Matt Lamers
New Brunswick’s groundbreaking deal to buy a combined 100 million Canadian dollars ($82 million) worth of cannabis per year from two licensed producers could be a harbinger of things to come for provinces aiming to lock up supply before next year’s launch of adult-use cannabis.
The supply agreements – with Organigram and Canopy Growth – total 9,000 kilograms of marijuana. And they come as New Brunswick began to disclose the details of the retail model that will govern adult-use sales within the province.
“It sets the tone for other provinces, who should be looking to lock in supply, because we know there is going to be a supply deficiency,” said Organigram CEO Greg Engel, adding the deal was “certainly historic” for the company and industry.
New retail model
In a related development, New Brunswick said a new government-owned corporation will oversee the sale of recreational marijuana in the province.
However, that government-owned “Crown” corporation will not directly conduct retail operations – as in Ontario. A separate entity, as yet undecided, will run New Brunswick’s retail operations, the province announced.
Under the purchase agreements, Organigram, based in New Brunswick, will supply at least 5,000 kilograms of cannabis per year to the province. The cannabis is estimated to have a retail value of up to CA$60 million and represents about a quarter of the company’s anticipated production.
Smiths Falls-based Canopy Growth agreed to allocate 4,000 kilograms of cannabis for New Brunswick’s recreational market at an estimated annual retail value of CA$40 million.
Investors cheered the news. Organigram, traded on the TSX Venture Exchange under the symbol OGI, soared 16% Friday. Canopy, traded on the TSX Exchange under the symbol WEED, rose 2%.
Both Organigram and Canopy said the commitments won’t affect their ability to fill medical marijuana prescriptions.
Matt Bottomley, pharmaceuticals analyst at Canaccord Genuity, said the deals bring clarity to the industry.
“It shows that the de-risking of the unknowns is starting to happen. So when you start seeing Ontario disclosing exactly how they’re doing it and New Brunswick disclosing who’s going to be their suppliers, and the fact that they’re going to have a Crown corporation, it gives more clarity into how the industry is shaping up – and that acts as a positive for the whole value chain,” he said.
Economic benefits for the province
Fred Bergman, senior policy analyst at the independent Atlantic Provinces Economic Council (APEC), said the memorandums of understanding with the two producers ensure there will be significant job creation within New Brunswick.
“By securing two suppliers in New Brunswick and having them locate there, that’s going to bode well for the province’s economic growth agenda,” he said. “They want to grow the industry and want companies to locate there. Now they have two guaranteed suppliers.”
New Brunswick – Canada’s third-smallest by population – has made marijuana a pillar of its economic strategy.
It has spent about CA$4 million dangling financial sweeteners for producers, funding research chairs at universities, and developing a community college program for cannabis technicians.
Matt Lamers can be reached at mattl@mjbizdaily.com
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