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Canopy Growth Corp. Just Secured a Big Deal With the Province of New Brunswick

New Brunswick recently announced how the province will manage the sale and distribution of marijuana. I’m going to have a look into what this will mean for cannabis companies and investors. I’ll also show how the province’s plan compares to Ontario’s, which was released earlier this month.

Crown corporation to be set up

The province announced it is going to create a new Crown corporation to be responsible for managing and reviewing the sale of marijuana. This is a different approach from Ontario, where that province put the responsibility on the Liquor Control Board of Ontario to oversee sales rather than setting up a new corporation exclusively for marijuana.

Deals in place to secure supply

New Brunswick has also signed deals with Canopy Growth Corp. (TSX:WEED) and another company listed on the venture exchange to ensure that it has supply contracts in place, so the province is prepared when legalization occurs. It is unclear how the province arrived at these two suppliers and only mentioned that both were licensed and local companies. In contrast, Ontario did not name any suppliers that it would be purchasing cannabis from.

Legality of pot shops still remains a question mark

The province hasn’t said it would come after any pot shops the way Ontario has, but it was recommended by committee that sales be conducted through government-run stores.

However, in its new release, the provincial government said that “the creation of this new provincial Crown corporation provides the flexibility and lays the groundwork for the eventual retail model once final decisions around that have been made.”

There appears to be a strong likelihood that retail operations will be up and running when legalization takes place as the province went on to say that the new Crown corporation would “take other steps in the near future to ensure the retail model is operational in order to meet the federal government’s timelines.”

The province is taking a different approach from Ontario, which made no mention of allowing any retail operations whatsoever.

What this means for investors

This is a significant development for Canopy, as this helps the company position itself in the minds of consumers as being a trusted brand by the provincial government. When you consider that advertising may be limited in the industry, Canopy has already made a big step in setting itself apart early from competitors like Aurora Cannabis Inc. or MedReleaf Corp.

The estimated retail value of the deal with Canopy is estimated to be $40 million in the first year, although it is unclear how much the company will get from the province. However, with just $39 million in sales in its last fiscal year, this agreement will certainly boost Canopy’s top line in a big way.

It will be interesting to see whether the other provinces follow suit and select Canopy as a key supplier as well or go a different route. Although this is a big win for the company, it did not have much competition in New Brunswick to begin with.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any stocks mentioned. 

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