MediPharm Labs is Making Some Big Moves

MediPharm Labs Corp. (TSX:LABS), one of the Canadian extraction stocks, has entered the German medical cannabis market and signed a supply deal with TerrAscend Corp. (CSE:TER)

SmallCapPower | October 7, 2019: MediPharm Labs Corp. (TSX:LABS) (OTCQX:MEDIF), one of the Canada-listed, pure-play extraction stocks, announced recently a private-label sales agreement with ADREXpharma GmbH for the bulk export of wholesale resin to Germany. In addition, LABS signed a supply agreement with TerrAscend Corp. (CSE:TER) for a potential of up to $192M in bulk cannabis resin over a three-year period.

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MediPharm Labs enters the German medical cannabis market. LABS’s bulk supply agreement with ADREXpharma establishes the Company as the first pure-play extraction company to receive an export agreement to the EU and it is MediPharm Labs’ second major international agreement. Recall, in June 2019, LABS made its first shipment of bulk cannabis resin to Australia. The partnership with ADREXpharma is significant because ADREXpharma is a licensed wholesale distributer of medical-grade cannabis with a distribution network of 20,000+ pharmacies. Under the terms of the deal, MediPharm Labs is expected to supply THC/CBD oil for ADREXpharma to sell under its own brand name. According to Prohibition Partners, the German medical cannabis market is expected to reach $7.7B by 2028.

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New supply agreement brings total announced agreements to eight. MediPharm Labs announced a three-year supply agreement with TerrAscend. The deal begins immediately and is for a minimum of $27M over a two-year term, with an option to purchase up to an additional $105M. Additionally, the agreement includes an option for a 12-month extension, where if extended TER would purchase a minimum of $10M up to a maximum of $52M over the period of the extension. If all options are exercised, the total value of the deal would be $192M over three years. This agreement has the potential to add between ~$3.5M to $17M in revenue per quarter for F2020E for MediPharm.

Vaping epidemic likely a positive for regulated vape manufacturers such as LABS. Canadian cannabis stocks have been under pressure recently. For example, the HHMJ is down ~50% from its 2019 high. The reason for this weakness could be attributed in part to the vaping epidemic, with the Center for Disease Control (CDC) reporting 805 cases and 12 deaths related to vaping. The illness seems to have been caused by illegal thickening agents, such as Vitamin E acetate, which is reported to become carcinogenic when heated in a vape. Some municipalities and states in the U.S. have considered banning vape products in reaction, which has caused concern over future vape sales. The total impact remains to be seen, however, this could be a positive for regulated vape producers, such as MediPharm Labs, which use pharmaceutical-grade quality and safety standards.

MediPharm Labs is expected to report Q3/19 financial results on November 12, 2019. Analysts are anticipating revenue to be ~$42M for the quarter. MediPharm Labs shares closed Thursday’s trading session up 14% to C$4.08. MediPharm Labs stock trades at a market cap of $540M.

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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