The cannabis industry made significant progress in 2018, however, many challenges still lie ahead. Last year, the industry reached historic milestones as Canada fully legalized cannabis and numerous other countries ratified the use of cannabis for medical applications. Moreover, three U.S. states also moved to legalize a form of cannabis legislation. Notably, Michigan became the 10th state, including the District of Columbia, to legalize recreational cannabis. Despite ongoing legalization efforts, national governments have played a large role in limiting the industry’s growth. For instance, the Canadian government has curtailed retail hours and limited licensing for companies. As a result, the demand began to outweigh supply, leading to major shortages in certain provinces. The severe shortages then led dispensaries and e-commerce retailers to sell out of products and ultimately close for varying durations of time. Overall, the industry’s growth is heavily reliant on development, positive data, and research. Now, extensive research has already led a handful of countries to legalize medicinal cannabis, however, many still have not registered cannabis as an approved drug. Notably, the U.S. Food and Drug Administration legalized Epidiolex, a CBD-based drug, to treat childhood epilepsy. The FDA also mentioned that in order to approve more cannabis-based treatments, large-scale and positive clinical trials will be required. The FDA’s requirements have led many companies to invest in research and development in order to effectively commercialize cannabis-based treatments. While the medical cannabis segment currently accounts for the majority of the market share, the recreational segment, not to be forgotten, is still prosperous and thriving. The recreational market is expected to grow at a much faster rate, primarily due to states such as Colorado and California, which collectively delivered billions of dollars in cannabis revenue. Furthermore, emerging states such as Nevada and Oregon are expected to contribute to the sum, positioning the U.S. as a dominant player in the cannabis industry. According to Grand View Research, the global legal marijuana market is expected to reach USD 146.4 Billion by the end of 2024 while registering a CAGR of 34.6%. MediPharm Labs Corp. (OTC:MEDIF) (TSXV:LABS.VN), Acreage Holdings Inc. (OTC:ACRGF) (CNSX:ACRG-U.CN), Origin House (OTC:ORHOF) (CNSX:OH.CN), Neptune Wellness Solutions Inc. (NASDAQ:NEPT) (TSX:NEPT.TO), KushCo Holdings, Inc. (OTC:KSHB).
Despite government hindrances, cannabis advocacy has grown exponentially over the past recent years. According to a survey by Pew Research Center, in 2018, 62% of Americans supported the legalization of cannabis, which has nearly doubled in the past ten years. Additionally, a New York University study had revealed that the number of U.S. adults between the ages of 50-64 who use cannabis has doubled in the past decade. Moreover, the number of adults ages 65 or older, who also use cannabis, have increased sevenfold. Among the older generation, many are using cannabis to treat chronic illnesses such as cancer, chronic pain, and arthritis. Additionally, countries around the world are beginning to take notice of the plant and its rampant growth in the North American region. For instance, Mexico’s President Andrés Manuel López Obrador, proposed a bill following his election in late 2018 which would allow Mexican citizens to grow up to 20 plants at a time for their personal consumption. Moreover, Obrador is pushing for full legalization of cannabis, which would further accelerate the North American cannabis region. Additionally, the United Kingdom is also seeing growing cannabis support from its citizens. Advocate groups are pushing the government to reconsider the legality of cannabis and possibly move towards broader legalization, as the U.K. has already adopted medicinal cannabis legislation. Via Forbes, Scott Greiper, the President of Viridian Capital Advisors, said that the pace of legalization is accelerating around the world, not just in the U.S., for both medical and recreational marijuana. Greiper notes that the biggest drivers for creating a large consumer market are: the lifting of the stigma of marijuana; globalization; more advanced technology for agriculture, genetics, biotechnology, and the extraction business coming into a mom-and-pop industry. “This is a very dynamic marketplace for investors and acquirers,” said Greiper. “This is driving companies to become more efficient and more profitable operators.”
MediPharm Labs Corp. (OTCQX:MEDIF) (TSXV:LABS.VN) is also listed on the TSX Venture Exchange under the ticker (TSXV:LABS.VN). Earlier last week, the Company announced, “first quarter financial results for the three months ended March 31, 2019. The consolidated financial statements and management’s discussion and analysis for the period will be available on SEDAR and on www.medipharmlabs.com.
Key Q1 2019 Financial and Year-to-Date Highlights
— Revenue of $22 million, a 115% increase over Q4 2018, leading the Canadian cannabis extraction-only industry
— Gross Profit of $6.9 million, Gross Margin 31%
— Adjusted EBITDA(1) of $4.3 million, a 102% increase over Q4 2018, Adjusted EBITDA(1) margin of 20%
— Strong, positive cashflows from operations
— Q1 revenue includes $7.6 million revenue for initial shipment of large private label cannabis oil contract with a large Licensed Producer
— Acquired more than 5,000 kg (or 5 million grams) of dried cannabis in last 2 weeks of Q1 from multiple Licensed Producers to fulfill robust demand for private label offerings
— Continued significant capital investment, further increasing scale of operations to enhance efficiencies through automation, increase throughput capacity and new equipment for diversified product lines including distillates, vapeables, softgel caps and bottled cannabis oil
— Received over $7 million in cash proceeds from warrant exercises subsequent to March 31, 2019
‘As a differentiated cannabis company, we achieved strong first quarter results and set the pace for continued robust growth, marking our position among top-tier Canadian cannabis companies,’ said Patrick McCutcheon, Chief Executive Officer, MediPharm Labs. “Our revenue and adjusted EBITDA performance, which more than doubled to $22 million and $4.3 million in our first full quarter of operations, illustrates the value of our specialized focus and ability to execute as the Canadian market’s leading extraction experts and providers of high-quality cannabinoid-based derivative formulations at scale. It also demonstrates our ability to convert revenue into positive operating cash flow – a key milestone achieved less than five months after receiving our sales licence.’
‘Our very strong start to the year included signing our fifth, 3-year tolling agreement, with TerrAscend Corp., and completing two new private label supply agreements in the quarter, raising the total potential value of our private label sales agreements to in excess of $85 million over a 15-month period from December 2018. This strong sales momentum continued well into the second quarter, with several new agreements in process and a healthy pipeline beyond those.’
‘In anticipation of expanded legalization in the fall of 2019, we are advancing our distillate and white label solutions platforms to enhance our position for vapeables, edibles and topicals as we expect our addressable market and consumer demand to significantly increase. Our white label offering will be an enduring advantage and attractive solution for LP’s, direct-to-consumer brands and CPG companies, which we expect will also accelerate our growth in the months and years ahead.’
Key Operational and Year-to-Date 2019 Highlights
— Executed multiple private label sales agreements with potential sales value in excess of $85-million over 15-month period from December 2018, with a robust pipeline of additional private label sales opportunities
— Signed first international private label sale agreement with AusCann Group Holdings Ltd. for export of cannabis oil from Canada to Australia for chronic pain medicines
— Continued expansion of white label solutions platform, as planned, to offer formulation, manufacturing and distribution services, in addition to active ingredients, for cannabis oil input products including for vapeables, edibles, beverages and topicals; expected to drive future margin expansion
— Appointed renowned medical expert and pharmaceutical researcher, Dr. Paul Tam, to the Board of Directors and Audit Committee
— Appointed Braden Fenske, former Group Product Director, Global Strategic Marketing for Biosense Webster Inc., a Johnson & Johnson Company, to newly created Chief Strategy Officer position to advance corporate strategy, global growth and strategic partnerships
— Assembled diverse team of globally renowned experts to form our Science Advisory Committee
Near Term Catalysts
— New agreements in process
— Large volume purchases of dried cannabis
— Canadian legalization of vapeables and edibles in fall 2019 creates another significant addressable market for cannabis derivatives
— On track to increase annual throughput capacity from 150,000 kg to 250,000 kg during 2019
— First oil shipment to AusCann Group Holdings in Australia from Canadian extraction-only company
— Advancing international growth strategy – significant progress on construction of MediPharm Labs Australia state-of-the-art cannabis extraction facility with licensing expected H2/19
— Continued progress toward European Union GMP certification to address EU market demand
— Identification and evaluation of additional jurisdictions for continued global expansion opportunities in Europe, Latin America, the Caribbean and Africa…
About MediPharm Labs Corp: Founded in 2015, MediPharm Labs has the distinction of being the first company in Canada to become a licensed producer for cannabis oil production under the ACMPR without first receiving a cannabis cultivation license. This expert focus on cannabis concentrates from being built to cGMP (current Good Manufacturing Practices) and ISO standard-built clean rooms and critical environments laboratory, allows MediPharm Labs to produce purified, pharmaceutical-like cannabis oil and concentrates for advanced derivative products. MediPharm Labs has invested in an expert, research-driven team, state-of-the-art technology, downstream extraction methodologies and purpose-built facilities to deliver pure, safe and precisely-dosed cannabis products to patients and consumers. MediPharm Labs’ private label program is a high margin business for the Company, whereby it opportunistically procures dry cannabis flower and trim from its numerous product supply partners, to produce cannabis oil concentrate products for resale globally on a private label basis. Through its subsidiary, MediPharm Labs Australia Pty. Ltd., MediPharm Labs has also completed its application process with the federal Office of Drug Control to extract and import medical cannabis products in Australia.”
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Acreage Holdings Inc. (OTCQX:ACRGF) (CNSX:ACRG-U.CN), headquartered in New York City, is the largest vertically integrated, multi-state owner of cannabis licenses and assets in U.S. states with respect to the number of states with operating licenses. Acreage Holdings, Inc. recently announced the December 21st opening of The Botanist cannabis dispensary in Worcester, MA at 65 Pullman Street. The Botanist is the new brand for Acreage’s nationwide retail footprint of dispensaries as well as a branded line of carefully curated cannabis products that will soon be sold in them. The Botanist presents a unique experiential design, blending nature and science in an immersive retail environment that is inspired by 19th Century laboratories, greenhouses and the study of botany. The Botanist will offer a selection of the best cannabis products, including flower, vape cartridges, edibles, concentrates and tinctures. A family of proprietary The Botanist cannabis products are currently in development and will soon debut at the store. In keeping with The Botanist’s commitment to education, exceptional service, and a customer experience unlike other cannabis retail stores, the dispensary will also offer a rich program of educational and entertaining events, such as cannabis 101, cooking with cannabis, CBD-infused mocktail parties, and more. Acreage Chief Marketing Officer Harris Damashek said: “The Botanist was designed as a way of life – a physical embodiment of curiosity, medicine, health, and nature, that centers around the power of the plant. It signifies a place with purpose, a place for discovery, and a place that our customers will love to return to. It is the antithesis of the typical cannabis retail store, which usually offers customers nothing more than a cluttered space that sells.”
Origin House (OTCQX:ORHOF) (CNSX:OH.CN) is a growing cannabis brands and distribution company operating across key markets in the U.S. and Canada, with a strategic focus on becoming a preeminent global house of cannabis brands. CannaRoyalty Corp. d/b/a Origin House recently announced that it had closed the previously announced acquisition of Cub City LLC, a licensed premium craft cannabis producer based in Sonoma County, California for total consideration of USD 5.3 Million. Transaction Highlights: Cub City’s 24,600 sq. ft. Santa Rosa facility has an annual production capacity of up to 1,400 kg of ultra-premium flower, along with pre-roll production capabilities; As previously disclosed, Cub City holds a provisional state indoor cultivation license and a local minor-use permit for cultivation, non-volatile manufacturing, processing and distribution. “Access to bespoke cannabis production capacity and related expertise is valuable not just to new cannabis brands but also to heritage, established brands. The addition of Cub City to our cultivation roster strengthens our infrastructure and team in California, making us the partner of choice for brands across the spectrum,” commented Marc Lustig, Chairman and Chief Executive Officer of Origin House.
Neptune Wellness Solutions Inc. (NASDAQ:NEPT) (TSX:NEPT.TO) specializes in the extraction, purification and formulation of health and wellness products. Neptune Wellness Solutions Inc. recently announced that its Solutions Business had begun offering turnkey product development solutions with hemp-derived ingredients to business customers in the United States. A U.S.-based supply chain of licensed hemp extract producers has been established, and initial purchase orders are now being processed. Neptune boasts long-standing experience in the management of custom and white label turnkey product development solutions comprising a diverse array of product forms including softgels, liquids, topicals, emulsions, and water-dispersible powders. Branded ingredients and products that have contributed to Neptune’s success, such as MaxSimil® and ECSentialsTM formulations, could potentially be used in unique combinations with hemp ingredients, particularly as the U.S. regulatory framework around hemp extracts and cannabidiol (CBD) evolves. “The U.S. market for hemp is developing rapidly and represents a significant opportunity for the consumer products industry. Neptune is now offering products and services to American brands that want to create a unique hemp-based portfolio, with products made exclusively in the U.S. for the U.S.,” said Jim Hamilton, President and Chief Executive Officer of Neptune.
KushCo Holdings, Inc. (OTCQB:KSHB) is the premier producer of ancillary products and services to the cannabis and hemp industries. KushCo Holdings, Inc., in line with its previously announced sustainability initiatives, recently announced that it had entered a manufacturing and distribution agreement with SunGrown Packaging, LLC, a California-based provider of sustainable, customized packaging solutions to the cannabis industry. KushCo will immediately begin offering SunGrown’s current biodegradable and child-resistant packaging options to its vast customer network of over 6000 businesses. In addition, the companies will work together to launch a new line of compostable and biodegradable packaging products for use in the cannabis, hemp and CBD industries. Pursuant to the agreement, SunGrown will partner with KushCo to develop products designed for the unique demands of the cannabis, hemp and CBD industries, while ensuring that all new products are environmentally friendly by featuring proprietary, biodegradable materials from renewable resources. This will have an immediate impact to KushCo’s top and bottom line as KushCo expects to recognize up to USD 12 Million in revenue in the first two years of this partnership. Packaging solutions produced under the agreement have been published under protocols established by ASTM International (formerly known as American Society for Testing and Materials) and Biodegradable Products Institute to guarantee proper certification.
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