Ontario company to supply marijuana in N.L., promises to build $55M production plant

The provincial government released details of an agreement Friday that will ensure Newfoundland and Labrador has what it callsa "safe and secure supply" of cannabis when prohibition endsnext year.

An Ontario company called Canopy Growth Corp. will provide up to 8,000 kilograms of cannabis and related products to the province annually, under a two-year agreement, with an optional one-year extension.

That product will initially be imported from the company's production facilities elsewhere, but Canopy has promised to build a local plant by 2019.

Plant likely to be located on Northeast Avalon

The facility will cost anestimated $55 million, create145 jobs andproduce up to 12,000 kilograms of productannually. Company officials say a location has not been selected, but the Northeast Avalon is the most likely site.

"I look forward to turning the first shovel very quickly and bringing you brands," said Canopy CEO Bruce Linton, adding that his company wants to supply the local market and beyond.

"Our intention is to be able to produce far more than we're going to be able to sell here," he said.

I look forward to turning the first shovel very quickly and bringing you brands.Our intention is to be able to produce far more than we're going to be able to sell here.- Bruce Linton, CEO, Canopy Growth

The facility will operate for a minimum of 20 years, but Linton said "we're going to be invested here permanently."

The province will not provide any upfront cash, but the company will geta break on the sales remittances it makesto the Crown-owned Newfoundland and Labrador Liquor Corp. (NLC), which will regulate the distribution and sale of cannabis.

That break will continue until the company recovers its investment, up to a maximum of $40 million.

Linton said the timeframe for that will depend on sales and the percentage of product that is exported.

Province not closing door on other suppliers

The agreement helps prepare the province for the legalization of non-medical marijuana in July 2018, said Industry Minister Christopher Mitchelmore.

Mitchelmore defended the decision to sign an agreement with Canopy without a request for proposals, or RFP.

He said the tight timelines, the absence of a licensed producerin the province, and the importance of ensuring a secure and safe supply, meant the province had to act quickly. He stressed that the agreement does not prevent the province from sourcing cannabis from other licensed producers, and said other discussions are taking place.

"We encourage them to continue the conversation with us and any future deal we would use we would look at what we have done here as a framework," he said.

Keeping criminal element at bay

Officials said demand would likely outstrip supply quickly following legalization, and failing to prepare would require the province to importcannabis from elsewhere, oropen the door for the criminal element to fill the void.

Mitchelmore said signing on with a "leading edge company" like Canopy is the best solution because it secures a supply, creates anindustry, and much-needed employment.

Canopy,based in Smiths Falls, Ont., is publicly traded on the Toronto Stock Exchange, and is the largest licensed producer of cannabis in the country.

It has eight licences to cultivate and sell cannabis, and employs nearly 700 people. It is also exporting its products to Germany and Brazil, and operates in Denmark.

Linton said his facilities meet Canadian and international standards.

Canopy to open retail outlets

In addition to building a production facility, the agreement also includes licences for Canopy to open four cannabis retail outlets, with two located on the Northeast Avalon, oneat the production plant, and another off the Avalon.

The province will also partner with the company on research and development, with each contributing $500,000 over the next five years.

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Friday's announcement follows the release earlier this month of rules around how legalized cannabis will work in the province.

The legislationwill allow for the sale of products in private stores, but it will be licensed and regulated by the NLC.

NLCpresident and CEO Steve Winter said Friday that the corporation is doing research before inviting businesses to apply for a licence.

That research includes studying how U.S. states like Colorado and Washington have adapted to the legalization of cannabis.

He said there are important questions such ashow the product should be transported andpresented inside the store, and the level of security required.

Winter said those interested in becoming a retailer will also have to be willing to invest in their business to meet the required standards.

He also confirmed Friday that an online option is being developed by the corporation for those who would prefer a more discreet method of purchasing cannabis products.

NDPLeaders calls deal a giveaway

Meanwhile, NDP Leader Lorraine Michael expressed alarmabout the deal.

"Giving away agricultural production to an international corporation is a missed opportunity for community economic development," said Michael.

"Government promised benefits to Newfoundland and Labrador private businesses, yet are giving this giant external corporation what amounts to a retail monopoly. As we in this province know well, such arrangements will see the bulk of cannabis profits removed from our provincial economy."

Michael says government has failed to provide any opportunities and incentives for local agriculture, "despite their repeated claims to be pro local agriculture."

She called it a "major giveaway."