MediPharm CFO resigns days before 88% revenue plunge

MediPharm Labs Corp. reported third quarter revenue of 4.9 million Canadian dollars ($3.8 million), 88% lower than the CA$43.4 million the Barrie, Ontario company booked in the same period last year.

Revenue for the quarter ended Sept. 30 was 64% lower than the prior three month period.

The quarterly results come days after the unexpected resignation of CFO Bobby Kwon, who is leaving the company later this month “for family reasons” one year after taking the position.

The company attributed the sharp decline in revenue to lower average selling prices and bulk extract volumes, as well as the impact of the COVID-19 pandemic.

Its adjusted EBITDA loss – a measure of profitability – more than tripled to CA$7.3 million from the previous quarter.

International revenue was CA$700,000.

The quarterly results were below analyst expectations. Canaccord Genuity analyst Matt Bottomley expected revenue of CA$14.5 million, for example.

The chief financial officer’s resignation comes at a crucial stage for the Canadian company.

MediPharm says it is transitioning its focus from the business-to-business wholesale concentrate market, “due to oversupply in Canada.”

The company will now focus on white label contract manufacturing.

The CFO had been the highest compensated executive at MediPharm, according to a regulatory filing.

On top of Kwon’s CA$133,511 salary, the CFO was eligible for almost CA$2 million in option-based awards.

The company did not return queries from Marijuana Business Daily about Kwon’s severance.

But the same regulatory filing shows termination “without cause” could result in a severance of some CA$670,000.

Executive compensation is becoming a growing issue for publicly traded Canadian cannabis businesses; MediPharm’s disclosed 2019 executive compensation was almost CA$7 million, mostly consisting of option-based awards.

That’s significantly higher than 2018’s CA$1.3 million.

In the wake of the growing loss, MediPharm joined other Canadian cannabis businesses in slashing its workforce.

The company expects to save about CA$3 million annually.

MediPharm would not say to how many jobs were impacted, but a spokeswoman said the cuts involved “all Canadian employees focused around mid to senior management and some executives as well.”

In a statement, CEO Pat McCutcheon said: “Economic conditions including the oversupply in the Canadian bulk crude resin and distillate markets, along with the impact of COVID 19, continue to challenge the industry.

“We are now focused on doing more to drive profitable revenue and address weaknesses including reducing our cost structure. We have taken immediate steps to improve our costs and organizational alignment against which we have put an action plan in place that will create value and enable us to achieve our potential.”

Last week, the CEO said MediPharm would “commence a rigorous search for a new chief financial officer that will support the Company through our next phase of growth as a pharmaceutical company.”

MediPharm had CA$36.5 million in cash and equivalents as of Sept. 30.

Shares of MediPharm are traded on the Toronto Stock Exchange as LABS.