Early last week, MediPharm Labs (LABS) (MEDIF) reported a major development as it relates to the cannabis 2.0 market and announced the launch of a product line of family of health and wellness called LABS Cannabis. This represents a major change in direction for the business and we have always been favorable on this possibility for it.
MediPharm expects the first product to launch early in the fourth quarter of 2020 and we are bullish on the potential that is associated with the strategy. The premium product line will target Canada’s recreational cannabis market and will distribute products through government and private retail channels.
In late 2018, MediPharm was granted a Sale License from Health Canada and has a proven track record of success in the cannabis concentrate market. The company works out of a sophisticated GMP certified facility and has a reputation of being a best-in-class operator and a global leader in the manufacturing of premium cannabis products.
We expect the LABS Cannabis portfolio to offer premium cannabis products that meet the standards of the most discerning customers. From a consumer standpoint, we like to compare the cannabis industry to the wine industry in the sense that there is a very high-end consumer. These types of consumers want to buy the best products and do not care as much about the cost.
Although the LABS Cannabis portfolio will predominantly include wellness products that are formulated with cannabidiol (CBD), MediPharm plans to have specialized offerings that could also be formulated with tetrahydrocannabinol (THC) and/or other minor cannabinoids that address potential effects. We expect this vertical to lead to margin expansion for MediPharm in 2021 and are bullish on how the story has evolved.
Last year, EY Canada conducted a survey of approx. 3,000 individuals to better understand the perspective of the average Canadian cannabis consumers. A segment of the survey group was referred to as a Wellness Inquisitor who consume almost daily and spend about $165 each per month on cannabis products. If this analysis was expanded and the percentages were used on the entire Canadian population, there would be 1.1 million Wellness Inquisitors. This segment reported that quality (83%) and intended effects (76%) are the most important purchase criteria and believe that MediPharm could be able to capitalize on this population.
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