Demand for cannabis oil continues to increase and this is a trend that we expect to become more significant in the years to come. Canada’s recreational cannabis market includes only a few cannabis oil products (initially did not include any cannabis oil products) and we expect this to become a more significant part of the market in 2019.
We have been favorable on the cannabis oil opportunity and believe that this is a market worth watching. There are more than 100 Canadian Licensed Producers and most of the companies are focused on increasing production capacity. Once this capacity comes on-line, there is expected to be an oversupply problem which would benefit companies that are focused on the production of cannabis oil.
One of the best solutions for Licensed Producers when they have too much product is to turn it into cannabis oil. This higher cost product increases the shelf life of medical cannabis and is attractive to consumers. This creates a significant opportunity for the companies focused on the production of cannabis oil and we have targeting companies that would benefit from this.
MediPharm Labs: A Cannabis Oil Company to Watch
MediPharm Labs (LABS.V) (MLCPF) is a company that is highly levered to the Canadian cannabis oil market and has been executing on a multi-faceted growth strategy. MediPharm is focused on producing pharma-grade cannabis oil and concentrates and is operating out of a fully functional 70,000 sq. ft. facility that has been constructed to cGMP standards with ISO rated clean rooms.
The facility can currently process 100,000 kilograms of dry cannabis flower or trim per year; the largest extraction footprint in Canada. MediPharm is in the middle of a major expansion and is executing flawlessly on it to increase processing capacity to 250,000 kilograms of dry cannabis per year by the second quarter of 2019.
November was a major month for MediPharm Labs and we are bullish on the growth prospects going forward. Last month, MediPharm was granted a Sales License from Health Canada and this represented a major milestone for the company. Today, we have provided an update on MediPharm and believe that this a company worth watching.
Signs Massive Cannabis Oil Agreement with Canopy Growth
Last month, MediPharm Labs reported a strategic supply agreement with Canopy Growth (WEED.TO) (CGC), whereby MediPharm will supply up to 900kg of cannabis extract for sale to Canopy Growth and its subsidiaries. Canopy Growth has committed to purchasing a minimum of 450kg with an option to purchase an additional 450kg.
This agreement is very significant for both companies and we will monitor how the teams execute on this. Demand for cannabis oil continues to increase and this agreement results in a meaningful increase in total supply in the market. Canopy Growth represents a strategic partner for MediPharm and this agreement will establish an early-mover advantage for both companies to meet an immediate and unmet need across the country for value-add products such as Softgels.
We think that this agreement is just the start of a much bigger relationship between the companies. MediPharm has been working tirelessly on upgrading its facility to meet Good Manufacturing Practices (GMP) standards. Once the company is granted this certification, there will be export opportunities.
Canopy Growth is the largest and best diversified Canadian cannabis producer. The company has been laser focused on the international opportunity and has operations on five continents (15+ countries). Canopy offers MediPharm the ability to expand its reach and we are favorable on this relationship.
A Global Opportunity
During the last two years, the cannabis industry has become a global opportunity and this has changed the game for companies like MediPharm. We are favorable on the international opportunity and believe that this is what will fuel the next leg of growth for the Canadian cannabis industry.
MediPharm is in the early stages of a major growth cycle and has been focused on the international opportunity. Through its subsidiary, MediPharm Labs Australia Pty. Ltd., MediPharm has completed its application process with the Federal Office of Drug Control to extract and import medical cannabis products in Australia.
During the summer, MediPharm commenced construction on a state-of-the-art extraction facility in Australia. The facility will have an initial footprint of approximately 1,000 square meters, will produce the same quality of cannabis oil as its counterpart in Canada and will mirror the setup and operations of is Canadian facility.
MediPharm’s Australia operations will be an important import-export hub into Asia Pacific, until such time as demand from Australian patients requires the facilities entire capacity.
A Company with Major Catalysts for Growth
Earlier this year, MediPharm was granted a cannabis oil production license from Health Canada and the company has been extracting cannabis at scale and has filled up its vault with inventory that is ready for sale. Now that MediPharm has been granted a Sales License, the company can capitalize on the strategic relationships and agreements in place and we are monitoring how the team executes from here. It is positioned to realize material revenue in Q4 2018 and should scale rapidly in 2019.
MediPharm has been nothing short of an execution story and has signed wholesale purchase agreements with seven LPs and has secured multi-year processing agreements with five LPs while negotiating with several others. The increase in the number of companies that have signed White Label Production, Contract Processing or Supply agreements with MediPharm is significant and this will lead to strong revenue growth going forward.
Last month, MediPharm entered into a three- year cannabis concentrate program agreement with The Supreme Cannabis Company, Inc. (FIRE.V) (SPRWF). Pursuant to the agreement, Supreme Cannabis will provide MediPharm with dried cannabis to use for the purposes of creating cannabis oil.
In October, MediPharm entered into a cannabis concentrate program agreement with Emerald Health Therapeutics Inc. (EMH.V) (EMHTF). Pursuant to the agreement, the program will have a three-year term and Emerald will provide MediPharm with dried cannabis to create premium quality cannabis oil.
MediPharm has also secured cannabis concentrate program agreements with several high-profile Canadian cannabis producers – including INDIVA Limited (NDVA.V) (NDVAF), James E. Wagner Cultivation (JWCA.V) (JWCAF), and Bonify. – whereby MediPharm will received dried cannabis for the purposes of creating cannabis oil. The company has a very attractive growth profile and has signed a supply agreement- with Newstrike Brands (HIP.V) (NWKRF), as well as made several one-off bulk wholesale cannabis purchases.
A Company Worth Watching
Although MediPharm Labs has significantly advanced its fundamental story, the shares have been trending lower. With a long roster of large-scale Canadian cannabis producer as clients, the company is well positioned for growth with a valuation re-rate opportunity.
When compared to its peers, MediPharm is trading at a significant discount and we have been monitoring price movements. Momentum has been trending lower and this is a company that investors should be watching.
MediPharm is in the middle of a major expansion and we are bullish on the cannabis oil opportunity. To learn more about this differentiated cannabis company, please contact firstname.lastname@example.org.
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