Legal Cannabis' Spread Around the Globe Highlights Shift in Opinion

NEW YORK, Aug. 13, 2020 /PRNewswire/ -- Earlier last year, New York state decriminalized the recreational use of cannabis. Instead of jail time, offenders are now punished with a fine. And while cannabis is only legal for medicinal purposes in the state of New York, many companies have established operations in anticipation of recreational legalization. In New York City, there are already over a dozen legal medical dispensaries. Overall, the legal cannabis market is permeating throughout the U.S. states and is helping to create a multi-billion-dollar industry. While medical cannabis still dominates that broad cannabis marketplace, increasing awareness and legalization efforts are expected to further propel the overall industry forward. Nonetheless, medical cannabis can already be found in many regions around the world such as parts of the U.S., Australia, Canada, France, Germany, Thailand, and South Korea. Predominantly, the overall CBD market is driven by the medical sector. As a result, the global legal cannabis market is expected to reach USD 146.4 Billion by 2025 while registering a CAGR of 34.6%, according to data compiled by Grand View Research. MediPharm Labs Corp. (OTC: MEDIF) (TSX: LABS), Tilray, Inc. (NASDAQ: TLRY), Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON), Aurora Cannabis Inc. (NASDAQ: ACB) (TSX: ACB), Canopy Growth Corporation (NYSE: CGC) (TSX: WEED)

In recent years, cannabidiol-based (CBD) products have swiftly emerged. And the growing popularity of CBD is largely attributed to various medical applications that are associated with the products. For example, full-spectrum CBD oil is considered to be a great source of Omega 3 and Omega 6; Omega 3 plays a vital role in creating hormones that regulate inflammation as well as contractions and relaxation of arteries. Yet, despite the increase in popularity, the FDA has only approved one cannabis-based drug, Epidolex, which is used to treat epilepsy. Nevertheless, thousands of retailers and ecommerce platforms had begun to sell CBD products after the passage of the U.S. Farm Bill in 2018. And the remarkable progress the CBD industry has made in the past several years highlights that the cannabis compound has the potential to become the next up and coming medication or even simply a health and wellness products. "Ever-increasing awareness of the benefits of CBD will lead to an upsurge in the demand for CBD oil in beverages and food. This growing cognizance is expected to help propel the industry forward," said Abraham Villegas, Founder of The Medical Cannabis Community. "As the benefits of CBD become more widely published and accepted, funding for research and development will increase as well."

MediPharm Labs Corp. (OTCQX: MEDIF) (TSX: LABS) just announced breaking earnings news this morning that, "a global leader in specialized, research-driven pharmaceutical-quality cannabis extraction, distillation and derivative products, today announced its financial results for the three and six months ended June 30, 2020.

"The first half of 2020 was a transformative period in which we substantially strengthened our balance sheet and liquidity, secured new international customer supply agreements and delivered material, sequential improvements in key financial and operating metrics," said Pat McCutcheon, CEO, MediPharm Labs. "Our strategy to manufacture multiple products for multiple customers in multiple jurisdictions is on track. We are very encouraged with the pace of MediPharm Labs' transformation from a domestic to a global company."

"Q2 featured a 25% improvement in revenue and a strong recovery in gross profit and margin from Q1 – without a meaningful change in Canadian recreational cannabis market conditions," said McCutcheon. "This improvement was achieved on the back of a solid increase in product deliveries, expansion of our vapes and oils SKUs, the launch of our own CBD brands and tight spending controls. At the same time, we accelerated our international growth strategy – successfully commercializing our Australian operations, increasing our total addressable market, winning contracts with customers in growing European and Asia Pacific markets, and developing exciting sales prospects with large pharma and CPG companies."

Q2 FINANCIAL AND OPERATIONAL SUMMARY

• Cash and equivalents balance at June 30, 2020, was $27.9 million. On June 8, 2020, the Company successfully completed a private placement for aggregate gross proceeds of $37.8 million with 50% of such amounts closing into escrow. Subsequent to quarter end, on August 6, 2020, the remaining 50% of the gross proceeds, net of certain fees, was released from escrow to further strengthen the Company's liquidity.
• Revenue was $13.9 million, a 25% increase over Q1 2020, due to higher volume of bulk concentrates sold and growing shipments of formulated finished products to provincial distributors throughout Canada.
• Finished formulated product shipments grew to comprise 16% of Q2 2020 revenue, up from 13% in the Q1 2020 and nil in Q4 2019.
• Gross profit was $2.2 million and gross margin was 16%, compared to ($10.9 million) in Q1 2020 primarily due to an inventory write down in Q1 2020.
• Net loss before tax was $3.8 million, compared to a net loss of $22 million in Q1 2020, despite reduced average selling prices for bulk concentrates.
• Adjusted EBITDA1 was ($2.2 million), a 66% improvement over Q1 2020 as a result of an increase in revenue and decrease in headcount and ERP implementation expenses…

BUSINESS AND STRATEGIC HIGHLIGHTS FOR THE FIRST SIX MONTHS OF 2020

MediPharm Labs is creating footholds in medical, wellness and adult-use markets around the world. The Company has remained steadfastly committed to its goal of becoming a leading global manufacturer of pharma-quality cannabis active pharmaceutical ingredients (API) and formulated products for pharmaceutical, consumer-packaged goods (CPG) and direct to consumer brands.  To achieve this, the Company has focused on its strategic priorities:

• Multiple-Jurisdictions: Building global strength by legally operating in multiple jurisdictions leveraging its asset-light GMP platform to maintain its competitive advantage
• Multiple-Products: Transforming from a domestic to global CMO offering multiple products by providing end-to-end development, production and distribution of bulk API's and finished products to capture greater share of the value chain
• Multiple Customers: Broadening a global customer base to meet increased demand in global medical, wellness and adult-use channels
• Strengthening capabilities and innovation through maintaining its GMP Certifications, expanding R&D Laboratory and establishing a portfolio of Clinical Trials
• Corporate governance strengthened with new independent board members

During the second quarter, MediPharm Labs made strong progress against its strategic priorities as highlighted below:

Building Global Strength (multiple jurisdictions)

• Successfully commercialized MediPharm Labs Australia Pty. Ltd. ("MediPharm Labs Australia") in June 2020 with first revenue generated of approximately $625,000.
• MediPharm Labs Australia entered into 12 customer agreements since January 1, 2020 to supply products in Australia, New Zealand, Germany, UK and Denmark (see examples below).
• Expanded sales pipeline of new prospective customers in Asia Pacific and Latin America and entered advance supply partnership negotiations with a leading pharmaceutical company.
• from a Domestic to Global CMO (multiple products)
• Broadened product categories (including bulk API, formulated CBD and THC tincture bottles, sublingual sprays, vaporizer cartridges, integrated disposable vape pens, and lotions, creams and gel topicals) for medical, wellness and adult-use segments.
• A fourfold increase in Stock Keeping Units (SKUs) to 60 in Q2 from Q1 2020 with many new SKUs in development in Q3.
• Completed large shipment of bulk API and 35,000 units of finished formulated products to MediPharm Labs Australia to meet demand for GMP supply in Australia
• Established a 99%+ CBD Isolate process with first commercial sales in process.
• Expanded range of vape products with unique botanically derived terpene flavour profiles.
• Launched MediPharm Labs own branded line of CBD products and increased breadth of offerings to fill a demand gap in the marketplace for high quality and high potency products.
• Introduced uniquely formulated, high-potency oils for medical and adult use as part of ongoing expansion of its pharma-quality product portfolio. Available nationally at Medical Cannabis by ShoppersTM and to select cannabis retailers and distributors in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario.
• MediPharm Labs CBD25 Regular Formula, formulated with high purity and value pricing
• MediPharm Labs CBD50 Plus Formula, high potency formula
• MediPharm Labs CBD25:5 Release Formula, a high-CBD, low-THC regular strength formulated cannabis oil

Broadening Global Customer Base (multiple customers)

• Secured first European white-label agreement with specialist pharmaceutical company Therismos Limited (Cannaray) to supply a range of cannabis oil products meeting high-quality standards.
• Agreed to supply pharmaceutical-quality, white-label, cannabis oil products to New Zealand's Helius Therapeutics Limited, a biotechnology company.
• Agreed to supply white-label, cannabis oil products to Cannasouth Plant Research New Zealand Limited.
• Agreed to supply white label pharmaceutical-quality cannabis oil products to Burleigh Heads Cannabis Pty Ltd., an Australian wholesaler to medical patients and pharmacies across Australia via the online CanView marketplace.
• Agreed to supply formulated cannabis oil products to Beacon Medical Australia Pty. Ltd., a subsidiary of VIVO Cannabis Inc. First shipments completed in Q2.
• Signed a multi-faceted strategic manufacturing agreement with biopharmaceutical company Avicanna Inc. that will leverage MediPharm Labs specialized contract manufacturing capabilities to produce Rho Phyto™ medical cannabis products under license for commercial sales through Medical Cannabis by Shoppers™ and Pura Earth™ Health & Wellness line for adult-use channels.
• Introduced the highly anticipated Ace Valley Vapes to consumers and shipped 3 SKUs to several markets across Canada as previously announced under a white-label agreement with AV Cannabis Inc.
• Formed a supply arrangement with Argentia Gold Corporation to bring premium cannabis-infused products to leading retailers in Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick. Shipped first products in Q2.
• Commenced filling and packaging services for COVE™ and Spinach™ adult-used brands under a multi-year manufacturing agreement with Cronos Group Inc.

Strengthening Capabilities and Innovation

• Achieved Therapeutic Goods Administration ("TGA") GMP certification of and secured a Licence to Manufacture Therapeutic Goods for MediPharm Labs Australia to create a global pharmaceutical-quality supply chain qualified to serve new emerging medical markets internationally.
• Implemented SAP ERP systems at MediPharm Labs' flagship Canadian facility improving demand planning, procurement efficiencies and to meet qualification requirements set out by large pharmaceutical and consumer packaged goods companies.
• Completed construction of upgraded Quality Control Laboratory for in-house testing of input materials, Work-in-Process and Finished Goods; and completed construction of a dedicated R&D Laboratory in Barrie, Ontario facility to accelerate process optimizations, product innovations and advance medical cannabis science.
• Products were selected by University Health Network and Medical Cannabis by Shoppers to participate in ground-breaking study of blockchain technology to track medical cannabis products from seed to sale.

Corporate Governance and Board Independence

• Appointed former Nestlé Canada President and CEO, Shelley Martin, former President of Janssen Inc., Chris Halyk, and Chief Operating Officer of BMO Capital Markets, Chris Taves, to Board of Directors strengthening governance and independence.
• Marufur Raza resigned from the Company's Board of Directors effective August 12, 2020. He has been replaced as Chair of the Company's audit committee by Chris Taves.

LOOKING AHEAD

The Company is in the early stages of substantially increasing its addressable global market based on its ability to serve customers from its multi-jurisdictional, GMP-certified and fully licensed manufacturing footprint. While COVID-19 and the slow development of the retail marketplace in Canada makes it difficult to forecast near-term performance, the Company is confident that the maturation of its international growth strategy, diversification of its customer base and increased emphasis on the creation and distribution of finished formulated products for medical and wellness segments will lead to long-term growth and value creation.

To maximize its competitive advantages, and ensure its international transformation continues to gain momentum, the Company will execute on the following near-term priorities:

Diversifying and igniting growth by:

• Developing quality earnings from a wide spectrum of international cannabis markets including medicinal, recreational and wellness with emphasis on Europe, Asia-Pacific and South America.
• Increasing the breadth (number of product formats) and depth (SKUs per product format) of its finished formulated product capabilities so that it can drive sales throughout the Canadian and Australian domestic channels and into other international markets.
• Pursuing European GMP certification.
• Delivering high-quality consumer packaged products under white label agreements with leading LPs, biopharmaceutical and consumer products companies.
• Commercializing the isolation and fractionation of specific cannabinoids previously achieved at R&D scale.
• Broadening medicinal and wellness applications by entering into clinical trials.
• Further broadening its in-house branded product portfolio and capturing consumer market share with new branded products.

Maintaining liquidity and financial strength by:

• Capitalizing 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.
• Closely managing all expenses through a continuation of cost containment measures implemented in Q1 and Q2.
• Realizing the value of substantial capital investments made over the past three years while deploying new capital judiciously.

The Company's consolidated financial statements and management's discussion and analysis for the three and six months ended June 30, 2020 are available on SEDAR and on www.medipharmlabs.com..."

Tilray, Inc. (NASDAQ: TLRY) announced back in May that its wholly-owned subsidiary High Park Gardens will close its doors over the course of the next six weeks. As a result of the closure, the Company expects to realize annualized net savings of approximately USD 7.5 Million (current production costs net of future 3rd party purchases and ongoing depreciation) and avoid significant ongoing capital expenditures. In 2019, Tilray acquired Natura Naturals Inc., which has since operated as High Park Gardens. The High Park Gardens facility contains 406,000 sq. ft. of Health Canada licensed space for cannabis cultivation and manufacturing. High Park Gardens has worked collaboratively with Tilray's existing operational sites to primarily serve the adult-use market in Canada. "We are continuously evaluating the evolving needs of our business, against a challenging industry backdrop, to ensure we're in the best position to produce world-class products and deliver positive results for our stakeholders," says Brendan Kennedy, Tilray CEO. 

Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) announced last September that it had closed its previously announced acquisition of four Redwood Holding Group, LLC operating subsidiaries. The transaction provides Cronos Group with a leading U.S. hemp-based products platform, including hemp-derived cannabidiol infused skincare and other consumer products that are sold online and through retail and hospitality partner channels in the United States under the brand, Lord Jones™. Mike Gorenstein, Cronos Group's Chairman, President and Chief Executive Officer, said, "This acquisition is one of a number of new growth opportunities that is differentiating our company and our strategic direction. We are pleased to have completed this acquisition and look forward to working closely with Rob and Cindy to further build on their record of innovation and fully capitalize on the platform they have created."

Aurora Cannabis Inc. (NASDAQ: ACB) (TSX: ACB) reported earlier in May that it had completed the previously announced acquisition of Reliva, LLC a leader in the sale of hemp-derived CBD products in the United States for approximately USD 40 Million of Aurora common shares. The transaction also includes a potential earn-out of up to a maximum of USD 45 Million payable at Aurora's option in shares or cash contingent upon Reliva achieving certain financial targets over the next two years. "We are pleased to have closed the Reliva transaction ahead of schedule. The partnership between Aurora and Reliva is expected to create a market leading international cannabinoid platform that we believe can deliver robust revenue and profitable growth," said Michael Singer, Executive Chairman and Interim CEO of Aurora. "I would like to officially welcome Miguel Martin and his team to Aurora, and look forward to increasing Aurora's operating scale, international reach, and product and brand diversity while in parallel, we remain focused on delivering Adjusted EBITDA profitability in Canada for the benefit of all shareholders."

Canopy Growth Corporation (NYSE: CGC) (TSX: WEED) announced back in April news regarding the American-made CBD brand, First & Free, a new line of CBD Creams: Everyday, Motion and Revitalize. The creams are the latest addition to First & Free's portfolio of hemp-derived CBD isolate products including oil drops and softgel capsules, which launched exclusively in the U.S. last December. The new product line includes three distinct topical creams with CBD isolate that has been derived from 100% USA-grown hemp. Each 1.76 oz tube contains 2500 mg of CBD, making First & Free the highest strength hemp-derived CBD topical cream on the US market. (*Based on product portfolios from the top 5 CBD companies according to Brightfield Research Group 2018-19 data). According to Canopy Growth Chief Commercial Officer David Bigioni, "With our new line of topical creams, First & Free is building a portfolio to treat the everyday stressors that affect both body and mind. We're proud to offer the highest strength topical cream on the US market – up to five times the CBD of other topicals – at a great value."

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