The Canadian government has granted Australian company Creso Pharma (ASX: CPH) a licence to cultivate cannabis at a facility run by Creso’s wholly-owned subsidiary Mernova Medical in Nova Scotia.
Creso is now only the fifth licenced producer in the region, and the only ASX-listed company with a 100% ownership interest in a licenced Canadian cultivator.
Under the terms of the licence granted by Health Canada, Mernova Medical is permitted to grow, sell and distribute dried and fresh cannabis, cannabis plants and cannabis plant seeds to pre-determined companies under the Cannabis Act.
The crops will be planted in a purpose-built, 2,200 square metre indoor growing facility in Nova Scotia, accommodating a two-tier grow room structure with an annual cannabis yield capacity of 4,000 kilograms.
It also contains a secure storage room which will allow Mernova to acquire cannabis from other licenced producers or import low-cost products from Creso’s proposed Colombian operations.
The room can house up to $100 million worth of concentrated product which could potentially be utilised by Creso as an input into medicinal-based delivery technologies for the European market through established distribution channels.
Creso said the facility will supply material B2B as well as direct to retail.
In January, Mernova signed a three-year supply agreement with TerrAscend Canada, committing a large portion of the indoor growing facility’s capacity and securing committed revenue before planting begins.
The agreement will help meet rising consumer demand driven by Canada’s legalisation of cannabis in October.
There are currently four other companies in Atlantic Canada with licences to cultivate and meet that demand, with Deloitte Canada estimating the market size for recreational cannabis in the region could be as high as $0.31 billion.
Under the terms of the supply agreement, TerraAscend will purchase a minimum 100kg of cannabis flower per month from Creso, with pricing determined on a sliding scale depending on flower grade and quality.
Mernova has also been in discussions with regional cannabis distributor Nova Scotia Liquor Corp and will commence the supply of product by the kilogram as soon as the parties agree on monthly commitment volumes.
Demand vs supply
Creso chief executive officer Dr Miri Halperin Wernli said the licence comes at the right time for Canada’s cannabis market.
“It is a great achievement that Creso now has the ability to cultivate and produce cannabis plants in a country where demand for cannabis is currently outstripping supply,” she said.
“Our rigorous processes will ensure the products grown and produced at the Mernova facility will be of the highest quality and as a result, demand premium pricing.”
Dr Halperin Wernli said Creso aims to eventually supply medicinal cannabis direct from the facility to markets in Germany, Italy, Spain and Switzerland where it has existing relationships.
She said European demand for medicinal cannabis is growing and Creso will be well-positioned to address the market once it achieves European Union Good Manufacturing Practice (EU GMP) certification.
At midday, shares in Creso Pharma were up 1.30% to $0.39.