Gatineau pot producer Hydropothecary ramps up expansion plans

Pot

With the expected legalization of marijuana for recreational use less than a year away, a Gatineau pot producer flush with cash is looking to accelerate its expansion plans.

Hydropothecary Corp. (TSX-V:THCX) previously planned to use $20 million in new financing for a 250,000-square-foot expansion that would allow it to go beyond medical products and prepare itself for the “adult-use market” that’s expected to open in July 2018.

Last week, however, Hydropothecary said its underwriters – led by Canaccord Genuity Corp. – exercised an over-allotment option, increasing the gross proceeds of the private placement to $25.1 million.

“With this new financing, we will deliver a licensed and operational 300,000 (square foot) platform for both medical and adult use marijuana products in 2018,” Hydropothecary  co-founder and CEO Sébastien St-Louis said in a statement.

Marijuana metrics

While many questions remain unanswered about the soon-to-be legal recreational pot industry, the federal government has said it wants cannabis priced competitively in order to erode the market share of black market dealers.

This has some licensed producers calling on the industry to disclose their costs using standardized metrics to help regulators and investors identify the sustainability of various marijuana producers ahead of an expected drop in prices.

“I’m just concerned because I need some of my fellow licensed producers to step up, because we need the supply chain,” said Vic Neufeld, the CEO of licensed marijuana producer Aphria Inc., according to the Financial Post.

Greater disclosures across the industry would reflect favourably upon the Leamington, Ont.-based firm, which claims to be the county’s lowest-cost producer. Its cash costs are $1.11 per gram, which it sells at an average price of $7.75 per gram.

Hydropothecary says it is the second-lowest cost producer in the country, with cash cost per gram of $1.32 as of April 30, down from $1.47 in the prior quarter. Its average revenue per gram was $8.62, a decrease from $10.10 in the previous quarter.

The country’s largest licensed marijuana grower, Smiths Falls-based Canopy Growth, said in its most recent quarter that its average cost per gram was $2.90, with average revenue of $8.03.

Both Aphria and Hydropothecary say they'd like to see standardized reporting metrics across the industry so that all companies include items such as quality control costs, for example, to make these comparisons more precise.