MediPharm Labs Reports a 49% drop in Revenue in Q1 2020

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MediPharm Labs Reports a 49% drop in Revenue in Q1 2020

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MediPharm Labs (TSX: LABS), headquartered in Barrie, Canada, reported its Q1 2020 results on 18th June 2020. The company specializes in research-driven cannabis extraction, distillation and derivative products.

For the first quarter, the company reported a massive decline in the revenue of 49%. According to the company, the main reason behind the decline was a reduction in the average selling price of bulk extracts and reduced volumes sold because of a continued muted demand in the Canadian bulk wholesale market.

Commercialization in Australia and more

MediPharm Labs was able to secure a while label supply agreement with Compass Clinics Australia Pty Ltd during Q1 of this year. And towards the end of the quarter, was able to secure the white label supply agreement with others such as Burleigh Heads Cannabis Pty Ltd. (Australia), Helius Therapeutics Ltd (New Zealand), Cannasouth Plant Research New Zealand Ltd and Therismos Limited (United Kingdom).

Diversification of Product Mix

The company launched its own brand of high-quality CBD oils in the first quarter. Also, shipped its topicals to a contract manufacturing customer. By the end of the quarter, it entered into a strategic manufacturing and intellectual property licensing agreement with, Avicanna Inc (TSE: AVCN). With this agreement, the company intends to commercialize a wide variety of sophisticated product formats.

Financial Highlights

Revenue: The company reported a revenue of $11.1 million in Q1 2020 compared to revenue of $21.9 million in Q1 2019. This is a decrease of about 49% in MediPharm’s revenue. Mainly caused due to reduction in volume and average selling price of bulk concentrates sold. This was partially offset by growing sales of consumer-packaged goods to provincial distributors throughout Canada.

Gross Profit for the company was ($10.9) million in Q1 2020 compared to a gross profit of $6.9 million in Q1 2019. The main cause behind the decline being a $12.8 million write-down of inventory to net realizable value, owing to the continued oversupply in the Canadian domestic bulk concentrates market as well as a reduction in the average selling price and volume of bulk concentrates sold. This was partially offset by lower cost of flower inputs. As reported by the company the gross profit was $1.9 million before the inventory write-down.

Net loss before tax: MediPharma posted a $22 million of net loss before tax in Q1 2020 compared to $4.3 million in Q1 2019. This was due to $12.8 million write-down of inventory to net realizable value, reduced average selling prices and a share-based compensation expense of $2.8 million.

Adjusted EBITDA for the medical cannabis company was ($5.7) million in Q1 2020 compared to $4.3 million in Q1 2019. The primary reason for this was an increase in headcount along with ERP implementation expenses relative to the Company’s early stage of commercialization in Q1 2019.

Cash and equivalents balance: MediPharma reported a cash and equivalents balance of $21.4 million at the end of 31st March 2020. The company announced on 8th June 2020 that it completed a private placement. It raised aggregate gross proceeds of $37.8 million, 50% of which are being held in escrow pending satisfaction of certain conditions. This resulted in improved liquidity and ability to fully support its strategies including exporting products to new international jurisdictions.

OUTLOOK

According to the company, it expects the Canadian market inefficiencies to persist but slowly moderate while international sales agreements begin to ramp up. Hence, the company anticipates the second-half results to be stronger than the first half of the 2020 performance.

MediPharma has taken measures to improve performance. This includes targeting quality earnings from a wide spectrum of international cannabis markets including medicinal, recreational and wellness. It also plans to deliver high-quality consumer packaged products under white label agreements with leading LPs, bio-pharmaceutical and consumer products companies.

The company is also of the view to enter into the clinical trial arena to broaden medicinal as well as wellness applications. Along with this, it hopes the broadening of its own branded product portfolio will capture the consumer market share with the newly launched MediPharm Lab’s family of product.

In terms of maintaining liquidity and financial strength, the company plans to closely manage its expenses through a continuation of cost containment measures implemented in Q1 and Q2 to date. It also plans to capitalize on the value of the Company’s international supply chain (including procurement sources) and build-out of its multi-jurisdictional manufacturing capability to realize cost and production efficiencies. MediPharma also reported that it will control its capital deployment only to the necessity. And will continue to defer non-essential historically budgeted capital expenditures.

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