understanding and presale agreement with ICC International Cannabis Corp. The deal will see ICC sell 10 per cent of its 2018 Cannabidiol (CBD) production to Emblem.
“We are pleased to enter into this MOU and presale agreement with Emblem with a view of working together to provide Canadians with a broader supply of cannabidiol and at competitive price points. Both ICC and Emblem foresee a potential shortage in the supply of CBD and associated products in the Canadian market. This MOU and presale agreement is the first step in bringing foreign CBD from a lower-cost jurisdiction into Canada,” said ICC CEO Guillermo Delmonte. “In addition, Emblem brings to the table extensive knowledge of the Canadian cannabis landscape which will help ICC develop its exportation business.”
Zandberg says this deal should provide investors with some assurance of supply.
“This agreement provides EMC with a “back stop” for CBD supply in 2018 –we believe the Company can turn this low-cost high-CBD dried flower into value added products for the medical market in Canada. ICC appears to have a low enough cost structure to compete in the Canadian market place.”
In a research update to clients Monday, Zandberg maintained his “Buy” rating, but raised his one-year price target on Emblem Corp. from $3.50 to $3.75.
The analyst believes Emblem will post EBITDA of negative $3.0-million on revenue of $7.56-million in fiscal 2017. He thinks these numbers will improve to positive EBITDA of $5.28-million on a topline of $29.67-million the following year.
“We continue to believe that Emblem will rank among the leading cannabis producers with a strong medical MJ strategy,” says Zandberg.