Medipharm Labs (LABS.T), like the rest of cannabis industry, has seen better days. Their price has rode a deteriorating wave to a little over a buck from their last year high of $5.25 this time last year. Their cap naturally followed suit. They’ve been doing what they can to ride out the worst of it by filling out their distribution angle in Australia, and working on white labeling agreements, while they waited for their ship to come in.

But behind closed doors they had been working on a deal that would blow open their potential and springboard them to another level. Or so they hoped. Earlier this week they finalized that deal, having drawn the attention of STADA Arzneimittel AG (STADF.Q), one of the leading European consumer healthcare and pharmaceutical companies, into an exclusive supply agreement.

“Working with Medipharm will meet the needs of pharmacists and patients and deliver on STADA’s purpose of caring for people’s health as a trusted partner. This partnership with Medipharm demonstrates STADA’s ambition to be the go-to partner for generics, consumer health and specialty products,” according to Peter Goldschmidt, chief executive officer for STADA.

The partnership has Medipharm delivering GMP-certified medical cannabis as well as manufacturing, logistics and regulatory support to STADA in exchange for commercialization, and access to their wide distribution reach starting in Germany, and expanding out.

“This partnership is exactly the type of business Medipharm has been pursuing since its inception and a validation of our strategy to deliver GMP-certified cannabis products that can be used in multiple new products in multiple markets around the world. This mandate has meaningful revenue potential for Medipharm Labs and we couldn’t be more excited to partner with a company that has the reputation and resources that STADA commands. As a powerhouse in sales and distribution of pharmaceuticals and non-prescription consumer health products, STADA has the ability to become a transformative force in European medical cannabis markets and we are thrilled to be their exclusive partner,” said Pat McCutcheon, chief executive officer, Medipharm Labs.

The German question

Any company doing business in Europe almost needs to consider Germany as a separate entity entirely, especially since the total estimated market value for the German medical cannabis market today is between 150 million euros and 175 million euros according to the Medical Cannabis Network, despite only 10% of the 20,000 pharmacies putting cannabis products on their shelves, and a similar limitation on the amount of doctors willing to prescribe it. The network continues to suggest that if doctors and pharmacies were properly educated in the efficacy of the medicine, Germany’s dominance in the European cannabis market could be as much as 1.5 billion euros by 2025.

That makes Germany one of the most competitive marketplaces for cannabis-space medical products in Europe. You’ve got your Canopy Growth’s (WEED.T), your Aurora Cannabis’ (ACB.T) your Aphria’s (APH.T), and your Tilray (TLRY.Q) and more already entrenched and raking in those German stacks. You’d think that with such a saturated playing field, there wouldn’t be much room for a smaller company like Medipharm to stand out.

You’d almost be right.

“We feel that our contract manufacturing or white-label partnerships are especially valuable. Not only do we see significant margin from the relationship itself, we also have our sales and marketing team—in essence, the front facing group—to distribute the product as a very well entrenched partner in the German pharmaceutical market,” McCutcheon said.

Their weed under a white-label name-brand, distributed widely using one of the largest distribution networks in Europe. Alone against the likes of Aphria, Tilray, Canopy or Aurora, a company like Medipharm wouldn’t have a chance to be competitive, but together with a pharma-giant steering the ship, they’re playing the game at their level and given STADA’s pre-established relationships, likely even better.

Medipharm was careful to avoid any specific revenue projections out of an abundance of caution, but from what they’d seen in their research into what Germany offers, McCutcheon’s rough speculation came in between $175-$180 million in revenue, with a five year forecast of roughly $8 billion.

European expansion

STADA’s standard price for giving smaller company’s access to their 120 country-wide distribution reach is 20% of the market share in the areas, and the products launched in those countries. The big fish gets a respectable cut of everything their smaller companies make, and the smaller companies get to live, thrive and grow in bigger ponds than they would normally have access.

Good deal.

As for expansion details, it’s decently obvious that the company intends on moving where STADA directs them for the time being, but their expansion plans are naturally to go in the direction where the money flows and that’s only coming into and out of cannabis-friendly countries. The first three McCutcheon comes up with are Italy, Spain and the UK, which seem like obvious choices, especially since MediPharm’s already in the UK.

It’s sensible to be somewhat cautious when answering these types of questions, and we shouldn’t really fault him. STADA is a gigantic company and represents a huge opportunity for a relatively nascent (at least relative to STADA) company like Medipharm.

“Being the first major pharmaceutical company into Canada they’re definitely taking the same approach to keep their competitive launch details with a very conservative tone,” McCutcheon said.

It becomes abundantly clear where the power lies, and who’s steering the ship on this one. Even that makes a certain sort of sense, though. STADA has 125 years of experience and growth to draw upon—taking direction from someone who knows where the profits live seems like a given.

But where’s the difference? There have been a handful of cannabis companies making deals with pharmaceutical companies throughout the years. Most specifically, we can refer to the path most recently trod by Canadian cannabis giant Tilray during their recent deals with Novartis and then again with Sandoz.

But as it turns out those deals aren’t quite like the one Medipharm has signed with STADA. Tilray’s deal seems to be more the exception than the rule, with the rest mostly filtering out as research and development or LOI’s that never pan out.

McCutcheon’s approach is different:

“We’ve never seen a commercial deal such as the one we’ve just signed and we feel like this may be a major differentiator for Medipharm relative to the other cannabis players and in particular what Tilray has done in the pharmaceutical space.”

Looks like they’re ship came in after all.

—Joseph Morton