Emblem Corp. has an 82 per cent upside, PI Financial says

On the heels of its first quarter financials, licensed cannabis producer Emblem Corp. (TSXV:EMC) presents a promising outlook buoyed by solid distribution channels, says Jason Zandberg of PI Financial. In a research update on Tuesday, the analyst reiterated his “Buy” rating and $2.75 target price for EMC.

Emblem announced its first quarter ended March 31, 2018, financials today, highlighted by $1.3 million in revenue over the quarter along with a negative $2.4 million EBITDA and negative $0.03 EPS.

Company President and CEO Nick Dean says Emblem is aiming to achieve a most-trusted brand status in both the medical and adult-use markets.

“Along with record sales and registered patient counts, our first quarter progressed rapidly in all areas as we focused on executing against our multi-year plan,” says Dean, in a press release. “Our achievements reflect the talent of our growing and future-focused leadership team which included several key additions in production, marketing, operations and finance.”

Zandberg said that Emblem’s cultivation capacity should reach 19,000 kg of dried cannabis per year by FY20. The analyst says that he likes what he sees in the company’s CEO.

“[Q1FY18] Revenue was slightly above EMC’s pre-released forecast of $1.2M which we believe reflects Nick Dean’s mantra to under promise and over deliver,” says Zandberg. “Mr. Dean was appointed CEO in December and we have noticed significant improvement in strategic direction and performance.”

Zandberg says that Emblem has an enviable distribution outlook, consisting of Shoppers Drug Mart, private retailer Fire & Flower and Emblem’s own direct sales to medical patients (3,600 patients at present, up 64 per cent year over year). As well, the analyst expects at least two more channels to open up shortly, namely, a supply agreement with the Ontario government and international exports from the company’s GMP-certified facility (soon to be operational).

The analyst’s “Buy” rating comes with a Speculative risk rating, while his $2.75 target stems from a 15x FY20 EV/EBITDA valuation (previously 13x). The target represents a projected return of 82.1 per cent at the time of publication.

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