Hydropothecary locks up five-year Quebec weed deal, largest to date

Cannabis company The Hydropothecary Corp. has signed a “commercial agreement” with the Société des alcools du Québec to supply an estimated 200,000 kilograms of marijuana to the province’s recreational market over five years.

“This is transformational,” said Hydropothecary chief executive Sebastien St-Louis. “This is over $1 billion in forward revenue over five years.”

The agreement, which is the largest publicly announced legal marijuana deal to date, will see Hydropothecary supply the SAQ with 20,000 kilograms in the first year of legal recreational use. That will increase to 35,000 kilograms in the second year and 45,000 in the third year, the company said in a press release.

The size of the deal in the fourth and fifth year is yet to be finalized. Hydropothecary estimates an annual 10 per cent growth in demand, meaning roughly 50,000 and 55,000 kilograms in years four and five. There’s an option to extend the agreement for a sixth year. 

The company, which is to date the only Quebec-based cannabis company licensed to sell marijuana, expects to sell its products at an average of $5.40 a gram, said St-Louis. That’s a “weighted average” wholesale price based on a suite of 63 products Hydropothecary expects to put on Quebec shelves later this year.

The company had already signed a letter of intent with the SAQ in February, agreeing to supply at least 20,000 kilograms in the first year of recreational use. Five other companies also announced that they had signed letters of intent in February. 

Canopy Growth Corp. and Aphria Inc. each announced that they would supply 12,000 kilograms a year, while MedReleaf Corp. announced an 8,000 kilogram supply agreement. Tilray Inc. and Aurora Cannabis Inc. both announced 5,000 kilogram supply deals.

With the deal announced on Wednesday, Hydropothecary appears to have locked in its dominant position in Quebec, where the SAQ will have a monopoly on recreational cannabis sales both in-store and online.

St-Louis said that his company’s greenhouses, based on farmland outside of Gatineau, will be able to meet the demand.

“The market was concerned over our ability to execute, but I’m very pleased to say our 250,000 square foot expansion is actually a month and a week ahead of schedule. So we’ll be plants-in for May 20, which is plenty of time. And that expansion will produce 25 tons annually,” he said.

“By December we’ll be at 108 tons of capacity,” he added, noting a further expansion of the greenhouse facility the company is planning.

“We’re not slowing down. This is a huge win for us, but in parallel, we’re currently in discussions with the Ontario government, the Alberta government, the Manitoba government and the British Columbia government,” St-Louis said.