The rush into the growing medical marijuana business in reaction to new regulations adopted by the Canadian government in April 2014 has been nothing short of astounding. It goes to reason, of course, that the quality of participants is varied – some companies are quite advanced, some are still finding their feet, and many fall in between the two extremes. Only one, however, lays claim to having the largest pre-approved Marijuana for Medical Purposes Regulations (MMPR) license yet awarded, and that is Supreme Pharmaceuticals (CSE:SL) (OTCBB:SPRWF).
“The big competitive advantage we have is that we have been approved for our proposed MMPR license for 24,000 kg per year, and I know of no bigger license than that,” explains Supreme’s president and CEO David Stadnyk, referring to the company’s Southern Ontario facility acquired earlier this month. “All we have to do is implement our security, which is already underway.”
At present, Supreme has a “pre-approved” license, and to move to post-license production status, the company must adopt the high-level security measures required by Health Canada at the 342,000 square foot facility.
“We are currently implementing all of the security Health Canada requires,” says Stadnyk. “We are getting Level 9 security, which is the highest level.”
If all goes according to plan, Supreme Pharmaceuticals will be in position to start cultivation, and thus to turn on some significant revenue taps. “We are planning for the fourth quarter of this year,” says Stadnyk in discussing the company’s target date for initial production. “It could be the first quarter of next year if approvals run a bit longer, but we are targeting the fourth quarter.”
Given the size of the facility, Supreme will bring on production gradually, tailoring output to meet the strain and volume demands of the market. “We will bring in the first phase of 60,000 square feet in the fourth quarter, with 6 to 10 strains of medicinal cannabis,” Stadnyk explains.
The flexibility to compartmentalize the facility is important, as uncertainty surrounding Health Canada’s ultimate regulatory direction introduces a similar degree of uncertainty into sales forecasts for marijuana growers.
The MMPR program was developed to replace the Medical Marijuana Access Regulations (MMAR) license regime, which had proven difficult to monitor owing to the many thousands of small-scale growers it covered. The idea behind MMPR is to put licensed growing into the hands of a much smaller number of large commercial operations.
With the changeover scheduled to take place April 1, Health Canada chose at the last minute to hold over the MMAR program for an indefinite period owing to what it called “ongoing litigation and uncertainty arising from court decisions.”
“We believe the government will rule that the MMAR for individual-use licenses can’t happen anymore, and that next year there will be a huge spike in demand,” says Stadnyk.
Either way, the economics Stadnyk lays out for the facility point to a healthy income statement once production reaches a certain level. “The costs are $1.50 to $2.00 per gram for us to produce, and we will have a range of sales prices of $2.00 to $12.00, with the average being in the $8.00 dollar range,” he explains.
Stadnyk puts the Canadian medical marijuana market at 30,000 to 40,000 users, many of which are currently covered under the MMAR program. He sees the value of the market growing to as much as $1.5 billion annually. “That’s just if it stays medical marijuana,” he says. “If it goes recreational, we are looking at a multi-billion dollar market.”
Supreme’s CEO predicts a challenge under the North American Free Trade Treaty at some point to bring the potential for cross-border commerce in marijuana, perhaps not only on the medical side but also potentially in the recreational use segment. And there is also the possibility of export sales to countries “such as Italy, Spain, and the Netherlands that have the regulatory process in place for selling marijuana.”
Supreme will need to find more cash at some point, but with approximately $1.2 million at its disposal, the company is comfortable in its ability to take the Ontario facility to the point at which Health Canada provides it with a stamp of approval to begin growing.
The company has another facility as well in British Columbia’s South Okanagan, and an application for an MMPR license to cover this operation has been submitted. “We have received comments from Health Canada and are working on those comments. Right now it is 3,000 sq feet. The application looks good, the people are good, but we are still waiting.”
Supreme now boasts strong personnel on both sides of the country, as each facility had experienced people in place when it was acquired. “Our acquisition in Ontario comes with 10 years of growing experience in the MMAR market and two lawyers who know the industry really well,” Stadnyk says. “Supreme has all the ingredients, including the right team in place.”
“The reality is,” says Stadnyk, “that the company has one of the largest MMPRs to be awarded, and we intend on capitalizing on that and serving medicinal cannabis patients from coast-to-coast with high quality, low cost cannabis.”