MediPharm Labs Perfecting Cannabis Extracts, Plus Exclusive Executive Interview

The cannabis market is moving toward oils, extracts, and cannabis-derived products based on oils and extracts. As the cannabis industry comes into the regulatory light of day consumers are consistently showing their preference for oils and associated products over smoked cannabis flower.

MediPharm Labs,Corp. (TSX-V: LABS) is in a prime position to capitalize on and further drive these trends. With Canada leading the global push toward legalization (mostly for medical but also for adult-recreational use in some jurisdictions), the Ontario-based company is taking advantage of the country’s early mover status to lay the groundwork for market penetration not only domestically but internationally. As Canada’s first licensed producer to receive a license for cannabis oil production without first receiving a cultivation license, MediPharm has turned the typical Canadian model – vertically integrated cultivator active in all aspects from seed to sale – on its head with its laser focus on oils and extracts, the highest value sector of the cannabis products market.

Supply and Production Agreements

Without its own capacity to grow cannabis flower, MediPharm has entered into multi-year Cannabis Concentrate Program agreements with a number of licensed producers. The company has arrangements with James E. Wagner Cultivation, Bonify, INDIVA Ltd., and Emerald Health Therapeutics. The arrangements typically call for the partners to supply MediPharm with cannabis (flower or trim) over a one- to three-year term. MediPharm then creates the purified extracts and sends them back to the partner, and there is a financial arrangement that can include a processing fee and revenue sharing from product sales. MediPharm also has a supply agreement for a wholesale purchase of dry cannabis from UP Cannabis/Newstrike.

These are partnerships that allow each company to do what it does best. Down the road, as cannabis-derived products like edibles and beverages become legal under Canada’s regulations, MediPharm intends to take these arrangements a step further by white-labeling cannabis products for customers. MediPharm would offer research, formulation, production, and packaging services to other companies to sell. It’s similar to the pharmaceutical contract-manufacturing model that dominates the industry.

The pharmaceutical comparison is especially apt in this case. As cannabis is regulated, both medically and for adult-use markets, the need for standardized and clean products and processes increases greatly. MediPharm is applying pharmaceutical standards to its production, ensuring that the company’s products and facilities meet the most stringent regulations of any potential market. MediPharm’s facilities are ISO 14644 classified and built to exceed international cGMP standards. Many of the company’s executives, from CEO Pat McCutcheon through recently-appointed COO David Mayers to VP Business Development Keith Strachan and Director of Quality Control and Assurance Dr. Chris Talpas, have deep experience in the pharmaceutical industry and are constantly working to assure MediPharm is meeting the highest standards possible.

International Ambitions

MediPharm holds 80% ownership in MediPharm Labs Australia and construction is currently underway on a facility designed to produce the same pure extracts and oils as the Ontario operation. The company has submitted a manufacturing license application with the proper authorities and anticipates a Spring 2019 opening pending receipt of the license. The Australian medical cannabis market is in its infancy. Prohibition Partners estimates the current market at about $17 million but projects it could be worth upwards of $1 billion by 2024.

MediPharm anticipates using its operation there as mostly an export facility until such time as the domestic market matures and grows to larger levels. Of course, export activities are subject to the proper licenses and regulations being in place. Establishing a foothold there with another world-class facility is a strategic move that will give MediPharm operations and access points around the globe.

Looking Ahead

The graphic above is very instructive. In Canada, the world’s most mature and regulated cannabis market, there is a clear trend toward cannabis oils as flower sales remain relatively static. The same trend can be seen in US states that have legalized, where the proliferation of products offers consumers alternatives to smoking the cannabis flower.

MediPharm’s state-of-the-art facilities can process 100,000 kg of dry cannabis annually, with a fully funded and licensed expansion adding another 150,000 kg of capacity by mid-2019. To give you some perspective, Health Canada reports that all licensed producers in the country held just over 66,000 kg of dried cannabis in stock as of the end of June 2018, the most recent month for which these statistics are available. MediPharm’s capacity is not small, the company operates in a high-margin, high-growth sector of a high-growth industry, and it’s not settling solely on the Canadian domestic market. Stay tuned for further developments.

Disclaimer

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About Robin Lefferts