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.

Why should Investors make an EXIT?

• Lower margin profile v/s Industry: In Q3 2021, the company failed on maintaining its pace and witnessed lower performance under operating margin matrix, consisting of all major margins, which exhibits the extreme pressure on the company.
• Higher average collection period: LABS is having a higher average Accounts Receivable day of 556.4 days, against the industry median of 63.4 days. A higher average collection period indicates that the organization is collecting its payments at a slower pace. This may create a difficulty for the company to have enough cash on hand to meet their financial obligations.
• Long Cash Cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 653.2 days compared to an industry median of 138.5 days.
• Exhausted technical indicators: The stock is continuously trading in a downward sloping channel below the trend line and is making lower highs and lower lows on daily chart, which is considered as a bearish pattern, implying the stock could witness price consolidation or correction from there as there is lack of strength.

One-Year Technical Price Chart (as on January 28, 2022). Source: REFINITIV, Analysis by Kalkine Group

Stock recommendation

We view the international medical cannabis market to be a key driver of the future revenue growth. However, due to the lengthy procedure of product-approval and product innovations, along with an increase in the higher input costs, the company might witness a subsequent lower margin. Moreover, at present, the company is clocking negative margins in its operating matrix exhibits the extreme pressure on the company. Additionally, it also has a prolonged Cash Cycle (Days), which may create a difficulty for the company to have enough cash on hand to meet their financial obligations. Moreover, the technical indicators implies that the stock is in a bearish trend and the price may correct or consolidate further. Therefore, based on the above rationales, we recommend a “Sell” rating on the stock at the closing price of CAD 0.195 on January 28, 2022.

One-Year Technical Price Chart (as on January 28, 2022). Source: Kalkine, Analysis by Kalkine Group

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

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