Last week, we discussed the topic of consolidation in the cannabis industry and wanted to go deeper on the topic by providing two examples of companies which represents acquisition targets and one example of a company that could be the acquirer.
Will MediPharm Follow in Valens’ Footsteps
We consider MediPharm Labs Corporation (OTCQB: MEDIF) (TSX: LABS) to be a more advanced version of The Valens Company Inc. (TSX: VLNS) (Nasdaq: VLNS) which was just acquired by SNDL Inc. (Nasdaq: SNDL). Following the transaction, we would not be surprised to see the leading cannabis concentrate company acquired by a different Canadian Licensed Producer (LP).
MediPharm is levered to several emerging international markets and is also focused on the biotech side of the cannabis sector. We consider the business to be a differentiated growth story with significant potential catalysts. At current levels, we believe MediPharm has significant upside potential and want our readers to put the company on their radar.
A few weeks ago, MediPharm reported earnings and below are our key takeaways from it:
- After the quarter entered, the company agreed to sell MediPharm Labs Australia PTY for at least AUD$6.9 million. MediPharm expects to save approx. $4 million per year from the deal and it strengthens its balance sheet.
- MediPharm is highly focused on cutting costs and implemented a restructuring plan to lower Canadian non-manufacturing headcount by approx. 30%
- During the quarter, MediPharm’s German partners were a key growth driver for patient sales and the leadership team expects its partners to continue to have a positive impact on wholesale side of the business.
- After the quarter ended, MediPharm received its first regulatory permits to ship good manufacturing practices (GMP) certified active pharmaceutical ingredients (API) to Denmark. We are bullish on the growth prospects associated with the international market for MediPharm
Aleafia Health is an Acquisition Target
Aleafia Health Inc. (TSX: AH) (OTCQX: ALEAF) is a Canadian LP which we consider to be an acquisition target. During the last year, the company has been under pressure and has been trending lower with the rest of the Canadian cannabis sector.
Although the last year has been tough on Aleafia Health’s stock price, we find the risk-reward profile to be compelling at current levels. From owning strategic international cannabis assets to capturing market share in Canada, we believe the LP has significant growth prospects and owns assets that would be synergistic to any company that acquires it.
A few weeks ago, Aleafia Health reported earnings and below are our key takeaways from it:
- During the quarter, Aleafia Health reported a significant increase in amount of branded cannabis net revenue when compared to the prior year. We consider this to be a key data point and will monitor how this number changes in future quarters
- During the quarter, international agreements accounted for more than $500,000 of sales to Germany and Australia. We consider the revenue generated in international markets to be an important differentiating factor for Aleafia. International markets are less saturated and we find the profit margins to be much more attractive (on average).
- During the quarter, the Canadian LP formed an international partnership which represents an approx. $4.6 million sales commitment. We believe the market discounts the growth prospects associated with the international side of the business and will provide monitor how this aspect of the story continues to advance.
Tilray is Becoming a Global Cannabis Leader
In late July, Tilray Brands, Inc. (Nasdaq: TLRY) (TSX: TLRY) released fourth quarter financial results and is a cannabis company to be aware of. When compared to the prior year, the cannabis-lifestyle and consumer packaged goods (CPG) company has evolved into a leading global cannabis operator with significant leverage to the European Union (EU).
After the market initially responded favorably to the earnings report, the trend became more volatile and we have been closely following the leading global cannabis operator. Although Tilray recorded impressive growth on several key statistics, it reported a more than $450 million net loss in the fourth quarter.
Today, we provided highlights on Tilray (pre and post-earnings report) and below are our key takeaways:
- During the fourth quarter, Tilray generated more than $150 million of revenue which is higher than what was reported in the same period last year. As of May 31st, the company had approx. $415 million of cash on hand and we will monitor how the management team puts the capital to work in ways that benefit the business.
- A key goal for Tilray is to become profitable and the management team expects to generate approx. $70-$80 million of adjusted EBITDA in fiscal year 2023. If the company can pull this off, we would start to believe in the management team’s ability to turn the business around.
- Germany has started to account for a larger portion of Tilray’s revenue and the EU is expected to be a major growth category for the business on a going forward basis. We are favorable on the way this aspect of the business has advanced since the quarter ended and consider this o be one of the most important aspects of the story