MedReleaf Cuts Costs, Increases Sales In Earnings Announcement

Canadian-based medical cannabis company MedReleaf delivered its first fiscal 2018 quarterly earnings as total sales increased 19% year-over-year, pushing the stock higher by 4% to trade at C$7.98. The company increased production and sales of cannabis-based extracts, while also bringing down the cash cost per gram produced.

“Over the past two quarters, we have maintained our revenue run rate through the addition of new patient volumes and by growing cannabis-oil extract sales, which have successfully mitigated the anticipated impact of the Veterans Affairs Policy (“VAC”) change,” said Neil Closner, CEO of MedReleaf. “With our product mix from extracts increasing, the recent completion of our first harvest at our Bradford facility and our first successful international transaction in Brazil, we are well positioned for sustainable growth over the long-term.”

The company recorded sales of C$10.4 million for the quarter, with the average selling price per gram at $9.04. This was higher than the fourth quarter average price of C$8.87. The cash cost per gram produced fell to C$1.49 from C$2.67. This was also a decline from the fourth quarter’s price of C$1.53.

The company said in its earnings statement, “Over the past five quarters, increased production volumes and higher yields resulting in improved efficiencies in labor utilization and allocation of fixed costs have allowed MedReleaf to produce premium, indoor-grown medical cannabis on a comparable cash cost per gram basis to greenhouse peers”

Sales of dried cannabis were flat at C$8.6 million due to a change in the VAC policy, but that was offset by a 56% growth in new patient volume. The company said in a statement, “Effective May 21, 2017, the new VAC Policy also specified a coverage limitation of three grams per day in lieu of an exemption request that may be submitted to VAC by a medical specialist. The Company successfully offset the expected decline in volume from Veterans patients with growth from new patients and cannabis extracts, with total volume sold decreasing by 10.4 kilograms, or 1% from the third quarter fiscal 2017.”

MedReleaf completed its first export to a patient in Brazil. A little girl with terrible seizures received what management believed was the first export of medical cannabis oil to the country. This begins to fulfill the company’s international goals.

MedReleaf recently went public and bombed. It was priced at $9.50 and closed on its first day of trading at $7.40. At a drop of 22%, it was the largest decline for a Canadian IPO in years. The stock has bounced along the high $7 range and just recently broke back above $8. The company raised $100.7 million and is plowing $55 million back into its manufacturing expansion. Analysts believe the stock can reach $14.

The Canadian marijuana market is estimated to have a retail value between $4.9 and $8.7 billion by Deloitte. At a size of $5 billion, it would rival the size of the alcohol spirits market.

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