Nfld. & Labrador

N.L. inks deal with new company to expand cannabis production and sales

The agreement between the provincial government and Auxly Cannabis Group will see five new retail stores and a production facility.

5 new retail stores and a production facility are part of the agreement

The government of Newfoundland and Labrador's new marijuana production and retail agreement is with Auxly Cannabis Group and its partner, Atlantic Cultivation. (Mark Quinn/CBC)

The government of Newfoundland and Labrador and Auxly Cannabis Group have signed a deal that will see the company produce and sell cannabis, and build new stores and a production facility.

Auxly and its partner Atlantic Cultivation become the third private enterprise to make a deal with the government for the production and sale of cannabis, which became legal in Canada last October. 

The deal is similar to the government's agreement with Canopy Growth. 

According to the government, "the estimated net return to the treasury over the 10-year term is $37 million."

Tourism and Innovation Minister Christopher Mitchelmore announced details of the agreement Wednesday with Liberal MHA Sarah Stoodley, who is also the parliamentary secretary for the same department. 

According to the terms of the new deal, Auxly will supply the province with up to 50 kilograms of dried flower (or equivalent products) in 2019. In 2020, the company will provide an additional 1,000 kilograms, with an option for a third year.

Christopher Crosbie, chief operating officer of Atlantic Cultivation, says construction of the new growth facility should begin by mid-September. (Mark Quinn/CBC)

Atlantic Cultivation will operate five new retail locations in the province, with the first one set to open within the first three months of 2020. That partner will also build a 110,000-square-foot facility on Kenmount Road, in an industrial area, by 2021. 

That facility will cost about $37 million and produce 16,000 kilograms of cannabis per year. It will create 117 new jobs, according to details released Wednesday afternoon.

"We're looking at starting construction in the next week or two, and we're about an 18 month build-out," said Christopher Crosbie, chief operating officer of Atlantic Cultivation.

Atlantic Cultivation said it will spend $500,000 over five years to "support cannabis research and development" in the province. 

The people behind Atlantic Cultivation

While Auxly Cannabis Group is incorporated in British Columbia, Atlantic Cultivation is incorporated in Newfoundland and Labrador. 

The new 110,000-square-foot facility will be built on Kenmount Road, as shown here in this artist's rendering. (Mark Quinn/CBC)

There are three shareholders of Atlantic Cultivation, according to the government, with each having an equal stake.

Those are:

  • Tom Collingwood Sr. (Collingwood Group).
  • Cynthia Crosbie.
  • Christopher Hickman (Marco Group).

The people listed above will see their shares drop to about 26 per cent, as Auxly Cannabis Group will become a 20 per cent shareholder. 

Other deals currently inked

This is the third deal the provincial government has signed for cannabis production and sales. 

The other two companies are Canopy Growth and Biome Grow, which both have terms of supply agreement that are two years each, with an option to renew for a third year.

For production agreements, both companies are required to operate their production facilities and maintain a minimum employment level for a minimum of 20 years.

Canopy Growth's Jeff Ryan and minister Christopher Mitchelmore broke ground in May 2018 on a production facility in the White Hills area of St. John's. (Terry Roberts/CBC)

The Liberal government faced criticism when it came to parts of the deal with Canopy Growth, which is leasing a piece of land in St. John's for its future cannabis production facility. A numbered company bought the land shortly before leasing it to Canopy, and the Progressive Conservatives repeatedly demanded to know who was behind that numbered company. 

A CBC Investigates story detailed that the numbered company shares an address with firms linked to Dean MacDonald —  a prominent businessman with Liberal ties.

But MacDonald told CBC at the time that there are many businesses operating out of that downtown St. John's location, including Canopy Growth itself, which he says has had office space there since last spring.

MacDonald declined to say whether he has any connection to the numbered company, and steered questions about 80521 Newfoundland and Labrador to Canopy Growth.

The other aspect of the Canopy deal that generated controversy was the Liberals offering the company $40 million in tax remittances in exchange for Canopy establishing a production facility in the province and a guaranteed supply to the local market.

"The companies have made a commitment here. It's their performance, they're putting [in] their capital and their investment and they have to perform in order to get a benefit and an incentive," said Chris Mitchelmore, the province's minister of industry and innovation.  

"In return the province is getting jobs, they're getting a return to treasury and they're getting the production that was needed to supply the retail market here." 

Auditor General Julia Mullaley announced in June she would investigate the cannabis industry, calling it an 'important public policy issue.' (Katie Breen/CBC)

In June, the province's auditor general said she would take a broad look at the players and policy involved in the cannabis industry.

That will include reviewing systems, regulations, contracts and compliance mechanisms associated with the legalization of cannabis.

Exact investigation parameters  — and a time frame — haven't been set yet, but the $40-million dollar supply contract awarded to Ontario-based Canopy Growth will be looked into.

Read more from CBC Newfoundland and Labrador

With files from Mark Quinn

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