Hydropothecary Signs Largest Cannabis Supply Agreement in History

Ryan Allway March 5th, 2018 Exclusive, News, Top News

Canada’s adult-use recreational marijuana market is just months away from going into effect, and one of the country’s top producers has just inked a tentative deal that will give it a leading edge. The Hydropothecary Corporation (TSX-V: THCX) recently signed a letter of intent to supply its home province of Quebec with 20,000 kilograms of cannabis products in the first year of legalization. That is the largest supply agreement announced in Canada to date, and the company says it is just the beginning.

According to Deloitte, Canada’s cannabis industry is projected to reach C$22.6 billion over the coming years. With recreational cannabis expected to be available by mid-August, provinces have been crafting the rules that will govern the distribution, sale, and consumption of cannabis within their borders. These rules will vary widely between provinces, with some adopting a public retail model and others choosing a public-private retail system.

Quebec has opted for the public model and has tasked the provincial liquor authority, the Société des alcools du Québec (SAQ), with setting up the public corporation responsible for cannabis retail and distribution, the Société Québecoise du Cannabis (SQdC). The SQdC will be the only cannabis retailer in the province, operating from both physical locations and an online store. Starting with 15 stores, the SQdC is expected to rapidly ramp-up to 150+ stores in the first two years.

With Quebec expecting to sell just under 58,000 kg of cannabis in the first year of legalization, Hydropothecary’s letter of intent for 20,000 kg represents 35% of projected market demand in the province. But more than that, the agreement demonstrates the province’s confidence in the company’s ability not only to meet local demand, but to play a crucial role in establishing Quebec as a leader in the newly-developing cannabis business at home and abroad.

“This supply arrangement is an important step for Hydropothecary,” said CEO Sébastien St-Louis in a press release announcing the deal. “We are honoured by the opportunity to supply cannabis in our home province and we want Quebecers to know that we are committed to providing safe and high-quality products for the adult-use recreational market.”

In total, the SAQ has signed supply agreements with six licensed producers (LPs), although Hydropothecary’s order vastly outstrips those of the other companies, including Canopy Growth Corp. (TSX: WEED) at 12,000kg, Aurora Cannabis Inc (CSE: ACB) at 5,000kg and Aphria (TSX: APH) at 8,000kg.

Quebec and beyond

Of the six Licensed Producers signing agreements with the SAQ, Hydropothecary finds itself in an ideal position to take a commanding position in the Quebec market and to plan for even bigger and better things.

For one, it is the only licensed producer of the six headquartered in Quebec, a province which has a proud tradition of favouring locally-produced goods and services. The company has also developed a full range of innovative products including some not found anywhere else. And, recreational consumers will take note, the letter of intent includes the full range of award-winning products currently sold by Hydropothecary, including H2 (flower), Time of Day (flower), Elixir (oil spray), and Decarb (edible powder).

Hydropothecary’s business model is also unique among Canadian LPs vying for top-spot in the newly legal recreational cannabis market. Instead of spreading itself across multiple regions, the company is focusing on establishing leadership and dominance in its home-province of Quebec before moving outward. While digging deep into the Quebec marketplace and developing industry expertise with partners across the province, Hydropothecary is continuing its ambitious expansion plans which currently include finishing a 250,000 square foot greenhouse and construction of another million-foot facility.

By the end of the year, Hydropothecary will be able to grow and process 108,000 kg of cannabis products, making it one of the biggest cannabis companies in the world. With that level of growth, it seems unlikely that the national and international markets are far from Hydropothecary’s sights. In fact, the company has been participating in meetings with the Ontario Cannabis Retail Corporation (OCRC) to supply the neighbouring province’s recreational market.

In the lead up to legalization, supply agreements at the provincial level like this one will have a significant impact on the prospects of licensed producers hoping to secure a piece of the Canadian market. Hydropothecary’s supply agreement with Quebec is the biggest to date and investors may want to take a closer look at the stock before the deal is finalized and the market opens up.

For more information, visit the company’s website at www.thehydropothecary.com.

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