Pot com­pa­nies gear up, cast global busi­ness net

Times Colonist - - Business - ARMINA LIGAYA

TORONTO — Cana­dian mar­i­juana com­pa­nies were rid­ing high in the lat­est quar­ter as they ramped up pro­duc­tion ca­pac­ity ahead of the dead­line for the le­gal­iza­tion of recre­ational cannabis next sum­mer while also ex­tend­ing their reach out­side the coun­try’s bor­ders, an­a­lysts say.

Canopy Growth Corp., Canada’s largest li­censed mar­i­juana pro­ducer, was the lat­est to re­port its sec­ond-quar­ter earn­ings, post­ing a $1.3-mil­lion loss at­trib­ut­able to share­hold­ers, de­spite dou­bling its rev­enue com­pared with a year ago.

Still, chief ex­ec­u­tive Bruce Lin­ton told an­a­lysts Tues­day the com­pany is “driv­ing ahead” and tak­ing ac­tions now needed to po­si­tion the com­pany for the fu­ture, such as strate­gic part­ner­ships in Den­mark and Ja­maica. “The in­ter­na­tional op­por­tu­ni­ties are now in­creas­ingly hap­pen­ing,” Lin­ton said on Tues­day’s con­fer­ence call.

It was a strong quar­ter for Cana­dian cannabis com­pa­nies, said Rus­sell Stan­ley, an an­a­lyst with Ech­e­lon Wealth Part­ners, with many in­di­cat­ing they are on track and on bud­get with ex­pan­sion plans ahead of the fed­eral gov­ern­ment’s July 2018 dead­line for the le­gal­iza­tion of recre­ational mar­i­juana.

Still, as mar­i­juana com­pa­nies gear up for the do­mes­tic recre­ational mar­ket amid con­cerns of a sup­ply short­age, many have also been lay­ing the ground­work to ben­e­fit from fu­ture growth mar­kets such as Ger­many and Brazil, he said.

“Specif­i­cally on the med­i­cal front, the po­ten­tial for ex­port­ing to other mar­kets or es­tab­lish­ing a part­ner­ship on a lo­cal ba­sis and pro­duce do­mes­ti­cally, in coun­try, is there and very real and in mar­kets that are sub­stan­tially larger than ours,” Stan­ley said.

For ex­am­ple, Me­dReleaf in Au­gust com­pleted its first in­ter­na­tional ex­port of med­i­cal cannabis oil to Brazil and Canopy Growth in Septem­ber signed a sup­ply li­cense agree­ment to Spain and a strate­gic part­ner­ship in the Dan­ish mar­ket, while Aurora Cannabis shipped its first 50 kilo­grams of dried cannabis flower to Ger­many through its sub­sidiary in Septem­ber.

Shares of Aurora shot up 28 per cent Mon­day on the back of its earn­ings last week that showed a 169 per cent jump in rev­enues in the quar­ter ended Sept. 30, and $1.2 mil­lion in sales of dried cannabis in Ger­many, said Chris Da­mas, the au­thor of the BCMI re­port.

There has been much talk about the po­ten­tial for in­ter­na­tional sales from Cana­dian li­censed mar­i­juana pro­duc­ers, but Aurora’s dis­clo­sure was the first to quan­tify them, he said.

“These com­pa­nies are re­ally at­tack­ing the ex­port mar­kets. That is re­ally where the growth is go­ing to be. I think most com­pa­nies and an­a­lysts, too, have come down in their ex­pec­ta­tions for do­mes­tic sales,” Da­mas said.

He noted that the dis­tri­bu­tion plan for recre­ational cannabis in On­tario, the largest mar­ket, with 40 stores ini­tially is un­likely to sup­port the kind of growth these com­pa­nies seek.

How­ever, the rip­ple ef­fect of mar­i­juana ex­ports on the do­mes­tic sup­ply of the drug is un­clear. Me­dReleaf chief ex­ec­u­tive Neil Clos­ner told an­a­lysts on its sec­ond-quar­ter earn­ings call that it is there is likely to be more de­mand than sup­ply when recre­ational pot is le­gal.

Mar­i­juana firms say ex­ports might cause short­ages in Canada.

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