MGC Pharmaceuticals | 22 October 2018
repayment of the existing C$2.5m working capital loan owed to MGC by MGC Derma. As
Cannaglobal is an unlisted entity, we are unable to independently confirm the value of their shares.
MGC Derma (previously known as Ananda Cosmetics) is a joint venture company that was owned
51% by MGC and 49% by the Slovenian cosmetics manufacturer Dr M Burstein (Burstein). To
complete the Cannaglobal transaction, MGC has acquired the 49% of MGC Derma held by Burstein
for C$1.25m (Burstein’s share of the MGC Derma working capital loan). In turn, Burstein will benefit
from the five-year cosmetic materials supply agreement that is part of the transaction.
Contract default notice issued to Korean cosmetics
manufacturer Varm Cosmo
On 20 October 2017, the company announced that its MGC Derma division had signed a binding
terms and conditions supply agreement for the supply of A$40m per year of white-label (unbranded)
cosmetic products to the Korean cosmetics manufacturer Varm Cosmo. Ten days later, it signed the
first binding sales agreement with Varm Cosmo, for a minimum contracted volume of A$8m of
However, Varm Cosmo failed to meet its commercial obligations under the agreement, including the
payment of a A$1m deposit. On 25 September 2018, MGC issued a formal contract default notice
to Varm Cosmo and will seek a minimum of A$0.5m from the company as restitution, plus additional
MGC Derma’s range of CBD-based cosmetic products
MGC Derma has developed a range of CBD-based cosmetic products, including the Derma Plus
range of dermatologically tested products that have shown efficacy in improving a range of highly
irritated or inflamed skin conditions. The Derma Plus range includes products for the relief and
prevention of psoriasis, acne and seborrheic conditions, including its CBD Herbal Repair Cream,
Herbal Balm and Herbal Replenish Cream. Successful safety studies have allowed the company to
register the products with the European Cosmetic Products Notification Portal (CPNP), allowing
them to be sold in Europe as ‘dermatologically tested’ products.
MGC Derma is marketing its mgc derma range of CBD-based cosmetic products through its online
shop and through wholesale reseller agreements in Spain, Italy, Romania and the Czech Republic.
It has signed supply agreements with leading online retailer Cult Beauty and the prestigious
department store Harvey Nichols to sell the range of cosmetic products internationally.
MGC faces the typical risks of a development-stage biopharma company, including the
unpredictable outcome of trials, regulatory decisions, success of competitors, financing and
commercial risks, coupled with unique risks associated with its medicinal cannabis focus.
The investment case hinges on establishing expanded, GMP-certified, medicinal cannabis growing
and processing facilities in Malta. The ability to obtain regulatory approval for CannEpil for the
treatment of refractory epilepsy will be crucial to its ability to drive additional sales growth in the
competitive medicinal cannabis space.
Due to the highly regulated nature of the medicinal cannabis market, the company is vulnerable to
regulatory changes that either restrict its ability to operate or alternatively leave it open to increased
competition from new entrants.
We note that the inclusion of low levels of psychoactive THC in CannEpil could potentially increase
the incidence of side effects such as drowsiness or nausea in patients.