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How Cannabis Companies Are Rushing to Expand Operations

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Provinces prepare for recreational cannabis

In anticipation of recreational cannabis’s legalization at the federal level in Canada (HMMJ), provinces have been doing their best to prepare.

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Distribution and sales model

In most provinces, government agencies will oversee the procurement, distribution, and retail of recreational cannabis. These provinces include Ontario, New Brunswick, Prince Edward Island, and Quebec.

On the other hand, government agencies in some provinces will oversee the procurement and distribution but will also allow private retailers to sell recreational cannabis to customers. These provinces include British Columbia, Alberta, Saskatchewan, and Manitoba.

Supplying to one large customer

Whatever model each province chooses to retail recreational cannabis, one thing is clear: the purchaser of cannabis from licenced producers such as Canopy Growth (WEED), Aurora Cannabis (ACB) (ACBFF), Aphria (APHQF), and Cronos Group (CRON) will be one large entity—the government—in each province.

While the discussion about the demand for recreational cannabis in each province is still underway, Quebec, which has announced its suppliers and annual quantity requirements, offers a glimpse into what demand might look like. A total of six suppliers have signed a letter of intent to supply almost 62,000 kilograms of cannabis annually. Of this amount, almost 12,000 kilograms will be supplied by Canopy Growth alone. This is almost 51% more than Canopy Growth’s recent overall annual medical cannabis sales of 7,920 kilograms.

With these expectations coming from the second most populated province, one can only imagine what the demand will be in Ontario, which has slightly less than twice the population of Quebec.

Series overview

Recently, we published analysts’ estimates for the earnings of six cannabis companies, which you can read in Assessing the Year-to-Date Returns of Major Cannabis Stocks. In this series, we’ll look at these companies’ capacity expansion plans.

First, we’ll discuss some factors that are expected to influence the provinces’ decisions in selecting suppliers.

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