Medipharm Labs Corp. (TSX: LABS), is a Canada-based medicinal cannabis company specializing in the pharmaceutical grade production of cannabis. The Company is focused on distillation and cannabinoid isolation and purification.

Key Highlights

• Received North America’s sole Drug Establishment Licence: Among cannabis enterprises, MediPharm has secured a Drug Establishment Licence, allowing it to perform pharmaceutical production and sales of Active Pharmaceutical Ingredients and Finished Dose Goods including cannabis.
• Medical cannabis export to Barbados: In collaboration with strategic partner Avicanna, the company has completed a medical cannabis shipment to Barbados. MediPharm Labs is best positioned to serve these markets as the only North American producer with a Drug Establishment License (GMP) for the extraction of natural cannabinoids, as countries around the world continue to implement medicinal cannabis programs.
• Expands CBN Portfolio with Two New Products: The company continues to develop and commercialize novel cannabinoids, and it recently announced the extension of its CBN product line. This is an interesting addition to the wellness line of goods, which is manufactured in a GMP approved facility to pharmaceutical quality standards. This product, according to the company, tackles an untapped market and is projected to outperform the two present CBN:THC products, which have a yearly revenue of CAD 1.65 million based on October 2021 sales.
• International Sales Growth: In the reported period, the company’s international sales grew 16.5% sequentially, and the group expects the growth to accelerate due to over 30 sales agreements in place in nine countries, which is a significant plus. International sales represented 53% of sales in Q3 2021, and saw repeated orders from four German partner deliveries, including the completion of first shipments to STADA and Vayamed.
• New CEO steps in: Recently, the company announced about an appointment of new CEO, Mr. Bryan Howcroft to drive international and pharmaceutical sales growth.
  

Financial overview of Q3 2021 (in thousands of Canadian dollars)

Source: Company

• In Q3 2021, the company posted higher revenue at CAD 5.4 million, compared to CAD 4.9 million in Q3 2020. Sales increase largely driven by international sales in Germany and Australia.

• A gross loss minimized to CAD 1.8 million in Q3 2021, against a gross loss of CAD 10.6 million in the previous corresponding period, primarily due to the lower cost of sales.

• The company reported a net loss of CAD 7.3 million, compared to a net loss of CAD 15.3 million in Q3 2021, partially supported by lower finance expense.
  

Risks associated with investment

Several risk factors could impact the Company’s ability to execute its key strategies successfully and materially affect financial performance. To name some of these risks are like reliance on licenses and authorization, disruption in the supply chain, inability to sustain pricing and inventory models, lack of long-term client commitments, etc. 

Stock recommendation

The DEL, which establishes the Company as a true pharmaceutical partner while continuing to deliver on international medicinal cannabis sales, was issued in Q3 2021, one of the most important licences in the company's history connected to North American GMP certifications. The firm also sees the worldwide medical cannabis market as a key driver of future revenue growth, and it plans to keep innovating in new product development, including minor cannabinoids like CBN, as well as its clinical trial program. Furthermore, on the valuation front, the stock is available at a forward EV/ Sales multiple of 0.6x against an industry (pharmaceuticals) median of 3.2x. Hence, considering the aforesaid rationales, we recommend a “Speculative Buy” rating in the stock at the closing price of CAD 0.21 on December 10, 2021, with double-digit (percentage term) upside potential. 

Technical Analysis Summary:

One-Year Price Chart (as on December 10, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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