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Smokeless cannabis products are a burgeoning vertical within the legal cannabis industry and we expect this segment to continue to experience above average growth for years to come.
One of the reasons we should see continued growth within the smokeless cannabis product market is the growing trend toward these products as well as the continued innovation. These products are created with cannabis oil and have been found to possess tremendous health benefits and this has also made such products attractive to consumers, especially older dempgraphics.
Demand for cannabis oils, especially high CBD oil, continues to increase and this is a trend we expect to continue as researchers learn more about the therapeutic value cannabinoids provide.
Over the next few years, we expect this trend to become even more significant and consider this to be a very lucrative opportunity. During the last decade, the amount of people smoking cigarettes has significant decreased while the number of people using e-cigarettes has skyrocketed.
The trend in the cannabis industry is very similar, although on a much smaller scale. The legal cannabis industry is in the middle of a major transformation where the joint will be replaced by a capsule, a drink, or a vape pen. This transition will create significant opportunities for companies focused on producing cannabis oils and this is a trend to keep an eye on. We are very bullish on the smokeless product market and have been focused on finding companies that are levered to this.
About MediPharm Labs
When we attended GRIT Camp in late July, we had the opportunity to speak with the management team behind MediPharm Labs and were quite impressed with this company. MediPharm was the first company in Canada to become a licensed producer for cannabis oil production under the ACMPR without first receiving a cannabis cultivation license. This company’s expert focus on cannabis concentrates from its cGMP (current Good Manufacturing Practices) and ISO standard clean rooms and critical environments laboratory, allows MediPharm to work with its established, Health Canada-approved cultivation partners to produce pharmaceutical-grade cannabis oil with a competitive advantage.
MediPharm is research-driven and focused on downstream secondary extraction methodology, distillation, and cannabinoid isolation and purification. MediPharm provides business-to-business contract processing of cannabis to Canadian authorized licensed producers and appropriate international growers, supplying integrity-assured cannabis oil to qualified companies for sale under their own brand.
In addition, MediPharm will supply raw materials, formulations, processing and packaging for the creation of ready-to-sell advanced derivative products. Through its subsidiary, MediPharm Labs Australia Pty. Ltd., MediPharm has also completed its application process with the federal Office of Drug Control to extract and import medical cannabis products in Australia.
A Leading Cannabis Oil Opportunity
MediPharm is primarily focused on producing pharma-grade cannabis oil and concentrates, operating out of a fully functional state-of-the-art 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.
The company is in the middle of a major expansion and is executing flawlessly on an expansion that will increase processing capacity to 250,000 kilograms of dry cannabis per year by the fourth quarter of 2018. MediPharm has made a $7 million investment in build-out of critical environment labs and the acquisition of state-of-the-art cannabis extraction, fractionation, and distillation equipment.
In late July, MediPharm announced a milestone and entered into a cannabis concentrate program agreement with James E. Wagner Cultivation (JWCA.V) (JWCAF). Pursuant to the agreement, the parties have entered a commercial arrangement whereby JWC will provide MediPharm with dried cannabis to use for the purposes of creating cannabis oil. The program will be for an initial term of three years.
This is a significant development for MediPharm and we are favorable on the continued execution. The company will charge JWC processing fees for the cannabis oil produced, and the revenue earned on sales of cannabis oil by MediPharm will be shared between the companies.
MediPharm also has a supply agreement with Bonify and is currently in negotiation with several other Licensed Producers. We expect the company to secure countless agreements like the ones with JWC and Bonify and are bullish on this opportunity.
A Massive Addressable Market
There are more than 100 Canadian LPs 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, and this would benefit MediPharm.
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. Through contract processing, MediPharm will be able to capitalize on what we expect to be a burgeoning opportunity.
MediPharm has been able to protect itself from this potential oversupply problem by focusing on the production of cannabis oils. The company is going to be able to process cannabis oil at scale and we expect them to secure several strategic agreements with leading Canadian cannabis producers.
We expect these types of relationships to be catalysts for the cannabis extraction company and will monitor how the team continues to execute. One of the closest comparable companies to MediPharm is Radient Technologies (RTI.V) (RDDTF). The market has been very favorable on Radient’s relationship with Aurora Cannabis (ACB.TO) (ACBFF), and we expect MediPharm to secure relationships that are equally as significant.
Focused on the International Opportunity
The legal cannabis industry is a global opportunity and MediPharm is focused on capitalizing on this. The company is in the early innings of a major expansion and has already planted its flag in Australia. We are favorable on this market and will monitor how the team continues to execute on this opportunity.
In late June, 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 and will produce the same quality of cannabis oil as its counterpart in Canada. MediPharm Labs Australia will produce cannabis oil with a focus on downstream secondary extraction methodology, distillation, cannabinoid isolation, purification and R&D.
MediPharm Labs Australia will mirror the setup and operations of is hugely successful Canadian facility under the leadership of Australian entrepreneur Warren Everitt, whose other business ventures include one of Asia Pacific’s leading digital marketing agencies and a business consulting group.
We are favorable on MediPharm’s ability to execute due to the continued execution as well as the team in place. Over the next few months, we expect this opportunity to become more significant and will monitor this aspect of the business.
Waiting on a Sales License
In March, MediPharm was granted a cannabis oil production license from Health Canada. This achievement was a milestone for MediPharm which has since been laser focused on execution. The cannabis oil company has been extracting cannabis at scale and has filled up its vault with inventory that is ready for sale once the company receives a Sales license from Health Canada.
MediPharm has been a pioneer in the cannabis industry and was the first Canadian company to successfully achieve a Licensed Producer approval without first receiving a cannabis cultivation license. This focus on cannabis concentrates allows MediPharm to work with its established, Health Canada approved cultivation partners to produce pharmaceutical grade cannabis oil with a competitive advantage. This is supported by leading infrastructure in purpose built clean rooms. These ISO classified cleanrooms are designed to meet strict global cGMP regulations and support true industrial scale production.
The Health Canada license allows MediPharm to handle and manufacture cannabis oil. Once the company receives its Sales license, MediPharm will position itself as a business-to-business partner. Selling wholesale and conducting contract manufacturing will give MediPharm Labs a competitive advantage as well as increased reach that will benefit Canadian patients.
MediPharm is in the middle of a major expansion and we are bullish on this growth initiative. After the Phase 1 buildout was completed, MediPharm’s manufacturing facility became able to extract over 100,000 kg of dry cannabis annually. The existing facility and land provides the space to expand and this is an important aspect of the story.
A Company to Watch
MediPharm has been nothing short of an execution story and is well positioned to capitalize on a burgeoning cannabis oil market. The company utilizes innovative extraction technologies that are proprietary and create superior products designed for specific patient solutions. This is a significant value driver for the company as well as its clients.
We expect MediPharm to record strong growth on account of its multi-faceted growth strategy. The company has a significant white label business that supplies raw materials and processing for the creation of ready-to-sell cannabis products.
In late August, MediPharm will commence trading on the TSX Venture Exchange under the symbol LABS.V and this is an opportunity that investors need to keep an eye on. We are favorable on the continued execution and the differentiated opportunity.
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