Pubdate: Sat, 20 Jan 2018
Source: National Post (Canada)
Copyright: 2018 Canwest Publishing Inc.
Author: Mark Rendell
Page: FP3


Demand expected to exceed supply, at least in short term

With about six months to go until the legalization of recreational
cannabis, only three smaller provinces - representing less than four
per cent of Canada's population - have signed contracts with licensed
producers to lock down supply.

On Tuesday, Prince Edward Island became the third, agreeing to buy
3,000 kilograms all together from Canopy Growth Corp., Organigram
Holdings Inc. and a local producer called Canada's Island Garden.

New Brunswick, which signed deals with Canopy, Organigram, and Zenabis
in September, added another contract with Nuuvera Inc. this past week
as well.

Newfoundland and Labrador, meanwhile, locked up an 8,000 kilogram
supply deal with Canopy in December.

For the larger provinces, however, the supply picture is murkier and
the clock is ticking.

In Alberta, where the government is planning to control online
cannabis sales, the government's Cannabis Secretariat is "working very
closely with a number of licensed producers on supplying products,"
according to spokesperson Ryan Heise.

But, he added, the current focus is on getting clarification from the
federal government on how supply and distribution networks will be

In British Columbia, where the public side of distribution will be run
by the BC Liquor Distribution Branch, "it's still too early to say"
whether there will be enough supply to meet demand, said LDB
spokesperson Dixon Tam.

The LDB is "beginning to reach out to federally licensed suppliers,"
said Tam, but no letters of intent have been signed yet with licensed

Ontario, likely to be Canada's largest market, likewise seems several
steps away from locking down supply for the Liquor Control Board of
Ontario, which will have a monopoly on recreational sales.

"At this time, one of the unknowns includes the availability of supply
from licensed producers and consumer demand through stores and
online," said finance ministry spokesperson Scott Blodgett.

"The federal government is responsible for licensing producers, and we
believe this issue is also important to the federal

Ontario, like other provinces where the government is monopolizing
distribution, has to move particularly quickly to secure its supply,
according to Deepak Anand, vice-president of government relations for
consulting company Cannabis Compliance Inc.

"Ontario has about 15 times the population of New Brunswick," said
Anand. Based on the size of supply contracts relative to population
seen in New Brunswick, Ontario "would need to sign an MOU for about
280 tons of cannabis," he said.

While cannabis supply is growing rapidly as new licensed producers
come online and existing LPs secure financing for expansion,
provincial suppliers will be competing for product with large private
retailers as well as international markets.

"I looked at the average price per gram in Germany, and the market
goes anywhere from 12 to 20 euros, which is significantly higher than
any of the pricing that the Ontario Cannabis Board, or the Liquor
Board in B.C., or whatever government monopolies here would be looking
to negotiate with LPs," said Anand.

Only a handful of the largest companies have the regulatory approval
needed to divert supply into regulated foreign markets like the
European Union, said Anand. But these companies could account for the
lion's share of total production.

"I can see LPs saying, 'Hey, why are we locking up supply?' Especially
when, at least in the short term … demand is going to exceed supply,"
he said.

Provinces will also be competing for supply with major private sector
retailers like Shoppers Drug Mart, which announced a medical marijuana
agreement with Tilray Canada Ltd. on Friday, following earlier deals
with MedReleaf Corp. and Aphria Inc.

It's "hugely important" for both private and public sector retailers
to start securing supply, said Brendan Kennedy, CEO of Tilray.

"If a product has to be in a retail location July 2, it needs to be in
a warehouse sometime in May, and if it needs to be in a warehouse in
May it needs to be in a package some time in April. For us that means
the plant needs to be in the ground right now or in February," he said.

"The time crunch started about six months ago." Prince Edward Island,
New Brunswick and Newfoundland have marijuana supply deals with Canopy
Growth Corp., among others.
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MAP posted-by: Matt