The Green Organic Dutchman Holdings Ltd. (TSX:TGOD) (OTC:TGODF) said Wednesday it has entered a long-term extraction supply agreement with Neptune Wellness Solutions Inc. (NASDAQ: NEPT) (TSX: NEPT).
Under the three-year contract, Neptune will provide TGOD extraction, formulation and packaging services to the Ontario cannabis producer. In return, TGOD will supply Neptune more than 230,000 kg of cannabis and hemp biomass over the three years.
TGOD said in a release the agreement is the largest extraction deal to date in Canada and will allow the company to scale production.
The contract is expected to be back-end loaded with the first year accounting for about 20 per cent of its total value.
“Today’s announcement is significant not only because it enables us to start manufacturing certified organic consumer wellness products at scale, but also because of the large and sustained economic impact it will have in Quebec where TGOD is building the world’s largest organic cannabis production facility,” TGOD CEO Brian Athaide said.
Neptune stock spirals on poor Q4 results, extraction deals provide optimism
Shares of dual-listed Neptune fell sharply by 13 per cent Thursday after it posted larger losses than expected in its fourth-quarter earnings results.
Neptune suffered a net loss of $12.4 million, much worse than the $4.8 million loss it incurred a year prior. The Quebec-based company saw revenues drop by almost 19 per cent from last year to $5.7 million.
It’s been a roller-coaster several days for Neptune’s shareholders. Last week, its shares soared more than 19 per cent after it announced another large extraction deal with prominent cannabis producer Tilray Inc. (NASDAQ:TLRY). Neptune said June 9 the deal will see it processing a minimum of 125,000 kg of hemp and cannabis over three years for Tilray.
Neptune has enjoyed a mostly good streak of news in the last several weeks propelling its stock up nearly 70 per cent on the year so far.
What’s next for the Canadian extractor
Last year, Neptune signed a muli-year deal to extract cannabis and hemp for Canopy Growth Corp. (NYSE:CGC) (TSX:WEED).
And picking up a name like Tilray a week ago – and inking Canada’s largest extraction contract with TGOD this week – will only bring more attention for Neptune to keep expanding its extraction business.
With the Canadian market for edibles, concentrates, and other derivative products expected to open up in October, a company like Neptune, one of Canada’s largest scale extractors, could start to see revenues climb along with further business opportunities. According to Deloitte, the new segment will be worth about $2.7 billion, with edibles accounting for more than half.
In addition, the U.S. hemp CBD market is expected to continue to catch fire once the U.S. Food and Drug Administration makes its decision on CBD edibles, which could further expand Neptune’s options. The company announced in May it will acquire North Carolina-based hemp producer SugarLeaf Labs as part of its U.S. strategy.