Case Study: Status Updates
Aug/Sept 2022
Aug/Sept 2022
Aug/Sept 2022
LABS is range bound 7 to 8 cents. The sector as evidenced by cannabis ETF's MJ / MSOS / POTX is at historical lows. Markets overall and microcaps continue to sell off with high inflation. Medipharm needs material news and improving sector strength.
October 2022
Aug/Sept 2022
Aug/Sept 2022
VERY uneventful October - other than the stock market in general was lousy thanks to Russia, UK economic instability, and rising interest rates / inflation. LABS was stuck near 7 cents with no news and a cannabis sector at multi-year lows.
November 2022
Aug/Sept 2022
November 2022
Moderate sector recovery following US midterms. Nov 14th LABS financials released. Solid top line revenue growth but a lot of work remains controlling costs. I posted comments on Facebook / Linkedin. Gains hit 50% but now only up 15% (11/30/22)
Case Study: Medipharm Labs (LABS:TSX 0.07 - Sept/22)
Posted Sept 20, 2022
MediPharm Labs (LABS:TSX $0.07 / MEDIF:OTCQX / MLZ:FSE)
Shares Outstanding: 277 million / Market Cap at 0.07: $19.4 Million CDN
My "guestimate" of (current) fair value for buildings, equipment, sales channels, licences and intellectual property (IP) is approx. $50 Million CDN. To date, well over $100 Million has been spent building out their business model. I am giving them 12 to 18 months to sink or swim - prove they can generate a profit by Q1 2024.
This assumes they close the sale of their Australian assets and collect the bulk of a large outstanding receivable. This cash infusion combined with layoffs and business "rationalization" would in theory ensure their survival into 2024. During this time, we would also be looking (hoping) for an accretive merger or acquisition + improving international sales. If they stumble on these fronts throughout 2023, a person would likely take the tax loss in Q4/23.
Initial Price Target for 2023 ($0.20's)
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"Founded in 2015, Medipharm Labs specializes in the development and manufacture of purified, pharmaceutical-quality cannabis concentrates, active pharmaceutical ingredients (API) and advanced derivative products utilizing a good-manufacturing-practices-certified facility with ISO-standard-built clean rooms. Medipharm Labs has invested in an expert, research driven team, state-of-the-art technology, downstream purification methodologies and purpose-built facilities with five primary extraction lines for delivery of pure, trusted and precision-dosed cannabis products for its customers. Through its wholesale and white label platforms, Medipharm Labs formulates, develops (including through sensory testing), processes, packages and distributes cannabis extracts and advanced cannabinoid-based products to domestic and international markets."
"In 2021, Medipharm Labs received a pharmaceutical drug establishment licence (DEL) from Health Canada, becoming the only company in North America to hold a domestic good manufacturing licence for the extraction of natural cannabinoids."
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As per financials to June 30th:
Cash: $22 Million
Accounts Receivable: $15 Million
Building & Equipment: $24 Million
Inventory: $13 Million
Total Tangible Assets: $74 Million
Debt $8 Million
Q1/Q2 2022 Revenue $9 Million (operating at a material loss)
* Australian assets tentatively sold July 2022 for $6.2 Million CDN
* Medipharm is working to collect $9.8 Million CDN in outstanding accounts receivable owed as per a legal judgement July 2022.
In trading near net cash value (summer 2022), the market cap ignores the value of their facility, IP, and licenses. When Jazz Pharmaceuticals bought GW Pharma for $7 Billion in 2021, it was not only the revenue and potential of #Epidiolex, but GW's pharma approach to Cannabis. And in the United States, manufacturers would require #GMP #API for mass production. Medipharm in this respect could be years ahead of even the largest Cannabis companies.
Since 2015 the public cannabis industry has spent billions on giant indoor grow operations and building market share "at all cost". That model no longer works and is being shunned by investors of all sizes. But in doing so, their facilities fell behind the pharmaceutical industry who demand VERY strict control and regulation. Bringing those facilities now up to a pharma standard would take years and cost a fortune.
And if CBD (a massive global market) comes under tighter regulation moving forward, very few companies will be ready. Which begs the question... what is Medipharm's facility, licenses and IP really worth to a large cannabis company or pharma wanting to get into the cannabis or CBD market ? Currently the valuation of LABS assigns ZERO value to ANY of this.
An investor in a company like Medipharm needs to track the medical marijuana industry - I have links for that below as you want to track / monitor the “growth potential” - or pitfalls. The same would apply if we used a lithium exploration stock. You would track developments in clean energy, autonomous vehicles, etc.
Medipharm has a very good corporate presentation and I would use this for further due diligence. It is available HERE.
As a rule, when initially researching a microcap, you want to carefully go through a corporate website and a PDF version of their corporate presentation for investors is an excellent starting point. For microcap companies that don't provide this, you really have to ask yourself why ? Typically that alone can be a red flag.
Some companies provide their financials on their website and if they don't they should provide a link to EDGAR in the United States or SEDAR in Canada. If you need to hunt everywhere just to find financials for the past couple quarters, there is something wrong and you should avoid the company.
Why Medipharm ?
Over the years I have seen MANY stocks trading below 20 cents do extremely well. But in most cases, they have little substance. Typically, they are nothing more than stock promotions trying to take advantage of a “hot” sector – gold, cannabis, crypto, tech, etc.
For a microcap case study, we could use any company trading up to $2 or $3. But a stock trading below 10 cents can appeal to many people. In particular, new investors because you can invest a few hundred dollars through a discount broker and track how they behave (and what affects them) in real time – while still having a personal stake (vs trading on paper to practice).
Medipharm by no means is the “best of the lot.” But their market valuation in relation to underlying asset value, and potential over two years, makes it an attractive risk / reward. Of particular importance, unlike most microcap stocks, LABS has over $20 Million in the bank and minimal debt. Or at least they do in the summer of 2022 when we started this “exercise”.
The primary RISK is their monthly burn rate – it is CRITICAL they get it under control.
The cannabis sector is plagued with debt and high burn rates. Medipharm debt is low, but their burn rate is way too high. If they burn through all their cash in 2023 and are not dramatically closer to break even, they will be forced to raise more $ and this will involve a share rollback / consolidation.
Reference this outside link for an explanation of that.
Labs is a cannabis processor vs a grower, but they need economies of scale to make their business viable mid to long term.
Having an active corporate communication / investor relations (IR) program is also critically important to a microcap company. Medipharm is very weak in this respect but given the sector weakness in 2022 it isn't a deal-breaker. The trade off is that their new CEO is focused on turning the ship around.
The opposite version of this is slimy stock promotion that abuses the entire IR process to flog lousy companies on unsuspecting investors so that insiders (and their friends) can dump stock at a profit. That is definitely NOT the scenario with Medipharm but I do wish they put more effort into IR.
Stockhouse.com does a great job with quotes, charts, news, and company specific message boards (called Bullboards). The button below links to their Medipharm page.
Tracking the Sector
The Best Cannabis Sites
When you own a microcap stock you need to track their industry. These sites have been around for years and track developments internationally. Click the name for the link:
420intel.com marijuanamoment.net
If you wish to receive updates about our Case Study or changes to the microcap website, I will post these on Linkedin or Facebook.
Danny Deadlock
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