Cannabis company MedReleaf (TSX:LEAF) has released its third quarter fiscal 2018 results, reporting new highs in sales, revenue and volume for its medical marijuana. And although the company posted a decline in EBITDA, management says it’s all part of the ramping up process ahead of legalization.
The adult recreational marijuana industry may have yet to become a reality in Canada, but even a casual observer can’t help but notice the mounting investor interest in all things green over the past few months. Cannabis stocks have dipped recently but they’re still at valuations that, to some, speak of over-exuberance, while others see it as part and parcel of introducing a whole new sector of the economy in Canada and, eventually, around the world.
But with restrictions currently in place against advertising their products to consumers, cannabis companies have had to get creative in terms of taking the first steps towards developing their brand. Exhibit A is Markham, Ontario’s MedReleaf, which this week launched its San Rafael ’71 product brand. A reference to the supposed origins of the term 4:20 within cannabis culture (legend has it that it traces back to a high school in San Rafael, California), San Rafael gets its first coming out in the form of a beer — containing no cannabis.
“It came out of a partnership with [Toronto’s] Amsterdam Brewing,” says MedReleaf CEO Neil Closner in conversation with BNN. “We’ll have a line of products under the San Rafael name that will be in the retail stores throughout the country. We’re trying to increase brand awareness ahead of that market opening up specifically for cannabis products which, today, we’re not allowed to market.”
Closner says that MedReleaf’s continued profitability even as it scales up is partly what sets it apart from the other pot companies.
“We saw about 16 per cent revenue growth, quarter over quarter, and volume has continued to grow, as it has always after each quarter since our inception,” says Closner. “MedReleaf has been profitable almost since our first year of operation. We like to say we’ve generated more profits in this industry than all the other licensed producers in the country combined.”
The company reported sales of $11.4 million over Q3 in fiscal 2018, up nine per cent from the prior year period, with an adjusted EBITDA loss of $0.2 million, down $4.3 million from the prior year period.
Closner chalks up the slump to growing pains, saying, “In the last quarter, we had a slight dip from that [due to] establishing our recreational products and brands, as well as our international activities, so we’re investing ahead of revenue generation on those two fronts but we’re very optimistic about both of those opportunities.”
MedReleaf recently closed on a $132 million bought deal financing round led by Canaccord Genuity Corp., while in December, they announced a partnership with Loblaws’ Shoppers Drug Mart to become one of its suppliers of medical cannabis, once Shoppers gets approval to sell cannabis.
Closner says that having Shoppers as a medical marijuana seller will help further legitimize the drug in Canada. “They’re the largest drug store and pharmacy chain in the country, so they obviously carry a lot of weight with physicians and with the medical community in terms of their credibility,” says Closner. “So we’re really excited about partnering with them and helping to expand the market overall.”