MediPharm Labs Corp (CVE:LABS) (OTCMKTS:MLCPF) CEO Keith Strachan shares details of the company’s blockbuster deal with a private buyer. Strachan explains that the agreement is for 75-80 percent pure crude resin medical concentrates with the option for further sales worth $13 million. The 13-month contract creates stability for MediPharm. The deal builds on MediPharm’s existing supply agreements with big names like Canopy Growth Corp (TSE:WEED) (NYSE:CGC) (FRA:11L1). The company generated $10 million in sales in December and Strachan believes it is well-positioned for acquisition and expansion opportunities. MediPharm has expanded internationally and its facility near Melbourne, Australia is waiting for government licenses.
Narrator: MediPharm Labs was founded in 2015. It produces pharmaceutical-grade cannabis oil using downstream secondary extraction methodology, distillation and cannabinoid isolation and purification. MediPharm Labs provides B2B contract processing of cannabis to Canadian authorized licensed producers and international growers, supplying cannabis oil to qualified companies for sale under their own brand.
In addition, MediPharm Labs will supply raw materials, formulations, processing and packaging for the creation of ready-to-sell advanced derivative products.
Through its subsidiary, MediPharm Labs Australia Party Limited, MediPharm has also completed its application process with the Federal Office of Drug Control to extract and import medical cannabis products in Australia. MediPharm Labs is listed on the TSX Venture and trades under the ticker symbol LABS.
[stock_chart symbol=”LABS:TSV” align=”left” range=”5D”]
Benjamin A. Smith: Welcome back, everybody. We’re going to go right into our next special guest: we’re going to be speaking with Keith Strachan, who is the President and co-founder of MediPharm Labs Corp. Of course, they have the big news today, the show stopper if you will: they signed a $35 million for the sale of cannabis oil concentrates, with optionality for another 13.5 million more at a future date. Keith, welcome aboard.
Keith Strachan: Hey, guys, thanks for having me.
Benjamin A. Smith: So right of the bat, like I said, you had the showstopper press release today; I, you know, tweeted out this morning, I recognized it right away that this was going to be a big mover, and we got you on the show, so we appreciate that. Could you give us a little bit more into the press release, and maybe some of the salient details that perhaps are hidden in there?
Keith Strachan: Yeah. I don’t think, you know, the press release speaks for itself. It is, as you said, it’s a really big deal, a big deal for us, fourth of its kind for MediPharm Labs, but actually our biggest to date. As you mentioned, it’s $34 million with an option to take it above and beyond that, and really what we’re selling at this point is a crude resin. So what crude resin is, is just winterized oil; for our sake, it’s anywhere between 75 to 80 percent pure, and then what they do with that crude resin, a licensed producer can do, is then go and make multiple end products through various different formulations.
And we’re hoping that, you know, as Health Canada moves along with concentrate market, that we’re going to see even more deals like this come our way, as people try to get ready for things like vape pens or infused edibles or beverages.
Benjamin A. Smith: Okay. So you don’t actually make the end product oil, you just make the resin, which you repackage to LPs who want to rebrand or label their own supply?
Keith Strachan: Correct. Right now, that’s the majority of our volume; we do make an end product, so we do make, right now, a sublingual drop. So just the tincture bottle that you would see like on the Ontario Cannabis Stores, or patients would use. So in some cases, we do provide our customers with a full turnkey solution where we’re selling them a bottle that basically can go straight to a consumer or a patient. And then, as you mentioned, a lot of what we sell now is that resin product.
We’re getting into more requests for distillates, and our pharma team here is setting up a gel cap line as well, which we expect to come online next quarter.
Benjamin A. Smith: Now it’s my understanding that you also provide a cannabis feedstock for LPs that want to create the resin but perhaps don’t have, you know, the supply on hand. Do you cultivate your own supply, or do you outsource to a different, smaller LP to produce on your behalf?
Keith Strachan: Yeah, so basically, Canada has a lot of great cultivators; we’re not one of them. What we do is, we buy from many different sources. So a bit part of our supply chain and the way we can work with partners like Canopy is really guaranteeing a real steady supply chain throughout that horizontal integration. And so what we do is, we buy from all different LPs across the country. Right now, we’re over 15 different people that we’ve bought from, some at larger scale, some are at smaller scale. And we’re looking forward to growing that list, as well.
Benjamin A. Smith: Ed, do you have a question? I know the stock is trading at an all-time high, I believe, post-RTO high? Did you RTO, or did you IPO a few months ago?
Keith Strachan: We did an RTO, so we went live on the TSX Venture the first week of October through a capital pool, and so we did that RTO with our friends at Power One and Canaccord leading the charge, and we’ve, you know, had a great time trading since then, and it’s created us great access for our investors for different options.
Ed Milewski: I’ve got a question for you, Keith, Ed Milewski here. How much money did you have when you started as a public company? Like, how much –
Keith Strachan: We did our concurrent financing this summer. We did a raise at the time, we went out for 15 million; we actually ended up significantly oversubscribed, and we raised $22.5 million at that time. So some of that went straight into investment in our facility, as well as, you know, as probably one of the biggest buyers of dried cannabis.
So when we went public, our cash balance would have been close to that concurrent financing.
Ed Milewski: And so, was this a contract you announced, or did you actually receive $35 million upfront?
Keith Strachan: Yeah, so that is a contract, it’s a 12-month term, or a 13-month term. So as mentioned in the press release, some of that is front end loaded, so we will be shipping $7 million worth of resin out this month, and then the rest will follow along the contract. So that is, the 34 million is future revenue.
Ed Milewski: Yeah, congratulations. You must be elated.
Keith Strachan: Yeah, no, it helps. Ed, this is our fourth contract of this kind, as I mentioned, it is the biggest. We do have other great partners; I know we announced one in December with our friends at Canopy growth, and providing them with oil. So we’re looking forward to doing even more, and really this just creates so much stability for us as we go and work with those cultivators for supply, and we do work on, you know, expansion and our ability, like I mentioned, the gel caps line. Having these contracts in place really puts some structure around the business and some of our revenue planning.
Ed Milewski: Where are you based? Where’s your main facility?
Keith Strachan: We’re based in Barrie, Ontario, so –
Ed Milewski: Not far from here, yeah. Great.
Keith Strachan: We’ll have to get you guys up here soon to take a tour of the –
Ed Milewski: To sample some product.
Keith Strachan: Don’t do any sampling onsite, but yeah, we’ll, you know –
Ed Milewski: Just a little levity there.
Benjamin A. Smith: Now, I noticed in today’s press release you didn’t mention any LPs by name. Was there sort of a non-disclosure there, or just an agreement that you’re just going to not disclose who the contract purveyor is?
Keith Strachan: Yeah, in this case, our customer decided that they didn’t want to disclose at this time that they were the buyer, so obviously we respected that decision. It was material to us we made sure we got that news out, so at this time, this actual partner, we’re not going to disclose, but in the future, you know, we do have different contracts with different people, and in some cases we can share who those contracts are with.
Benjamin A. Smith: Okay.
Ed Milewski: I do have the chart up, if you want to quickly put that up, or I guess we can do that later, whatever you feel?
Benjamin A. Smith: Maybe we’ll look at it later. Now Keith, one last question, you know, related to the cash position that you were talking to Ed about: how’s your cash position going forward in terms of new acquisitions? Now, I’m assuming that that’s on the table; almost all LPs peripheral cannabis companies are looking to expand, they need cash for that everywhere. How’s your cash position, and I know you have activities related in Australia as well. So how’s things looking on that regard?
Keith Strachan: Yeah, I think we have a great cash position now. We will be coming out with our Q4 audited financials; we did a press release the first week of January. You know, our initial month of sales in December was $10 million, so that was significant, and we’ll be putting out the audited financials hopefully mid-March, so we can shed some more light on that cash position.
But we’re well positioned for, you know, talks like acquisitions, talks like expansion. In Australia, as you mentioned, specifically, we’re really excited and we’re getting really close to a license there with the Office of Drug Control. Our site is in the state of Victoria, a town called Wonthaggi, which is just outside of Melbourne, a great place to do business. We’ve built out the factory, it was a greenfield site, so walls are up, doors are on, vault is in, and we’re just finishing up some clean work now on the inside to get ready to do a mirror of what we do here in Barrie.
Benjamin A. Smith: Sounds great. Well, you definitely caught my attention today. Congratulations on the press release; I will definitely be looking at your activities going forward and perhaps have an article or two out on the website as warranted.
Keith Strachan: Appreciate it, yeah. Thanks for having us on – anytime, we’d love to host you here in Barrie as well so we can give you a close look at our operations; we’re quite proud of it.
Benjamin A. Smith: Sounds good, we might take you up on that raincheck. Thank you.
Keith Strachan: Awesome, have a good one, guys.
Ed Milewski: Thanks, Keith.