MediPharm Labs Corp., (TSX: LABS) (OTCQX: MEDIF) (FSE: MLZ) is a global leader in the cannabis extraction market that operates out of a Good Manufacturing Practices (GMP) facility with ISO standard-built clean rooms. The company represents a differentiated opportunity that specializes in the production of purified, pharmaceutical-quality cannabis oil and concentrates and advanced derivative products.
One of the ways that MediPharm has been able to stand out as an industry leader is through the continued delivery of sophisticated cannabinoid formulations in innovative formats with pharmaceutical level quality standards. The company provides a variety of services, depending on customer needs (i.e. formulation, sensory testing, processing, packaging, labelling, and distribution of cannabis extracts and advanced cannabinoid-based products) and we are favorable on how the story has advanced so far this year.
Through its wholesale and white label platforms, MediPharm has been capitalizing on the domestic and international cannabis oil market and has a leading position in this vertical. A few months ago, the company announced its first commercial export order to Australia, which recently started generating revenue, and completed the commercialization of its Australian extraction facility.
We believe that MediPharm is an opportunity that has been flying under the radar and is trading for a discount when compared to its peers. By gaining a first mover advantage in strategic international markets, MediPharm is positioning itself for long-term growth and we believe that the market discounts the growth potential that is associated with it.
Announces a Milestone with Avicanna
Last month, MediPharm Labs reported a major milestone and announced the completion of the production of a new product format, sublingual sprays, as part of its multi-faceted strategic pharmaceutical manufacturing agreement with Avicanna Inc. (TSX: AVCN) (OTCQX: AVCNF), a leading biopharmaceutical company.
In the near future, the sprays will be available to Canadian medical patients through the Medical Cannabis by Shoppers online healthcare platform. The sprays will be marketed under Avicanna’s RHO Phyto™ medical brand and we will monitor how the product line generates traction with medical patients. The sprays are an attractive option for medical patients since they are optimized for increased absorption and faster onset when compared to basic MCT (medium-chain triglyceride) sublingual sprays.
One of the reasons we are favorable on the new product format is related to the amount of time it takes to feel the effects. There is a large portion of medical and recreational customers that want to consume cannabis in ways that are healthier and more discreet than smoking (i.e. vaping and consumables). The sprays meet these specific criteria and are placed under the tongue to provide rapid absorption into the bloodstream.
MediPharm stands out as a leader in the Canadian cannabis oil market and was selected by Avicanna due to its state-of-the-art GMP extraction and processing facility and its pharmaceutical-quality production capabilities. Avicanna is executing on a strategy to bring new and innovative and sustainable plant-derived cannabinoid-based products to market and expect MediPharm to be a beneficiary of this.
The relationship between the companies is designed to provide patients and the medical community with advanced product offerings that are backed by science, data and world-class quality standards. Avicanna has an attractive pipeline of formulations that it has developed over the past four years in collaboration with leading Canadian research institutions.
A few months ago, the companies entered into a three-year, multi-faceted agreement that involves production, domestic and international distribution, and intellectual property licensing. The spray product is the second set of products to be developed by MediPharm and we are favorable on the amount of time it takes MediPharm’s technical team to bring a product to market. The spray product took MediPharm one-month to bring to market and we believe that this is a testament to the strength of the team and the amount of human capital that is on it.
Under the manufacturing segment of the agreement with Avicanna, MediPharm Labs uses its specialized capabilities to produce Avicanna’s advanced RHO Phyto™ medical cannabis products and Pura Earth™ dermacosmetic topicals. The first product that was produced as part of the relationship was Rho Phyto’s Blood Orange flavoured Micro Drops, in both high CBD and medium CBD formula made from full spectrum cannabis distillate.
Going forward, the companies plan to bring additional products to market and we are favorable on the track record of success so far. Additional product formats such as topicals, capsules and transdermal patches, are being finalized for production under the contract manufacturing agreement and we expect to see additional product brought to market in the near future.
In late 2019, Health Canada approved the sale of cannabis derivative products like edibles, drinkables, vape pens, concentrates, sublinguals, topicals, tinctures, salves, and more. This represented a major transformation of the Canadian market and is referred to as cannabis 2.0.
We believe that MediPharm is well positioned to be a beneficiary of the cannabis 2.0 market and expect it to report strong growth from this vertical on a going forward basis. The completion of the second product with Avicanna highlights how the Canadian cannabis market has changed and how MediPharm is increasing market share in the contract manufacturing space.
One of the ways that the cannabis 2.0 market has impacted the entire Canadian industry is through the formation of a new consumer segment that is not price sensitive and will pay a premium price for quality products. We like to compare this group of consumers to the wine industry which has a large segment of wine connoisseurs and who pay a massive premium for certain brands.
Through contract manufacturing and white label agreements with brand leaders, as well as its growing portfolio of pharmaceutical quality products that are produced from its GMP-certified facilities in Canada and Australia, MediPharm is well positioned to capitalize on the changing landscape of the domestic and international cannabis market.
By the end of the second quarter, MediPharm Labs had 60 concentrate-based product SKUs in production for medical, wellness and recreational brands. Some of the products that are in the portfolio are high-potency formulated oils, vape cartridges, topicals and sublingual sprays. We are favorable on the amount of MediPharm owned or produced products that are on the market and expect this trend to become more significant in the back half of the year.
MediPharm continues to enhance its capabilities in product innovation and flexible manufacturing and we are favorable on how it continues to focus on improving the process. The business is supported by a distinguished team of researchers and production professionals that have decades of pharmaceutical experience and this is an attractive aspect of the story. The company is systematically executing on a multi-faceted growth strategy as a differentiated, international pharmaceutical company and partner to leading cannabis brands.
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