Shoppers Drug Mart’s deal with Aphria is another step towards legitimizing the pot industry

With cannabis company Aphria (Aphria Stock Quote, Chart, News: TSX:APH) set to be the sole supplier of medicinal bud to pharmacy giant Shoppers Drug Mart, the retail marijuana landscape in Canada just got a little clearer — or did it?

Questions abound. Will other drug stores like Rexall and Jean Coutu follow suit and partner up with one of the established licensed producers? Is the federal government even going to allow for in-store sales of cannabis products at pharmacies?

On Monday, Leamington, Ontario’s Aphira Inc. announced a five-year agreement with Shoppers Drug Mart and its parent company Loblaws to be the “first and preferred supplier of medical cannabis” to Canada’s largest pharmacy chain, which currently has 1,300 stores across the country under the Shoppers and Pharmaprix brands.

“This is a big moment for Aphria,” said Vic Neufeld, CEO at Aphira in a conference call with analysts. “We have an opportunity to grow as Shoppers Drug Mart grows.”

The next day, Aphira’s stock rose 16 per cent, reaching a new high of $13.53 and pushing its market cap over the $2-billion mark. That allowed Aphira to join the ranks of Canopy Growth Corp. and Aurora Cannabis Inc. as Canada’s third marijuana company to reach $2 billion in market capitalization.

But how the move will affect both medical marijuana consumption in Canada and the retail weed industry in general is still anyone’s guess, in part because the federal government has yet to approve Shoppers’ application to become a licensed producer, nor is there any indication whether the feds are keen on giving pharmacies the power to sell cannabis in-store (currently, patients can only receive medical marijuana through the mail).

“As the federal and provincial governments finalize their respective cannabis frameworks, we remain optimistic that they will allow pharmacists in stores, in communities, to apply their professional care to medical cannabis patients,” said Loblaw’s spokesperson Catherine Thomas to the CBC.

As for Canada’s other pharmacies, some have already secured their own partnerships, such as PharmaChoice, a group of 750 independently-owned stores across the country which in March announced it would be teaming up with Saskatoon-based CanniMed Therapeutics. Two other major banners, Rexall and Jean Coutu, have made indications that selling marijuana may be in their future, yet neither has made an announcement.

But many see the Shoppers move as another step towards legitimizing the pot industry, which while medical marijuana has been regulated since 2001, there is still less than full backing by the medical community.

Vahan Ajamian, Research Analyst at Beacon Securities Ltd., says, “We see this five-year agreement as a major milestone for Aphria, and for the sector at large,” he writes in a note. “Aphria believes there are thousands of doctors on the sidelines that ‘aren’t really quite there yet’ in terms of writing prescriptions for medical cannabis –and that this could change with a major player like Shoppers involved and the ‘legitimacy’ that a pharmacist brings to the equation.”

Retail analyst Bruce Winder of the Retail Advisors Network agrees. “It’s a considerable move,” Winder says to Cantech Letter, “because if Shoppers carries it, more doctors are going to start considering cannabis as a legitimate treatment option, which could further add to prescriptions and sales.”

And while selling medical marijuana may not be game-changing for Shoppers, with medical marijuana sales projected to reach $1.5 billion annually in total, it’s no small change, either. “When you consider the whole retail market in Canada is $500 billion, it’ll be a nice addition for Shoppers,” says Winder.