Interview with Pat McCutcheon (MediPharm Labs)
On September 13th, of Pat McCutcheon of MediPharm Labs, will speak at Kahner Global's Cannabis Private Investment Summit in New York City, NY. This event gathers industryleaders and investors for a day of collaboration and networking.
Here, McCutcheon provides key insight into what investors can look for as Canada initiates full rollout in October, as well as the key to MediPharm’s positioning as the foremost producer of high quality cannabis oil.
This interview has been edited for length and clarity.
Can you talk about your journey to the cannabis industry and a bit about the history of MediPharm Labs?
I have been in pharmaceutical sales and marketing for the last 15 years before launching MediPharm Labs with four other like-minded professionals in 2015. Since then, we’re the first company to successfully achieve an oil production license without first receiving a cultivation license. Typically a cultivator, when licensed, would have to take a year before requesting a sales license. In under 6 months, we’ve already been able to apply for sales license from Health Canada.
What was that like-minded vision that you all shared for this particular venture?
The overall vision came from a perspective that, in looking at any other mature industry, it’s very difficult to find any examples of fully integrated companies. In Cannabis, typically cultivators look at a seed to sale model, where a cultivator will plant, grow and harvest the cannabis themselves; this model also includes the post process of extraction or purification and in terms of medicinal usage, marketing, distribution and product sales.
By contrast, if you look at a pharmaceutical model or automotive model for example, it’s very difficult to find any parallel where you see an evolved industry that goes from conception to final product sale. What you see instead is an industry with a number of different specializations and spinoffs. It’s very important, to be competitive, that you have to work with the organizations who are best at each stage/specialty.
With that in mind, where do you see the greatest opportunities within Canada?
The greatest opportunities by far would be the advanced derivatives marketplace, or the concentrate-based market. From a cultivation perspective, in terms of the flower, there’s only one target customer group, that is, customers who smoke the dried flower. If you’re looking at concentrate-based markets, you can participate in a plethora of different opportunities from drug development and distilled products, recreational products (like drinks and edibles) to vaporized products. So whereas the flower market itself is very targeted, the concentrate based market has much more of a robust opportunity within Canada and globally for export.
This potential, however, has been slowed on some fronts through Canada’s regulatory body, Health Canada. The edibles market, for example, has been challenged in this respect. How is the industry responding to the pace of government regulation?
Health Canada has been careful to identify safe doses to protect younger or less informed consumers, and they are taking a conservative approach in regards to the breadth of products until all connected regulatory bodies (Food Canada, Municipal Governments, Law Enforcement) have developed their policies. We’re expecting that within 8-12 month of the opening of the recreational based-market October 17ththere to be an established and well-defined edibles market. MediPharm Labs, post October 17th, will be focused on allowable concentrate based products such as tinctures, gel tabs and possibly vape pens pending regulatory approval. But we are planning for the great eventuality.
There has also been a 4 month gap between approval of the Cannabis Act and its upcoming rollout on October 17th. How has MediPharm approached this transition period?
The extended rollout of the Cannabis Act, has really given MediPharm the advantage of being able to incubate our relationships with larger cultivators. One of the biggest advantages that we offer is an accelerated oil strategy that drastically reduces the cost and intensive application process to move from a successful cultivation into oil based products. This extended time has given us the opportunity to broaden our cultivation partners ability to access oil based markets with only a small appendage to their license.
Was using that time to build relationships a direct response to address initial concerns about product shortage immediately following next month’s rollout?
Today, we are actually buying wholesale or entering into processing agreements with more than 10 cultivators. With the number of cultivation companies increasing by the week through Health Canada, we do not feel there is any concern regarding product shortage as a challenge. We can expect a more limited supply immediately post-recreational launch, however, there’s definitely going to be a supply glut in the next 6-8 months when cultivators expansion projects finally start to come online.
Currently there are 115 cultivation licenses and only MediPharm Labs as the sole extraction license holder, which gives our team an incredible advantage when supply glut hits the market. It offers us an increased opportunity to work with not only numerous cultivators but also to very drastically reduce the cost per gram of our supply commodity.
One of the things that Health Canada is now doing to position itself more advantageously is to increase the number of licenses and the dynamic in terms of how cultivation is looked at in Canada. There’s going to be additional micro-grow licenses as well as outdoor grows offered by the licensing regime. From a indoor cultivators perspective, outdoor grows bring a serious competitive pressure after tens of millions have been spent on indoor cultivation facilities, but outdoor grow can significantly reduce the cost per gram of the flower production.
With that established and stable supply in hand, can you talk about MediPharm’s process?
We have two revenue streams, both being GMP quality, White label solutions and contract processing. Initially we are seeing an increase in representative breakdown of processing vs. wholesale white labeling of our phase one capacity. With contract processing, a cultivator sends a minimum monthly supply of trim and small buds or flower to be extracted and we charge on a per gram cost basis. We extract the plant biomass and apply post processing methodologies depending on what purification level is desired by our clients. This final product may be requested as a winterized final resin/oil or can be distilled and/or purified to varying target purities up to 98%+. The product is then sent back to the cultivator for distribution under that cultivator’s brand name. Included in all products manufactured by MediPharm Labs will be an identifier as having been processed by MediPharm Labs. This co-company labeling will be proof of quality as a trusted partner in the concentrate based product space.
With our White Label Solutions revenue stream, we bulk purchase supply and process into the highest quality, purified products that are sold to cultivation partners for distribution as medicinal and/or eventually recreational products. MediPharm Labs is excited to increase our relative balance of white label solutions to processing based partnerships as we perfect commercial manufacturing of the most valuable marginalized product offerings. For example unique smaller cannabinoid based medications, highly purified products such as Vape pens and reverse engineered isolation based wellness products.
How does the quality of the product reflect to your actual facility?
Coming from an extensive pharmaceutical background we designed MediPharm's state-of-the-art facility in compliance with European current Good Manufacturing Practices (cGMP) requirements and designed to ISO standard cleanrooms and critical environments. The standard of design and engineering are currently the most innovative and technically advanced in the Canadian cannabis industry.That allows us to get to a pharmaceutical grade product, or 98%+ purification for both medicinal and recreational products. Currently, that is just one of the things that drastically sets us apart from other large-scale cultivation groups that also do extraction but don’t manufacture concentrates to such high standards.
You touched on branding a couple times, can you expand on some considerations around packaging right now?
The regulations in terms of packaging are fairly restrictive .I think Health Canada is being very careful with packaging as not to entice the youth.
I very much support Health Canada’s perspective in terms of keeping it out of the hands of our children. I think there has to be very careful thought around labeling. That said, I think the regulation on packaging will evolve over the first year.
Although you’re focused on Canada’s rollout in October, MediPharm has also set future its sights abroad, correct?
We’ve already broken ground in Australia and are very close to our first manufacturing license there. We chose Australia as our first opportunity to expand globally because it’s program is almost a mirror image of the Canadian Cannabis Regulations. What’s impressive in Australia is that although it is 2-3 years behind the Canadian cannabis industry, it has accelerated at an exponential rate versus the Canadian marketplace.
The facility there will ultimately be a mirror image of the Canadian facility. Our Phase 1 strategy is a small GMP facility where we will formulate, fill and package the highly purified cannabis oil imported from Canada. This product will be stored in a GMP vault to begin with and small volumes distributed to pharmacies and our hospital and university partners. Currently, the Australian borders are open to imports from Canadian LPs but are preparing to become a leading cultivator and exporter in the world. When Australia hits their stride with regards to scalability in cultivation, we’re looking to be an industry leading extraction facility with an alredy established base of local cultivators. This will be just one of many global business arms of the MediPharm Labs family headquartered in Barrie, Ontario Canada.
MediPharm Labs will go public early-mid September on the Toronto Stock Exchange, Venture Exchange. Watch for stock ticker TSX-V: LABS.
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