Exclusive Interview with MediPharm Labs Co-Founder and President Keith Strachan
MediPharm Labs (TSX: LABS) (OTCQX: MEDIF) (FSE: MLZ), focused solely on producing cannabis concentrates, has a leading revenue position in the Canadian cannabis market. Co-Founder and President Keith Strachan spoke with New Cannabis Ventures about the company’s approach to white label partnerships, the importance of quality, and global expansion plans. The audio of the entire conversation is available at the end of this written summary.
MediPharm Labs Leadership
Strachan has a background in supply chain management. He worked in a number of government positions before he entered the healthcare space. It was then that he met Pat McCutcheon, Co-Founder and CEO of MediPharm Labs, who was working the pharmaceutical space. Strachan has always had an entrepreneurial sense, which led him to the restaurant business and then to freelance consulting. As a consultant, he helped some of his clients through the cannabis application process. He crossed paths with McCutcheon again, and the idea for MediPharm Labs was formed.
Today, the company has 200 employees. Some of the other key members of the leadership team include General Counsel Ahmed Shehata and CFO Bobby Kwon. Shehata comes from a background in corporate law. Kwon, a recent addition to the team, previously worked with Weston Group and Unilever.
Canadian Footprint
The MediPharm Labs facility is located in Barrie, Ontario, approximately 45 minutes north of the Toronto airport. The proximity to the greater Toronto area has helped the company to attract and retain talent, according to Strachan.
The facility is 70,000 square feet with 10,000 square feet being used for production. The company currently is working on a number of Health Canada amendments to expand the amount of production space.
The company’s facility, located in an industrial zone, was standing before MediPharm Labs was established, but it was a wide-open warehouse. This has allowed the company to purpose-build its facility for GMP certification, a signifier of the company’s commitment to quality.
MediPharm Labs has a deep market reach in Canada. Looking at the last quarter, the company is third in Canadian cannabis company revenue, behind Canopy Growth and Aurora.
In the short-term, domestic growth may level out, according to Strachan. But, Cannabis 2.0 is a big opportunity for growth in Canada. MediPharm Labs is positioned to offer the active ingredients companies need to produce beverages, edibles, topicals, and vape products.
Cannabis Sourcing and Extraction
MediPharm Labs was the first Canadian company to do concentrate-only production. In early 2018, market demand and the number of licenses made it difficult for the company to source the dried cannabis it needed. Now, dried cannabis is readily available.
Greater supply has translated into lower costs, but MediPharm Labs isn’t necessarily looking to source the least expensive material. Instead, the company focuses on sustainability and quality. Will a supplier be able to give the company product on a monthly basis? Is that product of high quality? The company vets all potential suppliers for a shared focus on quality, and all shipments of dried cannabis undergo third-party testing.
The company’s internal science team and scientific advisory board reviewed different extraction methodologies and ultimately decided CO2 extraction was the best option for the kind of quality the company was targeting.
MediPharm Labs wanted to scale quickly, so opting for an R&D approach and developing a new approach to extraction was not a good fit. Hydrocarbon extraction, using butane or propane, did not fit with the company’s risk profile. In comparison to ethanol extraction, CO2 extraction allows for any earlier separation process of cannabinoids, according to Strachan.
White Label Partnerships
MediPharm Labs partners with other companies to give them a platform to launch their products and brands. In many other mature industries, like CPG and pharmaceuticals, brands outsource their production. MediPharm Labs is looking ahead to where the industry is likely going, instead of where it is today.
When it comes to selecting its partners, MediPharm Labs looks for successful companies with the ability to sell through. For example, popular brewery Ace Hill launched a dried flower line under the Ace Valley brand. The preroll became one of the top-sellers in Ontario. When the company decided to add a high-quality vape pen, it was a good fit for MediPharm Labs.
Canopy Growth is also one of MediPharm Labs’ customers. The company sells Canopy Growth an intermediate product, a winterized resin, by the kilogram, which then goes into a number of Canopy Growth’s product lines.
Global Expansion
In addition to its Canadian footprint, MediPharm Labs is expanding its global reach. In Australia, the company has 80 percent ownership in MediPharm Labs Australia. The company is undergoing the process of earning government certification for that facility. Physicians are gaining more power to treat patients, and the number of medical cannabis patients is growing in this market, according to Strachan.
In Germany, MediPharm Labs has partnered with ADREXpharma, which already sells dry flower and CBD oil. MediPharm Labs will provide the company the active ingredients to create THC oil. Widespread government coverage of medical cannabis in this market helps producers because it alleviates price compression, according to Strachan.
MediPharm Labs is continuing to focus on global expansion, looking at markets like Asia, South Africa, and South America.
Clinical Trials
While MediPharm Labs does not conduct clinical trials, it is in a unique position to support this kind of research. As a high-quality manufacturer, the company can provide clinical researchers with a repeatable product. For example, the company is manufacturing CBD gel caps for a clinical trial run by Mount Sinai.
Trials like this also offer a commercial opportunity. If a product comes from a successful clinical trial, MediPharm Labs could become the manufacturer of choice, according to Strachan.
Funding and Capital Allocation
In June, MediPharm Labs closed on a $75 million bought deal, oversubscribed and led by Scotiabank. And, in October, the company closed a $38.7 million upsized credit facility. MediPharm Labs has yet to pull down on the line of credit, save for the mortgage on its building. The company is well-funded, cash flow positive, and not actively looking for capital.
MediPharm Labs will be allocating its capital into a few different areas. The company will be focusing on expanding and adding more automation to its Barrie facility, staying current with its GMP methodology, looking at international opportunities, and acquiring the dried cannabis it needs to keep up with orders and to support the large-revenue quarters it has executed on this year.
Listing on the NASDAQ
The company has had strong support from the retail investment sector, but now it is targeting new, institutional investors. MediPharm Labs has filed an application to list on the NASDAQ. In addition to access to institutional investment, listing on the NASDAQ will help the company show its leadership position in the sector, according to Strachan.
Tracking the Company’s Growth
MediPharm Labs reported $43.4 million in Q3 revenue, 38 percent growth from Q2. Taking into consideration the regulatory environment of Canada and slower than expected rollout of retail stores, the company, is not expecting another 38 percent growth quarter in Q4, but expects to grow over time as a market leader, according to Strachan.
Strachan sees room for more competition, particularly on a global scale. Keeping in mind the regulatory environment and the relatively small population of Canada, the company is excited about the global medical opportunity. As the company grows, Strachan recommends investors watch the company’s continued commitment to quality, as well as revenue and profitability.
New Cannabis Ventures provides an Investor Dashboard for MediPharm Labs, which is a client of New Cannabis Ventures. Listen to the entire interview:
