MediPharm Labs Corp.: 281% Gains in 2019 and Still One Of the Best Cannabis Plays

MediPharm Labs Corp. Remains A Top Cannabis Stock

MediPharm Labs Corp (OTCMKTS:MEDIF, TSX:LABS) has consistently been one of the top-performing stocks throughout 2019. On May 22, it hit an intra-day high of $6.56, for a then-year-to-date gain of 367%. It closed out June at $3.96, up 240%, making it one of the best-performing pot stocks in the first half of the year.

Despite concerns of the trade war between the U.S. and China, the broader market selloffs, and a swoon in marijuana stocks, MediPharm remains bullish. And having graduated to the Toronto Stock Exchange, significantly improving its visibility, the company’s outlook for the back half of 2019 remains excellent.

MEDIF Overview

The cannabinoid (CBD) industry is experiencing unprecedented growth thanks to major retailers like Kroger Co (NYSE:KR), CVS Health Corp (NYSE:CVS), and Walgreens Boots Alliance Inc (NASDAQ:WBA) entering the fray. Because of this, CBD product sales are projected to explode, in the U.S. alone, more than 700% to $5.0 billion in 2019 to $23.7 billion in 2023. (Source: “U.S. CBD Market to Grow 700% Through 2019,” Brightfield Group, July 9, 2019.)

This will be a boon to CBD companies. But to get their products on the shelves, they need extraction service companies to convert their hemp into resins, distillates, and other extracts so they can be turned into derivative pot products like tinctures, pills, edibles, and infused beverages.

That’s where MediPharm comes in. The Barrie, Ontario-based company produces and sells pharmaceutical-grade cannabis oils and concentrates for derivatives products in Canada and Australia.  (Source: “Investor Presentation,” MediPharm Labs Corp, August 2019.)

The company’s wholly owned 70,000-square-foot. facility has the largest licensed extraction capacity in Canada, at 661,386 pounds (300,000 kg) of dry cannabis flower or trim and expansion capacity of 1.1-million pounds (500,000 kg).

The company’s subsidiary, MediPharm Labs Australia Pty. Ltd., has been awarded a manufacturing license and is almost finished its 10,000-sqare-foot. facility in Melbourne, Australia. Once completed, the company will be able to process up to 165,346 pounds (75,000 kg) of dried cannabis annually. Australia is also a strategic import hub to other emerging cannabis markets.

In late June, MediPharm announced that it completed its first export shipment of medical cannabis concentrate into Australia. MediPharm is the first Canadian extraction-only brand to announce it has received an export permit from Health Canada to ship cannabis solid concentrate into Australia.

(Source: “MediPharm Labs Corp. (MEDIF),” Yahoo! Finance, last accessed August 16, 2019.)

MediPharm Labs Corp continues to defy what is going on with the rest of the cannabis industry and the broader market. Not only has the company’s share price advanced 281% in 2019 to $4.62 per share, but it has great momentum. Keep in mind that a lot of cannabis stocks have reported strong gains this year, but are trending significantly lower.

MEDIF stock had great momentum throughout the first five months of the year before giving up short-term ground to profit taking. The company then traded flat in June and July.

This might not sound very encouraging, but over this same time frame, the Horizons Marijuana Life Sciences ETF (TSX:HMMJ) tumbled 11.7% and the ETFMG Alternative Harvest ETF (NYSE:MJ) fell 8.7%.

Both ETFs continue to slide in August, but MEDIF stock remains bullish, fueled by solid second-quarter results.

Chart courtesy of StockCharts.com

On August 12, the company announced it’s financial results for the second quarter, ended June 30, 2019. The company only started production in the fourth quarter of 2018 so all comparisons are with the first quarter of 2019. (Source: “MediPharm Labs Reports Strong, Profitable Second Quarter Results,” MediPharm Labs Corp, August 12, 2019.)

Second-quarter revenue increased 43% over the first quarter of 2019 to $31.5 million. Net income before tax was $4.1 million, versus a net loss of $0.3 million in the first quarter of 2019.

Net income was $1.9 million, or $0.01 per share, compared to a loss of $0.5 million, or $0.01 per share, in the first quarter of 2019.

MediPharm reported second-quarter 2019 gross profit of 411.3 million, a 65% increase over the $6.8 million recorded in the first quarter of 2019.

The company ended the quarter with a cash balance of $72.7 million, in comparison to $7.9 million at the end of 2018.

Analyst Take

MediPharm Labs Corp is an under-the-radar cannabis stock that is significantly outperforming the cannabis industry and broader market. It reported excellent second-quarter results and is the first publicly traded, Canadian extraction-only company to deliver bottom-line earnings.

There are a large number of additional catalysts for growth which make MEDIF stock worth watching, all of which should help the company’s momentum continue for the remainder of the year and into 2020.