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Report on Business Cannabis Professional Around the industry: Dec. 14 - Hexo results; Ontario opt-outs; Aurora invests in High Tide;

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More Ontario cities say “no” to cannabis retail

It sure does seem “like Toronto is surrounded by prohibitionists on all sides,” cannabis lawyer Magdalena Fish lamented on Twitter after Pickering became the third Toronto-area municipality in barely 24 hours late Wednesday to opt out of allowing private cannabis retail stores within its borders. “What will Vaughan do?”

While the city directly northwest of Toronto is not expected to address the issue until its new Council is seated in early 2019, other municipalities have wasted little time deciding in advance of the Jan. 22 deadline set by the provincial government. Mississauga to the west, Pickering to the east and Markham to the north have all opted out, joining several smaller towns across Ontario to reject private cannabis retail so far.

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Windsor Mayor Drew Dilkens has also called for his city to opt out before the deadline, though a decision will not be taken until an online survey of local residents closes on Jan 4.

“There’s no harm in opting out and taking a wait and see approach for 60 days or six months or a year to see how it rolls out in other jurisdictions,” Mr. Dilkens told reporters on Wednesday. “If you don’t opt out, then you’re considered to have opted in and you can never opt out again.”

Cities that do opt out before the Jan. 22 deadline, however, will be permitted to opt back in any time. The city councils of Toronto and Ottawa, representing the largest and second largest population centers in Ontario respectively, both voted in favour of allowing private cannabis retailers to operate within their borders on Thursday.

The Alcohol and Gaming Commission of Ontario, which is charged with licensing what it expected to be as many as 1,000 cannabis retail stores across the province, will begin accepting applications next week.

Recreational sales leads to five-fold revenue surge for HEXO

It took just two weeks of recreational cannabis sales for Gatineau, Que.-based producer Hexo Corp. to outpace an entire year’s worth of medicinal marijuana sales. The company made $6.7-million in revenue in three months ending on Oct. 31t, up more than 500 per cent from the $1.1-million the company made during the same period last year.

Roughly $5.2-million worth of the first quarter of 2019 total came from recreational sales that occurred between Oct. 17 and Oct. 31, the company said, with 90 per cent of purchases occurring in Quebec. That figure exceeds Hexo’s $4.9-million in total sales for its 2018 fiscal year.

Despite the revenue surge, Hexo reported a much wider quarterly loss of $12.8-million, up from a loss of $1.9-million in Q1 of its 2018 fiscal year. The extra red ink was attributed to the $22-million in Q1 operating expenses that Hexo reported, more than half of which went to marketing and promotion.

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Edibles seen boosting cannabis spending, profits in Canada

Per capita spending on cannabis in Canada is less than half the average of that in several states south of the border, but the plan for edible products – which garner higher profits than flower – to be legalized in late 2019 means this will rise to the benefit of extraction and formulation companies, AltaCorp Capital said in a note.

Data compiled by AltaCorp peg illicit and medical cannabis spending on a per capita basis in Canada at US$934 in 2017, down from an average of US$2,034 in the legal markets of California, Colorado, Washington, Nevada and Oregon.

Per capita spending on medical cannabis in California by far surpasses other states at US$3,312 while Oregon had the lowest of the five at US$931.

“The data suggests we can expect a lift in spending per capita as Canada's legal market begins to ramp up in the coming months and years,” AltaCorp said.

“In our view, the most significant factor contributing to the increased spending per capita observed in mature legal markets is the greater market share occupied by higher margin derivative products, such as edibles, extracts and beverages.”

These products typically have larger premiums than dried flower.

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“Given the significant expected shift in cannabis consumer spending habits likely to begin next fall, with the anticipated legalization of edibles and vapes, we believe companies specializing in extraction and formulation are well positioned to benefit in such an environment,” the bank said.

“The introduction of these products will be a significant factor in driving consumer spending per capita up, and LPs will no doubt looking to establish market share in these high margin, premium product categories.”

Aurora invests $10-million in High Tide ahead of IPO

Aurora Cannabis Inc. said Thursday it has invested $10-million in Calgary-based retail pot and accessories company High Tide Inc., which is just days away from going public on the Canadian Securities Exchange and has plans to expand significantly into the large Ontario market in 2019.

High Tide is scheduled for its initial public offering (IPO) on Dec. 17.

Edmonton-based Aurora said it agreed to invest $10-million by way of brokered private placement in High Tide, giving Aurora 10,000 senior unsecured convertible debentures.

The move comes after Ontario released its cannabis retail regulations, stating that these companies cannot be more than 9.9 per cent owned by a producer if it wants to operate more than one store. Alcanna Inc., for example, is 25 per cent owned by Aurora and would have to overhaul its ownership structure in order to open shops in Ontario.

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Aurora’s investment is below 9.9 per cent ownership in High Tide, said Nick Kuzyk, chief strategy officer.

“We’ve structured these convertible debentures to make sure we do not exceed that 9.9 per cent limit. Post-conversion, they will have a small equity ownership in High Tide,” Mr. Kuzyk said.

Terry Booth, chief executive of Aurora, said: “Through our investment, we gain exposure to two unique retail store concepts currently launching across Canada, as well as established cannabis culture brands and thousands of proprietary accessories.”

Also just ahead of its IPO, High Tide said it agreed to buy Amsterdam-based Grasscity for $6.7-million. While this expands High Tide’s reach to Europe, the purchase is more notable for the online presence it will provide, said Mr. Kuzyk.

Grasscity is an online store for smoking accessories and cannabis products, with more than 90 per cent of its revenues coming from customers in the United States, he said.

“It is a natural fit with High Tide since our revenues come from the same product categories – bubblers, grinders, hand pipes, rolling papers, vaporizers and water pipes,” said Raj Grover, chief executive of High Tide.

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–Marcy Nicholson

Cannamerx allies with Trichome, dicentra

Cannamerx, an electronic auction provider for wholesale cannabis, has allied with a specialty financial company as well as a consultancy to make their services available to Licensed Producers (LPs) that buy and sell products on this platform, joining the industry’s trend to strengthen with support from ancillary companies.

This month, Cannamerx formed a strategic alliance agreement with Trichome Financial Corp. and partnered with consulting firm dicentra, said Dietwald Claus, chief executive of Ottawa-based Cannamerx, adding that no payments were made with these agreements.

The agreements mean that Trichome can provide Cannamerx participants with financial services to facilitate cannabis trades on Cannamerx, while dicentra can consult Cannamerx clients “at a good rate,” Mr. Claus said.

“We feel that they are well positioned to assist Cannamerx participants (to) address critical short- and long-term financial needs not adequately addressed by the market today,” Claus said about Trichome, which is a specialty finance company focused on the legal cannabis market.

–Marcy Nicholson

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Tilray names several former politicians to international advisory board

NANAIMO, B.C. — Pot producer Tilray Inc. has added some political heft to its international advisory board, including former foreign affairs ministers from around the world and former chairmen of the U.S. Democratic and Republican national committees.

The inaugural members announced by the cannabis grower include:

  • former Canadian minister of foreign affairs Lloyd Axworthy
  • Australia’s former minister Alexander John Gosse Downer
  • Germany’s Joschka Fischer
  • U.S. Democratic Party chairman and former Vermont governor Howard Dean
  • Michael Steele, the former head of the U.S. Republican Party and ex-Maryland lieutenant governor.

Tilray’s chief executive Brendan Kennedy says its international advisory board will guide the company on its rapidly expanding global business.

Many former politicians and political operatives have made a foray into the legal pot industry, with former Canadian prime minister Brian Mulroney recently joining prominent former U.S. politicians on the board of New York-based cannabis company Acreage Holdings.

Meanwhile, the number of countries legalizing pot for medical use continues to grow, with South Korea among the latest to give cannabis the green light.

–The Canadian Press

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