This Pot Stock Is Soaring
Usually, making a 100% return is considered quite an impressive achievement for a stock market investor. But when it comes to the fast-growing cannabis industry, some companies are capable of delivering much, much bigger profits.
Case in point: MediPharm Labs Corp (OTCMKTS:MEDIF, TSE:LABS), a pot company headquartered in Barrie, Ontario, Canada.
MediPharm stock started trading on the TSX Venture Exchange in October 2018 and got uplisted to the Toronto Stock Exchange in July 2019. U.S. investors interested in MediPharm stock can find it trading over the counter under the ticker “MEDIF.”
We know that the fourth quarter of 2018 was pretty harsh for the stock market, particularly for the volatile tickers in the marijuana industry. Unsurprisingly, MediPharm shares tumbled not long after they started trading in October last year. At one point in December, MEDIF stock plunged to as low as $0.91.
Investors who picked up this pot stock during the market pullback are laughing all the way to the bank now.
After the downturn in the fourth quarter, MediPharm stock went on to have a strong rally. Trading at $3.57 per share at the time of this writing, the stock has surged by a staggering 292% since bottoming out in December 2018.
MediPharm Labs Corp (OTCMKTS:MEDIF) Stock Chart
Chart courtesy of StockCharts.com
For a stock to nearly quadruple in price, there must be something special. In the case of MediPharm Labs Corp, that specialness lies in the nature of its business.
You see, when investors talk about pot stocks, they are usually referring to companies that grow marijuana plants. However, cannabis growers aren’t the only ones benefiting from this booming industry. In the case of MediPharm, the company has found a major opportunity on the extraction side of the business.
The company was founded back in 2015. Since then, it has invested in purpose-built facilities capable of processing 300,000 kilograms (661,387 pounds) of cannabis annually. (Source: “Extracting Value from Opportunity,” MediPharm Labs Corp, last accessed September 24, 2019.)
As a matter of fact, MediPharm is the first fully licensed extraction-only pot company in Canada. And while the company doesn’t make headlines as often as the big pot producers, it actually serves some of the biggest growers in the industry.
Among its customers are Canopy Growth Corp (NYSE:CGC), Cronos Group Inc (NASDAQ:CRON), and Supreme Cannabis Company Inc (OTCMKTS:SPRWF, TSE:FIRE).
MediPharm Runs a Fast-Growing Business
As you’d expect from a company with a soaring share price, MediPharm Labs Corp’s business has been firing on all cylinders.
Consider this: in the first quarter of 2019, MediPharm’s revenue was almost CA$22.0 million. In the second quarter, the company generated $31.5 million of revenue, representing a sequential increase of 43%. (Source: “MediPharm Labs Reports Strong, Profitable Second Quarter Results,” MediPharm Labs Corp, August 12, 2019.)
Notably, the company procured 9,000 kilograms (19,842 pounds) of dried marijuana in June. The pot is expected to be processed and sold in the third quarter, which means we could see some solid numbers in its next earnings report.
Other than delivering strong top-line growth, MediPharm’s business also became more lucrative. In the second quarter, the company generated CA$11.3 million in gross profit, which translated to a gross margin of 36%.
This marked a substantial improvement from its first-quarter gross profit of CA$6.9 million and gross margin of 31%.
The quarter-over-quarter expansion in this company’s gross margin was driven by increased volume and efficiency, partially offset by lower average sales prices and higher variable cost.
The most impressive part is that, in the second quarter, MediPharm Labs Corp’s net income before taxes came in at CA$4.1 million, compared with a net loss of CA$325,000 in the first quarter.
This makes MediPharm the first publicly traded Canadian extraction-only cannabis company to deliver positive bottom-line earnings.
More Catalysts on the Way for MediPharm Labs Corp?
And while MediPharm is a Canadian pot stock, it has already expanded its presence internationally. The company signed its first international agreement to export to AusCann Group Holdings Ltd (OTCMKTS:ACNNF, ASX:AC8) in Australia in February, and it acquired an Australian production license in May. (Source: Ibid.)
MediPharm has also invested in a 10,000-square-foot facility that is currently under construction in Victoria, Australia. The facility, which is expected to be completed this year, will have an annual processing capacity of 75,000 kilograms (165,347 pounds).
On September 24, the company announced that it signed its first private label sales agreement with ADREXpharma GmbH to export to Europe. (Source: “MediPharm Labs Enters European Medical Cannabis Market with German Pharmaceutical and Medical Cannabis Distributor ADREXpharma,” MediPharm Labs Corp, September 24, 2019.)
ADREXpharma is a licensed wholesale distributor of controlled drugs and medical marijuana that can serve all of the approximate 20,000 pharmacies across Germany.
After receiving the necessary regulatory approvals, MediPharm will be supplying cannabis concentrate-derivative products, such as tetrahydrocannabinol (THC) and cannabidiol (CBD) oil, to ADREXpharma for sale and distribution in Germany.
Keep in mind that Canada is on track to legalize cannabis vapeables and edibles in the fall of 2019. That event is expected to expand the addressable market for marijuana-derivative products.
As a key player in the creation of those products, MediPharm Labs Corp could take its business to the next level.
Add it all up and you see that, despite the fact that MEDIF stock has already shot through the roof, there are plenty of catalysts to keep investors liking this pot stock.