Is the Industry Headed for Oversupply? – LPC

Aphria doubles cannabis production with new Aphria Diamond facilityLast week Aphria received its cultivation licence for its Aphria Diamond facility, which doubles cannabis production for the company. The new greenhouse adds 1.3 million square feet of production space amounting to a 140,000-kilogram increase in annual capacity. The faciity is also in Leamington, Ontario. Aphria owns 51 per cent of the company while its partner Double Diamond Farms owns the other 49 per cent.

However, industry analysts have some concerns as the company doubles cannabis production. Although the industry has been playing catchup due to cannabis shortage or supply chain issues, many believe that oversupply could soon become a problem. A recent report about Aurora dumping cannabis supply seems to support that.

Aphria chairman and interim CEO Irwin Simon isn’t concerned about doubling cannabis production. Efficiency will make Diamond one of the lowest-cost producers.

“Diamond, I would want to run at full capacity because it’s so automated from a low-cost production standpoint,” he told BNN Bloomberg. (Please see link to full article below.) “It will be one of the lowest-cost production facilities to run.”

If true, that could provide a significant advantage. Simon didn’t reveal Diamond’s projected costs, but Aphria recently reported 2019 full-year costs of $2.72 per gram. That’s up from $1.86 per gram a year earlier.

Canaccord Genuity expects Aphria’s market share in the recreational industry to grow as it doubles cannabis production. Currently, that stands at 10.6 per cent this year, but is expected to grow to 12 per cent in 2020.

Aphria Doubling Cannabis Production Not First Surprise of the Year – LPC

Aphria was the first major LP to post cannabis profits, announcing $15.8 million in August for Q4. What made it so surprising was that the company’s stock tumbled just months before on accusations of being a “shell game”. Aphria is also expected to be one of the leaders in cannabis vape pens when they arrive to the market later this year. It is unclear how much of supply will go to vapes as it doubles cannabis supply.

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