Medical cannabis company MGC Pharmaceuticals (ASX: MXC) has clinched a supply agreement for its cannabidiol (CBD) cosmetics with Varm Cosmo, which is expected to generate A$40 million in annual revenue.
Under the agreement, MGC Pharmaceuticals’ Derma division will initially supply five CBD products equating to 15,000kg a month to Korean cosmetics manufacturer Varm.
Varm will then sell the products to its existing consumer and distribution networks.
“This watershed milestone supply agreement is transformational for our MGC Derma division and for MGC Pharmaceuticals as a company, and, importantly, for our shareholders,” MGC Pharmaceuticals co-founder and chief executive officer Roby Zomer said.
“It marks the culmination of 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,” Mr Zomer added.
MGC Pharmaceuticals is anticipating its first month’s revenue of A$3.3 million imminently.
According to the company, this deal makes it the first ASX-listed “medical cannabis company to generate significant revenues”.
A binding sales agreement between the companies is expected to be finalised within 31 days and both companies will investigate potential for expanding product ranges and sales volumes.
MGC Pharmaceuticals claims South Korea is among the world’s top 10 beauty markets with an estimated value of US$13 billion in 2017.
Facial skincare products account for more than half of that market and MGC Pharmaceuticals projects this segment will be worth AS$7.2 billion by 2020.
Additionally, western consumers are increasingly seeking out South Korean beauty products, which are believed to be high performing, affordable and include fun packaging and sensorial cues.
Varm chief executive officer JungYoon Hwang stated Varm produces the “highest purity CBD products in the world”, which offers “more effective moisturising” and keep skin young and healthy.
On the back of the announcement, MGC Pharmaceuticals’ stock surged more than 60% in early morning trade.