MediPharm president talks singular focus, derivatives, challenges and more
In this edition of "Rising High," The Fly conducted an exclusive interview with Keith Strachan, president of MediPharm Labs (MEDIF), a Canadian cannabis extractor specializing in the production of purified, pharmaceutical-grade cannabis oil and concentrates. Here are some of the highlights:
SINGULAR FOCUS: MediPharm Labs is a Canadian company focused on specialized, research-driven cannabis extraction, distillation, purification and cannabinoid isolation. As many companies in the industry look towards a vertical integration strategy, MediPharm has maintained its focus on extraction, which Strachan said he believes has really driven the company’s success. “When you look at a vertically-integrated company there’s a lot of things going on, anything from consumer sales and marketing to growing to processing,” he said. “It’s a lot for one company to take on and I think by being singularly focused on extraction it actually gives us the most value and the most success. If you look at how massive our growth has been over the last nine months since we listed on the TSXV, it’s quite evident that our business model is sticking to business fundamentals and that drives success.” Strachan noted the company was the 95th license issued by Health Canada but is currently third in revenue and produces the most cannabis concentrate on a daily basis than any other company in Canada.
FLOWER VS. DERIVATIVES: When asked about how he expects flower use versus derivative use to shift in the future, Strachan noted massive growth in the derivative market in other more mature legal jurisdictions, like Colorado or California. “That’s not to say that there isn’t still a market for flower, especially in the premium sense but when you look at the derivatives everything starts with a concentrate,” he said. “Whether that is a beverage or a vape pen, it all starts with some sort of extraction process so by being in extraction you hit off all derivatives.” When discussing what delivery method may become prominent, the company president said he sees the vape pen gaining popularity as it’s an easy method and very consumer friendly. The company has been investing in the ramp up of industrial scale soft gel capsule capabilities and the foundation to become one of the largest vaporizer cartridge fill manufacturers in Canada. “When you look at products like gel caps and vape pens, it’s really about getting closer to the end product to get more market,” Strachan said. “We’re seeing some price compression in wholesale flower and I think initially that will lead to some price compression on the intermediate distillate. By MediPharm focusing on the end product, we’re able to drastically increase our margins.” He said margins are currently anywhere between 35%-40% through the sale of intermediate product but they can go to the 55%-75% range with specialized products.
AUSTRALIAN OPERATIONS: MediPharm recently completed its first international export shipment of medical cannabis concentrate to AusCann in Australia authorized through permits granted by the Australian Office of Drug Control and Health Canada. The company also was awarded a manufacturing license and is nearing completion of a facility southeast of Melbourne that will house CO2 extraction to process up to 75,000 kg of dried cannabis annually as well as secondary processing equipment for the manufacture of purified and high-concentrate cannabis distillate. Strachan said, “The Office of Drug Control gave us a license earlier this year and we’re just waiting for the Therapeutic Goods Administration to give us our final licensing before we’re fully operational in Australia.” The company president said MediPharm chose to go to the continent because it’s very similar to Canada. “When you look at the regulations in Australia, whether that’s for pharmaceutical manufacturing or the way they rolled out their medical cannabis program, it’s a lot like what Canada was three or four years ago before legalization started taking place in late 2015,” he said. He added, “If you look at Southeast Asian markets opening up now, for example some of the stuff that Thailand is doing with legalization of cannabis for medical use, Australia gives us a great platform to get into those markets." Strachan said with Australia and Asia Pacific covered MediPharm, will look at expanding into places like Europe and South America. The company is currently in the midst of its EU GMP certification process.
CHALLENGES: When asked about the challenges facing the company, Strachan said MediPharm faces growing pains like any other business including scaling. “We’re scaling up rapidly,” he said. “Last year at this time we probably had about 40 employees and we now have over 190 employees globally.” When looking at the industry, the company president said he believes the biggest challenge is the maturity of the logistics and distribution side of the business. “Sometimes you hear things like ‘a shortage in cannabis,’ I don’t think there’s an actual shortage in cannabis,” he said. “There’s a shortage of expertise in that final mile on how we get cannabis from a greenhouse to an actual consumer to a patient.” Strachan said he expects more distribution and packaging companies to arise in the future as the industry matures.
INDUSTRY LANDSCAPE: The company president said as the industry progresses, he expects the landscape to play out similarly to the alcohol industry. “We’re bound to have probably three or four massive suppliers, producers, brands but then there will be lots of room for the craft or artisan brands as well,” he said. “I think that it’s a great space for entrepreneurs. I think we’ll still end up with your big four or big five as far as market share goes but there’ll still be a lot of opportunity for those medium to smaller-sized businesses.”
EARNINGS: MediPharm Labs reported Q2 earnings on August 12 posting a revenue of C$31.47M which compared to C$10.19M for the same period in 2018. The company reported gross profit of C$11.3M, a 65% increase over Q1, and a gross margin of 36% compared to 31% in Q1. Adjusted EBITDA was C$7.7M 79% higher than Q1, while Adjusted EBITDA margin was 24% compared to 20% in Q1. “MediPharm Labs made tremendous progress in the second quarter with growth in all key value drivers,” said CEO Patrick McCutcheon. “Based on the strength of our business model and the effectiveness of our corporate strategies, we’ve become the first public Canadian extraction only company to deliver bottom-line earnings and do so while investing heavily in our sophisticated extraction and production platforms ahead of benefits realized.”
OTHER CANNABIS STOCKS: Publicly-traded companies in the space include Aurora Cannabis (ACB), Aphria (APHA), CV Sciences (CVSI), Canopy Growth (CGC), CannTrust Holdings (CTST), Cronos Group (CRON), General Cannabis (CANN), Canopy Growth, Tilray (TLRY), Innovative Industrial Properties (IIPR), India Globalization Capital (IGC), ICC International Cannabis (KNHBF), Biome Grow (ORTFD), MediPharm Labs (MEDIF), Indiva (NDVAF), OrganiGram (OGRMF), KushCo (KSHB), MedMen Enterprises (MMNFF), Elixinol Global (ELLXF), Planet 13 Holdings (PLNHF), Wayland Group (MRRCF), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), Origin House (ORHOF), Sunniva (SNNVF), Sproutly (SRUTF), DionyMed Brands (HMDEF), GrowGeneration (GRWG), Harvest Health & Recreation (HRVSF), Trulieve (TCNNF), Zynerba (ZYNE), Greenlane (GNLN), Delta 9 (VRNDF), Canopy Rivers (CNPOF) and Westleaf (WSLFF).