MediPharm Labs Corp (MEDIF)

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https://seekingalpha.com/article/4266330-need-know-cronos-medipharm-deal


What You Need To Know About The Cronos-MediPharm Deal

Summary
CRON and MEDIF announced a new deal in May.

The stocks of both CRON and MEDIF rallied on the news.

The agreement is however, only really positive for MEDIF.


A recently announced deal between MediPharm Labs Corp. (OTCQX:MEDIF) and Cronos Group (CRON) produced upside in the stock of both companies. For MEDIF, the deal is indeed a development that supports the bull case. For CRON, it is a little harder to argue this deal is bullish.

A tale of two agreements
The May 14, 2019, press release from CRON and MEDIF provides details on two agreements. The first agreement is the "Bulk Resin Supply Agreement" which sees CRON subsidiary, Peace Naturals Project Inc., purchasing a minimum of ~C$30M of cannabis concentrate from MEDIF subsidiary, MediPharm Labs Inc., over 18 months.

We can see straight away that this deal is a positive development for MEDIF. MEDIF has secured C$30M in revenues over 18 months, and the deal includes the option for Peace Naturals to purchase up to ~C$18M more during that 18 months, and ~C$12M more during a six-month extension period. All in, the Bulk Resin Supply Agreement might see MEDIF bring in ~C$60M from CRON by April 2021.

MEDIF continues to perform
With Q1'19 earnings, MEDIF reported C$22M in revenue from contracts with customers, representing a 115% increase over the prior quarter. While MEDIF is low on cash, its cash and equivalents grew from C$7.9M at the end of Q4'18, to C$8.4M at the end of Q1'19.


MEDIF's revenues may continue to grow as the company seems to continue to set up new revenue-generating agreements. MEDIF's Q1'19 MD&A notes the company had signed five tolling agreements with three-year terms, and this was prior to the CRON-MEDIF deal. Other details of MEDIF's agreements worthy of note include an agreement set up in Q4'18 with Canopy Growth Corporation (OTC:CGC). MEDIF will supply up to 900 kg of cannabis extract to CGC and its subsidiaries, with 450 kg set as the minimum purchase. On top of deals with Canadian players like CGC and CRON, MEDIF also entered its first international export agreement in Q1'19 which will see the company supply oils/resin to AusCann Group Holdings Ltd.

Summary
While the CRON-MEDIF deal was met with a rally in the stock of both companies, the agreement is far more bullish for MEDIF than it is for CRON. CRON working towards a capacity of 117,150 kg, but still buying cannabis products from other companies is not really a positive. Supplying MEDIF with cannabis for processing under the Tolling Agreement is understandable if CRON feels MEDIF is the right contractor for the job, despite their own extraction operations, but again, that isn't bullish. In my opinion, it appears that CRON is a little behind schedule, it wasn't ready for the launch of recreational cannabis to the same extent as other players and now it isn't ready for the demand it anticipates with regards to resins/oils.