Canopy Growth Corp. (TSX:WEED)(NYSE:CGC) and Aurora Cannabis Inc. (TSX:ACB) are among the 13 cannabis licensed producers selected by the Alberta Gaming, Liquor, and Cannabis Commission (AGLC) as preferred suppliers of recreational marijuana to the province of Alberta out of a total of 31 interested applicants.
Canopy Growth was among the first to update the market about the new deal in a press release on July 5, revealing that the cannabis giant has been allowed to supply 15,000 kg of cannabis to Alberta in the first six months of recreational sales and claiming that the agreement was “the largest of its kind in Canada.”
That was indeed very true … but for a limited time. Its close competoitor announced a 67%-bigger deal just eight minutes later.
Aurora announced a similar agreement with the AGLC to supply cannabis products for the adult consumer use market in the province, and the aggressively growing marijuana firm “will initially allocate up to 25,000 kg of product” for the first six months of sales to the Alberta market.
Effectively, Aurora may be able to supply up to 50,000 kg of cannabis products to Alberta in the first 12 months of recreational marijuana sales, and that’s a significantly bigger deal than the 30,000 kg that Canopy contracted for with the AGLC.
Why did Aurora get more?
Irrespective of the fact that Canopy has the highest productive capacity for cannabis cultivation right now, the AGLC, which is responsible for regulating private retail cannabis licensing, distribution of cannabis to retail stores, and operation of the online cannabis store, is very much inclined to support local Alberta-based growers.
In fact, the AGLC’s announcement on the supply deals explained that the provincial body “will continue to engage additional LPs as they become federally licensed, specifically Alberta-based producers.”
On one hand, Aurora is based in Alberta and has three grow facilities in the province, including the 800,000-square-foot Aurora Sky at Edmonton airport, which is almost complete, and a larger Aurora Sun, which is under construction. On the other hand, Canopy is based in Ontario but has a planned 100,000-square-foot facility in Edmonton that is under construction and shall be operated under a 20-year lease from the Goldman Group.
It appears that one is more invested in Alberta than the other, and the former was more than a favourite to win the lion’s share in the province.
Other successful competitors
Aphria Inc. (TSX:APH) was a contender in Alberta too, and it managed to get a small quota of 870 kg and did not divulge whether this is per annum or over six months. MedReleaf Corp. (TSX:LEAF) got something too, but no numbers were revealed in its press release. However small the MedReleaf quota will be, it’s all good news for Aurora, its soon-to-be parent company.
The only other selected supplier to reveal deal numbers was Maricann Holdings Inc. (TSXV:MARI), which will be able to supply 3,375 kg equivalents of recreational cannabis products to Alberta in the first six months of sales.
The other successful applicants were ABCann Global, The Supreme Cannabis Co. (7 Acres), Newstrike Resources Inc.(UP Cannabis), Organigram, WeedMD, CannTrust Holdings Inc. Emblem Corp., and Starseed Medicinal Inc.
As previously discussed, the strength of a cannabis player’s supply contracts and the depth and reliance in its distribution channels will play a crucial role in generating required revenue and profitability growth necessary to defend current high valuation multiples.
Productive capacity alone may not guarantee success in the budding industry, while everyone else is scaling up their productive facilities in anticipation of the great sales boom after recreational sales begin on October 17 this year.
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Fool contributor Brian Paradza has no position in any of the stocks mentioned.