MediPharm Labs Corp.’s (TSXV:LABS) (OTCQX:MEDIF) revenues are contractually bound with supply agreements with large Canadian cultivators, such as Canopy Growth
SmallCapPower | May 13, 2019: MediPharm Labs Corp. (TSXV:LABS) (OTCQX:MEDIF) reported impressive Q1/19 financial results on Friday, placing the Company in Top 4 of Canadian cannabis companies in terms of revenue.
MediPharm Labs reported Q1/19 results before markets opened on Friday, May 10. Revenue came in at $22.0M, a 115% increase over the prior quarter. Gross profit was $6.9M and gross margins were 31%, decreasing by 7.6% over the prior quarter. Management attributed the decrease primarily to lower sale prices for THC distillate, however the lower sales price was moderately offset by lower prices for cannabis biomass. Adjusted EBITDA was $4.3M, an 102% increase over the prior quarter, which adjusted for non-cash expenses such as share-based compensation and depreciation. Of note, LABS recorded $7.6M in revenue for one large shipment of private-label cannabis oil with a large Canadian cultivator. Additionally, the Company purchased 5,000 kg of biomass in the last two weeks of Q1, which MediPharm plans to use to fulfill more private label orders in Q2/19.
MediPharm Labs is now in the Top 4 of Canadian cannabis companies in terms of revenue, beating many $1B market cap licensed producers including Aphria (TSX:APHA, $9.50) (Q3/19), CannTrust (TSX:TRST, $7.81) (Q4/18), and HEXO (TSX:HEXO, $9.55) (Q2/19), which came in at $17.9M, $16.2M, and $13.4M, respectively. Aphira’s and HEXO’s financials are significant as they both include a full three months of recreational sales. We would also like to note that the Company’s revenues are contractually bound with supply agreements with large Canadian cultivators such as Canopy Growth (TSX:WEED, $63.69), Supreme Cannabis (TSX:FIRE, $2.05), UP Cannabis ($0.62), and TerrAscend Corp ($8.06). This is significant because this should bring in stable, consistent revenues in the upcoming quarters.
MediPharm’s management believes that private-label revenue should increase in the coming quarters. This is due primarily to a poor retail roll-out in Ontario and British Columbia, as well as a lack of supply chain & distribution, which has created a situation where cultivators are eager to sell large volumes of cannabis biomass under wholesale agreements to expedite sales. Additionally, private-label extraction should help cultivators meet consumer demand while maintaining their own brand awareness. MediPharm also plans to isolate specific cannabinoids for medical purposes to address the market for active pharmaceutical ingredients (APIs), which require a cannabinoid purity of at least 99.9%. The Company is investing in large-scale chromatography capabilities to help separate specific cannabinoids in large volumes. LABS is also looking to work with a CPG partner for cannabis-infused edibles/beverages. Additionally, the Company has performed R&D related to formulating, manufacturing and filling multiple lines of vape pens and is expected to be ready for commercial operations once Health Canada regulations are finalized.
MediPharm Labs stock closed Friday, May 10, at $6.25 or 1.6% lower, however the share price is up 10.4% from the closing price of $5.66 on Friday, May 3. LABS currently has a market cap of $609.6 million.
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
To read our full disclosure, please click on the button below: