To follow up on the first publication from a planned series of articles that are focused the global cannabis opportunity in 2021, we want to highlight the Canadian cannabis concentrate market.
In our opinion, this is an under-appreciated vertical of the Canadian cannabis market that has substantial growth prospects. Following the legalization of cannabis 2.0 products in late 2019, we noticed a substantial increase in demand for cannabis concentrates as well as products that are made by cannabis concentrates.
In 2021, we expect to see increased demand for cannabis concentrates and this is a trend that we believe is flying under the radar. During the last year, several Canadian cannabis companies have benefited from the increased demand for concentrates and products and we expect these operators to continue to benefit from the trend.
One of the reasons we are bullish on this vertical is related to the developments we have seen in international markets. From Australia to Germany, new markets are starting to emerge and this is a trend that we are bullish on. Going forward, we expect to see increasing demand for cannabis concentrates in several key international markets and will be monitoring how leading Canadian concentrate producers benefit from it.
While several large-scale Canadian Licensed Producers (LPs) operate large extraction facilities for their own benefit, there are a few companies that are only focused on extraction and we are favorable on the structure of these businesses. By only focusing on extracting, these companies are able to keep costs down which in our opinion also lowers the risk.
MediPharm Labs Corporation (LABS.TO) (MEDIF) has been laser focused on the cannabis concentrate market and has been a major beneficiary of the increased demand. From an international standpoint, the company has been leading the charge on the cannabis concentrate side of the business.
During the last year, MediPharm has been executing on a multi-national growth strategy and we believe the market is discounting the amount of value that can be generated through it. In Canada, the company has been nothing short of an execution story and the recent decline in revenue was related to the way the business was changing.
Currently, MediPharm has more than 30 tolling and processing agreements with operators in 8 countries. The company has a leading position in the international cannabis oil industry, and we expect this aspect of the business to serve as a key growth driver in the back half of the year.
A few months ago, MediPharm announced an arrangement with Stada Arzneimittel AG to be the exclusive supply partner for the international generics and consumer health products company. MediPharm is one of the few companies to be working with a leading pharmaceutical partner and we expect it to play an important role in the growth of the business over the long-term. The company recently made several key changes to the management team and we believe the business is better positioned as a result of the changes.
From a valuation standpoint, MediPharm is trading at a discount to its peers and we find this to be a key pillar of our 2021 thesis. As the company continues to execute on its international growth strategy, we expect to see a change in sentiment and believe that MediPharm is an operator to be aware of.
The cannabis 2.0 movement was a catalyst for companies like MediPharm and this is a trend that we expect to continue in 2021 and beyond. These products include vape pens, edibles, beverages, topicals, and more. We believe the legalization of these products will play an important role in the way the sector grows.
From an economics standpoint, we find the low-cost nature of a business like MediPharm to be more attractive than large-scale operators. We believe a company like MediPharm has the ability to grow at a large scale in a way that is cost effective and find this to be an attractive aspect of the story.
Demand for smokeless cannabis products has been increasing rapidly and this is a trend that we expect to become more significant this year. We are seeing this trend play out in the tobacco industry and many consumers are turning to e-cigs or vaporizers over cigarettes. Cannabis oil is a very important input product that is in high demand and we are favorable on certain companies that are focused on this vertical.
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