MGC signs $8m cosmetics sales agreement with Varm Cosmo, more to come

MGC Pharmaceuticals (ASX: MXC) has inked its first exclusive binding sales agreement worth A$8 million to supply Korean cosmetics manufacturer Varm Cosmo with cannabidiol (CBD) products.

A further two agreements are due to be implemented in the coming weeks with Varm Cosmo, with the combined three agreements worth A$40 million.

MGC Pharmaceuticals’ 51%-owned subsidiary MGC Derma executed the agreement, which will supply the Korean cosmetics manufacturer with a minimal A$8 million in initial CBD products, amounting to about 30kg of pure CBD per annum.

MGC Derma is anticipating its first A$1 million payment next month.

Varm Cosmo will sell the CBD cosmetics under a new brand, which it will launch in the next few months. The Korean cosmetics manufacturer has a global distribution network and sells its CBD products online and through retail outlets. Varm Cosmo also has an established CavaLabs brand which is sold through well-known retail stores.

This binding sales agreement follows the company’s supply agreement with Varm Cosmo which was secured less than two weeks ago.

“We are delighted to be moving swiftly forward with this transformation deal for our MGC Derma division, and for the company as a whole,” MGC Pharmaceuticals co-founder and chief executive officer Roby Zomer said.

“Having signed the first exclusive sales agreement and soon issuing the invoice for the first A$1 million payment for our CBD products, MGC Pharmaceuticals is set to become Australia’s first listed medical cannabis company to generate significant revenues through this deal, which, on execution of all three binding contracts, is valued at a minimum A$40 million in total annual revenue to MGC Derma,” Mr Zomer added.

Cosmetic manufacturer Dr M Burstein Ltd owns the remaining 49% stake in MGC Derma and has a Slovenia-based facility with excess capacity to supply increased sale order volumes if required.

According to MGC Pharmaceuticals, the global cosmetics industry was worth US$460 billion in 2014 and predicted to reach US$675 billion by 2020.

Among the world’s top beauty markets is South Korea, which has an estimated value this year of US$13 billion, with facial skin care products accounting for more than half of the market.

MGC Pharmaceuticals claims western consumers are increasingly seeking out South Korean beauty products for their high performance, affordability and fun packaging.