HIGHLIGHTS
- The extraction firm plans to do white label manufacturing for non-cannabis companies, a novelty in the industry.
- It’s unclear how non-cannabis companies will be able to brand, given Cannabis Act restrictions.
- MediPharm posted $10-million in revenue, $3.5-million net loss in Q4 of 2018.
MediPharm Labs Corp. has signed its first white-label manufacturing agreement with a non-cannabis company, the extraction firm disclosed on Wednesday in its year-end financial statements.
MediPharm CEO Patrick McCutcheon would not name the firm, but said the deal is part of the the company’s increasing focus on a white label and co-packing strategy – a relative novelty in the cannabis space.
The Barrie, Ont.-based company already does contract manufacturing for licensed producers, and sells cannabis concentrate products on a wholesale basis to other LPs. The company did $10-million in revenue in the fourth quarter of 2018, all attributable to wholesale contracts. It posted a net loss of $3.5-million for the quarter.
White label manufacturing for non-cannabis companies, however, is new.
“These CPG [consumer packaged goods] companies… don't ever need to touch the cannabis product at all," Mr. McCutcheon said.
"Company X or brand X comes to us, they work with our science team to establish or create a formulation, they give us their marketing and their branding, and then we can actually put that product directly into the provincial distribution,” he said.
Incumbent CPG companies – ranging across the alcohol, food and beverage, and tobacco industries – have taken considerable interest in the cannabis space, particularly in the wake of multibillion dollar investments from Constellation Brands, Inc. and Altria Inc. Much of the chatter, however, has revolved around M&A activity or joint ventures, with non-cannabis companies acquiring LPs or launching JVs in order to play in the space.
MediPharm is hoping to give non-cannabis companies an easier way into the market; it will handle all the activity that requires a licence, while the CPG firms will do the branding and advertising.
These types of white label manufacturing relationships exist in most mature industries. In the Canadian cannabis industry, however, structuring these deals could prove difficult.
The Cannabis Act places severe restrictions on branding and advertising, which would likely prevent existing food, alcohol or even media brands from showing up on a cannabis product. You could not, for instance, have Vice-branded vape cartridges or Red Bull-branded infused beverages (manufactured by MediPharm), because both brands’ advertising activity falls well outside what would be permitted under the Cannabis Act.
“I think it's highly unlikely that you're going to see a well-known, recognized and established food and beverage brand on a cannabis edible,” said Jason Muscovici, a lawyer with the Montreal law firm Robic.
“However, I think it's possible that a food and beverage company would develop a specific brand that is their cannabis brand, and they would let an LP use that cannabis brand," he added.
This was echoed by Ranjeev Dhillon, a partner with the Toronto law firm McCarthy Tétrault LLP.
“What you don’t want to happen is the non-cannabis CPG company being treated as a cannabis company for the purposes of the Cannabis Act and its regulations, because that’s very restrictive,” said Mr. Dhillon.
"The way that you can do this is by creating a separate company that evokes some level of connection between that company and the cannabis brand,” he said.
It’s unclear how MediPharm plans to get around these restrictions with its non-cannabis white label clients. Laura Lepore, the company’s vice president of investor relations & communications, did point to the example of Toronto beer company Ace Hill.
Ace Hill launched a separate company, Ace Valley, to tap into the cannabis space. Ace Hill doesn’t directly touch cannabis, and Ace Valley-branded products are manufactured and sold by B.C. grower The Flowr Corp.
“If they put their own brand on it, their own name, they would have to comply with the regulations,” Ms. Lepore added.
Mark Rendell