The brutal reality of dynasties gone wrong
Labour shortage, construction delays have led to shortfalls among marijuana producers, Neufeld says
The chief executive officer of Aphria Inc. says that it doesn’t have enough recreational cannabis to satisfy the initial orders made by provincial distributors, adding that his company has been hampered by a labour shortage and construction delays.
Vic Neufeld, CEO of Leamington, Ont.-based Aphria, added that most growers don’t have enough product to satisfy their orders so “there will be sold-out signs” at online and in-store retailers across Canada soon after recreational cannabis become legal next week on Oct. 17. But he hopes the industry will have resolved the issues by January.
“This situation will need two or three months of unravelling as a) more harvest comes on and b) we get a better understanding of consumer uptake,” Mr. Neufeld said Friday on Aphria’s first-quarter earnings call. “It’s like trying to merge a fivelane highway into a one-lane country road. It’s tough to get everything through the bottleneck on a timely basis.”
Mr. Neufeld’s comments come a week after four provincial distributors, including British Columbia and Nova Scotia, warned that there will initially be less inventory and variety available to consumers because growers have shipped less product than expected.
In addition to plotting its growth in Canada and its entry into new markets such as Germany and in South America, Aphria is also in talks to partner with other consumer-goods firms.
This week, The Globe and Mail reported that U.S. tobacco giant Altria Group Inc. is in talks to acquire an equity stake in Aphria, according to multiple sources. Both companies have declined to comment.
It’s like trying to merge a five-lane highway into a one-lane country road. It’s tough to get everything through the bottleneck on a timely basis. VIC NEUFELD APHRIA CEO
Aphria started to ship recreational product to provincial distributors nearly three weeks ago. It has deals in place to sell to every province and in Yukon, securing orders for more than 5,000 kilograms of cannabis under five different brands.
“There will not be complete satisfaction by any of the provincial regulators out of the box,” Mr. Neufeld said. “It’s not a good place to be because you’re shorting every province and the question becomes [whose orders] do you really fill with certain prod- ucts that have limited supply?”
This summer, Aphria said it had to dispose of 14,000 plants worth $979,000 because it says it didn’t have enough workers to harvest the crops. A shortage of greenhouse labour resulted in one week’s crop rotation outgrowing its optimal harvest period. The company has since doubled its greenhouse staff and expects its new automated systems to be in use by the end of November.
Aphria isn’t the only grower that has had to discard cannabis. Canopy Growth Corp. said in September that it had to destroy “a number of plants” at its British Columbia facility after licensing was delayed by “infrastructure and regulatory approvals.”
New projects at Aphria – such as its greenhouse expansion and new extraction facility in Leamington – have been delayed by two months because government approval took longer than expected. The $55-million extraction facility, which will be able to process more than 200,000 kilograms a year of cannabis, is expected to be open in May, 2019, subject to Health Canada approval.
In the three months ended Aug. 31, Aphria recorded revenue of $13-million from the sale of medical cannabis. Its “all-in” cost to produce a gram of cannabis rose to $1.83 from $1.60 in the previous quarter.
Mr. Neufeld said Aphria’s expenses are higher as the company scrambles to prepare for legalization and will stabilize in the coming quarters.
“There’s a lot of learning curves going on, a lot of bumps in the road,” he said. “But I would suggest to you in three months, if it’s not remedied by January, then this whole program is in big trouble.”
It’s not a good place to be because you’re shorting every province and the question becomes [whose orders] do you really fill with certain products that have limited supply? VIC NEUFELD APHRIA CEO