MediPharm Labs Increases Profitability, Improves Efficiency

MediPharm Labs Increases Profitability, Improves Efficiency
MediPharm Labs Increases Profitability, Improves Efficiency
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There was more good news for MediPharm Labs (CAN:LABS / US:MEDIF)  and its shareholders on Tuesday. The Company reported its Q3 2019 results, delivering strong revenue growth over Q2 and improving bottom-line results.
  • Revenues increased by 38% over Q2 2019 (to CAD$43.4 million)
  • Gross profit increased by 30% over Q2 (to CAD$14.8 million
  • Net income increased by 32% over Q2 (to CAD$5.4 million)

Those were the headline numbers. However, management also wanted to draw attention to another factor in the market: lower prices.
Gross Profit was $14.8 million, a 30% increase over Q2 2019 and Gross Margin was 34% compared to 36% in Q2 2019 despite lower market-selling prices and increased GMP audit certification costs

As the Canadian cannabis industry ramps up, there is increasing competition among cannabis extraction companies (like MediPharm) as overall extraction capacity ramps up. Several of Canada’s largest LP’s are adding extraction facilities (or increasing extraction capacity). And the extraction specialists themselves are rapidly ramping up capacity.

What we are seeing on MediPharm’s bottom-line is that even with greater competition in extraction services impacting selling prices, increasing efficiency from scale is preserving margins. That bodes well for the future profitability of MediPharm.

Along with this, we’re seeing MediPharm advancing two other strategies to augment its core extraction business:
  • White label agreements with other Canadian cannabis companies
  • Diversifying into international markets

MediPharm continues to add to its overall extraction capacity. This includes “a new customized, 200,000 kg extraction line on-site and available for commissioning once allocated to a licensed room.”

The Company expects to start shipping white label products in the fourth quarter of 2019. Several agreements are already in place here.

MediPharm’s international expansion is being led by its Australian subsidiary. Its subsidiary is now licensed for manufacturing and is currently building supply channel agreements to service this emerging cannabis market.

MediPharm Labs remains well-financed, with working capital of CAD$87 million and cash equivalents of $42.1 million. CEO Patrick McCutcheon summed up the Company’s achievements in 2019.

“We are on track to surpass the $100-million milestone in revenue this year, which is a remarkable testament to the tireless efforts of the skilled professionals at MediPharm Labs. With the completion of the roll-out of our initial white label products in sight, and as the regulated retail distribution system starts to hit stride, we can seize the opportunities that Cannabis 2.0 brings beginning next year.”

The Seed Investor continues to be very bullish about Canadian cannabis extraction specialists, especially the industry leaders like MediPharm. Already profitable, it has a clear path to further revenue/profit growth.

DISCLOSURE: The writer holds shares in MediPharm Labs.
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