CANNABIS FIRM LOOKS TO OTHER QUEBEC COMPANIES FOR STRATEGIC BOOST.
MONTREAL• As Canadian marijuana growers rush to boost production before pot gets legalized, Quebec’s biggest cannabis company looks to a convenience-store giant for a road map. T he Hydropothecary
Corp. says it wants to follow the footsteps of Quebec leaders such as Couche-Tard, owner of the Circle K chain, which started with one store outside Montreal and gobbled up rivals from Ontario to Norway. Hydropothecary secured about a third of its home market last month, when it signed a letter of intent with the province’s alcohol distributor to supply 20,000 kilograms of cannabis products in the first year of recreational sales.
“I plan to be one of the two to three multinational companies still standing in five years,” founder and chief executive officer Sebastien St. Louis, 34, said in a phone interview last week. “Our strategy is to go to Quebec first, then expand to Ontario, then to Western Canada, and then internationally.”
Canada’s pot producers are jockeying to grab a slice of a medical and recreational marijuana market that’s forecast to reach $ 8 billion in sales by 2021. Compan- ies such as Aurora Cannabis have l aunched takeovers while others such as Cronos Group are listing on the Nasdaq Stock Market to boost international exposure. Share prices in the industry have tumbled since the beginning of the year, however, amid overvaluation concerns.
Hydropothecary, based in Gatineau, has dropped 22 per cent to $3.89 from its Jan. 23 peak. That’s not stopping St. Louis from “very seriously” considering a Nasdaq listing after a planned move from the junior to the main Toronto stock exchange in the next few months, he said. The company, which shares board member Nathalie Bourque with Couche-Tard, says it has $ 260 million in cash, half of which is avail- able for acquisitions.
The company, which won a licence to sell medical marijuana in 2015, has a market capitalization of about $696 million compared with about $ 6.4 billion for Canopy Growth Corp., Canada’s largest pot company by market value, which has operations in seven countries.
Yet the preliminary sup- ply agreement with Quebec, which could grow over time, gives Hydropothecary greater visibility and may be worth as much as $ 120 million, analysts at GMP Securities wrote in a note last month.
“This provides a major endorsement of Hydropothecary’s execution capabilities to deliver quality products at large scale,” they wrote.
The company is expanding its production capacity to 25,000 kilos of dry cannabis by July, and 108,000 kilos by the end of the year. It’s also planning to invest in machines that will directly extract the molecule from plants to make products such as sublingual sprays, massage oils or drinks.
Such higher-margin products will eventually account for 70 per cent of the business and help the company weather a l ooming oversupply that’s going to spur competition, St. Louis predicts. In Quebec, the grower also benefits from cheap power helping keep production costs lower.
“It’s going to be critical to be hyper- competitive on growing costs but also to develop a manufacturing expertise,” he said. “Cannabis is talked about for its flower but it’s only a very small part of the story. That’s why we’re putting our efforts on transformation and new products.”
I PLAN TO BE ONE OF THE TWO TO THREE MULTINATIONAL COMPANIES STILL STANDING …
Quebec’s Hydropothecary Corp. says it plans to increase its production capacity to 108,000 kilograms per year.