Canadian healthcare regulator Health Canada awarded Aphria (NASDAQ:APHA) a cultivation license for Aphria Diamond, a 1.3-million-square-foot greenhouse facility in Leamington, Ontario. With an annual growing capacity of 140,000 kilograms, the new site raises Aphria's peak cannabis production capabilities to 255,000 kilograms a year.
"We are extremely pleased to receive the license for our long-awaited Aphria Diamond facility, which more than doubles our Canadian production capacity," CEO Irwin Simon said in a press release. "Reaching industry-leading production levels coinciding with the expansion into new categories and new opportunities for cannabis in Canada and around the world is a transformative moment for Aphria Inc."
Aphria Diamond is part of a joint venture between Aphria and greenhouse operator Double Diamond. Aphria will supply best practices and oversee operations, while Double Diamond is supplying land, greenhouses, infrastructure, and employees. Aphria owns a 51% stake, while Double Diamond owns the remaining 49%.
The new facility will use industrial-scale automation technology to boost the efficiency of cultivation, including aspects of its harvesting, drying, and waste management processes.
"We believe the introduction of our proprietary automation technology at Aphria Diamond will provide us with the ability to cultivate high-quality cannabis with great efficiency and at an unprecedented scale," Simon said. "As we remain focused on sales growth and profitability, this unique advantage is expected to enable Aphria to continue to create long-term value and drive the evolution of the industry through innovation and the development of leading brands."
The low-cost producer wins
The ability to produce high-quality cannabis at relatively low cost will be a key determinant of Aphria's success. Like most commodity-based industries, the cannabis producers that survive and thrive will be those that can use technology and scale advantages to lower their production costs to below that of their competition.
This will be even more important once Canada's cannabis market becomes saturated, as is expected to occur in the next few years. Once supply catches up to demand, it will ignite a battle for market share -- one that will be won by the companies that can produce cannabis at the lowest cost.
Aphria's international expansion efforts will also play a key role in determining its success. The Canadian company has an operational presence in more than 10 countries across five continents. This includes a strong foothold in Germany, which is expected to be one of the largest cannabis markets outside North America.