FinancialBuzz.com News Commentary

New York, NY (8/14/2020) – There are numerous incredible innovations scientists and researchers have made in biotechnology in recent years. Among the fields of study are gene editing, tissue engineering and regeneration, nanobiotechnology and many others. In addition, new segments under the biotech umbrella are constantly being created. For instance, the medical cannabis segment that has emerged in recent years. Now, medical cannabis products are used for the treatment of various chronic conditions such as cancer, arthritis, and neurological conditions, such as anxiety, depression, epilepsy, as well as Parkinson’s and Alzheimer’s disease. Such a wide scope of applications is also anticipated to further expand the target demographic of the market. As a result, the global legal cannabis market size is expected to reach USD 73.6 Billion by 2027, according to a new report published by Grand View Research, Inc. Furthermore, it is anticipated to expand at a CAGR of 18.1% during the forecast period of 2019-2027. MediPharm Labs Corp. (OTC: MEDIF) (TSX: LABS), Sorrento Therapeutics, Inc. (NASDAQ: SRNE), Zynerba Pharmaceuticals, Inc. (NASDAQ: ZYNE), Village Farms International, Inc. (NASDAQ: VFF) (TSX: VFF), Aphria Inc. (NASDAQ: APHA) (TSX: APHA)

As a segment of the medical cannabis market, there has been a substantial growth in demand for cannabidiol (CBD) products around the globe in recent years, mainly in developed countries such as the U.S., France, Canada and the Netherlands. As a result, various cannabidiol product manufacturing companies have partnered with big retail stores to better supply their consumers. “CBD has a number of known properties beneficial to the human condition, and research is just beginning,” Aster Farms President Sam Ludwig told Civilized. “There are two markets for CBD: as a supplement, mild pain reliever and relaxant, and in larger doses, as a truly beneficial remedy for a variety of serious illnesses. There is no doubt it will be dominant supplement for years to come. CBD-heavy flower can be a very effective relaxant for both mind and body. However, people looking for CBD only will find the cleanest and most focused relief in the form of tinctures and capsules. We think the CBD flower market is a trend and will give way to the more concentrated forms. Like an Omega-3 for the body and mind.”

MediPharm Labs Corp. (OTCQX: MEDIF) (TSX: LABS) announced breaking news yesterday, “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.
Transforming 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.
o MediPharm Labs CBD25 Regular Formula, formulated with high purity and value pricing
o MediPharm Labs CBD50 Plus Formula, high potency formula
o 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…”

For our latest “Buzz on the Street” Show featuring MediPharm Labs Corp. recent corporate news, please head over to: https://www.youtube.com/watch?v=MGlKltBjemU
Sorrento Therapeutics, Inc. (NASDAQ: SRNE) announced last year that it had formed a Chinese joint venture, Shenzhen Yunma Biotechnology Co., Ltd. (, with LifeTech Scientific Co., Ltd. to commercialize Sorrento’s proprietary water soluble cannabidiol (CBD) formulation technologies for consumer and pharmaceutical applications in Asia (excluding Japan). In addition, Shenzhen Yunma’s subsidiary, Yunnan Masheng Health Science Co., Ltd., has obtained a Yunnan industrial hemp plantation permit, as well as governmental pre-approval to establish an industrialized processing, CBD extraction and isolation operation in Kunming (Yunnan Province, China). Sorrento holds 40% of the equity in the Shenzhen Yunma joint venture and LifeTech holds the remaining 60% of the equity. Sorrento has contributed the exclusive license to Sorrento’s water-soluble CBD technology for the Asian territory to Shenzhen Yunma. With the hemp and CBD supplies from Yunnan Masheng secured, Shenzhen Yunma will build manufacturing capacity to potentially deliver hundreds of metric tons of CBD annually to the global markets.

Zynerba Pharmaceuticals, Inc. (NASDAQ: ZYNE), the leader in innovative pharmaceutically-produced transdermal cannabinoid therapies for rare and near-rare neuropsychiatric disorders, presented data in March further describing the baseline characteristics of the pediatric and adolescent patients in the fully-enrolled Phase 2 BRIGHT trial of Zygel (CBD transdermal gel; ZYN002) in children and adolescents with autism spectrum disorder (ASD), indicating that the trial enrolled a broad population of patients with moderate-to-severe ASD. “ASD is a complex neurodevelopmental disorder characterized by difficulties with behaviors, communication, and social interaction,” said Zynerba’s Chief Medical Officer, Joseph M. Palumbo. “Pediatric and adolescent patients with ASD may also present with profound clinical anxiety, above the rate seen in neurotypical children, further complicating their condition and treatment regimen. Unfortunately, current ASD management options are restricted to cognitive behavioral therapy and a small number of approved pharmacologic treatments, highlighting the substantial unmet need for novel therapies in this population. We believe that we have enrolled an appropriate population of patients into our well-designed exploratory BRIGHT trial to enable a robust analysis of outcomes to help inform the design of future double-blind, placebo-controlled studies.”

Village Farms International, Inc. (NASDAQ: VFF) (TSX: VFF) announced recently that Governor Greg Abbott has signed into law Texas House Bill 1325 (the “Texas Hemp Legislation”), which effectively legalizes the cultivation of hemp and processing of hemp and hemp-derived products, including cannabidiol (CBD) in the State. As previously announced, in anticipation of the passage of the hemp legislation in Texas, Village Farms has begun conversion of half of its 1.3 million square foot, ultra-high-tech Permian Basin greenhouse (which utilizes the Company’s proprietary GATES® technology) for cultivation of high-CBD hemp and CBD extraction. The Texas Hemp Legislation will require licenses for both the cultivation and processing of hemp and Village Farms plans to apply for the requisite licenses as soon as it is permitted to do so. No time frame has yet been provided by the State of Texas for the licensing process.

Aphria Inc. (NASDAQ: APHA) (TSX: APHA) announced last year that it had received a cultivation license from Health Canada for Aphria Diamond, the Company’s second Leamington, Ontario cannabis greenhouse facility, bringing an additional 1,300,000 sq. ft. of production space with an annual growing capacity of 140,000 kg. Combined with the Company’s Aphria One facility and its subsidiary Broken Coast Cannabis, the Company now has more than 2,400,000 sq. ft. of cultivation space capable of reaching a total annualized production capacity of 255,000kg. “We are extremely pleased to receive the licence for our long-awaited Aphria Diamond facility, which more than doubles our Canadian production capacity,” said Irwin D. Simon. “Reaching industry-leading production levels coinciding with the expansion into new categories and new opportunities for cannabis in Canada and around the world is a transformative moment for Aphria Inc.”

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