On Thursday, MediPharm Labs (TSX:LABS) discussed second-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

MediPharm Labs achieved positive net income for the first time since 2019, marking its second consecutive quarter of positive adjusted EBITDA and expanding gross margins.

Positive Phase 2 results from the LIBBY clinical trial validated the company's pharmaceutical platform, with significant improvements in dementia-related agitation using a proprietary cannabinoid formulation.

Revenue in Q2 2026 was $10 million, an 11% sequential increase, driven by a 45% growth in the German market; gross margins were strong at 43%.

The company focuses on international medical markets, with 80% of revenue from regulated medical channels, leveraging unique regulatory and licensing advantages.

MediPharm Labs maintains a strong balance sheet with $9.9 million in cash and minimal debt, supporting its strategy of selective M&A to enhance its platform.

The company is managing regulatory headwinds, such as VAC reimbursement changes, through cost control and portfolio optimization, achieving continued profitability.

MediPharm Labs' strategic growth includes expanding branded products, optimizing product mix, and pursuing non-smokable formats in regulated markets.

Full Transcript

OPERATOR

Thank you for standing by, and welcome to the MediPharm Labs conference call to discuss the company's 2026 Q2 results. Our speaker on today's call is Greg Hunter, Interim CEO and Chief Financial Officer. As a reminder, all participants are in listen-only mode and the conference is being recorded. After management's presentation, we will take written questions through the Q&A feature on the webcast. The information during this call should be considered together with the more detailed information, disclosure, financial data, and statements available on the company's website and on its SEDAR+ profile, as set out on the webcast slide.

I would like to note that remarks during this earnings call may contain forward-looking information and forward-looking statements within the meaning of applicable securities laws. This includes, without limitation, statements about MediPharm Labs and its current and future plans, expectations, intentions, financial results, operations, levels of activity, performance, goals or achievements, and other future events, trends, profitability, business growth, or development.

All statements other than statements of historical fact are forward-looking statements. The statements made are based on the company's current expectations, estimates, and beliefs as of today's date. The company's remarks may also contain references to certain non-IFRS financial measures, including adjusted EBITDA. These measures do not have any standardized meanings according to International Financial Reporting Standards, or IFRS, and therefore may not be comparable to similar measures presented by other companies.

Please review the company's most recent disclosure materials filed on SEDAR+ for the risks associated with forward-looking information and the use of non-IFRS financial measures, including the section titled Reconciliation of Non-IFRS Measures in the company's most recent MD&A available on SEDAR+. Please note that all dollar amounts mentioned on today's call are in Canadian dollars unless otherwise noted. And now I would like to turn the call over to Mr. Greg Hunter. Please go ahead.

Greg E. Hunter, Interim Chief Executive Officer

Thank you, operator, and good morning, everyone. Q2 was a significant quarter for MediPharm Labs as we achieved positive net income for the first time since 2019, delivered our second consecutive quarter of positive adjusted EBITDA, our strongest since 2019, expanded gross margins, and maintained a strong balance sheet. We also announced positive Phase 2 results from the LIBBY clinical trial, which met its primary endpoint with statistically significant improvement in agitation among patients with dementia, providing meaningful validation of our pharmaceutical platform.

Turning first to the LIBBY clinical trial, dementia affects an estimated 55 million people worldwide, and I expect many people listening today have had some personal experience with it through a parent, a grandparent, or someone close to them. The study is a U.S. multicenter Phase 2 randomized, double-blind, placebo-controlled clinical trial evaluating MediPharm Labs' proprietary cannabinoid formulation for the treatment of clinically significant agitation in patients with dementia.

The trial enrolled 120 participants who are eligible for or receiving hospice care and is among the first randomized, placebo-controlled studies conducted in this patient population. Agitation remains one of the most challenging symptoms associated with Alzheimer's disease and other forms of dementia, creating a significant burden for patients, caregivers, and healthcare providers, while safe and effective treatment options remain limited. In July, positive results from the LIBBY trial were presented at the Alzheimer's Association International Conference.

The study met its primary endpoint and all key secondary endpoints, demonstrating statistically significant improvement in agitation in patients with dementia, with benefits observed as early as two weeks and sustained throughout the 12-week treatment period. Nearly 9 out of 10 treated patients demonstrated overall clinical improvement by week 12. Importantly, the study evaluated MediPharm Labs' proprietary cannabinoid formulation, which was developed and supplied exclusively by MediPharm Labs.

MediPharm Labs has filed two U.S. provisional patent applications covering the formulation and related therapeutic applications. The study was funded by the National Institute on Aging, part of the National Institutes of Health, and the Alzheimer's Association. It was conducted through the NIH-funded Alzheimer's Clinical Trial Consortium and coordinated by the University of Southern California's Epstein Family Alzheimer's Therapeutic Research Institute, the University of South Carolina, and Georgetown University.

For patients living with dementia, their families, and caregivers, these findings advance clinical research in an area of urgent unmet need. We are grateful to the funding organizations, investigators, study teams, participants, and caregivers who made this work possible, and privileged to see our proprietary formulation evaluated by these research institutions. While additional clinical development and regulatory work remain, we believe these results represent the strongest clinical validation of MediPharm Labs' pharmaceutical platform to date and demonstrate our ability to develop proprietary formulations that can be evaluated in rigorous clinical settings. For shareholders, LIBBY reinforces something we've spoken about for many years: MediPharm Labs' value extends beyond today's commercial cannabis markets. We have built a platform capable of participating in regulated pharmaceutical opportunities, and we believe the positive LIBBY results provide further validation of that long-term strategy. We continue to support leading academic and research institutions to advance pace and outcomes across a number of additional clinical areas, including supplying active pharmaceutical ingredients and formulations for studies focused on epilepsy, chronic pain, insomnia, and oncology symptom management.

Before reviewing the quarter, I would like to briefly remind you of MediPharm Labs' core differentiators and outline how we're building on that foundation to drive growth in 2026 and beyond. MediPharm Labs is not a single market or single product company. We operate across four distinct revenue channels supported by a regulatory and licensing platform that is both rare and difficult to replicate. Importantly, more than 80% of our revenue is generated from medical channels where products are prescribed by healthcare practitioners and supplied within regulated medical frameworks.

This differentiates MediPharm Labs from many cannabis companies that primarily service recreational markets and further aligns our business with the increasing global focus on physician-led cannabinoid therapies. From a regulatory standpoint, MediPharm Labs holds a unique combination of licenses which takes years to obtain and millions of dollars to develop. Notable licenses include a Health Canada Drug Establishment License, EU-GMP certification, ANVISA GMP certification from Brazil, TGA compliance in Australia, an FDA-inspected facility with prior shipments of pharmaceutical-grade APIs into the United States for research and use in clinical studies, and we maintain licenses and registrations that support natural health product development should that pathway evolve in Canada. As a result, MediPharm Labs is often selected because we are a trusted, compliant, and dependable partner, not because we are the lowest-cost option in regulated medical and pharmaceutical channels. That distinction matters. Building on what makes MediPharm Labs unique, I would like to expand on our strategy for growth and how it translated into execution in the second quarter.

Our strategy is deliberate, diversified, and disciplined, spanning both organic execution and selective inorganic opportunities. Organically, we are focused on maximizing the value of the platform we have spent years and millions of dollars to build. Q2 reflected measured progress across our core markets despite an operating environment where pricing, prescribing behavior, and reimbursement regimes continue to shift. International medical remains a key growth driver for MediPharm Labs.

Our strategy continues to focus on expanding our Beacon and Wildlife branded product portfolios, which support stronger customer relationships, increased patient adoption, more predictable demand, and an improved margin profile over time. In the quarter, Germany delivered 45% sequential growth supported by expanded availability of branded flower under the Beacon and Wildlife portfolios. Branded product sales more than doubled during the quarter. The continued growth of MediPharm Labs branded products is intended to reduce exposure to spot price volatility and improve the sustainability of our economics over time. At the same time, we remain active in white-label flower opportunities, participating only where margin thresholds and partner quality meet our standards.

Australia remains a key market for MediPharm Labs. As market dynamics continue to evolve, we have adapted to both pricing pressure and changes in prescribing behavior by maintaining the premium positioning of Beacon while expanding Wildlife into the value segment. This dual-brand strategy allows us to participate across a broader portion of the market while preserving brand integrity, customer loyalty, and long-term value. During the first half of the year, we focused on portfolio optimization and aligning our product offering with changing patient demand.

We are pursuing targeted geographic expansion in regulated medical markets such as France, Brazil, New Zealand, and the UK, where we have had recent success and our licensing and pharma-grade credentials deliver a competitive advantage. Following our first shipment of medical cannabis oil to France in Q4 2025, we delivered a second purchase order in the quarter. As France transitions from a national pilot program to a permanent pharmaceutical-based medical cannabis framework, we believe MediPharm Labs is well positioned.

The French system restricts medical cannabis to non-combustible forms and requires pharmaceutical-grade manufacturing standards supported by extensive regulatory dossiers, areas that align well with MediPharm Labs' proven capabilities. In Brazil, we commenced manufacturing activities for an initial purchase order received in Q1 and expect to ship the order in the second half of the year. This will be our first commercial shipment to this customer and an important step in expanding our presence in the Brazilian medical market.

Following the successful launch of our Beacon brand in New Zealand in Q1, we received replenishment orders and expect to ship them in the back half of the year. This allows us to leverage the Beacon brand, which has been established with patients in neighboring Australia for more than five years. We continue to invest in non-smokable and pharmaceutical-grade formats including oils and inhalation technologies, which align with tightening regulatory expectations and patient demand while differentiating MediPharm Labs from commodity suppliers.

During the quarter, we submitted a regulatory dossier related to our metered-dose inhaler supporting potential future entry into additional regulated markets. These efforts reflect continued demand for precisely dosed, smoke-free formats in medical channels. In domestic medical, our growth strategy is centered on protecting and optimizing a high-value regulated patient base. We remain focused on continuity of care, service quality, and reliability, particularly for veteran patients, where trust and consistency matter most.

While veteran reimbursement changes implemented by Veterans Affairs Canada in the quarter negatively impacted revenue, our approach to mitigating this impact is grounded in operational discipline, including cost control, procurement efficiency, and thoughtful product mix management. While continuing to prioritize patient outcomes, we continue to service more patients by expanding third-party medical partnerships and platform listings, increasing access to MediPharm Labs products beyond our own channels and broadening SKU availability where it makes economic sense.

Our clinic platform, Harvest Medicine, continues to provide capital-efficient patient access, supporting engagement, education, and retention in adult-use and wellness. MediPharm Labs' strategy remains intentionally focused, selective, and margin-driven. We continue to defend our number two leadership position in premium oils, where MediPharm Labs has built brand recognition and product credibility, rather than chasing volume. We are prioritizing disciplined pricing, mix optimization, and cost efficiency, protecting contribution margin in a competitive environment.

We are selectively innovating in adjacent non-smokable formats including extract drops and differentiated formulations where we can leverage existing capabilities. Distribution efforts are focused on markets and listings that meet return thresholds in pharma and B2B. We continue to leverage our drug establishment license, clinical trial experience, and our extensive manufacturing capabilities to support long-term pharmaceutical optionality and contract manufacturing opportunities.

Across all organic initiatives, the consistent theme is regulatory alignment, margin quality, and repeatability, not short-term volume. In addition to organic growth, we view selective M&A as a complementary tool to strengthen and accelerate our strategy where there is a clear strategic fit. Our focus remains on opportunities that enhance our platform, expand our capabilities, and create long-term shareholder value as the industry continues to consolidate.

We remain disciplined in our approach, focusing on opportunities that align with our regulatory strengths, strengthen our position in regulated medical markets, and improve the quality and sustainability of earnings. With a strong balance sheet, liquidity, and minimal debt, we have the flexibility to pursue attractive opportunities when the economics and integration profile are compelling, while maintaining our commitment to financial discipline.

Taken together, our organic and inorganic strategies are designed to build on MediPharm Labs' differentiated platform, deepen our presence in regulated medical markets, and position the company to benefit as global medical markets continue to mature and consolidate. This balanced approach enables us to pursue growth while maintaining the financial and operational discipline that has strengthened MediPharm Labs over the past several years and supports our objective of creating long-term shareholder value.

Turning to the P&L performance for the second quarter, revenue was $10 million and increased 11% sequentially from $9 million in Q1, largely driven by our German business, which grew 45% sequentially. International medical cannabis revenue was $5.8 million, representing approximately 58% of total revenue for the quarter, and grew 26% sequentially from $4.6 million in Q1. Canadian medical cannabis revenue was $2.3 million in Q2 compared with $3 million in Q1.

The decline was driven by the reimbursement changes, as discussed previously. Canadian adult-use and wellness revenue was $1.5 million and grew 34% from $1.1 million in Q1, driven by seasonal patterns and broader market trends. Gross profit was $4.3 million, or 43%, and grew 30% from Q1 and 13% year over year. Our gross profit margin remains among the highest gross margins the company has achieved. Gross margin performance reflects disciplined product mix management, branded international sales, and continued cost control.

We remain focused on optimizing product mix and production efficiency, supported by differentiated pharmaceutical-grade formats such as our extracts and metered-dose inhaler. Total operating expenses, including G&A, marketing and selling, and R&D, were $4 million, declining 44% year over year and 4% sequentially. This reflects our continued focus on reducing our cost base, including our Q1 restructuring initiatives that are expected to generate more than $1 million in annualized savings.

Adjusted EBITDA was positive $0.9 million, which is the highest since 2019 and is the second consecutive quarter of positive adjusted EBITDA. This performance reflects the improved margin quality and lower operating expenses and demonstrates the ability of the business to offset near-term revenue pressure through disciplined execution. Net income was positive for the quarter, representing our first profitable quarter since 2019, driven by revenue growth and the reduction in operating expenses.

As discussed previously, I want to briefly summarize the key takeaways for the second quarter. From a commercial standpoint, we executed key milestones across regulated international medical markets, including positive results from the Libby Phase 2 clinical trial. Despite regulatory and reimbursement headwinds in several markets, we delivered revenue of $10 million, representing 11% sequential growth, largely driven by our international medical business.

In Germany, we achieved a 43% gross margin, among the highest achieved in recent quarters. This performance reflects disciplined product mix management, branded international sales, and continued focus on cost efficiency. We continue to make progress on profitability with positive net income, the second consecutive quarter of positive adjusted EBITDA, the best financial performance since 2019. We exited the quarter with a strong balance sheet, including $9.9 million in cash, virtually no debt, and outright ownership of our two licensed production facilities with an appraised value of more than $15 million.

We are also current on excise taxes, sales taxes, and trade payables. Our balance sheet strength and continued operating discipline give us the flexibility to fund both organic and inorganic growth while selectively evaluating opportunities that enhance our platform and long-term earnings. Taken together, our Q2 results reflect a business executing with discipline, protecting margin and liquidity, and continuing to build resilience as we progress through 2026.

In closing, Q2 demonstrated that MediPharm Labs can deliver profitable growth despite external regulatory and reimbursement headwinds through improved product mix, margin expansion, international growth, and disciplined cost management. We generated our strongest EBITDA performance since 2019 and returned to positive net income. I would like to thank our employees for their dedication, agility, and relentless focus on execution; our customers and suppliers for their continued trust and partnership; and our shareholders for their ongoing support and confidence as we position MediPharm Labs for sustainable, profitable growth.

OPERATOR

I'll now open the line for questions. We will now take questions from the web. Our first question comes from Nestor, and it reads: The growth in Germany appears strong. Are there any headwinds expected in the future quarters that would challenge this sustained growth?

Greg E. Hunter, Interim Chief Executive Officer

Hi, thanks, Nestor, for the question. Let me start a bit broader with Germany. So Germany remains one of our most important growth markets and, as you heard in our prepared remarks, was a significant contributor to our Q2 performance. During the quarter, German revenue increased 45% sequentially and 33% year over year, making it one of our best international geographies for the quarter. We are seeing increased competition in Germany and creating some pricing pressure.

I think probably the bigger one is regulators are starting to take a closer look at the market, particularly within the GMP supply chain compliance requirements. And we view this as a competitive advantage to MediPharm Labs. Those developments support our long-term strategy because, as we've talked about, our business is built and founded upon EU-GMP and pharmaceutical manufacturing compliance. So regulatory is in our DNA. And with our established relationships and our regulatory credentials, we believe this increased regulatory scrutiny will become a competitive advantage for MediPharm Labs.

The other thing I'd add within Germany, as we talked about in prepared remarks, is our branded strategy, where we're increasing our business on both our Beacon Medical and our Wildlife branded products while also participating in the white-label market as well. In addition, with flagship partners like we've talked about in the past with Stata Focus, focusing on non-combustible products such as oils and other differentiated formats. So we're still bullish and optimistic that Germany will continue to be a long-term growth opportunity for MediPharm Labs.

OPERATOR

Our next question reads, what specific measures are you introducing to absorb the VAC reimbursement changes?

Greg E. Hunter, Interim Chief Executive Officer

Yeah, thanks for the question. So maybe if I just back up on the reimbursement changes. Veterans Affairs Canada implemented changes to the medical cannabis reimbursement that took place effective April 1st, where it reduced the maximum reimbursable amount from $8.50 a gram to $6 per gram — so a 30% reduction. And so this impacts our Canadian direct-to-patient medical channel, where veterans have predominantly been the larger portion of that business.

These changes were expected and are in line with our expectations. We did see a step down in revenue in that segment of our business for the quarter, in line with expectations, as I said. But, importantly, we've been able to mitigate a lot of those impacts through a combination of initiatives that we've implemented, whether it be cost reduction initiatives, supply chain efficiencies, portfolio optimization. The key thing here is we've been able to maintain the high level of service that is critical for our patients, and particularly our veterans.

I think that mitigation is demonstrated in the results. We still delivered 11% sequential revenue growth. We delivered positive net income, a second consecutive quarter of positive adjusted EBITDA. So despite these changes, which were in line with expectations, we were able to mitigate that and continue to deliver improved results.

OPERATOR

And our third question reads, can you add more detail on the Libby study now that the top-line results have been presented?

Greg E. Hunter, Interim Chief Executive Officer

Yeah, certainly. So thanks for the question on Libby. We're very excited with the Libby trial. Just to back up again and remind folks, Libby was a phase two randomized, double-blind, placebo-controlled study that evaluated our proprietary cannabinoid formulation that was developed by MediPharm Labs and manufactured by MediPharm Labs for patients with advanced dementia and agitation. As we said in the prepared remarks, the Libby team presented their results at the Alzheimer's conference in July, showing that it met the primary endpoint and all secondary endpoints, which is really exciting news.

And, as we said, we have filed two U.S. provisional patents related to both the formulation and the therapeutic applications. This just further validates what we talked about — our pharmaceutical platform, the quality standards that we can meet, where we participate in pharmaceutical markets, and our ability to ship product into the U.S. through a sophisticated and regulated supply chain for clinical trials. It's still very early days — these results were just presented in mid-July.

We look forward to continuing to partner and work with the Libby team as we look to advance here, and we'll keep investors updated as we continue to advance this opportunity. I'll also take the opportunity to mention that we participate in 10 other clinical trials that we've disclosed as well across many different indications. So again, we're optimistic about potential results here.

OPERATOR

We have no further questions. This will conclude our Q and A session. I would like to turn the call back to Greg Hunter for closing remarks.

Greg E. Hunter, Interim Chief Executive Officer

Yeah, thanks. Maybe just in closing, reiterate a couple of the key points we talked about in our prepared remarks. It was an exciting quarter for MediPharm Labs, not just financially, because it was again our strongest adjusted EBITDA since 2019, the second consecutive quarter of positive EBITDA, and our first quarter of positive net income since 2019. International continues to be a very large portion of our business — over 50%. And, as I said in prepared remarks as well, 80% of our revenue comes from the medical channels that require a healthcare practitioner prescription, which are the more regulated markets, which benefits MediPharm Labs.

And we closed with a strong balance sheet, which gives us flexibility, with over $10 million in cash. With that, I'd like to thank everybody for joining and look forward to providing you with updates next quarter. Thanks, everyone.

OPERATOR

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.