Earlier today, Canadian cannabis producer Emerald Health Therapeutics (TSXV:EMH) (OTCQX:EMHTF) announced it has secured another supply deal. This is, surely, only positive news for investors, right?
Perhaps not, because the market reaction is suggesting otherwise, so what's going on?
Emerald Health Therapeutics: The Deal
The company's 50%-owned joint venture, Pure Sunfarms, has been chosen and has since entered into a supply agreement with the Ontario Cannabis Retail Corporation, otherwise known as the Ontario Cannabis Store (OCS).
Emerald Health Therapeutics will be supplying OCS with Pure Sunfarms-branded cannabis products. This is for the adult recreational market in Ontario.
The deal is a major first for Pure Sunfarms as the OCS is a "provincial government distributor." As such, it will add legitimacy to the brand as well as quality assurance for consumers. Not forgetting, of course, that provincial supply agreements tend to also be the most lucrative and consistent supply deals for any cannabis brand.
President and Chief Executive Officer of Pure Sunfarms, Mandesh Dosanjh, said the following:
“The confidence of the OCS in Pure Sunfarms’ ability to reliably supply safe, consistent quality products is a testament to the hard work of the entire Pure Sunfarms team. We are thrilled to be working with the OCS in Canada’s most populated province and look forward to finalizing additional supplier agreements for other provinces and growing the Pure Sunfarms brand nationally."
At the end of the day, this news should increase revenue for Emerald Health Therapeutics, so what's not to love here?
Well, the stock markets have reacted negatively in today's trade, and there is no clear indication as to why.
On both the TSXV and OTC exchanges, shares are down 5.56% and 5.69%, respectively. The reason for the decrease is hard to understand, but perhaps investors are wary as Pure Sunfarms still awaits "receipt of its packaging and processing licenses from Health Canada, which it continues to expect in the near term." Could that be one reason?
Or perhaps this is simply how the market reacts sometimes? Contrarily.
Emerald Health Therapeutics president, Dr. Avtar Dhillon, is happy for the deal anyway. He believes that "the Pure Sunfarms operation is poised for significant value generation and is a vital part of Emerald’s portfolio.”
But how do you feel about this deal? Can you understand why investors may be wary of this agreement?
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