Prov­ince will face pot short­fall: Aphria

St. Thomas Times-Journal - - BUSINESS NEWS - VAN­MALA SUBRA­MA­NIAM

TORONTO — The CEO of one of Canada’s largest li­censed cannabis pro­duc­ers says his com­pany is fac­ing “short-term sup­ply chain is­sues” and will not be able to meet the full de­mand re­quested by the prov­inces by Oct. 17, the day cannabis be­comes le­gal for recre­ational use.

“I’ve been com­mu­ni­cat­ing this (to the pro­vin­cial reg­u­la­tors) for sev­eral months now lead­ing up to Oct. 17. I’ve said all along that if you want X ki­los from Aphria, I can­not make that prom­ise un­til the spring of 2019, so here’s what we can de­liver,” Aphria chief ex­ec­u­tive Vic Neufeld said.

Aphria has sup­ply agree­ments with all 10 prov­inces and Yukon. In a Sept. 20 press re­lease, the Leam­ing­ton, Ont.-based pro­ducer said that it had “be­gun ship­ping ini­tial prod­uct or­ders” to en­sure an “ex­ten­sive range of prod­ucts will be avail­able to con­sumers on Oct. 17.”

But Neufeld’s com­ments in­di­cate that, at least for the next few months,, Aphria will strug­gle to meet the to­tal amount re­quested by the prov­inces. This is in part due to “start-up-type ob­sta­cles” that Neufeld says are be­ing en­coun­tered across the in­dus­try.

“All our prod­ucts have been al­lo­cated be­tween med­i­cal and pro­vin­cial ‘rec’, but even there, we will not be able to sup­ply in the next three months, ev­ery­thing that they want.”

One is­sue is the de­lay in get­ting government-is­sued ex­cise stamps de­liv­ered to Aphria’s fa­cil­i­ties, Neufeld said. Un­der the Cannabis Act, all pack­aged cannabis prod­ucts are re­quired to have ex­cise stamps with spe­cific colours, in­di­cat­ing the prov­ince or ter­ri­tory in which the prod­uct will be sold.

“It’s a real, real is­sue,” Neufeld said. “We’ll get a batch in, and then we’ll have to de­ter­mine what prod­ucts they go on, and then you’re fran­ti­cally work­ing. You can’t just bring in an army of 50 peo­ple and say, ‘OK, for the next three weeks we want you to just do this,’ ” he said, not­ing fac­tors such as safety training.

Whether there will be enough recre­ational sup­ply to meet pro­jected de­mand on Oct. 17 has been a key ques­tion hang­ing over the heads of pro­duc­ers and pol­i­cy­mak­ers for months, sim­ply be­cause there is no prece­dent.

A joint re­port from the C.D. Howe In­sti­tute and the Univer­sity of Water­loo, set to be re­leased Thurs­day, fore­casts cur­rent pro­duc­tion lev­els of all the li­censed pro­duc­ers com­bined will meet only “30 to 60 per cent of to­tal de­mand,” pri­mar­ily be­cause of Health Canada’s slow pace of li­cens­ing cannabis pro­duc­ers.

So far, 120 li­cences to cul­ti­vate have been is­sued by the de­part­ment, but the bulk of those were is­sued in 2018, mean­ing many pro­duc­ers have only just started to legally grow.

“I’ve heard from some li­censed pro­duc­ers that they have ca­pac­ity of har­vest is­sues, and they are fran­ti­cally look­ing to buy from other li­censed pro­duc­ers who don’t have sup­ply agree­ments from other prov­inces. It’s a stop­gap mea­sure, not a long-term so­lu­tion,” Neufeld said.

In ad­di­tion to en­sur­ing the recre­ational mar­ket is suf­fi­ciently served, li­censed pro­duc­ers will also have to con­tinue to meet de­mand from the med­i­cal mar­ket.

As of June, ap­prox­i­mately 330,000 Cana­di­ans had pre­scrip­tions for med­i­cal mar­i­juana, and there were 66,404 kg of cannabis in li­censed pro­duc­ers’ in­ven­to­ries, ac­cord­ing to Health Canada data.

That same month, roughly 4,700 kg of dried cannabis was made avail­able for sale to med­i­cal cannabis pa­tients.

But short­age in pro­duc­tion lev­els, ac­cord­ing to the C.D. Howe re­port, will be short-lived, due to the “in­crease in li­censed pro­duc­ers” and the “ex­pan­sion of pro­duc­tion ca­pac­i­ties over time.”

That’s ex­actly what Neufeld says Aphria is fo­cused on — beef­ing up pro­duc­tion ca­pac­ity for the long term. “By the spring of 2019 we will be pro­duc­ing over 20,000 ki­los a month. That’s enough to serve 50 per cent or 40 per cent of pro­jected recre­ational use in year one in Canada,” Neufeld said.

“We be­lieve we’ll be the first li­censed pro­ducer to fully stock ev­ery­one’s de­mand and need by the spring of 2019. I can­not say that with con­fi­dence about my com­peti­tors,” he added.

At the end of the 2018 fis­cal year, Aphria’s an­nual pro­duc­tion ca­pac­ity stood at 35,000 kilo­grams — the com­pany sold roughly 2,700 kg in the first half of 2018.

POSTMEDIA NET­WORK FILES

Work­ers trim mar­i­juana on a con­veyor belt be­fore be­ing pack­aged at Aphria in Leam­ing­ton, Ont. The cannabis com­pany says it’s fac­ing “short­term sup­ply chain is­sues” and won’t be able to meet On­tario’s de­mand for mar­i­juana once le­gal­iza­tion hap­pens on Oct. 17.

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