Canada’s medical marijuana program faces an interesting problem…
There is simply not enough medical marijuana to satisfy demand. This is a problem because Canada’s recreational market has not opened yet and is expected to significantly increase demand.
This supply shortage will benefit the country’s licensed producers who are laser focused on increasing production capacity before the recreational market opens next year.
Marijuana Firms Work to Avoid Supply Shortages
Although the best way to increase production capacity is by constructing a new facility, this process takes a lot of time and capital. A quicker and more cost-effective method for increasing capacity is through other licensed producers.
This process is much easier and is a short-term solution for licensed producers that do not have enough product to sell. While we are favorable on this solution in the short-term, it is not an effective long-term strategy and we prefer companies that are focused on increasing production capacity while lowering costs.
A Canadian licensed medical marijuana producer that has been actively selling to other licensed producers is Supreme Pharmaceuticals (FIRE.V) (SPRWF).
Stockpiles Inventory to Sell to Marijuana Producers
In June, Health Canada granted the licensed medical marijuana producer a sales license (applied for it in the spring of 2013) and Supreme has been focused on executing since then.
Since Supreme applied for this license almost 4 years earlier, the company has been cultivating marijuana for some time and this resulted in a significant stockpile of inventory. After Supreme received its sales license, the marijuana producer focused on selling the inventory produced over the past 14 months to other licensed producers.
We are favorable on this strategy and view it as a strategic way to increase brand awareness with thousands of registered patients.
Emerald and Supreme Enter a Supply Agreement
This is a significant development for both companies. Emerald will benefit from having Supreme as a partner that will supplement its supply for the higher-end dried flower segment.
This agreement is significant for Supreme as further solidifies and enhances the 7ACRES brand. Emerald will be the second leading licensed medical marijuana producer selling the 7ACRES product.
Selects Aurora Cannabis as Primary Retail Partner
This development takes place less than two weeks after Supreme announced that 7ACRES completed its first sale of dried cannabis to Aurora Cannabis (ACB.TO) (ACBFF). The companies said they expect to complete multiple transactions before September 30th.
Aurora is a stickler for quality and before the initial purchase, 7ACRES went through a detailed quality inspection by Aurora that included an on-site audit and multiple laboratory tests.
Under the agreement, Aurora will sell cannabis procured from 7ACRES to its network of registered patients. The cannabis from 7ACRES will be sold with a producer’s mark on it, specifying the cannabis as SunGrown by 7ACRES.
credit:420intel.com
