MGC stock doubles on back of Korean medical marijuana deal

MGC Pharmaceuticals has hit a new high with expected monthly sales soaring to $3million from a $40 million deal to supply its white labelled cannabis based cosmetic products to Korean cosmetics manufacturer, Varm Cosmo.

The agreement is set to transform MGC Pharmaceuticals, Australia’s first listed medical cannabis company, with its products supplied in bulk and distributed via Varm Cosmo’s existing consumer and distribution network.

MGC Pharmaceuticals said the deal, which would deliver a minimum $40 million annual revenue stream to the company, had scope for expansion beyond the initial three-year term.

The minimum agreed purchase quantity is 15,000kg per month and MGC Pharmaceuticals said it expected strong profit margins from it. 

An initial $3.3m in revenue will be received shortly after the receipt of the first quarterly purchase order from Varm Cosmo, which is expected by the end of October. Both companies will sign a binding sales agreement within 31 days and also investigate means of expanding the product range and supply volumes.

MGC said that the South Korean market, one of the top 10 global beauty markets, was worth over US$13 billion in 2017. Facial skincare products account for more than half of the total market share in South Korea, with $6.5 billion in retail sales and a projected 5.8% cumulative average growth rate over the next five years to reach $7.2 billion by 2020.

According to Mintel Global New Products Database, more than two thirds of skincare product launches in South Korea in 2015-2016 were facial skincare products. Korean beauty products are growing in popularity worldwide and western brands are constantly looking to South Korea for new product inspiration, seeking to adapt popular South Korean beauty formats for western consumers.

Roby Zomer, Co-founder and CEO of MGC Pharmaceuticals commented: “This watershed milestone supply agreement is transformational for our MGC Derma division and for MGC Pharmaceuticals as a company, and importantly for all our shareholders.”

“It marks the culmination of much work in building our operations and our brand within this emerging market over the past 12 months, as well as development work for our proprietary formulations by our MGC Pharmaceuticals research team in Europe. Varm Cosmo are a great company to partner with to bring our cosmetics product to a wider consumer market.”

“I would personally like to thank our shareholders for their patience while my team and I have worked hard this year to pull this deal together, and establish the foundations for significant operations in both our pharma and cosmetics businesses.”

JungYoon Hwang, CEO of Varm Cosmo, said: “We produce the most honest cosmetics in the market. Our products contain one millilitre of highest purity CBD in the world. Providing the most effective moisturizing solution while making your skin young and healthy. Our partnership with MGC Pharmaceuticals gives us the opportunity to enhance our product line, while remaining true to our core beliefs. We look forward to working with MGC Pharmaceuticals in the coming years.”

MGC Pharma traded over $5 million worth of stock in the first 45 minutes after the announcement, making it the most active stock in morning trade on the Australian Securities Exchange as details of the Varm Cosmo deal emerged.

The company’s shares have hovered at around 4c for sometime but more than doubled to over 8c a share on the back of the Varm Cosmo deal before settling back to between 6c and 7c a share.