October 18, 2018

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Is the bloom off the bud?

The 'green rush' appears to be over, but local medical marijuana producer taking a slow, steady approach to growth

John Arbuthnot of Delta9 Bio-Tech Inc. processes medical marijuana grown by his Winnipeg firm. Health Canada just renewed the firm’s licence for another year.

JOE BRYKSA / WINNIPEG FREE PRESS

John Arbuthnot of Delta9 Bio-Tech Inc. processes medical marijuana grown by his Winnipeg firm. Health Canada just renewed the firm’s licence for another year.

Hey there, time traveller!
This article was published 11/4/2015 (1286 days ago), so information in it may no longer be current.

The bloom may be off the bud from the so-called dot.bong era when there was a rush of investment dollars into the licensed medical marijuana market last spring and summer.

But Bill and John Arbuthnot -- the father and son who founded Winnipeg's only licensed medical marijuana producer, Delta 9 Bio-Tech Inc. -- believe there is plenty of time for patient investors to make solid returns.

One of the first group of 13 producers licensed by Health Canada in April 2014 -- there are now 17, plus an additional eight licensed for cultivation only -- Delta 9 has been working the kinks out as it grows.

Now the privately owned firm is looking to leverage its advantage of being one of the first into the market by increasing production and moving more patients from its 1,200-person waiting list to active supply.

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Hey there, time traveller!
This article was published 11/4/2015 (1286 days ago), so information in it may no longer be current.

The bloom may be off the bud from the so-called dot.bong era when there was a rush of investment dollars into the licensed medical marijuana market last spring and summer.

But Bill and John Arbuthnot — the father and son who founded Winnipeg's only licensed medical marijuana producer, Delta 9 Bio-Tech Inc. — believe there is plenty of time for patient investors to make solid returns.

One of the first group of 13 producers licensed by Health Canada in April 2014 — there are now 17, plus an additional eight licensed for cultivation only — Delta 9 has been working the kinks out as it grows.

Now the privately owned firm is looking to leverage its advantage of being one of the first into the market by increasing production and moving more patients from its 1,200-person waiting list to active supply.

A couple of weeks ago, Health Canada renewed Delta 9's licence for another year, and the company is well on its way to completing its phase II expansion.

The smell of raw marijuana can be detected in the air as soon as you enter Delta 9's second-floor offices in the 80,000-square-foot production space in an out-of-the-way industrial park on the east side of Winnipeg.

It may be a production facility, but this is no glorified grow-op. There is no mistaking the fact it's all business at Delta 9.

'We have done everything the Winnipeg way... We have spent money like we don't have it'

Keeping up with Health Canada regulations means there is an exhaustive list of standards to be met, including more than 100 security cameras (colour, not black-and-white), a massive bank-style vault, an in-house microbiology lab and a detailed accounting of all the inputs and outputs. (For instance, the leaves trimmed from the flowering buds are discarded and incinerated on the site.)

"It's easy to grow, it's another thing to be compliant," said John Arbuthnot. "It really becomes a balance between having production people actually handling the daily production and the quality-assurance people making sure all the record-keeping and sanitation and all the elements of compliance are being handled as well."

Delta 9 recently raised about $1.5 million in a private offering and is looking to raise that much again to complete a modest expansion.

Bill Arbuthnot, John's father, believes the original fervour that attracted investors — and pressured some licensees to go public prematurely — has soured the investment market.

But Delta 9, which is still one of the smaller players, is pacing itself and continues to sign up new patients.

"We have done everything the Winnipeg way," the senior Arbuthnot said. "We have spent money like we don't have it."

When its current expansion is done (pending Health Canada approval) over the next few months, it will be able to double production to about 600 kilograms per year. When it finally converts its entire leased building into production, it will be capable of producing about 4,000 kilograms, and will need to increase its staff from the current 18 to as many as 75.

Delta 9 hopes to be able to go public in the next two years or so, but not before it gets through at least a couple of quarters in the black.

The Arbuthnots are not too worried about raising the capital they need, even if it's taking a little longer than they'd hoped.

This is how the final product looks when it is delivered to patients.

JOE BRYKSA / WINNIPEG FREE PRESS

This is how the final product looks when it is delivered to patients.

Since the over-exuberance in the market last spring and summer after the change in Health Canada regulations and the licensing of the original 13 producers, the investors looking for quick returns have wandered off.

"There was a lot of hype in the beginning," said Daniel Pearlstein, an equities analyst with M Partners in Toronto who covers the publicly traded medical marijuana producers that now number about eight.

"Now investors are realizing there is a lot more to these operations."

As of last September, Pearlstein estimated about $100 million has been raised by the handful of the licensed producers who have gone public.

Since then, another bunch has been listed, but share prices in general have been disappointeing.

Still, Pearlstein said investors ought not to be scared off completely.

"It's no reason to be afraid right now," he said. "It is an industry that is growing and will be very big."

Unlike some of its competitors, Delta 9 didn't sign up more patients than it had the capacity to supply.

In fact, 25 per cent of Delta 9's new customer/patients are converts who had previously signed up with another producer.

In addition to volatile equity markets, there is still uncertainty about how many more producers Health Canada will license.

The Arbuthnots believe there is a significant barrier to entry from Health Canada's increasingly rigorous regulations regarding standard operating procedures.

Pearlstein agrees, noting in a research report last September that near- to mid-term demand was projected to be satisfied by the current licensees supported by production expansions.

"(We) maintain our thesis that a fewer number of larger-capacity producers is desired versus many small producers," the report said.

Sean Upton, a spokesman for Health Canada, would not give any indication regarding the issuance of any new licences.

He said there are 10 Manitoba applications under review out of the 324 still being reviewed. In total, Health Canada has received more than 1,000, most of which have been dismissed or withdrawn.

"We're saying nothing," Upton said.

"It is an open market. We are not going to control the market."

 

martin.cash@freepress.mb.ca

Martin Cash

Martin Cash
Reporter

Martin Cash has been writing a column and business news at the Free Press since 1989. Over those years he’s written through a number of business cycles and the rise and fall (and rise) in fortunes of many local businesses.

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