Yesterday, the Ontario Cannabis Store (OCS) named 26 LPs it has entered into supply agreements with for recreational cannabis. With the province expected to pivot to private sector retail stores (Ontario announces plan for private cannabis retail by Spring 2019), the OCS will still be responsible for implementing an online platform in Ontario, which is scheduled to be ready for October 17, 2018. The LPs listed by the OCS include:
Producers selected to supply the OCS
Canopy Growth Corporation
Maricann Group Inc.
RedeCan Pharm.
Aurora Cannabis Enterprises Inc.
Broken Coast Cannabis Ltd. (Aphria)
Solace Health Inc.
MedReleaf Corp (Aurora)
Emblem Corp.
Starseed Holdings Inc.
Aphria Inc.
Hiku Brands Company Ltd.
THC BioMed Ltd.
OrganiGram Holdings Inc.
AgMedica Bioscience Inc.
The Flowr Group Okanagan Inc.
HEXOCorp. Beleave Kannabis Corp.
Tilray Canada Ltd.
CannTrust Inc.
Natural MedCo Ltd.
Newstrike Resources Ltd.
Cronos Group.
Northern Green Canada Inc.
VIVO Cannabis Inc.
Supreme Cannabis Company Inc.
Radicle Medical Marijuana Inc.
Although Health Canada has issued ~115 licenses to date (many of which are still only for production at this time), we note that the 26 LPs above represent ~23 different companies of the approximately 40 companies that that have already received a sales license for dried bud and/or oil from Health Canada. The OSC noted that these supply agreements were achieved through a competitive bidding process and will include a variety of SKUs comprised of dried flower, pre-rolls, cannabis oils and cannabis seeds. We note that a wider breadth of more “recreational friendly” products (vape pens, edibles, etc) are not expected to be added into the Federal Government’s legislation until the second year of rec sales in Canada; presumably the fall of 2019. Further, we note that no particulars with respect to volume commitments or pricing were disclosed by the OCS for any of the 26 named producers and it indicated that it plans to continue to hold further competitive bids for supply as it expands its product selection. Although details still remain thin, we now have colour (at least on a preliminary basis) on the supply agreements applicable to the four provinces in Canada that comprise ~85% of the country’s population; refer to the following links (Quebec, BC, Alberta).
Implications:
• Location matters. As expected, companies with significant domestic ties to the province have come away with significant purchase orders. Although we have not been given an indication as to the distribution of purchase volumes between the LPs named by the OCS, we note that ~78% of them are headquartered out of Ontario, and we expected producers with larger capacities (today) likely received larger proportional orders.
• Full terms remain undisclosed. Although we believe this announcement providesadditional clarity over who the main players in Ontario will be (at least to start), we note that material terms such as pricing and volumes remain unknown and we expect that subsequent product orders are likely to occur on a rolling basis.
First mover advantage remains key. Due to the respective size of many of the leadingCanadian LPs, we believe these larger players could benefit from a significant firstmover advantage by having the scale and capacity to facilitate large purchase orders inmany Canadian provinces. As a result, we expect these companies will continue to be meaningful players in most of Canada’s primary markets.
For furhter analysis and review please see attached the full analyst report
Sincerely,
The Gordon Group
Yasmin Gordon, B.A.
Sr. Investment Advisor
Canaccord Genuity Wealth Management
609 Granville Street, Suite 2200, Vancouver, BC V7Y 1H2
T: 604.643.7429 | F: 604.643.7476| TF: 877.255.7460
E: [email protected] | www.canaccordgenuity.com
Brian Stefulj, B.A.
Business Development Associate
Associate of the Gordon Group
Canaccord Genuity Wealth Management
T: 604.643.7460| F: 604.643.7476| TF: 877.255.7460
E: [email protected] | www.canaccordgenuity.com
Yuki (Yukiko) Asaoka, B.B.A.
Licensed Sales Assistant of the Gordon Group
Canaccord Genuity Wealth Management
T: 604.643.7469| F: 604.643.7476| TF: 877.255.7460
E: [email protected] | www.canaccordgenuity.com
