Over the last year, Canadian marijuana producers have focused on the upcoming legalization of recreational marijuana by securing supply agreements with provinces and with pharmacy networks.

Two of the leaders in this development have been Canopy Growth (WEED.TO) (TWMJF) and Organigram Holdings (OGI.V) (OGRMF). Yesterday, these Canadian marijuana producer improved their position within the recreational marijuana market by securing supply agreements with the Province of Prince Edward Island

In September 2017, Canopy Growth and Organigram announced a memorandum of understanding with the Province of New Brunswick to supply recreational cannabis products to retail stores.

Under the agreements, Canopy Growth and Organigram will provide up to 4 and 5 million grams of recreational marijuana per year, respectively. Organigram’s agreement is expected to have a retail value of $40 to $60 million per year, while Canopy’s is expected to have a retail value of $40 million in its first year.

Organigram and Canopy Secure Distribution Agreements

Yesterday, Organigram entered into a memorandum of understanding with the Government of Prince Edward Island (PEI) for the distribution of cannabis to the adult-use recreational market. Through this agreement, PEI secured a supply of at least 1 million grams of recreational marijuana per year from Organigram.

Canopy Growth also announced a supply memorandum of understanding to guarantee a regulated supply of high-quality cannabis into PEI’s retail and online stores. Under the terms of the agreement, Canopy Growth will allocate at least 1,000 kg of high-quality cannabis for the first year to ensure that the Province has access to a wide variety of cannabis products. The two-year supply agreement will renew for an additional year upon mutual agreement between the company and the Province.

A Trend to Watch

We are favorable on this trend and expect to see licensed marijuana producer announce similar agreements in the coming months. We expect to see companies including Aurora Cannabis (ACB.TO) (ACBFF) and MedReleaf (LEAF.TO) (MEDFF) announce similar agreements as they are well positioned to capitalize on an increase in demand for marijuana.

Over the last quarter, we have seen Aphria (APH.TO) and MedReleaf announce a medical marijuana distribution agreement with Shoppers Drug Mart and expect to see more agreements of this nature as well.

These significant developments are significant as they enhance licensed producers’ distribution networks and thus expand their reach. When we consider whether these companies are worthy investment opportunities, we take these valuable agreements into account.