Cannabis Companies Strike Supply Agreements In Ontario: What Does It Mean?

With an imminent cannabis legalization date of Oct. 17, Canada has passed laws and restrictions to prepare for the transfigured market this fall. On Monday, legislation was passed that will greatly alter the timeline and nature of cannabis suppliers in the province of Ontario.

What Happened

The Ontario Cannabis Store, the province’s sole legal provider of cannabis, announced a partnership with 26 licensed producers for its online retail platform. The "420 Investor" Alan Brochstein commented on this announcement during an appearance on Benzinga's PreMarket Prep trading show.

“Ontario is the largest province by far in Canada and there was a distribution system that was set up initially that was going to be very challenging," Brochstein said Tuesday morning. "A single entity, the government, was going to be selling all of the cannabis, which is never a very good idea. So there was a political change in the province and they decided to open it up to private retailers."

Why It’s Important

Now, not only will the OCS sell a variety of products online, it will also establish a wholesale distribution system to supply products in private stores.

“The downside to the plan is that it will delay physical stores until April 1. So from Oct. 17 to approximately April 1, the only place where people in Ontario will be able to buy cannabis is through the online store operated by the government,” Brochstein said.

What’s Next

In light of the new legislation, numerous cannabis companies announced supply agreements with Ontario Cannabis Stores.

• Aurora Cannabis Inc. ACBFF and MedReleaf confirmed the agreement by announcing plans to supply a broad range of dried flower and higher-margin products, like oils and pre-rolls.
• Cronos Group CRON CEO Mike Gorenstein said in a press release that "[on] day one, we are ready to build and establish our brand through our premium products, and we are committed to building strong relationships with the provinces and our customers."
• Tilray Inc. TLRY said its main brands, such as Marley Natural, Irisa and CANACA, will all be in the arsenal of products sold by the OCS.
• Organigram Holdings OGI OGRMF Vice President of Sales and Commercial Operations Tim Emberg, commented on the deal in a press release: "All of our products are developed with an outstanding customer experience in mind. We are excited to work with provincial regulators across the country."

Brochstein said the agreements are a necessary step.

"Both the initial supply agreements and obviously performing is what’s going to count going forward."

Listen to the full interview with Brochstein at the 14:20 mark in the clip below. 

PreMarket Prep is a daily trading show hosted by prop trader Dennis Dick and former floor trader Joel Elconin. You can watch PreMarket Prep live every day from 8-9 a.m. ET here. The replay can be found on Benzinga's YouTube channel, and the podcast is on iTunes, Google Play, Soundcloud, Stitcher and Tunein.

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