MediPharm Labs Corp (MEDIF)

[FUNMAN]

MediPharm Labs: Undiscovered Gem In The Cannabis Sector

Feb. 23, 2021 11:18 AM ET

MediPharm Labs Corp. (MEDIF)

https://seekingalpha.com/article/4408211-medipharm-labs-undiscovered-gem-in-cannabis-sector?mail_subject=medif-medipharm-labs-undiscovered-gem-in-the-cannabis-sector&utm_campaign=rta-stock-article&utm_content=link-0&utm_medium=email&utm_source=seeking_alpha

Summary

* MediPharm is focused on the global cannabis market, which will be much larger than North America.

* It is years ahead of most companies in regulatory, licensing, and certification requirements for global cannabis.

* MediPharm is an undiscovered gem.

* With the blizzard of attention the cannabis sector has received over the last several months, you might think it impossible that there are undiscovered gems – companies with great potential but not yet discovered by the investment community. But you would be wrong. In this report you will be introduced to MediPharm Labs (OTCQX:MEDIF), learn why it is undiscovered and why it may be a diamond-in-the-rough.

Note: Parts of this report are based on a February 18, 2021 interview with Keith Strachan, MediPharm founder and interim CEO, and Laura Lepore, VP Investor Relations and Communications.

Who Is MediPharm Labs?

MediPharm Labs presents itself as: A Global Leader in Pharma-Quality, Cannabinoid-Based Products. (website: MediPharm Labs). They are in the select group of companies that produces pharmaceutical grade cannabinoids. Their expertise extends beyond THC and CBD into the group of over 100 other cannabinoids that may have therapeutic properties, like CBN, CBC and THCV.

They have a robust and growing clinical research portfolio that will drive success in several ways:

Research partner companies will be inclined (or contractually obligated) to use MediPharm as their supplier as products are developed, driving higher revenue.

Depending on the project, MediPharm may own the molecule or other intellectual property that comes from it, increasing the long term value of the company,

New, safe, and effective pharmaceuticals attract the attention of the investment community. A higher profile for MediPharm will bring capital to the company and higher stock prices.

In sum, a successful clinical research portfolio can position them in the forefront as the therapeutic and commercial value of these compounds are realized.

CBD isolate

MediPharm Labs’ industrial-scale supercritical CO2 extraction equipment. Source: MediPharmLabs.com

MediPharm is one of the first cannabis companies to achieve GMP (Good Manufacturing Practices) certification in Europe and Australia. GMP is the key to international trade, and any company without it will be essentially locked out of the global pharmaceutical cannabis market. The value of this market was recently illustrated by the 50% premium Jazz Pharmaceuticals (JAZZ) paid for GW Pharmaceuticals (GWPH), which was done to get access to GWPH's cannabinoid drug pipeline.

In addition to GMP, MediPharm has ISO 14644 standard facilities, organic certification, and Health Canada's Cannabis Drug License, Research and Development License and Cannabis Processing and Sale License, all of which bring business advantages and opportunities. Finally, MediPharm uses its expertise to supply the market with the highest quality wholesale, branded, and white label products (white label refers to products produced by a manufacturer and labeled with the client's brand).

CBD Isolate

99% CBD Isolate crystals, available to consumers. Source: MediPharm

Why is MediPharm an Undiscovered Gem?

With all of this going for them, why is MediPharm largely unknown to the investing community? First of all, 2020 was a rough period financially. Up to then their biggest source of revenue was contract processing and tolling. Oversupply caused the bottom to fall out of this market, and MediPharm went from profits to steep losses. On the other hand, many of their projects in other areas, such as GMP certification and the sales agreement with STADA in Germany, take years to complete and were not yet paying off financially.

So we have a company whose previously profitable business in Canada (contract processing) has dropped off, but whose multi-year initiatives are just now maturing and gaining momentum. Most of the globe is several years behind North America, where all the attention has been focused, but the global market will eventually be much larger than North America. As the rest of the world moves forward with cannabis, qualified North American companies like MediPharm are prepared to step in, with expertise that foreign companies will need and pay for. MediPharm has been preparing for years for just this scenario.

Global Value

Global giants will not reinvent the wheel by starting a cannabis business from scratch. They will use existing expertise to accelerate their return on investment. We have already seen seismic impact of Altria (MO), Constellation Brands (STZ) and Jazz Pharmaceuticals moving into cannabis. Given the huge therapeutic potential of cannabinoids, giant pharma companies in particular will be moving in, and MediPharm is one of the companies well-positioned to benefit. Its R&D expertise, stringent pharma-grade production, GMP certification and developing global relationships put them years ahead of most cannabis companies. As of 9/30/2020, the company now had more than 30 supply agreements with customers in eight countries. Under its agreement with STADA, a leading European consumer healthcare and generics company, MediPharm Labs will export GMP-certified finished product and cannabis API for Germany with a plan to expand to other promising European markets over time. This agreement is the first of its kind in the industry.

Risks

An investment in MediPharm is not without risk. The foreign markets essential to their strategy may develop more slowly than anticipated, and competition among companies in MediPharm's tier can be expected to grow. The company operated at a loss in 2020 and may continue to do so through at least 1H 2021. At the end of Q3 they had 36 million CAD in cash, but they may need to obtain more capital. Raising capital in the cannabis sector is much easier now than in 2020, but the interest cost and amount of stock dilution must be considered.

The next three or so quarterly reports will be very important to investors. The actual financial results will not be as important as progress on international initiatives. Investors will be looking at the revenue in places with existing relationships, such as Australia and Germany, and more new supply relationships in other countries.

Summing up

There is no MEDIF price chart in this article, because the price history is largely irrelevant. MEDIF currently sells for .60 per share, up from a low of .40 last year. It has always been a future looking company. This strategy enabled it to operate profitably in the early days of legalization in Canada, and will put it in the forefront of the global pharma-quality cannabinoid business to come. Global pharmaceutical giants will pay for scientific and technical expertise to speed their entry into the business and hasten their return on investment. MediPharm, with its ISO facilities, GMP certifications, and pharma-quality production will attract well-earned attention and dollars. In addition, we have seen in the US, Canada, Germany and Australia that countries moving to legalization are cautious. They want to assure that legal products are safe and that they know exactly what their citizens are consuming. MediPharm's standards provide that assurance. Australia, for example, is likely to begin allowing only GMP certified cannabis product into the country.

Most cannabis companies are rushing to sell as much product in today's market as possible, competing in the same geographies. Investors are focused on who is selling how much, and where. MediPharm is developing sales relationships in tomorrow's geographies, in a market that will dwarf North America as it matures. The North American market has attracted so much attention that stock prices have gotten ahead of themselves. The global market, being several years behind Canada and the US, has gotten little attention.

Yes, MediPharm is an undiscovered gem. It's a Canada-based company, but it has a complex story that goes beyond Canadian cannabis and will take time to develop. As founder and CEO Keith Strachan says, they are building a GMP certified company to service the world. It offers investors the opportunity to participate in the global market before that market's huge potential is recognized in the investment community.

This article was written by

Ted Waller profile picture.
Ted Waller
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