How Local Producers Benefit from Legalized Cannabis in Quebec

Legalized cannabis in Quebec is drawing interest from investors as the province adopts a new landscape for recreational cannabis.

In the lead up to Canada-wide cannabis legalization, Quebec wasn’t exactly seen as the epicenter of cannabis opportunity. The province has historically been among the most conservative in the country when it comes to popular opinion on cannabis use and provincial government policy throughout the process of preparing for legalization day reflected that.

When October 17 2018 finally arrived, however, the demand for legal cannabis in the nation’s second largest consumer market was made clear. With lines winding down the streets around government-run Société québécoise du cannabis (SQC) outlets, the first 15 hours of legal cannabis in Quebec saw 12,500 in-person sales according to the retail network’s own data. In the weeks since, demand has continued to overwhelm the province’s retail setup.

While it’s clear that further development is needed for Quebec’s cannabis industry laws and retail scheme to effectively serve its market demand, the situation shows clear opportunity for the province’s licensed growers who are producing a product that retailers literally can’t keep on the shelves. On top of the benefits of growing market demand, Quebec is also quietly offering licensed producers some important advantages.

Legal cannabis in Quebec so far

After two years of preparing policy for cannabis legalization, the Quebec provincial government unveiled its plans for regulation in November of 2017. The regulatory scheme was and still is among the most restrictive in the country. The Quebec government has set up 20 provincially run retail stores across the province as well as government run online sales to act as the sole points of sale for Québécois consumers to buy cannabis. The province has only issued licenses to 12 companies for cannabis production and personal home growing is strictly prohibited.

In the summer of 2018, Deloitte Canada released their 2018 Cannabis Report, projecting the Quebec cannabis market to be worth anywhere from $42 million to $1 billion in a total Canadian market worth between $1.81 and 4.34 billion.

The massive rush of Quebec consumers looking to buy legal cannabis and overwhelming the province’s retail system have subsided somewhat in the months following legalization. However, the SQC is still not able to keep up and has resorted to cutting the operational hours of retail locations due to an inability to hold enough stock on shelves.

On the regulatory side of things, further development is underway. The federal and provincial governments are working on regulations that will allow for the sale of edible cannabis products by October 2019. Further regulation on topical cannabis products are also underway. The Quebec government has also been mulling legislation to raise the legal age to purchase cannabis products from 18 to 21.

Advantages to cannabis production in Quebec

With only a few licensed producers in the province and cannabis supply extremely limited, the Québécois cannabis consumer might have a fair bit to complain about regarding Quebec’s legal cannabis landscape. For those few producers that are licensed in the province, however, the situation is actually quite ideal. Quebec’s cannabis producers face an uncrowded market for a product in extremely high demand. When coupled with a strong post-secondary education system, an uncrowded cannabis industry also means that Quebec producers have a proportionally deep skilled workforce compared to the rest of the country.

Quebec offers the lowest energy costs of any Canadian province, a benefit enjoyed by all types of commercial operations in the province. For cannabis production in particular, this is a huge selling point since between grow lighting, ventilation, climate control and more, indoor cannabis growing operations can be extremely energy intensive.

Perhaps the greatest advantage for licensed cannabis producers in Quebec is the province’s loyalty to its own domestic production industry. The government of Quebec owns all cannabis retail in the province, and the government has made clear that it intends to source all of its product from within the province rather than buying from other provinces. By sourcing the entire province’s cannabis supply from its handful of domestic growers, the SQC has effectively guaranteed its producers that they will never have leftover supply. Everything Quebec cannabis producers grow they will sell.

Landscape for legalized cannabis in Quebec

Among the handful of licensed cannabis producers in Quebec is Matica Enterprises (CSE:MMJ,FWB:39N,OTC Pink:MQPXF). Matica is building greenhouses and planning outdoor growing on a 181-acre property in Hemmingford, south of Montreal. The company plans to build 1 million square feet of greenhouse space in five stages over the next several years with 400,000 square feet to be completed by the end of 2019. The property also includes 30 acres of land set aside for outdoor growing. According to Matica, the Hemmingford municipality is fully supportive of the operation. Matica’s Quebec partner, RoyalMax Biotechnology Canada Inc.’s has recently received a cultivation license from Health Canada. The new, state of the art, growing facility is situated in Dorval, on Montreal’s west island.

MYM Nutraceuticals (CSE:MYM) is developing a 1.5 million-square-foot facility in Weedon with the stated goal of making the town “Canada’s Cannabis Capital.” Hydropothecary (TSX:THCX) is the largest licensed producer in Quebec and is set to provide the province with 20,000 kilograms of cannabis product within the first year of legalization. Other producers in Quebec include Agri-Médic ASP, Agro-Biotech, Aurora Cannabis Enterprises (TSX:ACB,OTCQB:ACBFF,FWB:21P), IsoCanMed and Vert Cannabis.

Takeaway

Quebec’s historical conservatism towards cannabis is no reason to count the province out as a source of opportunity as Canada becomes the world leader in legal cannabis. For the companies that gain licenses in Quebec, the province offers some of the lowest-cost production in the country and the assurance that the product will certainly be sold right there in Quebec.

This INNSpired article was written as part of an advertising campaign for a company that is no longer a client of INN. This INNSpired article provides information which was sourced by INN, written according to INN's editorial standards, in order to help investors learn more about the company. The company’s campaign fees paid for INN to create and update this INNSpired article. INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled. If your company would benefit from being associated with INN's trusted news and education for investors, please contact us.