Canada edition / February 01, 2020
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1 FARM GATE SALES TO PAY PREMIUM TO OCS

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Before LPs can sell their products direct to customers in "farm-gate" sales at their production sites, they'll be forced first to sell the REC to the Ontario Cannabis Store, then buy it back at an increased price. The amount they'll pay has yet to be announced. Global News
  • Producers—whether craft grower or large LP—won't move their products off-site, but they'll pay the Ontario Cannabis Store in order to get around the provision of the law requiring all REC sold in Ontario to be purchased from the OCS.
  • Lawyer Trina Fraser told Global News, "If they are saying they intend to mark it up the same as if we’d taken physical possession, that I have an issue with. […] We’re obviously struggling to displace the illicit market and match pricing, among other things, and you’re now charging for a service you’re not even providing, which is physical distribution."
  • Nathan Woodworth, CEO of LP James E. Wagner Cultivation, said he understood the surcharge, because it prevents farm-gate sellers from unfair advantage over those who sell through retail stores and pay for OCS wholesale. Inside the Jar
  • Craft breweries with tasting rooms face similar obstacles, as they must pay fees to liquor boards, who manage prices. Twitter—Aaron W. Andersen
It is uncertain what kind of markup farm-gate products will face. Brock University business professor Michael J. Armstrong compared some estimated REC retail markups: The OCS marks retail products up 77%; Newfoundland has a 90% markup; while Quebec marks products up only 28%. Wholesale markups, meanwhile, are 9% in Manitoba and 6% in Alberta, each of which includes physical distribution. Twitter—Michael J Armstrong
  • That's to say nothing of the various taxes applied to retail products, broken down here. Twitter—Aaron W. Anderson
The OCS also moved to expand its same-day delivery pilot project to Hamilton, the third-largest metropolitan area in Ontario. Twitter—Ontario Cannabis Store

2 DOUG FORD, BUSINESSPERSON, PROMISES MASSIVE ONTARIO RETAIL

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In a conversation with BNN Bloomberg that included his saying, "I'm a businessperson first, and an elected official second," Ontario premier Doug Ford promised, "We're going to open up stores. We're going to have more stores than all the provinces combined." BNN Bloomberg
  • Ford claimed his government's glacial retail rollout was prudent compared with Alberta, where "when the stores were open, they didn't have any supply."
  • Cannalyst Craig Wiggins shot back, "Total Number of Days of [Inventory] at LPs has been greater than 417 all but March 2019 when they shipped to fill the 24 Ontario stores. @fordnation DO THE MATH and quit lying." Twitter—GoBlueCDN
Michael J. Armstrong responded, "Ford rightly blames growers for slow cannabis sales up to June. But since then Ontario’s store shortage has been the bottleneck. He’s behind the times." He added, "Over the past year, Ontario has licensed 28 stores. The rest of Canada has averaged 42 PER MONTH." Twitter—Michael J Armstrong
  • Counting stores that have been approved and are planned to open in coming months, Ontario has one store per 211,159 residents, the feeblest per-capita REC retail coverage of any province. It's followed by Quebec, which offers one store per 197,326 residents, and Nova Scotia, with one per 107,933. Twitter—Matt Lamers, Jesse Staniforth
  • Alberta has one REC store per 10,635 residents, followed by Newfoundland and Labrador, which has one store per 20,862, and Saskatchewan, which has one per 28,634.
To date, the Alcohol and Gaming Commission of Ontario has received roughly 600 applications for REC stores, though the AGCO reports numerous applications are "deficient" and are slowing down the processing of other applications. Twitter—Matt Maurer
Ford responded to criticisms from Canopy GrowthAphria, and Aurora executives by arguing, "They didn't have the supply ready. […] A lot of cannabis companies jumped into this with blindfolders [sic] on."
This week on the podcast
Matt Barnes & Al Harrington: NBA Weed Leaders

3 GREEN RELIEF SCANDAL

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Following the resignation of aquaponic MED LP Green Relief's two founders, incoming CEO Dr. Neilank K. Jha brought in a former Ernst and Young auditor (CA, CMA, CPA) and a lawyer specializing in insolvency. The new team revealed what James West of the Midas Letter called "corporate malfeasance on a scale never seen in the Canadian cannabis industry," undertaken by founders who were "reckless and irresponsible with investor funds." Midas Letter
  • West reported court documents allege founders Warren Bravo and Steve LeBlanc (known in southern Ontario for their construction companies Bravo Cement and Unique Restoration) raised $60M from investors—and $14.1M of those funds have gone missing.
According to court documents, Bravo and his wife Lyn are accused of using Green Relief funds to pay debts for personal businesses unconnected to the company. Co-founder Steve LeBlanc is also accused of spending Green Relief funds on personal matters.
  • The Bravos are alleged to have paid for renovations to their home and to an AirBnB property using company funds.
  • Other funds were allegedly used to pay personal tax debts, and Bravo Cement debts.
  • West says, "They used money they raised for Green Relief from investors to buy the land in their own names, and lease the property back to Green Relief, while charging them rent."
  • Later, Bravo Cement sued Green Relief for non-payment of rent, and allegedly barred access to the facility after Green Relief seized and sold a Range Rover Bravo Cement had bought with cash from Green Relief investors.
  • Bravo didn't respond to Midas' request for comment. LeBlanc, "downplayed his involvement and tried to distance himself from Warren Bravo. 'There were a lot of decisions I didn’t agree with,' he said."
Green Relief CEO Dr. Neilank K. Jha issued a press release "In response to recent news," but it did not mention Bravo, Leblanc, investor funds, West's allegations, or any other recent news. WeedWeek attempted to contact Warren Bravo and Green Relief on Friday evening. They have not responded, but I will update the newsletter text on our website if I receive any comment. Update: On Sunday afternoon, legal counsel for Warren and Lyn Bravo told WeedWeek the Bravos "vehemently deny the allegations set out in the Midas Letter Article and have served notice for libel with respect to same. The allegations contained therein are false, without merit, and constitute malicious defamation against each of our clients." Grower Ryan Lee highlighted Bravo and LeBlanc's background in traditional business, saying, "pubcos brought in all these 'good guys' to run the cannabis industry, because the legacy participants couldn’t be trusted […] And numerous shady deals spread across the industry." Twitter—Ryan Lee
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4 MEDIPHARM LABS SUES HEXO FOR $9.8M

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Last weekend, Barrie, ON extraction and purification firm MediPharm Labs distributed a press release announcing its wholly-owned subsidiary had filed a statement of claim against a then-unnamed licensed producer. At issue was $9.8M in unpaid bills connected with a private-label supply agreement. On Monday, BNN Bloomberg revealed the LP was the already-struggling Quebec LP Hexo. New Cannabis Ventures, BNN Bloomberg
  • According to legal documents, Hexo has failed to make payments on the outstanding amount since October. Twitter—Betting Bruiser
  • On Hexo's end, the deal involved UP Cannabis, a REC brand from Newstrike Brands, which Hexo purchased for $260M last year.
A Hexo representative said the matter involved a contract Newstrike signed before its acquisition, and Hexo intends to fight the suit.

Quick Hits

  1. Germany, Europe's largest MED market, more than doubled its MED flower imports in 2019, from roughly 3,000 kilograms in 2018 to 6,714 last year. Several LPs are already exporting MED to Germany, and many more are angling to get EU-GMP certified in order to join in the fun. MJ Biz Daily

5 NEW PRODUCTS FACE AN “UPHILL BATTLE”

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RBC Capital Markets analyst Douglas Miehem predicted vapes and edibles would only reach $250M in sales nationally this year. He said new products "could face an uphill battle in the first year of 2.0 product launches," though he predicted vape and edibles sales will hit $1.5B by 2022. BNN Bloomberg
  • Cannalyst Craig "GoBlueCDN" Wiggins questioned RBC's math, noting "$250 million is only a +15% bump. Seems very light." Twitter—GoBlueCDN
  • In an assessment of Canopy Growth's "major 2.0 flaws," Stone Fox Capital argued "the Canadian cannabis sector is trying to sell edibles at very high costs per mg of THC," while products on the illicit market priced similarly to legal edibles can contain 37 times as much THC, which it would cost $299.63 to consume legally (a 2,3000% increase in THC price-per-milligram). Seeking Alpha
  • In an assessment of Canopy Growth's "major 2.0 flaws," Stone Fox Capital argued "the Canadian cannabis sector is trying to sell edibles at a very high costs per mg of THC," while products on the illicit market priced similarly to legal edibles can contain 37 times as much THC, which it would cost $299.63 to consume legally (a 2,3000% increase in THC price-per-milligram).
Cannabis industry contribution to Canada GDP continues to climb, up to $7.44B in November 2019 from $6.33B in January of last year. Licensed cannabis revenues were $3.12B in November (up from $1.44B in January), while unlicensed cannabis sales continued their slow decline from $4.88B in January of last year to $4.28B in November. Twitter—David George-Cosh

Quick Hits

  1. Most people either love or hate Joe Rogan, so you'll either be enthused or exasperated to hear he's playing a special 4/20 show in Vancouver. GrowthOp
  2. Postsecondary cannabis education is moving from training students to work in LPs to teaching retail skills for REC stores. Castanet
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6 LP LEADERS SHOWN DOOR, SOLACE SHUTS DOOR

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A series of LP executives have exited their positions recently as companies across the sector continue to struggle.
This week, TerrAscend CEO Michael Nashat resigned and FreshDirect founder Jason Ackerman took over as interim CEO. New Cannabis Ventures, The Deep Dive

7 CORPORATE RUNDOWN

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With capital still difficult for LPs to obtain, a representative of Canaccord Genuity—Canada's largest cannabis bank—said "Yes, there are going to be bankruptcies." Financial Post
  • Tantalus Labs' founder Dan Sutton predicted "Running out the delayed / halted facilities and bankruptcies 12 months alongside market growth in Canada and we are reasonably back to product shortages mid 2021." Twitter—Dan Sutton
Evolve ETFs launched its Evolve Marijuana Fund, a cannabis exchange traded fund, in early 2018. This week Evolve shut down both their cannabis ETFs. Financial Post
  • Evolve's cannabis ETF SEED rose from its opening price of $20.48 to $30.66 at its height. On January 27, it was trading for $11.61. Globe and Mail
  • Evolve CIO Elliot Johnson said, "Over-regulation in the Canadian market has stifled cannabis sales and dampened the entrepreneurial spirit that originally attracted so many investors." Wealth Professional
Bank of Montreal cannabis analyst Tamy Chen increased her target price for Canopy from $25 to $40, and upgraded the stock from "hold" to "buy," based on stories that value-priced REC brands are outselling premium brands. Financial Post
  • Critics continued to wonder why Canopy, according to Seeking Alpha, "took a month after launch to tell the public the company wasn't ready to produce THC beverages at scale." Seeking Alpha
Meta Growth (formerly National Access Cannabis) operates 33 REC stores across the country, but reported a 7.4% quarter-over-quarter decline in Q1 revenue. Still, the $501,000 sales-per-store nonetheless beat the Alberta average of $278,000. Twitter—David George-Cosh, NewsWire, Twitter—Michael J. Armstrong
Dragons' Den alum and "the dragon with a heart" Brett Wilson invested $2M in Indiva, buying its entire offering. New Cannabis Ventures, GrowthOp The REC beverage industry is taking longer to get off the ground than some might have hoped. CannCentral

8 NEWS FROM THE FRENCH PROVINCES

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As it awaits leasing to a single private overseer, New Brunswick's doomed Crown REC retail monopoly Cannabis NB is actually increasing sales revenues faster than retailers in other Atlantic provinces, which it credits partly to lower-priced offerings. Worth noting: Cannabis NB spent last year trying to make lower-price products available, but struggled to keep them in stock. Twitter—Michael J Armstrong, CBC New Brunswick In recent months, three Quebec TV dramas have included plots about something terrible happening to characters using REC. On TVA's L’échappée, a character smokes weed, hears voices, becomes paranoid, and turns violent towards her wheelchair-bound father. TVA's L’heure bleue included a teen who smokes weed with a friend in a Cowansville park and passes out, requiring an ambulance to revive her. The same actor, Jade Charbonneau, has equally bad luck in Radio Canada's 5e Rang, during which her character again smokes "bad" weed and ends up in the hospital. La Presse—In French Quebec contractors have until Monday to submit proposals to renovate dozens of SQDC outlets over the next three years. MJ Biz Daily

Quick Hits

  1. Listuguj First Nation, a Mi'kmaq territory located in New Brunswick, reopened shops raided two weeks ago by Listuguj police who were assisted by Quebec's provincial police. Now, the Nation's Band Council has given the shops 12-week licenses to operate while Chief and Council develop a cannabis policy. APTN

9 INSIDER CHATTER

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Vancouver's "Activist credit union" CCEC, one of the last financial institutions willing to work with unlicensed cannabis organizations, has been forced under threat of FINTRAC and money-laundering legislation to cease supporting those companies. Inside the Jar Security checks are stressful for people whose cannabis expertise comes directly from breaking prohibition laws. BC grower Travis Lane explained his fear that in spite of following license application rules to the letter, he may still be considered a security risk. Twitter—Travis Lane A micro-cultivation consultant wrote a Twitter thread comparing the pros of ordering unlicensed cannabis (variety, speed, delivery) to the cons of buying legally (no store in his town, multi-day delay on online orders). Twitter—OBC Damian 7Acres founder and former Supreme CEO John Fowler warned the industry, "The worst is yet to come. I believe there’s still a lot of pain to come for many, but those who survive will thrive in a thinned herd."

Quick Hits

  1. Brazen Toronto scofflaw dispensary CAFÉ distributed a press release boasting it "contributed over $350,000 in 2019 to local community initiatives." Some believe the company's owners want to sell its assets and name. NewsWire, Twitter—Overgrown Empire
  2. During a traffic stop in Kenora, Ontario Provincial Police arrested a 72-year-old man carrying roughly 50 pounds of cannabis. They charged him and seized his vehicle. Kenora Miner & News

10 A NEW TAKE ON THE QUALITY PROBLEM

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Cannabis educator and personality Jonathan Hirsh proposed a new explanation for why so much LP REC arrives dry and crunchy.
  • "Clearly we have a hydration problem when it comes to legal product," he said. "Great cannabis involves curing properly and packaging it properly, then shipping it out. If it's grown and cured properly, and stored and packaged properly, there should be no issue in the products consumers are buying."
Hirsh told me he'd met a packaging producer who was excited about the benefits of standard LP packaging—which he said was non-airtight, in order to allow the product to cure en route. ("Like a tomato," Hirsh said, picked before ripeness, and ripening in transit.).
  • Hirsh said this should work in theory, "Yet the product ends up crunchy." Many REC products are shipped with moisture packs designed to never get palpably dry and crunchy—even as they do run out of moisture, particularly in non-airtight containers.
  • A lack of airtightness is the problem, yet LPs are motivated by the desire to ship products as quickly as possible (rather than storing them to cure them). Hirsh said "storage and time" are money losers for LPs.

Quick Hits

  1. An American publication said Canada's three greatest "legalization missteps" were stocks traded "on fantasy," Ontario and Quebec's slow rollout of REC retail stores, and the delay in bringing edibles to market. Green Entrepreneur
  2. Veterans and retired RCMP officers are now eligible for up to a $300 reimbursement on MED vaporizers from Veterans Affairs Canada. Health Europa