Canada’s cannabis industry continues to face supply shortages following adult-use legalization last year. While new licensed producers are coming online every week and established companies are ramping up production, many experts believe that the supply shortage will persist for at least another year or two. These dynamics have created an opportunity for existing producers to increase revenue and market share.
Biome Grow Inc.(CSE: BIO) (OTCQB: BIOIF) (FFT: 6OTA) recently began its first shipments to Newfoundland and Labrador under a contract that is projected to generate about $100 million in annual revenue by 2020. Investors may want to take a closer look at the stock given these developments and its near-term path towards commercialization.
Cannabis Supply Shortage
Canada’s cannabis industry is projected to reach C$22.6 billion over the coming years, according to Deloitte, driven by the legalization of adult-use cannabis. With the massive demand for product, many private and government-owned retailers have experienced troublemaintaining adequate supply. Quebec’s retailers operate only three days per week and New Brunswick’s provincial retailer laid off 60 workers due to a lack of supply.
These problems could worsen when Ontario opens its first 25 brick-and-mortar stores at the beginning of April. Six months later, the legalization of edibles could further influence the supply and demand dynamic. There’s evidence that edibles will become even more popular than flower across Canada. After all, edibles surpassed flower demand in the United States back in 2017 and licensed producers will likely be drawn to the higher margin potential.
Health Canada continues to approve new licensed producers, but many of these businesses require months to get to an operational state. Some industry experts believe that the supply shortage could last years, while others believe that the supply shortage could be resolved very soon thanks existing licensed producers ramping up production. Either way, the industry continues to see a healthy amount of demand from consumers.
Biome Begins Shipments
Biome Grow recently announced the first shipments of finished product to Newfoundland and Labrador, which have both experienced significant supply shortages in recent months. The company’s Back Home Medical Cannabis Corporation, a wholly-owned subsidiary, signed a deal with Newfoundland and Labrador in November 2018, which was the largest supply agreement in Atlantic Canada and one of the top five nationwide by volume.
Later this month, the company plans to send a second shipment of finished products with a focus on independent retail locations. Management began investing $500,000 over five years for research and development in the province, adding that the investment in the provincial ecosystem supports its commitment to the supply chain. The supply agreement is projected to gross about $100 million per year beginning next year.
Biome Grow is also finalizing the site selection for five wholly-owned retail locations in the province, which are expected to open by this Spring. By capturing value across the entire supply chain, the company could generate more revenue at higher margins than it would be selling products wholesale to other retail outlets. The company could also improve brand loyalty by promoting its own products over competitors.
Biome Grow Inc. (CSE: BIO) (OTCQB: BIOIF) (FFT: 6OTA) is well positioned to capitalize on Canada’s cannabis supply shortage through its massive supply contract with Newfoundland and Labrador. With initial shipments underway, the company is starting to generate meaningful revenue as it works towards a roughly $100 million annual run rate over the next few years.
For more information, visit the company’s website at www.biomegrow.com