Mr. David Pidduck reports

MEDIPHARM LABS REPORTS SECOND QUARTER RESULTS WITH DOUBLING OF REVENUE AND RECORD MARGIN GROWTH

Medipharm Labs Corp. has released its financial results for the three months ended June 30, 2023.

Second quarter 2023 -- select highlights:

• Completed the company's first commercial delivery to the United States. The delivery comprised clinical trial material for a fully financed, large-scale phase 2 clinical trial;
• On April 1, 2023, Medipharm closed the acquisition of Vivo Cannabis Inc. in an all-equity business combination;
• Revenue has doubled versus prior year with the incorporation of Vivo;
• Gross profit was positive for the third consecutive quarter. Largest adjusted gross profit increase in company history and best adjusted gross profit since Q4 2019 at approximately 21 per cent;
• Successful integration of Vivo, including executing a restructuring and cost savings program that will save approximately $7-million on an annualized basis as Medipharm progresses toward its previously communicated synergy target of $7-million to $9-million;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of negative $3.2-million, an improvement of $3.2-million or 50 per cent versus Q2 2022 and remaining consistent with Q1 2023 despite the incorporation of Vivo which historically had an adjusted EBITDA of negative $2-million per quarter;
• Strong balance sheet, relative to Medipharm's peers, with $14.7-million of cash, less than $3-million of debt and a plan to generate cash in the near term.

Continued progress solidifying leadership in cannabis-based pharmaceutical industry:

• Subsequent to the quarter, on July 28, 2023, the company completed its first delivery of cannabis clinical trial material to a U.S. research partner. The delivery of pharmaceutical cannabis product was for a National Institute of Health funded clinical trial, following receipt of an import permit from the U.S. Drug Enforcement Agency (DEA) and a Health Canada export permit.
• The company has provided a full response to the U.S. Food and Drug Administration (FDA) in relation to the initial foreign drug site inspection of its Barrie facility regarding a new drug master file (DMF) being referenced in a recent abbreviated new drug application (ANDA). This is the first U.S. FDA audit of a purpose-built commercial cannabis facility in Canada. Medipharm continues in-depth correspondence with the FDA regarding its November, 2022, on-site inspection related to a drug master file being submitted as part of an abbreviated new drug application (ANDA) submission by an international pharmaceutical partner.

Tremendous growth in medical cannabis:

• The Canadian medical cannabis revenue for Q2 2023 was $3.8-million versus $200,000 in Q2 2022 and $600,000 in Q1 2023, driven by the integration of the Vivo medical channel, Canna Farms.
• Canna Farms has serviced patients since 2013 and is a top 10 medical channel in Canada. Since the transaction Canna Farms has listed Medipharm products for sale direct to patient. This synergy creates better margin where Medipharm produces these products at higher volume or were being purchased by third party manufacturing. It also assists in patient recruitment and retention as the company is able to provide additional selection and more standardized medical products.
• International medical revenue in Q2 2023 was $3-million versus $900,000 in Q2 2022 and $1.8-million in Q1 2023, representing 249-per-cent and 66-per-cent growth, respectively. The growth of international medical was largely driven by the integration of Vivo's Australian business, Beacon Medical Australia.
• The Beacon Medical Australia flower portfolio is currently the No. 3 flower brand by sales and continues to have year-over-year growth in pharmacy patient sales. The company has prepared for its launch of Beacon Medical oil and vapes. It is anticipated these new high-margin products will have the same success as their flower counterparts.
• In July, 2023, the company entered into an additional supply agreement with a top-tier generic pharmaceutical company in Brazil. Under the agreement, the customer will apply to the Brazilian Health Regulatory Agency for a number of cannabis product approvals. Medipharm has received similar approvals in Brazil with other pharma customers. It is anticipated the delivery of additional products could begin in Q1 2024, and substantially increase the current Brazilian revenue.

Progress toward profitability:

• Revenue for Q2 2023 of $9.6-million increased approximately 120 per cent versus Q2 2022 and 64 per cent versus Q1 2023 despite the seasonality of the Canadian adult-use and wellness market.
• Q2 2023 gross profit was $800,000/8.1 per cent and was impacted by several discrete items including inventory writedowns, fair value adjustments and severance for restructuring. Adjusting for these items, gross margin was approximately 21 per cent. This is the third consecutive quarter of positive gross profit. Gross profit continues to improve, driven by product mix, production efficiencies and cost reductions. Management continues to focus on efficiencies to drive gross profit.
• Total operating expenditure, which includes general and administrative, marketing and selling, and research and development expenses, was $7.5-million in the quarter. Adjusting for severance and some other discrete items, normalized opex was approximately $6.5-million which includes $2.3-million from the incorporation of Vivo. Retrospectively, if Vivo were included in Medipharm's Q2 2022 results, opex in Q2 2023 is down approximately 35 per cent or $3.7-million.

Solid balance sheet:

• Medipharm ended Q2 2023 with $14.7-million in cash and cash equivalents with approximately $3-million of debt. This financial position is expected to give Medipharm longevity to execute on its short-term sales plans and provides the balance sheet strength to support the company's long-term growth strategy. In addition, Medipharm expects that the company's favourable summary judgement, now scheduled in front of the Court of Appeal for Oct. 12, 2023, will strengthen the company's balance sheet going forward. In addition, the company has real estate assets held for sale with the ability to generate cash of approximately $2-million to $3-million in the near term.

Management commentary

David Pidduck, chief executive officer, Medipharm Labs, commented: "We are very happy with our Q2 performance lead by the smooth Vivo integration that is ahead of all cost synergy targets. We are excited to have new employees, new business units, new products and capabilities, and new investors and stakeholders."

Greg Hunter, chief financial officer, Medipharm Labs, added: "In Q2, we continued to make progress by growing our revenue base, improving gross margins, reducing expenses and reducing cash burn as we drive towards profitability. We have also demonstrated that we can quickly integrate and drive synergies through acquisitions."

Q2 2023 financial results conference call

Medipharm's executive management team will also host a conference call and audio webcast on Monday, Aug. 14, 2023, at 8:30 a.m. Eastern Time to discuss the company's financial results.

Conference call

Toll-free number: 1-888-330-2454

International number: 1-240-789-2714

Conference ID: 4921762

Participants are asked to dial in approximately 15 minutes before the start of the call.

For those who are unable to participate on the live conference call or webcast, a replay will be available on the Medipharm website approximately one day after completion of the call.

About Medipharm Labs Corp.

Founded in 2015, Medipharm Labs specializes in the development and manufacture of purified, pharmaceutical-quality cannabis concentrates, active pharmaceutical ingredients (API) and advanced derivative products utilizing a good manufacturing practices certified facility with ISO standard-built clean rooms. Medipharm Labs has invested in an expert, research-driven team, state-of-the-art technology, downstream purification methodologies, and purpose-built facilities with five primary extraction lines for delivery of pure, trusted and precision-dosed cannabis products for its customers. Through its wholesale and white-label platforms, Medipharm Labs formulates, develops (including through sensory testing), processes, packages and distributes cannabis extracts and advanced cannabinoid-based products to domestic and international markets.

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