Helping cannabis investors see the light
In 2018 Canada became one of the first countries in the world to legalize the recreational use of cannabis. In late 2019 the country’s Parliament enacted additional legislation – known as Cannabis 2.0 – allowing for the sale of cannabis-infused beverages and edibles.
As a result of these developments, investors injected billions of dollars into the legal pot industry – but it hasn’t been plain sailing for them or for cannabis companies, which have had to contend with long delays in licensing and the slow formation of government-regulated retail dispensary networks.
One company that has successfully navigated the challenge is MediPharm Labs. Founded in 2015 in the town of Barrie, Ontario north of Toronto, it set out with a different vision and business model from other cannabis companies. While others opted for vertical integration, which required the establishment of costly plant cultivation networks, MediPharm chose to focus only on the highest-value part of the supply chain: extraction.
And while others were content to compete domestically for their share of the Canadian recreational market, MediPharm had global aspirations that included serving pharmaceutical companies and research institutions that were addressing medical cannabis users.
A new approach Although differentiation is normally considered a virtue by investors, heading off in a decidedly different direction required MediPharm’s management to invest hundreds of hours in educating the investment community on the merits of its business model and ambitious global focus. For one, investors questioned the costs of achieving and maintaining good manufacturing practice (GMP), which is central to the company’s vision of using pharmaceutical-grade processes to extract, distill and isolate cannabinoids, which are then sold to licensed producers, consumer brand companies and for medical research.
Additionally, after MediPharm announced its plan to build a multi-jurisdictional, GMP-certified, pharmaceutical-quality platform starting with an extraction facility in Australia, investors wondered how a small Canadian company – one called plucky when it won the 2018 Cannabis Start-Up of the Year – could possibly manage to set up complementary manufacturing platforms in other countries.
As it turns out, the company had an answer to both questions. After receiving its first license from Health Canada in March 2018 – in the process becoming the country’s first extraction-only license holder – MediPharm quickly ramped up its flagship facility in Barrie and in 2019 went on to become one of the few companies in the industry to generate solid profitability based on high-quality output to a growing roster of customers.
It also received its first GMP certification, a Cannabis Research License to enable human administration trials in Canada and state licenses for cannabis substances from the Australian Department of Health and Human Services, and finished the initial phases of construction on a 10,000 square-foot specialized extraction facility in Wonthaggi, Australia. Along the way, it became one of the top-performing cannabis companies on the S&P/TSX in 2019, after listing in July. The say it, do it ratio In an emerging industry populated by start-ups, MediPharm Labs has never acted like a start-up. From day one, it began to populate its workforce with medical science, pharmaceutical, legal, manufacturing, marketing and sales talent and, under the leadership of co-founder and CEO Pat McCutcheon, followed the tried-and-true principle of doing what it said it would do.
‘MediPharm Labs was built to last and to us that means paying strict attention to the fundamentals,’ says McCutcheon. ‘Cash generation, disciplined capital allocation with a return-on-capital mindset and risk-managed diversification are just as critical to a cannabis company as any other. We have benefitted from our fundamental focus during the start-up phase and it’s giving us an advantage in 2020 as the Canadian industry feels the growing pains associated with nascent retail distribution.’ IR in the cannabis sector One of the challenges investors in the cannabis sector face is understanding which companies can be relied upon to deliver on their long-term vision and potential and which ones are not investment grade. After investing to catch the wave, shareholders are now looking for stability, clarity of strategy, a strong balance sheet and trustworthy management. In short, the flight to quality is now underway and short-sellers are circling.
Laura Lepore, MediPharm’s vice president of investor relations and communications, says late 2019 marked an inflection point in the industry’s relations with the investment community. ‘The grace period for the sector is over, which is why the fundamentals are so key,’ she says. ‘Investors and analysts are pushing back and wanting guidance, which is a huge change.’
When Lepore joined the company in November 2018 following a distinguished career in IR, she says the management team openly recognized that it needed to add someone with capital markets expertise who understood the importance of clear investor communications. One of the ways this understanding manifested itself was in granting the IR function a place at the executive table. Another was to apply discipline in the creation of investor communications, which is somewhat uncommon in a sector where press release volume does not always equal transparency.
As a member of MediPharm’s senior leadership team, Lepore is an active participant in the company’s operational conversations, which ensures she is always current on the scientific developments taking place within the MediPharm system. Despite having an internationally experienced and recognized CFO (whose last port of call was as C-suite senior adviser at George Weston), investment banking relationships continue to be managed first by the MediPharm IR team.
The company now has six covering analysts and is a regular participant in investor conferences hosted by BMO, Citibank, Canaccord and Scotiabank. Lepore says these relationships have been absolutely critical to communicating MediPharm’s story to the right people, but it’s the willingness of the company’s CEO to ‘go on the road to meet owners and investor prospects directly’ that makes a critical difference.
Lepore says the company’s executive team and board hold shareholders in very high regard – which is understandable since the same team owns a good percentage of the stock – and have created an ownership culture based on taking responsibility and having accountability for outcomes. This attitude prevails at all levels, including in IR. Bumpy ride Despite substantial organizational progress, including a good level of customer and geographic diversification, MediPharm has been caught in sector-wide share price volatility in recent weeks. For her part, Lepore preaches patience as volatility will give way to smoother sailing for those cannabis companies like MediPharm that can execute.
In the meantime, she is keeping her eyes on the task, sharing the company’s story at home and abroad in a targeted way and enjoying the important status IR continues to earn at MediPharm. In her words: ‘MediPharm gets IR and strives to do better every day. For that reason, it’s a great place to keep elevating the investor relations bar and setting the example for every company.’
MediPharm Labs specializes in the production of purified, pharmaceutical-quality cannabis oil and concentrates and advanced derivative products using 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.
Visit www.medipharmlabs.com for more information.
