Delta 9 Cannabis Partners with Canopy Growth Corp.
The once-quiet Licensed Producer Delta 9 Cannabis Inc. (TSX-V: NINE) has been making some key moves of late, and perhaps not coincidentally it’s all been happening within days of the company listing its shares on the TSX Venture.
The company listed Monday, and the next day Manitoba Premier Brian Pallister announced the provincial government will support private retail outlets for the sale of recreational marijuana.
The announcement is huge news for Delta 9, which is currently the only Licensed Producer in Manitoba allowed to grow and sell Cannabis.
We predicted yesterday the Manitoba government would adopt a private retail model, and might also adopt a public/private model for wholesale distribution.
Turns out the government is indeed looking at both, as Pallister told the media yesterday he is open to having legal pot distributed through either a Manitoba Liquor and Lotteries building, OR a “third party.”
At the moment, Delta 9 appears to be the only third party that could pull that off.
That would be a huge win for this company, which has been quietly putting the building blocks in place for a massive expansion of production and sales.
And they just made a massive announcement.
News that could turn Delta 9 into one of the blockbusters of the legal marijuana industry.
David Joins Goliath
A press release from Delta 9 and Canopy this morning says the Company partnered with Canopy Growth when it submitted what the company calls a “… collaborative expression of interest in the Manitoba market including production and distribution functions with both companies pursuing privately owned and operated retail.”
The key word here is ‘distribution’.
Why is this so important?
For Canopy, it helps break down the doors to the Manitoba market, which is currently dominated by Delta 9 who serves more than half the legal marijuana consumers in the province.
For Delta 9, the agreement does two things.
First, Canopy’s help ensures Delta 9 can serve a greater proportion of the provincial demand for cannabis, and thus help Delta 9 further entrench itself as the cannabis provider of choice in the province.
Right now, no companies alone can truly be ready to meet the massive surge in demand that will come with legalization.
Without Canopy’s help, Delta 9 would have trouble meeting the demand through their planned chain of retail stores. Enlisting the help of Canopy’s production facilities will give Delta 9 a massive boost other players just can’t match.
Not a bad thing in a market estimated at $1.3 billion.
Secondly, Delta 9 has entered a distribution deal with Canopy “… that will allow Delta 9 to expand its retail presence outside the province.”
In other words, the deal will see Delta 9 products being moved through Canopy’s sales channels in every other province.
This arrangement gives Canopy more access to Manitoba through the dominant player in the province, but it gives Delta 9 better access to the Canadian market from sea to shining sea.
Furthermore, the added supply from Canopy also helps Delta 9 take over the Manitoba retail brick-and-mortar market.
“As a cannabis producer headquartered in Winnipeg, our team is very pleased at the prospect of expanding our operations to include physical locations in addition to our existing e-commerce solution,” said Delta 9 Co-Founder and CEO John Arbuthnot.
The astonishingly youthful CEO has somehow pulled off a remarkable coup that places his company at the forefront of retail market development, just as his company lists on the TSX-V.
What great timing.
The Question of Wholesale
All of this news is fantastic for Delta 9, and very good for Canopy as well.
But what we’ll really be watching for, as investors in the cannabis space, is what Manitoba will do with wholesale.
Pallister clearly said the door is open for a public/private partnership for wholesale distribution. As laid out by the province, the plan would see distribution and retail regulated and supervised by the Liquor and Gaming Authority (LGA), which was widely expected.
The Manitoba government could indeed handle wholesale distribution through its own buildings, but this would entail hiring more unionized staff, building or renovating wholesale warehouses to Health Canada specifications, and creating another layer of bureaucracy.
Pallister is not overly fond of unions or bureaucracy.
The other option might be similar to the solution developed by the Alberta government when it privatized the warehousing and distribution of alcohol to a company called Connect Logistics.
The provincial government still controls the entire liquor supply in Alberta, but Connect handles the warehousing and distribution, and takes a little piece of the pie along the way.
Delta 9 hasn’t said outright they’re angling for the distribution side, but there is a telling line in their press release of this morning.
It says Canopy and Delta 9 jointly submitted a collaborative expression of interest in July, 2017, “… outlining their proposed participation in the Manitoba market including production and distribution FUNCTIONS with both companies pursuing privately owned and operated retail.”
That tells me Delta 9 is very much hoping to get into the distribution side, and why wouldn’t they?
Such a move would take the administrative load off of the province, while creating a vibrant new business division for the company – one that means it will not only grow the product, but sell it direct to consumers.
And at the moment, Delta 9 may well be the only company in Manitoba that can pull off that task – especially considering they’re the only licensed producer in the province that can both grow and sell cannabis.
Market Reacts with Stock Price Surge
As CBC News reported yesterday, Delta 9 stock roared again, surging by 25 per cent in the hours after the provincial announcement … and that came the day after its stock went from a $1.50 open on Monday to $2.25 at the close.
On Tuesday Delta 9 stock bounced again, hitting $3.10 before closing at $2.89. The stock is on fire right now, and that was BEFORE the joint announcement by Canopy and Delta 9 this morning.
We’ll be very interested to see if investors pick up on the subtleties of the Delta 9 play … but if they pull it off, I think the long term future of this company looks incredibly bright.
Disclosure:
We are biased towards Delta 9 Cannabis Inc. (“Delta 9) because we currently own shares in Delta 9 and have been granted stock options by Delta 9. You can do the math. It’s your money to invest and we don’t share in your profits or your losses, so please take responsibility for doing your own due diligence and consult your own professional advisers before investing in Delta 9 or trading in Delta 9 securities. Equedia.com and Equedia Network Corporation are not registered as investment advisers, broker-dealers or other securities professionals with any financial or securities regulatory authority. Remember, past performance is not indicative of future performance. This article also contains forward looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from the forward looking statements made in this article. Just because many of the companies in our previous Equedia Reports have done well, doesn’t mean they all will. Delta 9 and its management have no control over our editorial content and any opinions expressed in this article are our own. For a complete disclosure of the compensation received by us from Delta 9, please review our Terms of Service and full disclaimer at www.equedia.com/terms-of-use/.
I’d like to see a follow up article on this piece to explain why NINE has failed to launch while WEED has gone through the roof, along with other conglomerates like MJN, APH and ACB.
NINE just sits here. Why?