MediPharm Labs Found an Important Catalyst in Cronos Group

MediPharm Labs Corp. (TSXV:LABS), one of the Canadian marijuana stocks, said it has signed a multi-year supply agreement with Cronos Group Inc. (TSX:CRON)

SmallCapPower | May 22, 2019: MediPharm Labs Corp. (TSXV:LABS), one of the Canadian cannabis stocks, announced recently that it has signed a multi-year supply agreement with Cronos Group Inc. (TSX:CRON) (NASDAQ:CRON), under which MediPharm Labs will supply Cronos with ~$30 million of cannabis concentrate over 18 months. This supply deal could reach up to $60 million over 24 months, subject to certain renewal and purchase options. Additionally, under a separate two-year tolling agreement, Cronos Group has selected MediPharm’s Barrie, Ontario extraction facility as its preferred partner to fulfill certain of its processing needs.

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Cronos Group Chief Executive Officer Mike Gorenstein stated, “As the industry develops and matures, we see opportunity to work with companies like MediPharm Labs that provide specialized, high-quality services and inputs for our products. Along with our internal capabilities, we are pleased to be working with MediPharm Labs to bring great products to consumers in anticipation of the derivative market launching in Canada this fall.”

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Under the Bulk Resin Supply Agreement, Peace Naturals Project Inc., a wholly-owned subsidiary of Cronos Group, will purchase a minimum of ~$30 million of cannabis concentrate from MediPharm Labs, over the course of 18 months. With Peace Naturals’ right of first offer, it would purchase an additional ~$18 million of cannabis concentrate over the same period. The agreement includes an option for a mutual extension, where Peace Naturals would additionally purchase a minimum of ~$6 million over six months and would have a right of first offer to purchase an additional ~$6 million over the same period, bringing potential aggregate value of the agreement to over $60 million to the end of April 2021.

Under the Cannabis Concentrate Program Agreement (Tolling Agreement), Peace Naturals will supply bulk dried cannabis to MediPharm for processing on a fee-for-service basis into bulk resin or other cannabis oil derivatives to be sold under the Cronos brand. The Tolling Agreement has a two-year term.

MediPharm Labs is a global leader in specialized, research-driven cannabis extraction, distillation, purification and cannabinoid isolation, with operations in Canada and Australia. The Company focuses exclusively on cannabis oil extraction and operates a cGMP facility and ISO-rated laboratory clean rooms in Barrie, Ontario to produce purified, pharma-grade cannabis oil. Through its subsidiary, MediPharm Labs Australia Pty. Ltd., MediPharm Labs has also completed its application process with the federal Office of Drug Control to extract and import medical cannabis products in Australia.

Following the announcement, MediPharm Labs shares climbed 6.4% to close at C$6.84 on Tuesday and currently trades at a market capitalization of C$826 million with a price-to-book multiple of 24.2x.

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

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