Why Are Cannabis Companies Destroying Their Own Product During A National Supply Shortage?

Crops Destroyed; Profits Up in Smoke

In September, Canopy (CGC)—one of Canada’s largest cannabis brands—was the subject of a social media storm when reports surfaced that the company had destroyed over 200,000 plants at its Aldergrove, B.C. facility. Video soon footage surfaced showing row after row of dead cannabis plants, and the internet speculation machine went to work generating theories as to why. 

Canadian cannabis companies have recently been destroying their own products in large batches, and this has investors and social media raising lots of questions about what’s really going on.

The timing on this couldn’t be worse s there is a current supply shortage and a huge demand in the market.

It didn’t take Canopy long to respond, saying: “Processing licences were delayed by infrastructure & regulatory approvals, which led to a number of plants needing to be destroyed… (Canopy ) does not consider this event to represent a material impact on the company’s balance sheet.”

But while that may have been the official response, Chuck Rifici, the company’s original founder, came out on the side of concerned shareholders, saying on Twitter that if rumors about the Aldergrove facility are true, it could be “destructive of shareholder value,” especially considering the company paid half a billion dollars for it just over a year ago. Add to this reports that Canopy successfully kept an earlier failure at Aldergrove off the books, and there is good reason to question the company’s transparency – or lack thereof.

Canopy isn’t the only big name in pot that’s destroying product. Producer Aphria (APHA.T). recently disposed of over 13,000 mature plants due to “a lack of qualified local labour” to conduct harvesting operations in their greenhouses.

However, this news was received much better by investors as the stock continued to trade strong, indicating that most see this as just a minor hiccup for Aphria and not a reason for shareholders to get antsy.

 

What Really Happened at Canopy?

While the losses at Aphria give little cause for concern, the major crop destruction at Canopy Growth is a different story. We’re talking over a million square feet of greenhouse space left to die without water – and this may not be the first time. Canopy’s reluctance to be forthcoming with details hasn’t helped quell any rumours, and this lack of transparency has been nothing but fodder for the social media speculation mills. If Canopy is telling the whole truth, the internet isn’t interested.

When Canopy announced that the crops had been destroyed because the company failed to obtain processing permits, questions arose about why Canopy didn’t simply ship the weed to a different processing facility.

One of Canopy Growth’s new B.C. greenhouses in Aldergrove. (Photograph by Jimmy Jeong @McLeans)

Everything from a massive fungal infestation to a poor retrofit of the facility to over fertilization was cited as the “real” reason Canopy destroyed all those plants. And while we don’t know exactly what happened, many consider the fact that Canopy’s story doesn’t seem to add up as reason enough for investors to be asking some hard questions.

Did Canopy try to cover up mismanagement? Did they simply take a risk and fail? Was it both? Only time will tell. But whatever happens, we’ll be watching things closely.

Pesticides

Pesticides are another major issue regarding product recalls and destruction.

In 2017 Canopy acquired Mettrum Ltd., who wrought off $800,000 worth of costs owing to a series of product recalls Mettrum announced last November. Those recalls came after Mettrum was caught with a banned pesticide and known carcinogen in products that were sold in 2016.

One of the most infamous and ironic cases of LP’s not following Health Canada’s guidelines was the certified organic grower Organigram (OGI.T.

In 2017 a class action lawsuit against Organigram (OGI) brought attention to the fact that just because a company gets its organic certification doesn’t mean they are following protocol. Organigram got slammed by this the company was caught using two pesticides, myclobutanil and bifenazate. Organigram lost its organic certification and voluntarily recalled almost all of its products sold in 2017, consumer complaints were nausea, vomiting and dizziness.

Because of California’s new pesticide laws, The Gaurdian estimates about $350m worth of cannabis products could be destroyed as new regulations took effect earlier this year in California.

An Organic Solution

One solution to this emerging issue of cannabis not passing new regulations is the utilization of SOP potash.

It is mainly used as a fertilizer to encourage water retention in plants, increase yields, improve taste and help plants resist disease. The most common potash fertilizers are sulfate of potash (SOP) and muriate of potash (MOP). Potash is commonly found in deserts such as the Great Salt Lake region of Utah.

Potash and phosphate are both used to produce fertilizers, which are becoming increasingly important as demand for organic food grows.

However, potash and phosphate have different roles in crop growth, and they cannot be used interchangeably. Potash and phosphate are often precisely applied to meet the specific requirements of a particular crop, climate, soil type or topography.

 

There are several organic potash sources that can provide potassium in organic vegetable gardens. Greensand, kelp meal, and hardwood ashes are all good organic potassium sources.

Plants need Potassium (sometimes called potash) for plant immunity, flowering and fruiting, and potassium is critical for producing the coloured pigments—like lycopene in tomatoes and lutein in corn—that are so good for us.

For investors interested in potash companies, it’s worth being aware of the difference between potash and phosphate. That knowledge can help guide investment decisions and can ultimately lead to increased profitability.

Investing in potash companies is also a way to invest in the future of the cannabis industry without directly investing in cannabis companies. Organimax  (KMAX.() has potash projects in both Mexico and Canada  that comprise more than 424,000 hectares of land.

 

Disclaimer: Organimax is a paid client of High Energy Trading, click here to read full disclosure.

High Energy Trading is not a licensed broker-dealer, market maker, investment advisor, or underwriter. All information that we provide is for informational purposes only and should not be construed as an offer or solicitation of an offer to buy or sell securities.

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