Medicinal pot stock Cann Group (ASX:CAN) has nixed its plans to build a mammoth cannabis greenhouse at Melbourne Airport and headed up the Calder Highway to build it in Mildura instead.

Cann Group was hoping to finish building Australia’s biggest medicinal cannabis growing facility by June this year, after signing a deal with Australia Pacific Airports to purchase a five-hectare site near Tullamarine Airport.

But the company told investors today that it had been undertaking a “detailed revision” of those plans, and had surfaced concerns regarding approval times and provision of services, and so opted to purchase a site in the Mildura region to “construct a state-of-the-art greenhouse for large-scale cultivation and production of medicinal cannabis for both domestic and export markets”.

The land has cost Cann $10.8 million, and construction of the facility is expected to be around $130 million. It is expected to go live in the September quarter of 2020 and all the completed engineering and design plans — drawn up by Canadian greenhouse designer Aurora Larssen — will be used.

The company also announced a five-year offtake agreement with Canada-based Aurora Cannabis, one of the world’s largest pot stocks with a market cap of $14 billion and Cann Group’s biggest shareholder, to supply dry cannabis flower, extracted resin and manufactured medicinal cannabis products to Aurora until 2024, which covers Cann’s full production capacity, beyond its domestic needs.

Cann Group (ASX:CAN) shares rose 11 per cent this morning to $1.86.

Peter Crock, Cann CEO, told Stockhead his company had “run into headwinds” with the Tullamarine site.

“The biggest risk was that we were not going to be able to meet the timelines we required, hence we moved forward with the Mildura site,” he said. “A lot of the prep work we have already done will be directly translatable into the new facility and it comes with an existing support building as well.

“This gets us back on track. We are still targeting getting plants into the facility by the end of this calendar year, start the ramp-up process, bring cultivation online ahead of the facility being fully commissioned by the third quarter of 2020.”

Mr Crock did not detail the issues faced with the Tullamarine site, but said it remained in discussions with Australia Pacific Airports.

“The Mildura site offers important advantages, including a lower total build cost and lower ongoing operating costs, due to the drier climate and higher sunlight hours resulting in reduced power use,” he said.

“Specialised components and materials are currently in transit to Australia, and site works are to begin immediately. This puts us on the same build start timing as was originally envisaged for Tullamarine and is consistent with our strategy to develop a ‘hub and node’ model of regional cultivation facilities and a central manufacturing hub.

“This is particularly important given the offtake agreement we have executed with our strategic partner, Aurora Cannabis, who has committed to purchase all of our production in excess of that required for patients here in Australia.”

The offtake agreement, he said, would allow Cann Group to focus on its “most important market”: Australian patients.

“Our focus remains on Australian patients, but to do that efficiently we need to grow at a large scale, and this agreement allows us to really pin our ears back and do that,” he said.

The 34,000 square metre Mildura site is expected to be able to produce up to 50 tonnes of dry cannabis flower, which will then be processed by IDT Australia (ASX:IDT), Cann’s manufacturing contractor, into products for supply to Australian and overseas patients.

Cann says discussions will continue with APA in relation to Tullamarine’s potential as a future site for “a full GMP manufacturing facility and greenhouse production expansion”.

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