With cannabis legalization approaching, provincial plans to stock shelves remain unclear

With about six months to go until the legalization of recreational cannabis, only three smaller provinces — representing less than four per cent of Canada’s population — have signed contracts with licensed producers to lock down supply.

On Tuesday, Prince Edward Island became the third, agreeing to buy 3,000 kilograms all together from Canopy Growth Corp., Organigram Holdings Inc. and a local producer called Canada’s Island Garden.

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New Brunswick, which signed deals with Canopy, Organigram and Zenabis in September, added another contract with Nuuvera Inc. this past week as well.

Newfoundland and Labrador, meanwhile, locked up an 8,000-kilogram supply deal with Canopy in December.

For the larger provinces, however, the supply picture is murkier and the clock is ticking.

In Alberta, where the government is planning to control online cannabis sales, its Cannabis Secretariat is “working very closely with a number of licensed producers on supplying products,” spokesman Ryan Heise says.

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But, he added, the current focus is on getting clarification from the federal government on how supply and distribution networks will be regulated.

In British Columbia, where the public side of distribution will be run by the BC Liquor Distribution Branch, “it’s still too early to say” whether there will be enough supply to meet demand, said LDB spokesman Dixon Tam.

The LDB is “beginning to reach out to federally licensed suppliers,” said Tam, but no letters of intent have been signed yet with licensed producers.

Ontario, likely to be Canada’s largest market, likewise seems several steps away from locking down supply for the Liquor Control Board of Ontario, which will have a monopoly on recreational sales.

The federal government is responsible for licensing producers, and we believe this issue is also important to the federal government finance ministry spokesman Scott Blodgett

“At this time, one of the unknowns includes the availability of supply from licensed producers and consumer demand through stores and online,” said finance ministry spokesman Scott Blodgett.

“The federal government is responsible for licensing producers, and we believe this issue is also important to the federal government.”

Ontario, like other provinces where the government is monopolizing distribution, has to move particularly quickly to secure its supply, according to Deepak Anand, vice-president of government relations for consulting company Cannabis Compliance Inc.

“Ontario has about 15 times the population of New Brunswick,” Anand says. Based on the size of supply contracts relative to population seen in New Brunswick, Ontario “would need to sign an MOU for about 280 tons of cannabis,” he says.

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While Cannabis supply is growing rapidly as new licensed producers come online and existing LPs secure financing for expansion, provincial suppliers will be competing for product with large private retailers as well as international markets.

“I looked at the average price per gram in Germany, and the market goes anywhere from 12 to 20 Euros, which is significantly higher than any of the pricing that the Ontario Cannabis Board, or the Liquor Board in B.C., or whatever government monopolies here would be looking to negotiate with LPs,” Anand says.

Only a handful of the largest companies have the regulatory approval needed to divert supply into regulated foreign markets such as the European Union, Anand says. But these companies could account for the lion’s share of total production.

“I can see LPs saying, ‘Hey, why are we locking up supply?’ Especially when, at least in the short term … demand is going to exceed supply,” he says.

Provinces will also be competing for supply with major private sector retailers such as Shoppers Drug Mart, which announced a medical marijuana agreement with Tilray Canada Ltd. on Friday, following earlier deals with MedReleaf Corp. and Aphria Inc.

It’s “hugely important” for both private and public sector retailers to start securing supply, says Brendan Kennedy, CEO of Tilray.

“If a product has to be in a retail location July 2, it needs to be in a warehouse sometime in May, and if it needs to be in a warehouse in May it needs to be in a package some time in April. For us that means the plant needs to be in the ground right now or in February.

“The time crunch started about six months ago.”