MedReleaf Corp. (OTCPNK: MEDFF) is an R&D-driven company dedicated to innovation, operational excellence and the production of industry-leading, top-quality cannabis. Sourced from around the world and carefully cultivated in one of two state-of-the-art ICH-GMP and ISO 9001 certified facilities in Ontario, with a third facility currently in development, a full range of premium MedReleaf products are delivered to the global medical market.
In the recent past, MEDFF has well positioned itself to be one of the most significant suppliers to the therapeutic needs of patients seeking safe, consistent and effective medical cannabis and provide a compelling product offering for the adult-use recreational market. The company continues to set new records for sales and volume, introduced brands for the adult-use market, expanded its international presence, commercialized new proprietary cannabis varieties, more than doubled its production capacity and MedReleaf was named Top Licensed Producer at the 2017 Canadian Cannabis Awards.
Recent highlights and achievements:
- Aurora Cannabis Inc. (“Aurora”) agreed to acquire all of the issued and outstanding common shares of MedReleaf for 3.575 common shares of Aurora and $0.000001 in cash in exchange for each MedReleaf common share held.
- On May 14, 2018, Aurora Cannabis Inc. (“Aurora”) and the Company entered into an arrangement agreement, pursuant to which Aurora will acquire all of the outstanding common shares of the Company and each shareholder of the Company will be entitled to receive 3.575 common shares of Aurora and $0.000001 in cash in exchange for each Common Share held.
- Entered into a Memorandum of Understanding (“MOU”) with the British Columbia Liquor Distribution Branch (“BCLDB”) to supply the Province with high-quality adult recreational-use cannabis products.
- Received certification under the European Medical Agency’s Good Manufacturing Practices (“EU GMP”) Standards for its Markham facility from authorities in Cologne, Germany to make the first export of its products into Germany and has completed its first shipment of medical cannabis to Cannamedical Pharma GmbH (“Cannamedical”).
- Completed a supply agreement with the Alberta Gaming, Liquor & Cannabis Commission (“AGLC”) to supply high-quality adult recreational-use cannabis products.
- Completed a supply agreement with Société des alcools du Québec (“SAQ”) to supply the future Société québécoise du cannabis (“SQDC”) with 8 tons of cannabis products per year for a minimum three-year term.
- Completed the purchase of a 164-acre property in Exeter, Ontario, including a 1 million square foot greenhouse to be retrofitted for cannabis production with an estimated production capacity of up to 105,000 kilograms annually.
- Launched AltaVie, the Company’s second premium brand for the adult-use market.
Key Synergies/value unlocking with the combination of Aurora and MedReleaf – The merger is expected to yield many important strategic synergies in all areas of business, marketing, and operations, allowing for accelerated growth:
- Industry-leading scale: Funded capacity will increase to over 570,000 kg of high-quality cannabis per year, to be delivered through nine facilities in Canada and two in Europe
- Low production costs and industry-leading yields: Aurora’s automated ‘Sky Class’ greenhouses are expected to deliver industry-leading efficiencies and ultra-low production costs of well below $1 per gram, delivering sustainably robust margins. MedReleaf’s high-yield cultivation techniques are expected to enhance productivity further and reduce costs across the combined entity’s facilities.
- International distribution: Aurora has established a strong and rapidly growing footprint in the international medical market. The combined entity is now well-positioned to rapidly gain market share in a number of significant markets. Most notable among these is the European Union, which will have in excess of 400 million people following Brexit.
- Expanding brand leadership: Aurora, CanniMed, and MedReleaf represent three well-established medical cannabis brands, and a growing portfolio of premium consumer and wellness brands including San Rafael ’71, Woodstock, and AltaVie that are backed by detailed consumer and marketplace insights and advanced analytical frameworks. This brand leadership positions the combined entity well to drive accelerated growth through its existing distribution channels for the domestic medical and consumer markets, as well as the international medical markets.
- Scientific leadership: Each company is actively engaged in clinical trials and medical studies, which has resonated strongly with the international medical community, driving above-average prescription rates and referrals.
- R&D: The combined company will have an industry leading Science and Research & Development team. Combining these capabilities will accelerate product development and technology adoption, creating strong, defensible competitive advantages, including, management believes higher-margin offerings to drive above-average profitability.
Over the years, MedReleaf has proven itself as a benchmark for global cannabis entities. In fact, the company has consistently grown since its inception and now with the recent strategic developments, MedReleaf is well poised to become an established conglomerate spanning across production, retailing, ancillary and adjacent markets. Additionally, the company’s merger with Aurora will shorten it’s time to market its premium medical cannabis products to domestic and global markets, and compelling brands to the adult-use recreational market.
Taking all this into consideration, the market cap of just $2.02 billion and share now ruling at $19.59, can move to a level of about $30.79. Source: www.marketwatch.com
About Aurora: Headquartered in Edmonton, Alberta, with funded capacity in excess of 430,000 kg per year and sales and operations in 14 countries across five continents, Aurora is one of the world’s largest and leading cannabis companies. Aurora is vertically integrated and horizontally diversified across every key segment of the value chain, from facility engineering and design to cannabis breeding and genetics research, cannabis and hemp production, derivatives, high value-add product development, home cultivation, wholesale and retail distribution.
Other business highlights/recent achievements of MedReleaf:
- Introduced Equiposa, Orellium, and Trutiva – three proprietary varieties of premium medical cannabis developed by MedReleaf’s internal R&D program.
- On January 31, 2018, MedReleaf closed a short form prospectus offering on a “bought deal basis,” pursuant to which the Company issued an aggregate of 5,000,000 units of the Company at a price of $26.50 per Unit for aggregate gross proceeds of $132,500.
- Received Health Canada approval for and launched the first color-coded and strain-specific cannabis oil softgel capsules on the market.
- Launched San Rafael ’71 TM, the Company’s first brand for the adult-use market. To mark the launch and to introduce Canada to the San Rafael ’71 TM brand, the Company developed and launched in partnership with Amsterdam Brewing the first San Rafael ’71 TM product – 4:20 Pale Ale.
- Entered into an exclusive licensing agreement with Woodstook Cannabis Company for the use of the iconic Woodstock brand in the Canadian cannabis market.
- Signed an agreement to become the largest supplier to Cannamedical Pharma GmbH, a leading medical cannabis distributor in Germany with a network of over 1,800 pharmacies.
Latest Quarter Financial position:
Revenues Sales for the three months ended March 31, 2018, were $12.0 million and increased $1.7 million or 16% compared to the three months ended March 31, 2017, of$10.4 million. Sales for the year ended March 31, 2018, were $43.6 million and increased $3.3 million or 8% compared to the year ended March 31, 2017, of $40.3 million.
Sales growth was primarily the result of increased production capacity, patient demand, yield improvements, and the continued growth of cannabis oil extracts for sale. Throughout the year ended March 31, 2018, and 2017, the Company’s Markham Facility was operating at full capacity (based on square footage). In November 2016, Health Canada approved the Company to produce and sell cannabis oil extracts.
Profitability: Adjusted EBITDA loss of $4.7 million, a decrease of $6.3 million from the prior year period due to increased overhead costs and investments in recreational brands, international business initiatives, and increased research and development efforts. Net loss for the three and twelve months ended March 31, 2018, was $0.8 million and $7.5 million (2017 – net income of $2.2 million and $11.0 million), respectively.
Liquidity: At the end of March 31, 2018, the Company had cash and cash equivalents of $215.9 million and working capital of $255.7 million.
Key risk factors and potential stock drivers:
- MEDFF is still an early stage cannabis company. Therefore, its ability to ramp up operations/profitability, as it grows its market position and seeks ways to monetize it would be a key value driver for the company and its shareholders.
- It said the company is likely to see meaningful results from their current developments. Analysts remain hopeful that these payoffs will take shape quite soon and stay bullish about the stock price.
- Regulatory Risk: Notwithstanding the current operational and marketing progress, the company continues to remain exposed to regulatory and legal risk. In this sector, the regulatory framework and science are rapidly changing and evolving. Therefore, new companies are emerging, and regulatory risk always exists for the players in the industry.
- MEDFF’ ability to maintain liquidity and financial flexibility to fund its incremental capital requirements will remain crucial for the company. Additionally, the industry is competitive, and MEDFF will be competing with many other and better-financed companies.
- On Friday, July 20th, 2018, MEDFF closed at $19.59, on an above average volume of 167,342 shares exchanging hands. Market capitalization is $2.02 billion. The current RSI is 41.04.
- In the past 52 weeks, shares of MEDFF have traded as low as $5.86 and as high as $24.99
- At $19.59, shares of MEDFF are trading below its 50-day moving average (MA) at $20.57 and significantly above its 200-day moving average (MA) at $15.77
- The present support and resistance levels for the stock are at $18.6033 & $20.9833 respectively.