Assessing MediPharm Labs' Sales Agreement with Canopy Growth -- CFN Media

SEATTLE, Dec. 12, 2018 (GLOBE NEWSWIRE) -- via NEWMEDIAWIRE -- CFN Media Group ("CFN Media"), the leading agency and financial media network dedicated to the North American cannabis industry, announces publication of an article discussing MediPharm Labs (TSXV: LABS) and its recent cannabis concentrate sales agreement with Canopy Growth. First, a little background.

According to Health Canada statistics, cannabis oils have been steadily increasing market share in Canada over the past couple of years as an alternative delivery method to smoked flower. The numbers are kind of startling. In September 2018, licensed producers sold 1,755 kilograms of dried cannabis to patients while oil sales reached 4,455 kilograms. What's more, Health Canada plans to allow a wide variety of cannabis-derived products like edibles into the market in the fall of 2019. Edibles have been shown to be wildly popular in mature markets in the United States. Underlying these product categories is cannabis concentrate, the viscous sludge that results from extracting the active ingredients from the cannabis plant. Companies turn concentrate into more diluted oils and all kinds of other products, like gummies, beverages, and topical creams.

With market demand expected to continue its upward trajectory, MediPharm Labs is positioned as a concentrate and extraction expert. MediPharm is the first licensed producer in Canada to focus exclusively on oils and extracts. The company's recent sales agreement with Canopy Growth is a prime example of MediPharm's business model, though its magnitude may be misunderstood. Here is an attempt to sort through the deal and understand its implications.

The Agreement

Canopy has committed to buying 450kg of cannabis extract from MediPharm over the next 18 months, with an option to buy another 450kg. That's it! But in a market that has been conditioned to large annual flower production numbers in the thousands of kilograms, 900kg doesn't really sound that impressive. A more thorough understanding of concentrate and how it relates to end products is needed to properly assess the deal.

Cannabis Concentrate

MediPharm creates concentrate by extracting the active ingredients from cannabis. The concentrate consists of about 70% active ingredients (mostly THC and CBD), meaning that 450kg of concentrate carries about 315kg of active ingredients. That concentrate is then diluted into marketable products like the oils currently available in Canada. These oils come in a variety of concentrations and mixes of active ingredients, but suffice to say that more than 450kg of oils can be made and sold from 450kg of concentrate.

What the Market Offers

Let's spin through a few cannabis shops to get a representative idea of what's on the market. The numbers may blur together a bit, but we will endeavor to boil it all down in the following section... On CannTrust's shopping site, three types of oils are offered with varying mixes of THC and CBD. All contain between 1,000mg and 1,100mg of active ingredient per 40ml bottle. All retail for $90.

The Ontario Cannabis Store offers a wider variety of products. The Plain Packaging Balanced Oil contains 480mg of active per 40ml bottle, retailing for just over $110. Aurora's Indica Drops contain about 750mg of active per 30ml bottle, retailing for about $83. Hexo's Oil Oral Sprays contain about 375mg of active per 15ml bottle, retailing for about $84.

Canopy's own Spectrum Cannabis offers a wide variety of products as well, including softgels. The Red No. 2 softgels contain just over 300mg of active per $45 bottle. The Blue Cannabis Oil has 1,000mg of active per 40ml bottle, retailing for $90.

Translating the MediPharm Agreement

The Canopy contract guarantees the sale of 450kg of concentrate, translating to 315kg of active ingredients at a 70% concentration. One kilogram equals 1 million milligrams (apologies for the remedial math lesson), so MediPharm is selling 315 million milligrams of active ingredient. For the CannTrust oils, even using the higher number of 1,100mg of active per bottle, 286,363 bottles could be produced from that amount of active ingredient, which would generate $25,772,670 of revenue from sales at full retail.

Canopy could conceivably produce 1.05 million bottles of the Red No. 2 softgels resulting in $47,250,000 of revenue from sales at full retail. The Blue Cannabis Oil numbers fall more in line with the CannTrust calculations, producing 315,000 bottles and generating $28,350,000 of revenue at full retail.

Hexo's Oil Oral Sprays offer a look at a different product category. 840,000 spray bottles could be produced utilizing 315 million milligrams of active ingredient, which would result in $70,560,000 of revenue at full retail.

No details of the sale price for the MediPharm/Canopy agreement have been released, so it would be foolish to guesstimate the expected revenue from MediPharm's end. But the contract guarantees the 450kg of concentrate and allows for another 450kg option. As you can see from the above exercise, this is not a small deal by any measure.

With demand for oils on the rise, and the promise of future higher-margin product categories that utilize concentrates as their basis (edibles, beverages, personal care products), this first-of-its-kind agreement for MediPharm Labs is just an indication of the company's potential.

Please follow the link to read the full article: http://www.cannabisfn.com/assessing-medipharm-labs-sales-agreement-with-canopy-growth/

About CFN Media

CFN Media (CannabisFN) is the leading agency and financial media network dedicated to the global cannabis industry, helps companies operating in the space attract investors, capital, and publicity. Since 2013, private and public cannabis companies in the US and Canada have relied on CFN Media to grow and succeed.

Learn how to become a CFN Media client company, brand or entrepreneur: http://www.cannabisfn.com/featuredcompany

Download the CFN Media iOS mobile app to access the world of cannabis from the palm of your hand: https://itunes.apple.com/us/app/cannabisfn/id988009247?ls=1&mt=8

Or visit our homepage and enter your mobile number under the Apple App Store logo to receive a download link text on your iPhone: http://www.cannabisfn.com

Disclaimer

CannabisFN.com is not an independent financial investment advisor or broker-dealer. You should always consult with your own independent legal, tax, and/or investment professionals before making any investment decisions. The information provided on http://www.cannabisfn.com (the ?Site') is either original financial news or paid advertisements drafted by our in-house team or provided by an affiliate. CannabisFN.com, a financial news media and marketing firm enters into media buys or service agreements with the companies that are the subject of the articles posted on the Site or other editorials for advertising such companies.  We are not an independent news media provider. We make no warranty or representation about the information including its completeness, accuracy, truthfulness or reliability and we disclaim, expressly and implicitly, all warranties of any kind, including whether the Information is complete, accurate, truthful, or reliable. As such, your use of the information is at your own risk. Nor do we undertake any obligation to update the items posted. CannabisFN.com received compensation for producing and presenting high quality and sophisticated content on CannabisFN.com along with financial and corporate news.  

The above article is sponsored content. Emerging Growth LLC, which owns CannabisFN.com and CFN Media, has been hired to create awareness. Please follow the link below to view our full disclosure outlining our compensation: http://www.cannabisfn.com/legal-disclaimer/

Frank Lane
206-369-7050
[email protected]