Broken Coast, Maricann Expand Cannabis Production, But Is It Too Much?

Aphria Inc. (APHQF) announced that its subsidiary, Broken Coast Cannabis received a license amendment from Health Canada that provides Broken Coast with an additional 18,000 square feet of production space as part of its Phase III expansion, bringing total production space to 44,000 square feet. As a result of the amendment, Broken Coast’s production capacity will nearly double to 4,500 kg annually.

“We’re pleased to receive Health Canada approval on our Phase III expansion, which will enable us to quickly ramp up production of our small-batch, premium, high-quality B.C. bud,” said John Moeller, Co-founder and President of Broken Coast. “We expect the first crop cultivated and produced at the expansion to be available for sale by the end of July.” Vic Neufeld, CEO of Aphria added, “This is an important milestone for Broken Coast and for Aphria as we continue to bring online more capacity to meet the anticipated demand in the Canadian market.”

In addition to Broken Coast, Maricann Group Inc. (MRRCF) announced that it received all of the necessary approvals from Health Canada to commence cultivation in Phase One of the company’s new facility in Langton, Ontario, Canada. This is Maricann’s third license issued by Health Canada. Maricann is currently undertaking an expansion of its cultivation and support facilities in Canada in a 942,000 sq. ft.  build out, with a designed expected capacity of producing 95,000 kg (based on conservative estimates) of dry cannabis flower per year to support existing and future patient growth.

Kris Krane of 4Front Ventures worries that it is too much cannabis being grown for the market. “There’s a ton of capacity being built, but the Canadian market will only be so big and the international market they are banking on is an unknown,” Krane noted that Canada is a terrible place for large-scale cultivation. “There is not a lot of sun and labor costs are high,” he added.

The big argument for these massive expansions is that Canada will be legalizing adult-use marijuana and sales are expected to begin later in 2018. Krane points out that Canada’s entire population is roughly 36 million, which is smaller than the state of California. The California marijuana market is estimated to be $5 billion by 2019 according to BDS Analytics, but Canada is pricing these companies and their expansions as if the market will be larger.

This is why many of these companies crowing about enormous cultivation facilities are courting foreign countries for their product. Krane though believes that relationship won’t last. “The European markets will eventually buy their cannabis from countries like the Balkans, Turkey or even North Africa,” said Krane.  He thinks these companies may make money in the short term, but in the long term, he doesn’t think its sustainable.

Krane even believes that ultimately cannabis will end up being grown in Latin American countries where other commodities are grown due to the abundance of sun and cheap labor. That’s assuming countries allow imported cannabis. “I still believe Columbia or Mexico will embrace growing cannabis and take market share,” Krane said.

This dynamic is already being played out in Oregon where the Willamette Weekly reported that the state grew more cannabis than there was demand causing prices to plunge. Marijuana farmers grew 3x more than the residents could consume. It is expected that the summer months will bring even more marijuana into the market regardless of the demand. There are rumors that some of the Oregon cannabis is making it way down to California dispensaries, even though that diversion is illegal.

Some small cultivators can’t make it with prices getting cut in half and are selling at low-ball offers to out-of-state players according to the story. The story also claims that many farmers are left with pounds of product that they can’t sell. Of course, every new market goes through a period of boom and bust. Krane believes he is seeing the boom of Canada’s cannabis expansion and expects the bust isn’t too far away.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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