Expect a flurry of cannabis supply agreements over next few weeks, PI Financial says

With the federal government having now decided on an opening day for Canada’s legal rec marijuana business, we should expect the provincial supply agreements to come fast and furious, says Jason Zandberg, analyst with PI Financial, who estimates that a fully up-and-running market will produce $10.2 billion in annual sales.

Yesterday, Prime Minister Justin Trudeau announced that October 17 will be the first day for legal pot in Canada, stating that even with Bill C-45’s successful in Parliament this week, giving a buffer period to the provinces and territories has been part of the plan all along.

“One of the things that we heard very clearly from the provinces is that they need a certain amount of time to get their bricks and mortar stores — their online sales — ready. Producers need time to be able to actually prepare for a regimented and successful implementation of the regime … This is something that we want to get right,” said Trudeau yesterday at a House of Commons press briefing.

And for an industry still waiting to get up and running, there remains much to get settled over the next four months, with supply agreements doled out to Canadian cannabis companies being at the top of the list, says Zandberg.

“We expect a flurry of provincial supply agreements to be announced in the next several weeks,” he writes in an industry update on Wednesday. “To date only a few provinces have announced MOU’s including Quebec, Newfoundland & Labrador, New Brunswick, and PEI. These supply agreements can now be consummated once the Cannabis Act becomes law.”

In April, Quebec signed agreements with six companies, The Hydropothecary Corp, Canopy Growth, Aphria, MedReleaf, Aurora Cannabis and Tilray Canada. Asking for as much as 62,000 kg of dried cannabis over the first year, Quebec’s CAQ gave the largest agreement (100,000 kg over three years) to Gatineau, Quebec-based The Hydropothecary Corp.

As far as the Atlantic Provinces go, last December, Newfoundland and Labrador signed up with Canopy Growth to the tune of 8,000 kg, New Brunswick has chosen four producers — Canopy, BC’s Zenabis, Nuuvera Inc. and Moncton, NB’s Organigram — while PEI has signed agreements with Canopy, Organigram and local grower Canada’s Island Garden.

The retail side of the industry also has a lot of missing parts at this stage, says Zandberg.

“We expect the pace of licensing for retail stores in provinces with private retail models will rapidly increase,” he says. “Alberta has yet to award their initial phase of retail licenses while BC has yet to establish a retail licensing process. Only Saskatchewan, Manitoba and Newfoundland have announced initial details of licenses recipients.”

Zandberg estimates that the legal market will produce $2.5 billion in sales in 2018, which will grow to $10.2 billion annually within four years.