MediPharm Labs Corp. (TSX: LABS) is a Canada-based pharmaceutical company that specializes in cannabis extracts and related products.  The company generates revenue from Private label, White label, the Tolling process, and others. 

Key Updates:

• Drastic decline in debt level: The company has successfully reduced its total debt from CAD 18.5 million in Q4FY20 to CAD 2.3 million in Q3FY21, which is encouraging and indicates prudent capital management. This will help the company to use its cash flows for alternative projects, while the lower leverage will help the company to outpace its peers during the rising interest rates environment.

• Recent Update: On February 23, 2022, the company completed a Drug Master File process for CBD Active Pharmaceutical Ingredient for the US Federal Drug Administration.
  

• Increased losses on Q-O-Q basis: In Q3FY21, the company reported a higher EBITDA loss of CAD 5.6 million, widened from CAD 3.6 million in Q2FY21, which is an indication of weak operational metrics.

• Weak technical: The stock of LABS has corrected ~53% and ~68% in the last six months and nine months, respectively, and trading below its crucial simple moving averages of 50-days and 200-days. Moreover, the Relative Strength Index (RSI) is currently stable at 35.94, which is close to the oversold zone of 30 levels. This confirms the bearish momentum in the stock. For the stock to gain momentum, the prices should cross the 50 DMA and sustain above on a closing basis for a few days to ascertain the strength in the upside movement.

Stock recommendation:

Despite a successful reduction in the debt level, the company is struggling with higher input costs, and posted a negative EBITDA margin of 105.6%, and a negative operating margin of 138%, respectively, in Q3FY21. Continuation of the above trend would dampen the company’s profitability and cash flows, etc. Considering the aforesaid facts, technical indicators, we prefer to remain on the sidelines. Hence, we give a ‘Watch’ stance on the stock of LABS at the closing price of CAD 0.15 on March 03, 2022.

One-Year Technical Price Chart (as on March 03, 2022). Source: REFINITIV, Analysis by Kalkine Group

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