Quebec Picks Six LPs for Cannabis Distribution Deals

As Canada inches closer to full legalization of cannabis this summer, provinces around the country have been completing their rollout plans for the distribution of the product from licensed producers (LPs).

The province of Quebec revealed on Wednesday (February 14) the six companies that have been allowed to supply the designated agency in charge of cannabis distribution, Société des alcools du Québec (SAQ), with different scales of production allowed.

The Hydropothecary Corporation (TSXV:THCX), an LP based in Quebec, earned the highest amount of product allowed to supply the province out of the six companies that earned a letter of intent with Quebec.

Hydropothecary will give the province 20,000 kilograms of cannabis products during the first year of adult-use recreational sales.

“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,” Sebastien St-Louis, CEO and co-founder of the company said in its announcement.

Five public producers and one private earned option to supply Quebec with cannabis products

The other producers allowed to supply marijuana products to the province of Quebec are Canopy Growth (TSX:WEED), Aphria (TSX:APH; OTC:APHQF), Aurora Cannabis (TSX:ACB; OTCQB:ACBFF), MedReleaf (TSX:LEAF) and Tilray, a private LP.

In terms of the production allowed for each producer, here’s how much each company will supply to Quebec:

• Hydropothecary – 20,000 kilograms
• Canopy – 12,000 kilograms
• Aphria – 12,000 kilograms
• MedReleaf – 8,000 kilograms
• Aurora – 5,000 kilograms
• Tilray – 5,000 kilograms

“We’ve made major investments in the Province of Québec and feel honoured to be chosen to supply the country’s second-largest province, and a region we call home, with our wide variety of cannabis products,” Mark Zekulin, president of Canopy said in the company’s statement.

Terry Booth, CEO of Aurora said the letter of intent his company earned with Quebec reflects on their commitment to this particular market with key investments and two production facilities.

As an initial market reaction, some producers saw an uptrend to their share price. However, some gains were marginal and there were even drops during today’s trading. Hydropothecary saw the biggest increase, worth 5.56 percent, while MedReleaf was a close second with a 5.52 percent rise.

On the other side, Aurora took a minimal 0.9 percent decline while Aphria dipped 0.13 percent by market closure on Wednesday.

Investor Takeaway

Hydropothecary had been touting to shareholders the benefits of being a Quebec based LP when it came to the distribution of cannabis allowed with this province and while other producers like Canopy have built relationships in the province, the early returns show Hydropothecary getting a bigger amount of product allowed and a bigger increase to its share price.

A report from the Financial Post indicated Matt Bottomley, cannabis analyst with Canaccord Genuity wrote a note saying an average wholesale price of $4 per gram of cannabis product could be seen as a likely price point for the province.

“We believe it will likely take time for provinces to ramp up sufficient infrastructure to satisfy total recreational demand and that, over the long-term, Quebec could eventually require (more than) 100,000 kg of cannabis per year (excluding medical volumes),” Bottomley wrote.

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.