The Canadian cannabis sector is breaking out. This is not a regular breakout, it is a very powerful one because of 2 reasons which we will discuss in this article. We especially like Emerald Health Therapeutics for 2019 and beyond, because of its chart setup combined with company’s fundamentals and market outlook. That’s why our Emerald Health Therapeutics stock forecast for 2019 is ultra-bullish!
As said global stocks are in a ‘risk on’ mood. This has specific implications for very volatile sectors. The ones that break out during a ‘risk on’ period tend to go up very (very) strongly. Smart investors pay attention to breakout sectors during ‘risk on’ periods like today! It is not very hard to forecast this provided the right metrics and leading indicators are applied.
Canada cannabis market: strong growth forecast for 2019 during a ‘risk on’ period
One such sector with explosive upside potential is cannabis, especially in Canada. The Canadian government is about to legalize recreational usage of cannabis early October. This has major implications as it comes after many states in the U.S. already legalized cannabis usage (ever expanding market).
Not only will demand for cannabis explode because of legalization of recreational usage, but, more importantly, the whole sector will get a boost driven by all sorts of new ‘use cases’. Think of cannabis usage in drinks (similar to energy drinks which did not exist 2 decades ago), cannabis in health products (yes there are healing effects in cannabis), cannabis software, cannabis specific payments, and so on.
We also expect a much more global acceptance and legalization of cannabis over time, outside of the U.S. and Canada.
According to recent research, just in the U.S., the market forecast is an annual compound growth rate of 28% of cannabis demand. This means a threefold growth by 2020. Presumably, this is a conservative to base case forecast, not the (ultra) bullish forecast.
With all this we are quite confident that we can publish an Emerald Health Therapeutics stock forecast for 2019 that classifies as bullish, and one in the category ultra-bullish. Note that this is one of the many 2019 forecasts from InvestingHaven’s research team.
Fundamentals for our Emerald Health Therapeutics stock forecast 2019
We are quite excited about Emerald Health Therapeutics’ stock because of two reasons (other than the market outlook already discussed above). It is a producer that is growing (expanding) very fast and it combines production with health products.
It’s all about capacity in the cannabis market in 2019, and the pace at which producers can materialize expansion of capacity. In the case of Emerald Health Therapeutics this is the capacity they are establishing:
- 1.1 million square foot in Delta, BC, in a 50/50 partnership with Pure Sunfarms, fully operational at the end of this year.
- 75,000 square foot already operational in Metro Vancouver by its fully owned subsidiary Agro-Biotech.
- An additional 500,000 square foot planned in Metro Vancouver by its fully owned subsidiary Agro-Biotech.
Last week, Emerald Health Therapeutics announced that their expansion is happening faster than planned. This is a quote from their press release:
“Pure Sunfarms, received from Health Canada its third amendment to the cultivation license for its Delta 3 greenhouse in Delta, BC. This amendment permits Pure Sunfarms to expand its cannabis production area by 195,000 square feet to approximately 420,000 square feet of the 1.1-million square foot Delta 3 production facility. The newly licensed area will be in commercial production this week, as the Delta 3 nursery has been producing cuttings in anticipation of this expansion.”
We will not (yet) focus on the health products that Emerald Health Therapeutics offers not to overcomplicate things. Some recent updates on ther health product line(s) are detailed in their latest earnings announcement.
Suffice it to say that their health product line(s) will bring additional revenue once their production runs on auto-pilot and their capacity moves to a point of stagnation. For now, we consider it more of a longer term benefit.
Our focus remains on the production capacity and speed of expansion. Visibly Emerald Health Therapeutics is doing a great job when it comes to this, supporting a bullish Emerald Health Therapeutics stock forecast for 2019.
From a financing perspective, as well as potential shareholder dilution, we don’t see a big risk. This is the quote from their recent earnings report that makes us think so: “In January, February and May 2018, the Company completed financings that resulted in total gross proceeds from unit issuances and warrant exercises of $67.8 million (net proceeds – $67.5 million) and has the potential to a raise an additional $41.8 million if the remaining outstanding warrants from these financings are exercised prior to expiry.”
Emerald Health Therapeutics Stock Forecast 2019: The Chart
The stock chart of Emerald Health Therapeutics looks gorgeous. See embedded below.
First, there is a long term rising channel which really is as perfect as one can imagine. The strong and secular bull market for this stock started some 30 months ago. Since then Emerald Health Therapeutics has seen 2 major peaks which coincided with the peaks in the cannabis sector in Canada.
As the whole Canadian cannabis sector is breaking out (no charts in this article to visualize this) we expect Emerald Health Therapeutics to rise until the top of its channel at least once.
That’s why our first price target of our Emerald Health Therapeutics stock forecast for 2019 is $38. That is a 7-fold increase from current levels! We are quite sure this stock forecast will materialize in 2019!
Emerald Health Therapeutics Stock Forecast 2019: Most Bullish Price Target
Depending on new data points in 2019 we will have to evaluate whether another peak will take place, presumably after 2019. If so, then our most bullish target will become $154. Please note this is not a given, at all in fact. It may never materialize. What we are saying is that provided the cannabis market grows faster than expected, because estimates were too conservative, combined with Emerald Health Therapeutics overdelivering on its growth, which, both combined, makes up for a big ‘IF’, we could see the most bullish price target materialize. That might happen in 2020 or beyond.
For now, we stick to our first bullish price target of $38, which is our base case Emerald Health Therapeutics stock forecast for 2019.
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