MediPharm Labs Corp. has entered into a settlement agreement on September 29, 2023, to resolve a claim in connection with a commercial agreement dispute for a total consideration value of $9,000,000.
On January 24, 2020, MediPharm Labs filed a statement of claim in the Ontario Superior Court of Justice against one of its long-term customers, HEXO Corp., regarding a long-term supply agreement for cannabis concentrates. The Claim related to the payment of outstanding amounts due to the Company for products shipped to and received by the customer and deposits owed to the Company for committed amounts not yet shipped. MediPharm was awarded a favorable summary judgment in the Ontario Court of Justice in July of 2022. The summary judgment was appealed by Hexo Corp., and a hearing at the Court of Appeal was scheduled for October 12, 2023. In connection with the Settlement Agreement, Hexo Corp. will abandon its appeal against MediPharm.
Upon the acquisition of HEXO Corp. by Tilray Brands, Inc., MediPharm and Tilray sought a resolution that was favorable to each party and to establish a long-term supply relationship in connection with the Settlement Agreement. Under the Settlement Agreement, MediPharm will receive a total value consideration of $9,000,000, including:
- $3,000,000 immediate cash payment;
- $4,500,000 in common shares of Tilray;
- $1,000,000 in Tilray cannabis products, including high-quality flower and extractable bio-mass; and
- $500,000 supply agreement to provide Tilray with MediPharm products and services over four years.
This long-term supply agreement will allow MediPharm to establish a positive ongoing business relationship with a global leader in the cannabis industry. This supply agreement is expected to benefit Tilray through access to MediPharm's unique pharmaceutical products and services both domestically and internationally, including products produced under the Company's US FDA Foreign Drug Site registration and Canadian Pharmaceutical Drug Establishment License.
Once completed, this arrangement will settle a current aged receivable of $8.5M on the Company's balance sheet. The additional $3M cash and $4.5M anticipated proceeds from the Tilray shares further strengthen the Company's balance sheet. MediPharm's Q2 2023 reported cash balance was $14.7M, which does not include the August 2023 surplus land sale for $1.9M. This Settlement Agreement solidifies the Company's position as having one of the strongest cash positions amongst its cannabis industry peers with similar market capitalizations. In addition, with less than $3M of debt, no overdue excise tax exposure, and full ownership of its assets, MediPharm also enjoys a very favorable debt position versus the same peer group. Management believes this puts the Company in a very strong position to continue to invest in the pharmaceutical and clinical pipelines and to thoughtfully consider approaches to the many available consolidation opportunities in the industry.
Management commentary
David Pidduck, CEO of MediPharm Labs, commented, "This settlement will allow us to receive $9M in value, which will dramatically strengthen our balance sheet and allow us to invest in many organic and inorganic growth opportunities. We are also excited to establish a long-term relationship with Tilray, a global leader in the cannabis space. This agreement builds on MediPharm's many customers across multiple channels, multiple geographies, B2B segments, and Pharma. I would like to thank the Tilray management team for their professional and pragmatic approach to this mutually beneficial settlement, and we look forward to working with them in the future."
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MediPharm Labs
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