MGC Pharma drives home Brazil advantage with lucrative seven-year supply agreement
Health & Biotech
Health & Biotech
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Special Report: The upgraded deal is strong confirmation of MGC Pharma’s ability to execute on building a globally scalable cannabis distribution business.
For seed-to-medicine cannabis company MGC Pharma (ASX:MXC), a strategic push into the Brazilian market is beginning to prove especially lucrative.
The company just announced it has upgraded terms on an exclusive supply agreement with Brazil-based ONIX, a leading distributor of pharmaceutical cannabis products.
The deal establishes increased minimum-order volumes and pricing for MGC’s cannabinoid medicines, which are GDP-approved for the stringent European market.
Under the new terms, ONIX has agreed to a minimum order of 20,000 units in year one of the deal, with an equivalent value of around $1.65m.
From year two onwards, the minimum order volume will increase to 50,000 units, generating estimated annual revenues of around $4.1m.
Importantly, the deal-term is for a minimum of seven years, which allows MGC to lock in forward-looking cashflow forecasts as it drives towards profitability.
MGC said it expected to achieve cash-flow breakeven on the ONIX deal by the start of year two based on monthly unit sales of 5,000, in accordance with the minimum order volume.
In addition, the revised agreement will be revenue-generative immediately, with MGC to receive a down-payment of $107,000 in connection with the first purchase order of 4,000 units.
It’s a landmark deal for the company, making it one of the only ASX-listed cannabis stocks with a long-term sales contract in an overseas market.
In addition, it marks an important piece of execution on the company’s strategic global vision, after it first signed a deal with ONIX back in June 2019.
Establishing its distribution pathway through ONIX also means MGC’s products will receive approval from Anvisa, the Brazilian regulatory authority which establishes a high level of regulatory compliance.
Such approval is a “significant validation of the quality of MGC Pharma’s products”, the company said.
“Approval will enable ONIX to be one of the first to distribute cannabinoid medicines to Brazilian pharmacies.”
Today’s announcement follows up from another global deal last week, where MGC announced it would start supplying cannabinoid medicines to pharmacies in Poland as part of a wide-ranging study into patient use.
The study will look at the societal, medical, and public health ramifications of monitored cannabis access for patients and users, and is the first of its kind in Europe.
Medical cannabis was legalised in Poland in 2017, allowing for cannabis treatment of any condition, provided there is clinical evidence to prove its effectiveness.
MGC’s products will hit the shelves of 15 pharmacies immediately, expanding to 50 pharmacies within nine months and a full rollout of 250 locations within two years.
Under the terms of the deal there is no minimum-volume agreement, although the project will run for two years and MGC expects it to be revenue-generative, while also building a materially significant database of patient data.
As MGC continues to push into new markets from its European production base, the company has set itself on the fast-track to be a global leader in medicinal cannabis as the broader market continues to grow.