Barrie, Ont.-based cannabis processor and white-label manufacturer MediPharm Labs released better-than-expected quarterly results before markets opened Tuesday morning. The company beat analyst expectations on revenue and income, reporting sequential top-line growth of 38 per cent.
Quarterly sales increased to $43.4-million from $31.5-million the preceding quarter, and the company also saw adjusted EBITDA increase to $10-million from $7.7-million, and net income increase to $5.4-million from $4.08.
To date, MediPharm has announced white-label deals with AV Cannabis Inc. (Ace Valley), and Cronos Group Inc., as well as contract extraction deals with AusCann, Cronos, ADREXpharma and TerrAscend Canada Inc.
After the release, CEO Pat McCutcheon hosted a conference call with analysts and investors to provide more insights from the three-month period and to answer their questions. Cannabis Professional monitored the call and provides the five most important takeaways - from lowering the bar on early 2.0 performance to boasting the benefits of falling wholesale prices:
Oversupply ‘bodes extremely well’ for MediPharm
“The overall industry supply of dried cannabis has hit a record high [and] this bodes extremely well for MediPharm, Mr. McCutcheon said. “At these levels, we have been able to secure significant volumes of high-quality biomass at more attractive pricing, ensuring we can fulfill all of our contracts to date on our way to 2.0.”
“We expect to see this trend continue, which will only further support our margins moving forward as we acquire only the best deals for dried cannabis, establishing a reliable supply chain for domestic and international products,” he said.
While several analysts on the call requested specifics on the price reduction, company president Keith Strachan would only say was “MediPharm remains probably one of the biggest buyers of wholesale cannabis in Canada so we really do have an insight on costs overall and wholesale pricing.”
“We have seen a decrease month-over-month on a cost-per-gram basis, but we are focused on [buying] high-quality flower so that drop would not be as significant as [it has been] across the whole industry,” Mr. Strachan said.
Lowering early expectations for revenues from infused foods, drinks and vapes
“The challenge is 2.0 is not rolling out as quickly as we originally thought,” Mr. McCutcheon said. “Various retail distribution models used by different provinces have resulted in backlogged orders. To be clear, we do expect industry retail sales to grow and for provinces to open more stores, of course, however, we expect the cadence will likely not measure up to initial expectations in the near term … it is going to make a significant impact on our books, probably in the second half of 2020, but we will be launching in early 2020.”
The ‘structural’ GMP advantage
Just about every company in the legal cannabis space - processors especially - is working toward becoming Good Manufacturing Practices (GMP) certified. That is a European Union standard that is mandatory for all cannabis products sold in EU member states with legal cannabis regimes, such as Germany.
MediPharm, Mr. McCutcheon said, is “well positioned to obtain numerous certifications due to the fact that our operations are built to GMP requirements, not retrofitted. That is not to diminish the heavy lifting underway to secure our certifications each and every day. Several jurisdictions are engaged in auditing our platform, including Germany, which qualifies Europe, and Australia.”
“That is going to keep MediPharm structurally advantaged,” he said.
The export deal MediPharm announced in late September with German drug distributor ADREXpharma was “a direct result of moving forward on our GMP quest,” Mr. McCutcheon said.
Vaping-related illnesses will ‘drive consumers into the legal market’
“Although vapes are not [yet] permitted for commercial production, our pharmaceutically-trained team has been performing extensive R&D and very rigorous testing of hardware and solutions for vapes for more than a year now,” Mr. McCutcheon said. “We have been closely monitoring reports on [vaping-related illnesses] stemming mostly from the U.S., we have worked alongside our peers and our science advisory committee to understand the drivers behind it and which vape products may have been linked. Last week, the U.S. Centers for Disease Control released the findings for 29 patients with vaping-related drug disease. We believe these results underscore the critical importance of a federally regulated cannabis market to ensure consumer and patient confidence in the production of vapes.”
“We believe this should drive consumers into the legal market,” he said.
MediPharm as “pressure-release valve” for domestic oversupply
“While we can’t influence these [edibles and vape product] rollouts and their timing, we can look to supplement our domestic opportunities with global exports,” Mr. McCutcheon said. “We are positioned now to be a pressure-release valve for the oversupply in the Canadian market.”
The company’s recent deal in Germany and expansion of its operations in Australia, he said, were part of a larger effort to position MediPharm as a major medical-focused exporter.
- With files from Mark Rendell
Jameson Berkow