The new licence will take Mernova and Creso Pharma into the huge medicinal cannabis market in Canada, with the potential to unlock the recurring revenue model.

In a major development, global medicinal cannabis company, Creso Pharma (ASX:CPH), announced that its wholly-owned subsidiary Mernova has secured a licence extension to sell medicinal cannabis in Canada.

This will now allow Mernova to enter the lucrative medicinal cannabis market in Canada, in addition to the existing recreational market licence it has already received from Health Canada in May 2020,

Separately, Mernova also said that its recent sales have underpinned the company’s growth, with new purchase orders now totalling C$224,580 ($242,000).

 

Unlocking the recurring revenue model

Today’s development marks a critical milestone for Mernova, as it potentially opens up a number of pipeline opportunities.

Under the new licence, Mernova can now possess and distribute its products to other medicinal licence holders, licensed nurseries and hospital employees for example.

It is also allowed to distribute different types of cannabis products, such as dried, fresh plants and seeds.

The licence will also allow Mernova to increase its brand profile within the Canadian medicinal market, which was estimated at approximately C$500 million in 2019.

“The medicinal market has the potential to be huge for us,” says Mernova’s managing director Jack Yu.

With the licence in its pocket, Mernova is now able to progress direct-to-patient sales across Canada, removing the need for provincial wholesalers, distributors and retailers from the supply chain – potentially increasing its bottom line margins.

The company is also confident that medicinal sales will have the potential to unlock a recurring revenue model, which will provide additional predictability and stability to future revenue and forecasts.

“We anticipate that entering into the medicinal market will allow us to considerably grow our revenue profile and profit margins,” Yu said.

“The potential of a recurring revenue model for medicinal sales may also provide increased predictability and stability of cashflows, forecasts, and downstream supply chain management,” he added.

As the licence enables Mernova to interact directly with customers, the company says it will have more control over customer service and experience.

“It will increase our distribution from four provinces and territories to nationwide, and allows for direct-to-patient sales, which provides us with increased control over pricing, as well as direct interaction with, and feedback from, valued customers.”

It’s expected that consumers purchasing Mernova’s products as patients may be eligible for government subsidies, to reduce their out-of-pocket costs.

Mernova also said it will continue to explore opportunities through existing, established medicinal clinics and other health care providers, to progress its first batch of sales into the Canadian medicinal market.

The licence obtained today will also underpin Creso’s overall strategy in Canada, where it also offers psychedelic medicines through its recently acquired subsidiary Halucenex.

Halucenex provides Creso with access to the emerging global market for psychedelic medicines estimated to be worth up to US$100 billion.

The potential for Halucenex within the psychedelic market is huge, as shown by how some of its competitors have grown in size:

 

New purchase orders underpinning growth

Mernova’s latest batch of purchase orders were for the sale of its indoor grown, hand trimmed, hang dried, cured, artisanal, craft cannabis products, and were secured from the company’s provincial partners.

Products include new Tropic Cookies strain, which is sold under the group’s pre-roll joint range Ritual Sticks.

Meanwhile, the company said that its product development initiatives remain ongoing, and it’s currently in advanced discussions with a number of provincial partners to introduce additional products in the future.

“Purchase orders for recreational sales continue to grow steadily, and we anticipate increased growth with the introduction of new strains and additional products, in the coming months,” Yu said.

This article was developed in collaboration with Creso Pharma, a Stockhead advertiser at the time of publishing.

 This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.