Winnipeg Free Press - PRINT EDITION

Firm begins shipments of first pot crop

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Three months after securing one of 12 Health Canada licences to grow medical marijuana, Winnipeg's Delta 9 Biotech has started to ship its first crop.

John Arbuthnot, vice-president and chief operating officer, said they are a few weeks behind their original schedule for the first crop, which produced 23 kilograms, 80 per cent of the original estimate.

"There were more challenges growing the number of varieties we are growing," he said. "We are not seeing the output you would have hoped from some, but these are some of the challenges in providing that number of varieties to the clients as opposed to choosing a few of the higher outputs and going with those."

Production is taking place in 14,000 square feet of space and the company has 10,000 square feet of additional space cued up -- and another 40,000 square feet in its Transcona facility that Arbuthnot said they will bring into production as they line up investors.

In a few weeks, the company will announce results of marketing efforts to raise more capital. Those efforts confirmed there is healthy investor appetite in medical marijuana.

"With valuations that are being discussed these days, it is going to make expansion that much easier," he said.

At least a couple of the 12 Canadian players are making moves to go public, including the reverse takeover of a public shell company by the Canadian division of the Dutch company, Bedrocan, and New Brunswick's Organigram.

Delta 9 raised about $1 million in a private equity offering before it received its licence. Since then, valuations in this new industry are increasing dramatically. The business is expected to be worth $1.3 billion in 10 years.

The legalized sale of marijuana for recreational use in Colorado and Washington has intensified the capital market awareness about the potential for return on investment in the sector.

A New York private equity fund called High Times Growth Fund is in the process of raising $300 million to invest in the sector.

Tweed Marijuana Inc., currently the only publicly traded medical-marijuana producer in Canada, raised $15 million in new equity in late April, only three weeks after the cutoff date for Health Canada's medical-marijuana licensing.

Arbuthnot said Delta 9 -- which he founded with his father, Bill Arbuthnot -- has been valued at more than $50 million by some investors: "Right now, we're looking at taking on a partner who shares our vision on how we would like to expand and would be willing to be a minority investor."

Delta 9 is committed to keeping prices low and maintaining a program that would provide pricing relief for low-income patients.

"Our pricing is a little below the market and we are already hearing from some (potential investors) who would like us to increase our prices," he said.

Delta 9's average price is about $7 per gram. In Washington state, there are some reports of prices as high as $25 per gram for recreational marijuana.

With additional production capacity coming online all the time in Canada, there is the expectation that prices will come down. But for now, he said, "There is a lot of demand and not a lot of licensed producers right now with the capacity to take on more clients."

Delta 9's customer/patient list has "a rather substantial waiting list."

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition July 8, 2014 B6

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