‘Supply chain issues’ contributing to early cannabis shortfall: Aphria CEO

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Image result for ‘Supply chain issues’ contributing to early cannabis shortfall: Aphria CEOOne of Canada’s largest licensed cannabis producers says it will not be able to meet the full demand requested by the provinces by Oct. 17

TORONTO — The CEO of one of Canada’s largest licensed cannabis producers says his company is facing “short-term supply chain issues” and will not be able to meet the full demand requested by the provinces by Oct. 17, the day that cannabis becomes legal for recreational use in Canada.

“I’ve been communicating this (to the provincial regulators) for several months now leading up to Oct. 17. I’ve said all along that if you want X kilos from Aphria, I cannot make that promise until the spring of 2019, so here’s what we can deliver,” Aphria chief executive Vic Neufeld told the Financial Post.

Aphria has supply agreements with all 10 provinces and Yukon. In a Sept. 20 press release, the Leamington Ont.-based producer said that it had “begun shipping initial product orders” to ensure that an “extensive range of products will be available to consumers on Oct. 17.”

But Neufeld’s comments indicate that at least for the next few months ­- in part due to “start-up-type obstacles” that Neufeld says are being encountered across the industry – Aphria will struggle to meet the total amount of product requested by the provinces. “All our products have been allocated between medical and provincial ‘rec’, but even there, we will not be able to supply in the next three months, everything that they want.”

One of the issues standing in the way of the company shipping its finished product to the provinces on time is the delay in getting government-issued excise stamps delivered to Aphria’s facilities, Neufeld said. Under the Cannabis Act, all packaged cannabis products are required to have excise stamps with specific colours, indicating the province or territory in which the product will be sold.

“It’s a real, real issue,” Neufeld said. “We’ll get a batch in, and then we’ll have to determine what products they go on, and then you’re frantically working.… You can’t just bring in an army of 50 people and say okay for the next three weeks we want you to just do this,” he said, noting factors such as safety training.

Whether there will be enough recreational supply to meet projected demand on Oct. 17, has been a key question hanging over the heads of producers and policymakers alike for months now, simply because there is no precedent for the legalization of a drug on the scale being undertaken in Canada.

A joint report from the C.D. Howe Institute and the University of Waterloo, set to be released on Oct. 11, forecasts that current production levels of all the licensed producers combined will meet only “30 to 60 per cent of total demand,” primarily because of Health Canada’s slow pace of licensing cannabis producers. So far, 120 licences to cultivate have been issued by the department, but the bulk of those were issued in 2018, meaning that many producers have only just started to legally grow.

“I’ve heard from some licensed producers that they have capacity of harvest issues, and they are frantically looking to buy from other licensed producers who don’t have supply agreements from other provinces. It’s a stop-gap measure, not a long-term solution,” Neufeld said.

In addition to ensuring the recreational market is sufficiently served, licensed producers will also have to continue to meet demand from the medical market. As of June 2018, there were approximately 330,000 Canadians with prescriptions for medical marijuana, and 66,404 kilograms of cannabis in licensed producers’ inventories, according to Health Canada data. That same month, roughly 4,700 kilograms of dried cannabis was made available to sale to medical cannabis patients.

But shortage in production levels, according to the C.D. Howe report, will be short-lived due to the “increase in licensed producers” and the “expansion of production capacities over time.”

That’s exactly what Neufeld says Aphria is focused on — beefing up Aphria’s production capacity for the long term. “By the spring of 2019, I’d say April or May of 2019, we will be producing over 20,000 kilos a month. That’s enough to serve 50 per cent or 40 per cent of projected recreational use in year one in Canada,” Neufeld said.

“We believe we’ll be the first licensed producer to fully stock everyone’s demand and need by the spring of 2019. I cannot say that with confidence about my competitors,” he added.

At the end of the 2018 fiscal year, Aphria’s annual production capacity stood at 35,000 kilograms — the company sold roughly 2,700 kilograms of product in the first half of 2018.

Source:https://business.financialpost.com

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