Hydropothecary Expected to Win Big in Quebec Supply Deal

The Hydropothecary Corporation (TSXV:THCX) estimates the total volume to be supplied over the five-year term of the agreement could exceed 203,950 kg

SmallCapPower | April 13, 2018: The Hydropothecary Corporation (TSXV:THCX) Wednesday announced that it has signed a commercial agreement with the Société des alcools du Québec (SAQ) for supplying of cannabis products for the Quebec market for the first five years after legalization, with an option to extend the supply term for one more year.

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According to the agreement, Hydropothecary will supply 20,000 kg of marijuana products in the first year of the agreement and is expected to supply 35,000 kg in the second year and 45,000 kg in the third. The supply volumes for the final two years of the agreement is yet to be determined and will be decided at a later date based on the sales generated in the first three years. The supply arrangement between Hydropothecary and SAQ covers the full range of Hydropothecary’s products and brands, from flowers to cannabis oil.

Based on an anticipated 10% growth rate in the cannabis market, the volume requirements in fourth and fifth year of the agreement would amount to 49,500 kg and 54,450 kg respectively. Overall, Hydropothecary estimates the total volume to be supplied over the five-year term of the agreement could exceed 203,950 kg. The SAQ has the right to terminate the agreement in certain circumstances.

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Hydropothecary’s co-founder and CEO, Sébastien St-Louis, said “Becoming the preferred supplier to the Quebec market out of the gate post legalization is a source of great pride and a vote of confidence in our ability to scale operations to meet our supply commitment. This agreement marks an important step in the execution of our growth strategy, which is focused initially on the Quebec market by expanding our Gatineau facilities and hiring new employees, and then establishing our presence in other Canadian markets. By doing business with Hydropothecary, the SAQ is engaging with a company that complies with the law and adheres to best practices in both corporate governance and the development and manufacturing of high quality and safe products.”

The Hydropothecary Corporation expressed its commitment for working with the Government of Quebec, the future Société québécoise du cannabis (SQDC), a subsidiary of the SAQ and other partners for implementation of awareness campaigns aimed at promotion of responsible cannabis usage. Furthermore, the Company intends to support research and educational programs regarding the cultivation and processing of cannabis, as well as the development of medical and recreational cannabis products in Quebec. Hydropothecary is presently the only cannabis producer in Quebec to hold a license from Health Canada for the sale of cannabis products.

The Hydropothecary Corporation currently trades at a market capitalization of $720.48 million with price-to-book multiple of 2.47x. Post announcement, the Company’s stock jumped 13% on the TSXV to close at $4.02 on Wednesday.

Disclosure: Neither the author nor his family own shares in the company mentioned above.

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