Earlier this week, MediPharm Labs Corp. (TSX: LABS) (OTCQX: MEDIF) (FSE: MLZ) announced a major milestone and reported a record number of finished goods shipments in the fourth quarter.
During the quarter, MediPharm reported to have shipped 550,000 units to Canadians and we are impressed with how the business has bounced back. Last year, MediPharm was punished by the market when it reported quarterly earnings that came in below analyst expectations. We believe this announcement reflects the progression of MediPharm’s Canadian operations and our readers should be aware of the advancement of the business.
When compared to the prior quarter, MediPharm reported a more than 200% increase in the number of units that were shipped, and we are bullish on this trend. The number of units that were reported by MediPharm does not include any international sales and we believe this is an attractive vertical of the business.
From Australia to South America, MediPharm has been laser focused on the international cannabis concentrate market and we considered the business to be a leader in this vertical. In the back half of the year, we expect the company to report ramping revenue growth from international markets and believe the market is discounting this aspect of the story.
One of the important takeaways we had from the announcement is related to the performance of MediPharm’s owned private label products. Of the 550,000 units that were shipped, 100,000 were of MediPharm’s brand which represents a substantial increase from 25,000 in the prior quarter. Based on this metric, we believe there is strong demand for the company’s proprietary formulations. According to the announcement, some of MediPharm’s products have already become the most sold product in a few provinces and we are favorable on this.
According to the release, Ontario Cannabis Store (OCS) sales data show that MediPharm’s CBD 50 Plus Formula oil ranks as the third best-selling CBD oil in the province and number five best-selling in the overall oil category. We find this to be significant and believe the market is missing out on something significant with MediPharm.
Since inception, MediPharm has been focused on using state-of-the-art equipment to develop premium concentrates for businesses and consumers. As a result of the continued execution, the company has created a reputation for quality and purity, and we believe this trend is supporting the growth of the entire business.
During the fourth quarter, MediPharm entered into a supply agreement with Nova Scotia Liquor Corporation and shipped initial orders to the province. Nova Scotia recently opened additional cannabis stores as part of its growth plan, and we are favorable on the leverage that the company has to the province. MediPharm has retail distribution agreements with six provinces (B.C., Alberta, Saskatchewan, Manitoba, Ontario and Nova Scotia) and we are bullish on the growth prospects that is associated with the domestic business.
Another important development that was reported by MediPharm is related to the relationship that it has with Avicanna Inc. Under the agreement, Avicanna’s RHO Phyto medical product line is produced by MediPharm and this is an attractive aspect of the story. The companies reported a successful launch that had strong support from the medical community and expect to continue to increase output to satisfy demand.
We believe that MediPharm Labs is an execution story that is trading for a considerable discount. At current levels, we find the valuation to be attractive on several metrics and believe that MediPharm has a favorable risk-reward profile. Going forward, we expect the company to announce strong growth and will monitor how the story advances from here.
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