Earlier this week, MediPharm Labs Corp. (LABS.TO) (MEDIF) announced a major milestone and reported to have entered into an arrangement with Stada Arzneimittel AG to be the exclusive supply partner for the international generics and consumer health products company.
There are a variety reasons to explain our excitement with the development and expect the relationship to play an important role in the growth of the business. Below, we highlighted some of the reasons for our positive view on the opportunity and will discuss the potential avenues that MediPharm has for growth as a result of the relationship:
- Stada is a leading European consumer healthcare and generics firm that has a presence in 120 countries
- The relationship should result in the providing of medical cannabis products to the European pharmaceutical sector, starting with Germany
- Stada will provide the relationship with marketing and medical education support while MediPharm provides a broad range of GMP-certified medical cannabis products
We are favorable on the expertise that each company brings to the relationship and are bullish on the amount of value that can be created between the two businesses. We expect the relationship with Stada to accelerate the pace at which MediPharm capitalizes on the global cannabis opportunity and consider the development to be a game changer for the Canadian cannabis company.
Positioned to Capture Additional Market Share
Backed by a track record of execution, Stada has a reputation for providing top-quality generics and non-prescription consumer health products. Currently, Stada is a top-five player in the European generics space and has solidified its place as a leading consumer brand in a variety of categories.
The relationship with Stada further differentiates MediPharm from other cannabis focused companies and we find this to be signficiant. We believe that Stada’s selection of MediPharm is a testament to the quality of the business as well as the management team’s ability to execute on previously announced initiatives.
Under the arrangement, MediPharm is responsible for supplying a broad range of good manufacturing practice (GMP) certified medical cannabis products to the European Union (EU). MediPharm’s products will be initially distributed into Germany which is the largest medical cannabis market in Europe and is Stada’s home market. As part of the relationship, Stada will provide marketing and medical education support through its established team and we are favorable on the homecourt advantage that MediPharm will have as a result of the partnership’s initial focus on Germany.
We consider the agreement to be a major milestone that validates MediPharm’s strategic focus on being a pharmaceutical-quality API provider and a go-to contract manufacturing partner in emerging international medical cannabis markets. Over the next year, we expect to see additional companies form similar agreements with MediPharm and are bullish on the potential short and long-term impact.
Stada Will Support Several Parts of MediPharm’s Business
We believe that MediPharm can leverage Stada’s distribution footprint to establish inroads in strategic markets in the EU. Going forward, we are of the opinion that MediPharm is well positioned for future growth. If Stava decides to broaden its cannabis portfolio beyond medical products and leverage its non-prescription consumer health brands in the hemp-based cannabidiol (CBD) sector, MediPharm would be a major beneficiary of the expansion and this is a trend that we are bullish on.
We believe the Stada partnership de-risks MediPharm’s international operations and raises consumer confidence for its portfolio of GMP-quality medical cannabis products. The arrangement could prove to be a cornerstone arrangement for the company as it relates to the international opportunity and expect to see MediPharm expand into additional emerging markets.
Although MediPharm’s focus on the international cannabis opportunity has always been an attractive aspect of the story, we always thought that the market discounted the growth prospects that are associated with the vertical. We expect the relationship with Stada to make the market more aware of the leverage that MediPharm has to the international side of the industry and find to this to be of significance.
Going forward, MediPharm is laser focused on the establishment of a global distribution network that caters to the medical side of the business. We believe that MediPharm is well positioned to capture additional market share as more international markets become more accepting of medical cannabis.
Due to Stada’s diverse geographic reach and broad product portfolio (spans both prescription and non-prescription offerings), MediPharm is positioned to capitalize on a variety of unique opportunities. The relationship with Stada is expected to greatly accelerate the leverage that MediPharm has to emerging international markets and this is an opportunity that is flying under the levels.
A Growth Story with an Attractive Valuation
Although the market responded favorably to the announcement, we believe there is a major disconnect with the market. At current levels, MediPharm has a compelling valuation and a favorable risk-reward profile. In the near term, we expect the business to continue to benefit from a rise in the amount of cannabis 2.0 products that are being sold in Canada.
Domestic revenue transition underway. Given that we expect Cannabis 2.0 to account for >50% of industry sales over the long term, we believe LPs that have established operations along the extraction/manufacturing vertical are well positioned to see earnings growth as more CPG companies look to establish partnerships.
MediPharm has benefited from a drastic increase in the number of Canadian cannabis companies that are working on the production and distribution of cannabis 2.0 products. The company has been able to rapidly scale this segment of the business and it produces and distributes more than 60+ unique SKUs. Several additional products are expected to hit the market in the near future and we expect this to lead to an increase in the amount of MediPharm’s sales that are from finished goods products sales on a quarter-over-quarter basis.
If you are interested in learning more about how Stada will benefit MediPham Labs, please send an email to firstname.lastname@example.org with the subject MediPharm to be added to our distribution list.
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