Documents Show Licensed Producers Planning For Recreational Sales

At least one of Canada’s licensed cannabis producers revealed that they’re staking their future on being allowed to grow and sell recreational cannabis.

Hydropothecary, the only licensed producer under the MMPR system currently permitted to grow medical cannabis in Quebec wrote, in a presentation to prospective investors, that the operation is looking forward to an open cannabis market in Canada, and beyond, within the next five years.

The documents give a look at the organization’s future plans for growth, and what it reveals about the future of the cannabis industry in Canada, specifically around distribution.

Currently, licensed medical producers are allowed to sell only to patients that have obtained a recommendation from a physician. All cannabis sales take place online, with product sent by courier.

Under the current system, a series of “cannabis clinics” have established themselves as intermediaries between patients and producers, having professionals on hand to both give physician approval and help fill out paperwork for medical providers.

Hydropothecary states that they currently share in 15 per cent of revenue generated by 46 clinics currently under contract, highlighting the unadvertised relationship between clinics and licensed producers.

The organization has also set a goal in 2016 to “increase medical clinic network in Canada to 50 clinics” to “saturate insurance market in Quebec province” and “open [a] wholly owned online clinic.”

The licensed producer also sees a definite role for pharmacies in Canada under a revised MMPR system.

Hydropothecary is already underway with “good manufacturing practices” audits with Shoppers Drug Mart and is in discussions with other potential pharmacy partners, leading to 2017 when the company expects “pharmacies [to] obtain distribution licensed and begin purchasing wholesale.”

The producer plans for “immediate wholesale into hospital pharmacies beginning in [the] province of Quebec” and “wholesale supply agreements with Shoppers Drug Mart, Rexall and Jean Coutu.”

The document also expects federally regulated retail dispensaries and licensed producer owned storefronts (which the group compares to the Apple Store) to begin operation in 2017.

The recently renamed Cannabis Canada Association, a trade group representing licensed medical producers of which Hydropothecary is a member, is revealed to have been lobbying for the recreational sale of cannabis through government liquor retailers in B.C. and Ontario.

Hydropothecary documents plan for a 2018 roll-out of recreational sale of “dried flower, and full range of edibles and drinks” in 200 government and 800 private stores in British Columbia, followed by Ontario and Manitoba liquor stores.

Currently restricted to dried cannabis and oils, Hydropothecary is also planning to expand their product range over the next two years. 2017 will see the potential sale of seeds and cuttings directly to patients followed by the sale of edibles, drinks and creams in 2018.

Health Canada has made no indication, publicly, that these products will be allowed to be sold by licensed producers.

When asked for comment, Health Canada spokesperson André Gagnon said, currently, licensed producers are only permitted to ship cannabis directly to consumers and “it is not the practice of Health Canada to comment on third party commercial proposals.”

As consumers move into a recreational market, Hydropothecary says that high prices “will positively influence the buying decision of customers switching to marijuana for the first time or create the impression of a better product,” stating “the marijuana market should support a minimum of a 300 per cent premium above the commodity price for the right product and service mix.”

Hydropothecary currently prices its Time of Day line of products at a premium of 179 per cent “compared to the competitions’ average pricing.”

The licensed producer also expects the MMPR to remain in place as “a barrier to entry to competitors, even in the legalization of the recreational market” and that, as regulation moves forward, independent growers will be locked out of both medical and recreational in favour of the established operations.

Hydropothecary estimated the eventual annual cannabis market in Canada at $4.1 billion, more than the $2.5 billion value in an April research report from Mackie Research Capital Corp.

They are seeking $2.4 million in additional capital in order to position the firm for the eventual legalization of recreational cannabis.

Annual revenues from the Canadian beer industry are estimated at $4.9 billion by Agriculture and Agri-Food Canada.

Currently, licensed cannabis producers are restricted from selling across borders, but a recent agreement by licensed producer Canopy Growth Corp. has seen the country’s largest cannabis producer export their product to Brazil.

Also included in the presentation were the projected market sizes of the U.S. ($37 billion) and worldwide ($182 billion).

Hydropothecary, which gives its own inception as August, 2013 estimated that the group’s earnings (before interest, taxes, depreciation and amortization) will break even for the first time in winter, 2016.

The company projected their own annual sales at $425 million by 2020, or 10.4 per cent of the potential market.

“Health Canada is continuing to move ahead with plans to amend the MMPR to comply with the judgment of the Federal Court Canada in Allard vs. Canada,” said Gagnon. “The Government’s intention is to have completed the amendment process by August 24, 2016, which is the timeframe set by the judgment. The amendments will be crafted to address the issues identified by the Court, and ensure that authorized individuals have reasonable access to marijuana for medical purposes.”

The government is also in the early stages of broad legalization, with an established task force expected to present a report on regulation by November, 2016.