Medipharm Labs Corp

TSX:LABS

Earnings Call Transcript

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the MediPharm Labs Second Quarter Financial Results Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to one of your speakers today, Laura Lepore. Thank you. Please go ahead, madam.

[Laura Lepore]

Thanks, operator, and good morning, everyone. With me on the call today are Pat McCutcheon, Chief Executive Officer; Bobby Kwon, Chief Financial Officer; and Keith Strachan, our President. Before we begin, please note the following caution reflecting forward-looking statements, which is made on behalf of MediPharm Labs and all its representatives on this call. The oral statements made on this call will contain forward-looking information that involves risks and uncertainties, including those introduced by the COVID-19 pandemic. Actual results could differ materially from a conclusion, forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information are contained in MediPharm Labs' filings with the Canadian Provincial Securities regulators, which are available on the SEDAR website at sedar.com. With that, it is now my pleasure to turn the call over to Pat.

[Patrick McCutcheon]

Thanks, Laura, and good morning, everyone. It's been less than 2 months since our last call, but the significant progress within our business has been both tangible and impressive. We have made solid progress pursuing our strategy to evolve MediPharm Labs from a leading domestic producer to a top global manufacturer. We have established footholds in medical, wellness and adult-use markets globally, setting the stage to become a leading international pharmaceutical producer. In the second quarter, we've had a number of wins, including creating important new customer relationships as part of the next generation of our core business; significantly ramped up the pace of our new product launches and increased the volume of our pharma quality formulations to both consumers in Canada and abroad; achieved commercialization of Australian operation, giving us a multi-jurisdictional GMP platform; launched sophisticated ERP system, SAP, to significantly improve every aspect of our operations, including inventory planning and management of our cost structure. We also entered into collaboration for a first real-world evidence, patient-centered clinical trial with a world-renowned research organization in Shoppers Drug Mart. While concurrently executing on these initiatives, our team has adjusted well to the challenges of working in a COVID-19 environment. Our operations remain open, safe and productive. We are very encouraged with the pace of our performance. While there is still work that lies ahead, and the impact of near-term economic turbulence remains unknown, we believe MediPharm Labs has positioned itself for a meaningful long-term growth as a differentiated international player and a future pharma company. Over the last 2 months, we've added 3 new independent directors to our Board. I'm very pleased to welcome Chris Halyk, former President of Janssen, Johnson & Johnson, one of Canada's leading pharma companies; Shelley Martin, former President and CEO of Nestlé Canada; and Chris Taves, Chief Operating Officer of BMO Capital Markets. These individuals representing large pharma, major consumer packaged goods and international capital markets experience are already contributing on a high level to our Board. They bring important new connections, perspectives and expertise to our business that are exceedingly relevant to our vision and will help us grow, manage risk and achieve our ambitions. And now let's turn to our Q2 performance. The domestic marketplace for cannabis has not substantially changed since our last call. However, our sales to Canadian retail are expanding month-to-month. So we are pleased to report an improvement in the top line compared to Q1. Bobby will have more to say on this, but revenues from Canadian domestic sales increased 25%, reflecting higher volumes of bulk concentrates sold and our growing sales of formulated finished products. We are transforming and diversifying our business. We are gaining market share by focusing on finished product production, such as high-potency formulated oils and new vape products. A year ago, this activity represented precisely 0 revenue; in Q1, 13%; and now in Q2, 16% of our total overall revenue. We are very pleased with this progress to date. Our flexible manufacturing capabilities and industry-leading R&D initiatives will allow us to maintain and enhance this trajectory over the long term. Legal recreational cannabis is a new market, and customer preferences are now beginning to emerge. We are seeing that consumers want choice, and there's significant pent-up demand for quality formulations from trusted brand names. MediPharm Labs, and our partners through us, are delivering high-quality, branded products that consumers prefer and trust. One of the true highlights this year is the rapid expansion of our product categories beyond adult use to include medical and wellness markets. Whether it's bulk API, formulated CBD and THC tincture bottles, disposable vape cards or topicals, we are doing more for consumers at competitive price points at higher potency levels. At the end of Q2, we had 60 concentrate-based SKUs in production, a fourfold increase compared to Q1. This number will continue to expand in the second half of 2020 as a result of our exciting and robust pipeline. Let me give you an example by connecting the dots between customer supply agreements we announced and the actual work that is being done to enhance our revenues. We are now manufacturing 8 different Cronos vape pens under the COVE and Spinach brands in our Barrie facility. This is a great example of how we have evolved major bulk contracts into value-add partnerships. Valid LPs are getting their feet wet with Cannabis 2.0, we expect to see, and are contributing ourselves, to the development of more creative formulations. I'm pleased to report that we now have ramped up our CBD isolate production, giving us significantly more optionality in product offerings in addition to our distillate-based product portfolios. We have come a long way in diversifying our platform with multiple different product lines and distribution channels. We've matched this diversification with greater sophistication and capabilities in our facilities. Beyond GMP, where our resource allocation has also been robust, over the past year, we've spent considerable time in capital implementing SAP. The system went live in Q2, which is a tremendous accomplishment demonstrating our maturity despite being a young company. By many different levels, having SAP in place is a game changer in managing things like product documentation, which is key for large pharma and consumer and packaged goods companies. It will also provide a great return from MediPharm Labs' inventory planning and cost structuring. Going forward, SAP, coupled with the diversification from bulk-to-finish product distribution and directly to the provinces will provide better visibility in our procurement efforts. As I've highlighted the importance of GMP certification over many quarters now, its value is now truly being shown. I would say that nearly 50% of the new international customer agreements we've signed over the past 6 months would not have come to us if we were not GMP-certified. It's that important. Another encouraging highlight of the second quarter was the commercialization of our Australian facility. In June, we generated the first revenues from contracts we signed earlier this year. We shipped roughly CAD 650,000 of GMP pharma-quality products for distribution to Australian customers. This is the start of something big. I must congratulate our team in Australia for seeing our vision through to fruition. Since the beginning of this year, they secured more than a dozen white-label supply agreements. Fulfilling orders for these new customers will keep our production lines busy and give us long-term stability. I'd now like to turn to a critical focus of our strategy, Pharmaceuticals. We have executed well on our goal of creating a global pharmaceutical quality supply chain that is certified to serve new medical markets internationally. Our first sales were achieved through a supply chain collaboration between our Canadian and Australian GMP platforms. Sales of GMP-certified formulated products are expected to continue ramping up over the balance of this year under the white-label supply agreements with multiple customers in our target international markets. Recall also that Australia would more generally serve as our launch patent into Europe and Asia Pacific, pending European GMP certification of our Canadian facility. Another exciting development is our participation, along with Medical Cannabis by Shoppers and TruTrace Technologies in the University Health Network study of blockchain technology in tracking medical cannabis products from seed to sale. For those who don't know, University Health Network is one of the largest research organizations in Canada, consisting of several hospitals, including Toronto General Hospital, ranked #4 best hospital in the world by Newsweek. This observational study will take place over a 24-week period, will target at least 2,000 Canadian medical cannabis patients and will showcase the power of blockchain in providing participants with transparent data on medical cannabis, product chemistry, composition and effectiveness. I'm pleased to report that MediPharm Labs is manufacturing 7 or about 20% of the products available to use in the study. 3 of our own MediPharm Labs-formulated CBD oils, including CBD 25, CBD 25:5 and CBD 50. The other 4 are spays and formulated oils manufactured for Avicanna, one of the best positioned, clinically-trialed, focused companies we work with. This is a fantastic value-add endeavor for MediPharm and consumers and is well aligned to our plan to increase confidence in and indications for medical cannabis. Overall, we are very excited to expand our participation across a range of trials that offer potential upside towards future development of cannabis-based prescription, Rx products and formulations that can be registered in various global jurisdictions. The final highlight to our progress in Q2 is a new supply agreement with Hybrid Pharm in Ottawa. This unique wellness pharmacy and medical Canada sales license holder has challenged the status quo in the industry and significantly improved service to cannabis users. Qualified pharmacists work closely with health care practitioners to provide same-day registration and delivery as well as drug interaction checks and continuous care monitoring. This is a well-proven model in the Canadian health care industry, but definitely a new look to our evolving cannabis therapeutic delivery. Hybrid Pharm believes, and I would tend to agree, this is the way of the future. I'll return with more thoughts on the future, but first, here's Bobby's report on our Q2 performance. Bobby, take it away.

[Bobby Kwon]

Thanks, Pat, and good morning, everyone. Although it's been just a few weeks since our last report, there has been a marked improvement in our financial performance after a disrupted quarter 1. Even so, these results are still more reflective of our legacy as a single country supplier and the challenges faced with the full rollout of Cannabis 2.0 than they are of our international potential. As we continue to transition and transform to a global business, our growth trajectory will be enhanced through: one, an increase in our addressable market and market shares across medical, wellness and adult-use segments; two, gain traction with the new Asia Pacific and U.K. supply agreements; and three, incubate new and larger customer relationships. In the meantime, we continue to build a bridge to that future with steady improvements in our business operations, bolstered by a strong balance sheet. Looking to the quarter, we're pleased with quarter 2 revenues that posted a 25% improvement to $13.9 million compared to quarter 1. About 2/3 of that healthy increase was due to higher volumes of bulk concentrates sold, with the remainder from growing our shipments of formulated finished products to provincial distributors throughout Canada and importantly, the commercialization of our Australian subsidiary. As mentioned earlier, we have brought much more focus to finished goods formulation, which is part of the transformation and maturation of our business. New product formats are important as they diversify our revenue stream domestically and globally, give us ammunition to drive market share and move MediPharm up the value chain. You will recall that Q1 was a low point because of reduced sales of wholesale bulk oil, the impact of 1 dishonored contract and lower average wholesale selling prices that were broadly in line with the conditions in the adult-use market in Canada. Pricing dynamics have not fundamentally changed. What has is our proportion of revenue from finished products. In quarter 1, 13% of revenue came from finished products. In quarter 2, it was 16%. We expect this to continue to ramp up given our portfolio of white-label supply agreements and additional traction with our own MediPharm Labs-branded product. Gross profit in quarter 2 was $2.2 million or 16% gross margin, and this is essentially flat compared to quarter 1 after adjusting for the inventory write-down. We continue to refine our production processes and methodologies, and sell-through historically acquired higher-priced raw materials. These steps are intended to improve production efficiency and gross profit over the coming quarters. Turning to operating expenses. The total amount, as reported in Q2 financial statements, is impacted by 2 items under the other operating income line. First is the COVID-related government systems in Canada with the Canada Emergency Wage Subsidy program and, to a lesser extent, in Australia under their equivalent, JobKeeper Payment Subsidy program, for a combined total of $1.8 million. The second piece is largely timing in nature related to a foreign exchange gain on intercompany balances denominated in Australian dollars to the tune of approximately $1 million. Underlying OpEx in SG&A and R&D combined is up by approximately $700,000, driven principally by nonrecurring legal and filing fees associated with recent financing activities and a slightly higher Health Canada fees. As a result of these factors, adjusted EBITDA improved from a loss of $5.7 million in quarter 1 to a loss of $2.2 million in quarter 2. Turning to the balance sheet. Accounts receivable at quarter end was $32.9 million, with the increase compared to the prior quarter, in part commensurate with higher sales in this quarter. The past due portion, excluding the 1 customer we are in legal proceeding, represented 30% of all past due as of June 30. And as of today, majority of it has been collected. In quarter 2, total inventory was $40 million compared to $45 million in quarter 1. We continue to procure only the specific input flower materials we need. For example, in quarter 2, we only bought GMP-qualified flowers to support our international needs. And moreover, in volume terms, we purchased roughly 1/5 of what was purchased in quarter 1. Turning to a couple of other balance sheet highlights. As you know, we completed a private placement offering in June for $37.8 million in gross proceeds. On August 6, and as planned, we received the remaining half of those proceeds, net of fees from escrow, following shareholder approval. This financing increases our balance sheet strength, flexibility and liquidity beyond what we reported as of June 30 when we took in the initial proceeds of $18.9 million, positioning us to support the continued buildout of our entrants in the international markets and support larger future contracts. Consistent with our strategy and in light of current supply and demand dynamics in Canada for bulk crude and distillates, we continue to refine and adjust our capital expenditures to ensure we are optimizing capacity utilization, support strategic growth and drive further efficiency. To summarize, quarter 2 financial performance improved markedly over quarter 1, but the most important development was the ongoing transition of MediPharm from a domestic Canadian operator to a global player. Our now commercialized Australian facility, new international customer wins, steady ramp-up of finished goods for medical, wellness and adult-use markets globally and our flexible GMP manufacturing capabilities, all combined, position us well for long-term value creation. Now back to Pat for his closing comments.

[Patrick McCutcheon]

Thanks, Bobby. I'll conclude with a couple of forward-looking comments on the near- and midterm growth catalysts that will drive sustainable future growth. First, our newest sales agreements, both internationally and domestically. These new partnerships represent growth opportunities for the near-, mid- and long-term future. As these new contracts ramp up, we expect some early revenue to flow from them in the second half of 2020, with significant increases in 2021 and beyond. The second is in our sales pipeline, where we are active in discussions with large pharma, consumer packaged goods companies and direct-to-consumer brands at home and abroad. Deals aren't deals until they are signed. But the sense we get from the new potential customers in these categories are that they are much more committed to entering the cannabis space than they were a few months ago. That's in part because of their confidence in MediPharm Labs has grown, significantly reflecting the achievements of our GMP certifications, licensing and now robust SAP system that can handle large product and sales volumes. To be frank and realistic, these companies are in the market for a high integrity partner with a solid international business model and professional governance. With these attributes across multi-jurisdictional manufacturing platform, MediPharm Labs is perfectly suited to serve multiple sophisticated new market entrants. A third in major catalyst is international expansion. As we've previously announced, we now possess PGA GMP for both our Canadian and Australian facilities. We intend to use these certifications to enter emerging markets that require GMP or the pharmaceutical inspection co-op status, including in South America, where we are now contributing many relationships. The next advancement in our international business will be the receipt of our EU GMP certification. MediPharm Labs is focusing on Germany as our primary jump-off point based on market size and its well-recognized world-leading pharmaceutical industry sophistication. As I noted earlier on the call, we still intend to currently serve Europe by formulating and packaging products here in Canada, transporting it to MediPharm Labs Australia and then launching into the EU. Finally, and very impressive versus the Canadian market, is the expansion of our SKUs. Driving the variety of formulations and product formats we offer is key to satisfying customers and growing our market share here in Canada. I'm very pleased with the initial sales of MediPharm Labs CBD 25 Regular Formula, CBD 25:5 and CBD 50 Plus Formula. All are uniquely formulated high potency oils for the medical use. More SKUs are also flowing under our white-label agreements. Our job now is to use our multi-jurisdictional platform and differentiated capabilities to continue our transformation from a domestic to a global pharma company. With the substantial gains we've made in operations and governance, diversification of our customer and product portfolios and renewed strength in our balance sheet, we are prepared to seize the many opportunities in front of us. We are confident in our ability to deliver a very bright future to our employees, partners and the shareholders of MediPharm Labs. Now we'd like to answer your questions. Operator, could you please open the lines to our callers?

[Operator]

[Operator Instructions] Your first question comes from the line of David Kideckel.

[David M. Kideckel]

Congrats, everybody, on the quarter here. I have a couple of questions for you. The first is, given the 25% increase in revenue that you reported in the quarter and given that most of that is being sold to the provincial distributors, I'm just wondering, maybe Pat or whoever, if you can comment, what do you think the likelihood is? Because we've seen this in the past where the provincial distributors take possession and ultimately pay for products only to be sent back to the company, not MediPharm, but in general in the sector, and companies having to write down product. So I'm wondering if you could maybe just give some color there, given especially that we're about halfway through the quarter.

[Patrick McCutcheon]

No problem, David. Thank you so much. Excited to have you on the call. Just to add a little bit of color to start that one, Keith's going to stand upfront. So I'll pass it over to him first.

[Keith Strachan, Co]

Dave, yes, I think, for sure, we've seen in the past provincial retailers with large returns on products, probably more particularly in the cannabis kind of in the early days of legalization. I think inventory became a problem that we saw a lot of returns on oil and gel caps, especially around the THC side. What's encouraging for us is that provincial buyers are becoming a lot more sophisticated. So a lot of their ordering is more just in time in nature. So we're sending out cascades or cases that match up the POs to retail stores. So I don't think that we're going to see that problem across the industry, just with the sophistication of their systems and their warehouses. And then just on the product demand side, what we've done a really good job of here is kind of filling the gap where we saw gaps in the marketplace. So where we saw those returns -- heavy returns on gel capsules, for example, those aren't a product that we distributed to provinces today. And even THC oil itself, like THC and MCT oil, also would be a very, very minor piece of what we ship out. Things like CBD-dominant oil like our CBD 50 is something that -- it keeps becoming reordered over and over again on a weekly basis. So that gives us the confidence that we're not going to see those returns.

[David M. Kideckel]

Okay. That's helpful. Moving along here as well. I think you guys did a really good job here of bringing SG&A and cash burn down to this quarter, respectively, from the last quarter, about half for SG&A. The cash burn, by our calculation, is about $9 million this quarter versus $19 million. And I want to loop that back with some of your prepared comments, Pat, with SAP, in particular, and some of these efficiencies that, that creates and how that will ultimately you see gross margin leveling out next quarter. I know, Bob, you as well mentioned that excluding those nonrecurring event -- or the nonrecurring event last quarter, it was flat at 16%. So I'm just wondering if you see SAP and any other technologies that you have enabled in-house to really help drive gross margin higher or how we should expect that number to be flat?

[Patrick McCutcheon]

No. Thanks so much for that question, David. Yes, it's been a priority of the quarter. And as we move into the second half of the year, we've really taken a deep dive and a specific look at being more efficient in our spend. Even with now launching such a robust SAP system, I'm just going to -- I'm going to start there, just an introduction, but I'm going to pass it over to Bobby for some granularity in terms of cost savings and actually how we've reduced those numbers.

[Bobby Kwon]

Great. Thanks for that, David. I guess in relation to SAP, we gained a fantastic start, tremendous effort by the team, but we're in early days. But nevertheless, like all ERPs and certainly some of my own prior experiences at sort of larger institutions. Over time, and we're already seeing sort of some of the early benefits of this, is that certainly, we'll see greater visibility to the entire sort of value chain through our production process. And as a result, that gives us obviously better tightening sort of planning and coordination and control capabilities, all of which again will come into and broadly speaking and sort of hopefully over time, greater production efficiencies. Now on your question with respect to sort of the broader one on gross margin. As we've spoken before, David, I mean there are some drivers that we are pulling on all of them at all times. And in no particular order, certainly, we need to burn through, as I stated in my commentary, some of the prior historically acquired higher cost base of inventory from the prior year. But in addition to burning through those, we're obviously benefiting from the SAP platform and our procurement efforts to ensure that we're buying more effectively. We're partnering more strategic with some select suppliers to benefit from additional efficiencies. And certainly, when you look at it from a go-to-market perspective, we'll also be looking to optimize the product mix. And importantly, as we expand our portfolio breadth through a new product, we will be looking at segments as well as introductions that will hopefully be margin accretive. So when you combine all of that, I think, in the coming quarters, we'll see -- we'll begin to see the benefits of that. And then lastly, in terms of the sort of the geographic channel mix with the international side ramping up, we're inherently, at the moment, because it's medically focused, the prices are a lot more favorable. The elasticity is less at the moment. So with pulling on all those channels, I think we'll see a gain in the coming quarters, not sort of immediately, but in the coming quarters, we should see some progression in our gross margin.

[David M. Kideckel]

Okay. And if I can just squeeze one more quick one in here. I think, Pat, you mentioned -- or you press released it, I guess, a month or so ago with your relations or your partnership with Avicanna giving it being -- given that they're a clinically trial-focused company, I guess my question is, given Avicanna also heavily focused on Latin America and Colombia, among other regions, should we be thinking of optionality here for MediPharm Labs with any potential additional international markets, for example, Latin America?

[Patrick McCutcheon]

Yes. So thanks for that question, David. Maybe just two-part answer. The one piece being our work with Avicanna now and especially with the support of the SKUs, and they're going into the UHN/Shoppers trial, is something that we're really excited about. So we feel that it's going to bring a lot more data and real-world evidence to the products that we're not only manufacturing ourselves, but also for Avicanna. Avicanna has done a great job of positioning themselves as a very clinically trial-focused company in Canada and have now really identified and positioned significant amount of data from the products they're looking at, which we will be manufacturing and distributing in Canada and then looking down the path to ultimately explore and distributing them internationally because of our GMP status. With regards to their position in Latin America, it's an interesting opportunity for their company and positioning where they can grow larger volumes of the smaller cannabinoids like CBN and CBG. But having said that, at this time, we are exploring a number of relationships in Latin America currently outside of our relationship with Avicanna. There's a number of areas in Latin America that we're excited to move into because of our PIC/S Nation or mutual recognition approvals through our GMP with the Therapeutic Goods Administration of Australia, which gives the ability actually to export directly into Latin America. So we're excited to continue to update the market on our next round of relationships and look to see those in the coming months of the quarter.

[Operator]

Your next question comes from the line of Scott Fortune of ROTH Capital Partners.

[Scott Thomas Fortune, MD & Senior Research Analyst]

Congrats for again through the tough COVID environment here. Just to follow up on that, can you provide a little color kind of on the international markets? We've seen some competitor -- Canadian competitors doing better in on that side and kind of the regulation or legalization kind of opening up those markets or just more specific markets and potential timing-wise of additional supply with your PIC/S Nations opportunities. And kind of the inflection point there, how should we look at it kind of second half and moving into 2021?

[Patrick McCutcheon]

Yes. Thanks so much, Scott. Great to have you on the call. I'm just going to pass it over to Keith to start that response.

[Keith Strachan, Co]

Thanks, Scott. We are really excited about international markets. I think that international markets is a great place for us to grow. As Bobby mentioned, like gross margin levers, those are obviously ones that we're focused on the most is we're seeing increased selling prices in those regions and the ability to move that product. I think what's most encouraging is region-to-region update in more of a structured medical regime. So a lot of countries first would have like a special access program where 1 patient could get approved, and then you could ship them 1 bottle, for example, the U.K. Since then, the U.K. has now updated their legislation as such that bulk can be moved into the country, stored there, packaged there and then actually given to patients on a -- as they're prescribed. So you're not doing like a one-patient export. The import-export process and forms, the bureaucracy, is actually the same for 1 bottle or 20,000 bottles. So this is a great opportunity for MediPharm. I think places that we're looking towards has obviously continued signing deals in Europe as we saw with our partnership with ADREX in Germany and now Cannaray, which we announced as a big supplier based out of the U.K. I think new international markets that you'll see us really focus on, as Pat just alluded to as well, would be Latin America. I think places like Brazil have really done a lot of good work on establishing the program as well as even places like Peru. So large populations, great middle class and looking forward to sending them end products as they have no production in those areas. So that will be the big opportunity for us. As far as what that looks like in the back half of 2020, we are a bit cautious to the actual process. And then once you look at some of the people who control that, for example, ANVISA, which is the FDA in Brazil, they obviously have the priorities on their hands in the midst of the pandemic. So it's hard to get sometimes some cannabis stuff through with them as they kind of prioritize what they're dealing with, with COVID-19. So we're optimistic on moving products in this year, but we are cautious to the fact that they are prioritizing other things within their health authority. So we'll keep the market and everyone updated as we move through those processes. And it's something that we are, again, really excited about.

[Scott Thomas Fortune, MD & Senior Research Analyst]

Great. I appreciate the color on that. And then just kind of stepping through kind of the new products, you're seeing -- you mentioned the Cronos with the vapes and you mentioned kind of the provinces doing more just in time. Is that easier to kind of step up your inventory ahead of that? Kind of what are you seeing, I guess, strength, you mentioned the CBD 50, but other strengths of products, whether it's vapes or such, and the reorder from that side as -- are you seeing a pickup in the second half here of the 2.0 products being offered?

[Keith Strachan, Co]

Yes. Thanks for that question, Scott. Yes, as you've seen the trend from the end of -- from 2019 and then moving into Q1, Q2, we've seen a significant increase in the uptake of the volume of products and SKUs that we've actually pushed into the provincial distribution as well as medical. One of the things that we're really excited for are now -- that align to, as we mentioned during the presentation, that we have over 60 SKUs now. That's a fourfold increase. We've got a very robust pipeline in the next round of SKUs, where we're able to now really play a dynamic role in positioning where our products are going to be priced and where we can take advantage of segments that are growing relative to the maturity of the industry. We are looking at a number of new white-label partners that are looking to play in the different segments. And one of the things that we are positioning and watching closely is the evolution of the value segment now and what that would mean to work with a partner. We -- as I mentioned earlier in the presentation, we're very excited for some of the higher-potency, CBD-based products under our own brands that are currently actually not competitive with any of our white-label partners, contract manufacturing partners, which is a strategic move that we made. And it's an important piece because we want to really position MediPharm Labs as the top quality producer in Canada. And as we identify the gaps and the maturity of the industry, there really was a miss in terms of the actual quality of some of these products. And so that's exactly why we've launched the MediPharm Labs' brand first in Shoppers in the medical side, now through the provincial distribution to position and fill that gap. And frankly, this is what customers and clients have asked for. And now we're excited to take that added margin with our own products and still create a great relationship or say, create a stability and great relationships with our content manufacturing and white-label partners.

[Operator]

[Operator Instructions] There are no further questions at this time. I'll turn the call over to Mr. Patrick McCutcheon for closing remarks.

[Patrick McCutcheon]

Thank you so much. I just want to mention again that with this Q2, it was a significant increase over Q1 of just -- of 25%. It really gives us the strength and the confidence in our ability to continue to deliver a very bright future to our employees, our partners and the shareholders of MediPharm Labs. Thank you, everyone, for the questions and then plugging into the presentation. I will close by saying we look forward to hosting our third quarter conference call in November and keeping you a breadth of progress in between. Thank you so much for listening, and have a great day, everyone.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.