Que­bec first big prov­ince to sign pot sup­ply deals

Saskatoon StarPhoenix - - YOU - MARK REN­DELL Fi­nan­cial Post mren­dell@post­media.com

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.

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