Once producer-of-promise Emerald Health Therapeutics, Inc. (CSE: EMH) (OTCQX: EMHTF) is making a sudden exit from the cannabis industry, citing bleak prospects for increasing shareholder value.
The news comes on the heels of the company announcing new weed sector deals as recently as early November, and publishing disappointing third-quarter earnings results.
In a statement Monday, Emerald said it’s leaving the recreational and medical cannabis business, to pivot to a pharmaceutical development focus, where its board has “significant” expertise.
The firm said it intends to find buyers for its cannabis assets, and to make large cost cuts.
“Our management team and staff have shown exemplary commitment and effort in advancing Emerald’s cannabis business, but in a market with a very large number of cannabis operating licences, increasing competition and declining retail prices, the path to achieving profitability and increasing shareholder value has been very challenging,” chairman Jim Heppell said in the statement.
“Instead of committing additional capital and effort to focus on this very challenging and saturated market, the Board has decided that Emerald shareholders would be better served by the company exiting the recreational and medical cannabis business and pivoting into pharmaceutical development.”
Like cannabis, pharmaceutical development is another highly regulated, capital-intensive industry.
Also in the statement, Emerald said president and CEO Riaz Bandali is resigning, effective Dec.31.
“Riaz originally committed to take Emerald through a restructuring to achieve financial stability, and over the past two years he has been successful in repositioning Emerald, restructuring its balance sheet, and maximizing its cash position,” Heppell said. “Having reached a logical point with that effort, he has been planning to pursue new opportunities.”
A successor will be named before the end of the year, the chairman continued.
In its second-quarter report, Emerald said it was seeing progress in its renewed business strategy, with sequential revenue growth, new products and expanding industry partnerships.
But in its third-quarter results, filed Monday evening, sales fell 32 per cent to $2.6 million, from $3.8 million last quarter.
With a $4.6-million operational loss and a $4.9-million impairment charge, the firm reported a net loss of $9.1 million — an improvement from second-quarter net losses of $14 million, after being hit with a $10.7-million impairment charge.
The firm ended the third quarter with around $22 million in cash and cash equivalents.
Emerald used to co-own Pure Sunfarms — now one of the most profitable cannabis operators in Canada — as a joint venture with Village Farms International Inc. (TSX: VFF) (Nasdaq: VFF).
Following a dispute that began in November 2019, Village Farms had bought full ownership of the greenhouse cultivator by September 2020.