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Marijuana producers getting high on expansion in anticipation of rising demand

FILE - Canadian cannabis producers say they are ramping up their operations to keep up with growing demand for medical marijuana and in anticipation of legislation that would allow for recreational use of the drug. Cannabis plants intended for the medical marijuana market grow at OrganiGram in Moncton, N.B., in an April 14, 2016, file photo.
Image Credit: THE CANADIAN PRESS/Ron Ward, File
September 10, 2016 - 7:00 AM

TORONTO - Canadian cannabis producers say they are ramping up their operations to keep up with growing demand for medical marijuana and in anticipation of legislation that would allow for recreational use of the drug.

Alberta-based Aurora Cannabis is planning to expand its operations by 600,000 square feet over the next two years. That's a more than tenfold increase over its 55,200 square-foot facility, nestled in the foothills of the Rocky Mountains, and would boost production to 70,000 kilograms per year, up from 7,000.

The first 200,000 square feet, which is set to begin producing marijuana by next spring, is needed to satisfy the burgeoning demand from the medical market, says Aurora CEO Terry Booth.

"The medical business in Canada is going crazy," says Booth.

There were 67,075 patients registered to use medical marijuana at the end of May, according to statistics from Health Canada — up from 43,342 at the end of January.

"There's no doubt about it that the medical community is more accepting of it," says Booth, who credits the Liberal party's electoral win last October with removing some of the stigma associated with the drug.

But it isn't just demand from the medical system that has producers eyeing expansion.

Justin Trudeau's government has promised to table legislation by next spring to legalize recreational use of the drug — a move that could create a $5 billion - $10 billion cannabis market, according to a report from CIBC chief economist Avery Shenfeld.

Bruce Linton, CEO of Canopy Growth Corp., says the industry could be bigger than that because some would-be marijuana users don't feel comfortable buying the drug illegally.

"They instead go to the LCBO and they buy wine or beer or distilled spirits," he says.

"So I think the real market is a combination of the distilled spirits market and the current illicit market, and that number gets to be quite substantial — well north of double-digit billions."

Tweed, a subsidiary of Canopy, plans to more than double the production capacity at its operations in Smiths Falls, Ont., by the end of the year. The facility, located south of Ottawa, is capable of producing 3,500 kilograms a year.

Bedrocan, another subsidiary of Canopy, is hoping to start construction next year on a new plant to supplement its operations in east Toronto.

Aphria, another licensed cannabis producer based in Ontario, announced last month that it has acquired 345,000 square feet of greenhouses from DiNiro Farms for $2.1 million.

The company is looking to capitalize on the demand it expects when the drug becomes legal for recreational use, Aphria president and CEO Vic Neufeld said at the time.

Matt Schmidt, vice-president of investment banking at Echelon Wealth Partners, says the vast majority of money raised by cannabis producers on the public markets in recent months has gone to expanding capacity.

"A significant amount of money is flowing into this space," said Schmidt, who closely follows the industry.

"From our perspective, that's all in anticipation of this recreational market being legalized at some point in the not-too-distant future."

News from © The Canadian Press, 2016
The Canadian Press

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