MediPharm Labs Corp: Keep This Pot Stock on Your Radar

MediPharm Labs Corp: Profitable Pot Stock Up 123% in 2019 Is A Bargain
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MediPharm Labs Corp Is Up 123% in 2019, With Room to Run

Cannabis stocks have not lived up to all the hype this year. After an impressive run at the start of the year, cannabis stocks have, for the most part, taken a beating. And they have yet to find a floor.

That said, there are a small number of marijuana stocks that should stay on investors’ radar. One of them is MediPharm Labs Corp (OTCMKTS:MEDIF, TSE:LABS), the first fully licensed extraction-only cannabis company in Canada.

MediPharm stock isn’t exactly soaring right now, but then again, neither is any pot stock. Still, it’s up 123% year-to-date and continues to have excellent long-term growth potential.

Why? In addition to reporting a strong, profitable second quarter, MediPharm Labs Corp:

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  • Has a strong balance sheet
  • Significantly increased its annual dried cannabis processing capacity
  • Increased its exports to Australia
  • Entered into a supply agreement with potential value up to $192.0 million
  • Entered the European medical cannabis market
  • Inked manufacturing agreement with Cronos Group Inc (NASDAQ:CRON)

(Source: “Extracting Value From Opportunity,” MediPharm Labs Corp, last accessed October  11, 2019.)

All these developments have taken place since the start of September. This kind of news would generally send any stock higher, but not so in the cannabis sector. Investors are a little weary right now, but that shall pass.

Currently trading at $2.88, MEDIF stock is up about 120% year-to-date, which is stellar, but it’s down about 49% from its May 22 high of $5.65.

Most of that decline is a result of investors punishing marijuana stocks en masse, whether they deserve it or not. MediPharm Labs Corp is one pot stock that doesn’t deserve it.

Eventually, investors will start to look at cannabis stocks on an individual basis and judge them based on their underlying operations. When they do, MediPharm stock will get the attention it deserves.

MEDIF Stock Overview

MediPharm Labs Corp is a cannabis extraction-service provider, meaning it helps growers turn their leafy gold into hemp resins, distillates, and other extracts. Then those extracts are turned into products like edibles, pills, tinctures, and beverages.

The Barrie, Ontario-based company recently increased its annual dried cannabis processing capacity to 300,000 kilograms (661,387 pounds). Annual capacity will eventually increase to more than 500,000 kilograms (1.1 million pounds). (Source: Ibid.)

MediPharm began construction on a 25,000-square-foot of additional licensed space to support manufacturing, filling, packaging, and cannabinoid isolation activities, and specialized research and development at its Barrie headquarters. (Source: “MediPharm Labs Reports Strong, Profitable Second Quarter Results,” MediPharm Labs Corp., August 12, 2019.)

The company was awarded a manufacturing license and is close to finishing a 10,000-square-foot facility in Melbourne, Australia that will allow MediPharm to annually process up to 75,000 kilograms (165,346 pounds) of dried marijuana.

MediPharm also recently sent its first shipment of medical cannabis concentrate to Australia.

MEDIF Stock Information

Market Cap $374.4 Million
52-Week High $5.65
52-Week Low $0.91
Shares Outstanding 129.8 Million
Float 112.6 Million
50-Day Moving Average $3.45
200-Day Moving Average $3.88

(Source: “MediPharm Labs Corp. (MEDIF),” Yahoo! Finance, last accessed October 11, 2019.)

Q2 Revenue Up 43%, Swings to Profitability

On August 12, MediPharm Labs Corp announced that its revenue for the second quarter of fiscal 2019, ended June 30, increased 43% on a sequential basis to $31.5 million. (Source: MediPharm Labs Corp., August 12, 2019, op. cit.)

MediPharm didn’t start production until the fourth quarter of 2018, so all comparisons are done on a sequential basis.

Net income before tax was $4.1 million, versus a loss of $30,000 in the first quarter of 2019. Adjusted earnings before interest, tax, depreciation, amortization (EBITDA) came in at $7.7 million, a 79% increase over the first quarter of 2019.

During the second quarter, the company raised $75.0 million in gross proceeds from a bought-deal offering of 13.5 million shares, at a price of $5.55 per share.

MediPharm will use these proceeds to build additional space in Canada and Australia to support its expected growth in each country and to further diversify its product lines.

MediPharm ended the second quarter with a cash balance of $72.7 million, compared to $7.9 million at the end of 2018.

During the second quarter, MediPharm secured an 18-month agreement with Cronos for roughly $30.0 million of cannabis concentrate. That agreement could reach up to $60.0 million over a 24-month period if certain conditions are met.

Analyst Take

MediPharm Labs Corp continues to be one of the best-performing cannabis stocks out there.

The company announced strong second-quarter financial results, which included strong revenue growth, EBITDA, net income, and earnings per share. In fact, MediPharm is the first public Canadian extraction-only cannabis company to report bottom-line earnings.

MediPharm has gained significant momentum through new customer wins and the ramp-up of its Canadian and Australian facilities. All of which, management says, “will drive growth and value for the remainder of this year and well beyond.”