Quebec first big province to sign pot supply deals

Quebec has signed sizable cannabis supply agreements with six licensed producers, becoming the first large province to line up supply ahead of recreational legalization.

Gatineau-based The Hydropothecary Corp. secured the largest agreement, signing a letter of intent to supply 20,000 kilograms of cannabis to the Société des alcools du Québec — the government-run agency which will have a monopoly on recreational sales online and in retail stores — in the first year of recreational use.

Both Canopy Growth Corp. and Aphria Inc. signed letters of intent to supply 12,000 kilograms annually.

In separate press releases, Aphria mentioned that the 12,000 kilogram agreement covered the first year of recreational use, while Canopy made no mention of a supply timeline.

MedReleaf Inc. agreed to supply the SAQ with at least 8,000 kilograms annually for three years.

Meanwhile, Tilray has signed a letter to supply up to 5,000 kilograms annually for three years and Aurora Cannabis Inc. has agreed to supply at least 5,000 kilograms annually.

“Supply quantities will be determined based on demand on a month by month basis, with a minimum of 5,000 for the first year, but no set maximum,” Aurora said in a press release Wednesday morning.

The total SAQ purchase commitment amounts to around 62,000 kilograms for the first year of recreational sales.

“We believe it will likely take time for provinces to ramp up sufficient infrastructure to satisfy total recreational demand and that, over the long-term, Quebec could eventually require (more than) 100,000 kg of cannabis per year (excluding medical volumes),” wrote Canaccord Genuity Corp. analyst Matt Bottomley, in a note to clients.

Neither the SAQ nor the companies involved have revealed the wholesale price offered. Bottomley, however, notes that “an average wholesale price per gram of dried bud of $4.00” is a fair assumption.

Based on that pricing, Hydropothecary ’s 20,000-kilogram deal “could translate into revenues of $80 million to (greater than) $100 million, depending on pricing and product mix,” wrote Bottomley.

Quebec’s agreements follow similar, though considerably smaller ones signed by New Brunswick, Prince Edward Island, and Newfoundland and Labrador.