Hydropothecary Corp (CVE:THCX) (OTCMKTS:HYYDF), Aphria Inc (TSE:APH) (OTCMKTS:APHQF) (FRA:10E) and MedReleaf Corp (TSE:LEAF) (OTCMKTS:MEDFF) (FRA:MEW) today delivered the type of news investors have been clamoring for: ironclad supply deals. With a news cycle full of vague LOIs, promises and dreams, both companies finalized distribution agreements investors can sink their teeth into. We’re near the point where contenders will get separated from the pretenders.

First up, Hydropothecary announced they had become the “preferred supplier” to Société des alcools du Québec (SAQ), with a planned total supply of up to 203,950 kg to the provincial alcohol agency over 5 years, with a potential value of as much as over $800,000,000 (assuming $4,000 per kg as the wholesale price, or $4 per gram)

WATCH: Midas Letter tours Hydropothecary’s operations in Gatineau, Quebec.

Aphria announced it has finalized a previously announced supply agreement with the SAQ. The 3-year agreement calls for delivery of up to 12,000 kg of cannabis annually for sale in the Quebec adult-use market through SAQ’s retail and e-commerce channels.

Breaking down the numbers, this agreement will be a significant revenue generator for Aphria. By my calculations, 12,000 kg (12,000,000 grams) equals approximately 423,288 oz or deliverable cannabis. Should the company sell each ounce for $5/gram—or $141.70 an ounce—that works out to potential top line revenue generation of just under $60 million per year ($59,979,909.60). Industry insiders have already stipulated that the Quebec government is targeting a $7-8 dollar per gram selling range, so perhaps the $5/gram all-in supply point probably isn’t too far off.

What this means for the company’s actual bottom line profitability is unclear. But what is clear is that Aphria is one of the few Licensed Producers (LPs) which can survive on such a low cost basis. Aphria CEO Vic Neufeld has previously indicated to the Midas Letter that, “There aren’t too many licensed producers which can survive on their income statement at something that’s $5 (gram) or below that. Aphria can because we are the lowest cost producer. And Part III will drive further costs out, and Part IV will absolutely bring us to a cost per gram that’s just unbelievable”.

WATCH: Midas Letter and crew tours Aphria Inc’s flagship Leamington cannabis growing operation with CRO Vic Neufeld.

If Aphria can eventually bring production costs down in the $3.50-$3.75 range—perhaps even lower once the Part IV expansion facility in Leamington is expanded to 1,000,000 square feet of grow space—the company should realize net profitability well into 8-digits annually on the back half of the contract. With fully-funded production capacity of approximately 230,000 kg online by early 2019, Aphria could have the biggest annual harvest in Canada.

We expect more LOI’s and LOI finalization to boost revenue visibility for the company going forward.

MedReleaf Finalizes Its Own Supply Agreement

Not to be outdone, MedReleaf cemented their own supply agreement with SAQ to supply the Quebec market with 8,000 kilograms of cannabis products per year with a minimum three-year term. As Canada’s first and only ISO 9001 and ICH-GMP certified cannabis producer, they may garner marketing advantages related to consumers focused on quality standards and purity.

MedReleaf CEO Neil Closner was live at Midas Letter studios recently, where he outlined his company’s progress and success to date in becoming perhaps the most visible medically standardized grower of cannabis for medical applications.

To our knowledge, this is MedReleaf’s biggest supply agreement in terms of definitive numbers. Previously, the company announced partnerships with both Shopper’s Drug Mart and Cannamedical Pharma GmbH in Germany, although exact distribution volumes weren’t disclosed.

Either way, the Quebec consumer will have many products and strains to choose from once legalization takes place.

Update: Canopy Growth also announced this morning it has completed a three year supply agreement with SAQ for 12,000 kgs of high-quality cannabis products. Much of the same profitability dynamics described above come into play. With low-cost grow potential rivaling that of Aphria, we expect Canopy Growth to snag healthy profit margins even if the supply agreement average somewhere around $5/gram ($141.70/oz).

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