The last twelve months have been challenging for cannabis companies and the sector has been trending lower during this time. Although cannabis was declared to be an essential industry during COVID, many operators were forced to file for bankruptcy, and this put unnecessary pressure on leading players in the space.
One of the companies that has been impacted by the trend is MediPharm Labs Corp. (LABS.TO) (MEDIF) and we believe that the opportunity is attractive on a variety of metrics. During the last year, MediPharm expanded its addressable medical, wellness and recreational markets to parts of Asia Pacific, Europe and Latin America
During the last quarter, MediPharm has been ramping up the international side of the business and this is a trend that we are bullish on. From Australia to South America, the Canadian cannabis company has expanded into several emerging markets and has formed strategic partnerships with leading operators in these territories.
South America has been the most recent focus for MediPharm and we are impressed with how the management team has been able to execute on this market. According to the Latin American Cannabis Report that was published by Prohibition Partners, the Latin American cannabis market is expected to exceed US$12 billion by 2028 and we are favorable on the potential for MediPharm.
An Undervalued Opportunity on a Variety of Metrics
When compared to other cannabis concentrate companies, MediPharm has a much more attractive growth profile. We believe that the market is discounting the long-term value that is associated with having first mover advantage in markets that are in the early innings of a major growth cycle and find this to be an important aspect of our overarching thesis on MediPharm.
Over the next year, we expect MediPharm to record significant advancements on the international side of the business as it continues to capture market share in Canada. We believe that MediPharm represents a multi-faceted growth opportunity that has several attractive avenues for growth.
Currently, several of MediPharm’s competitors are trading at higher valuations and we think that the market is incorrectly valuing MediPharm. As the company continues to execute on previously announced initiatives, we expect the business to report record revenues and positive adjusted EBITDA. The management team is focused on bringing the business down a path to profitability and we are favorable on the strides that the company has made.
A South American Growth Story
With regard to MediPharm’s leverage to the South American cannabis market, the company has entered into agreements with companies that are based in Brazil and Peru. These two markets represent attractive growth opportunities for MediPharm and we will monitor how long it takes for these markets to start generating revenue.
In Brazil, Latin America’s largest medical cannabis market, MediPharm entered into a two-year agreement to supply premium, GMP-certified formulated cannabis oil to XLR8 BRAZIL, a value-added distributor that services operators in that country. Under the agreement, MediPharm will provide a variety of cannabis concentrate formats for patient-ready formulated products that will be distributed by XLR8 to leading pharmacies and other authorized channels in Brazil. XLR8 is working to obtain ANVISA Sanitary Product Authorization and to undertake the process for final product registration.
A few weeks before MediPharm entered into the agreement with XLR8, the company announced that it will supply premium formulated cannabis oil to Cann Farm Peru S.A.C., a Lima-based producer and distributor that serves Peru and other markets in Latin America. Peru is a large market in South America, and we are bullish on the growth prospects that are associated with this territory.
One of the reasons we are favorable on the Peruvian market is related to the early mover advantage Medipharm has in the Latin American cannabis market. As a result, Peru’s market is rapidly growing and offers the potential to register a variety of cannabis-based products and we find this to be of the utmost importance to a company like MediPharm.
An Opportunity to be Aware of
During the last quarter, MediPharm has been under considerable pressure and we believe that it has a favorable risk-reward profile at current levels. We are of the opinion that the market is discounting the potential that is associated with the business and find the valuation to be compelling on a comparative basis.
Another reason for our positive outlook on MediPharm is related to the strength of the balance sheet. The management team has implemented a cost-effective strategy for growth and we find this to be significant since it will play a role in how MediPharm is able to scale the business and enter new markets.
If you are interested in learning more about MediPharm Labs, please send an email to email@example.com to be added to our distribution list.
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