| Name | Medibis |
| About | Delivering positive treatment outcomes through medicinal cannabis solutions |
| Headquarter | Toowoomba, QLD |
| Raise Description | Seed |
| Security Type | Fully paid ordinary shares |
| Current Round Size | $1,800,000 |
| Pre-Money Valuation | $8,229,200 |
| Current Price per Share | $0.10 |
| Previous Raise Stage | Pre-seed |
| Previous Raise Valuation | $740,000 |
| Crowdfund Platform | Birchal |
| Existing Investors | Founders’ capital Equity Crowdfunding |
| Key Competitors | Incannex Healthcare Little Green Pharma Cann Group Many others. See link. |
| Related Webinars | Webinar with Birchal |
The Startup Investigator Scorecard
| Characteristics of Good Problem | : | 19 | / 30 | 63.3% |
| Characteristics of Ideal Solution | : | 13 | / 25 | 52.0% |
| Traction to Date | : | 9 | / 20 | 45.0% |
| Business Model Defensibility | : | 9 | / 20 | 45.0% |
| Chracteristics of Founding Team | : | 12 | / 25 | 48.0% |
| Total Overall Score | : | 62 | / 120 | 51.7% |
| Peter Thiel 7 Questions (Product) | : | 18 | / 35 | 51.4% |
| Berkus Method (Risk) | : | 10 | / 25 | 40.0% |
* See below for further details of evaluation
TL;DR
Medibis is a pre-revenue startup developing a vertically integrated medical cannabis business. It is based in Toowoomba, QLD. It aims to cultivate cannabis, research and manufacture medical-grade cannabinoid products and distribute its products both locally and internationally. The startup is currently seeking seed funding to fund its Phase 1 business plan of bringing their oil-based medical cannabis products to the market. Their products will be sourced from BOL Pharma based in Israel (from Sep-21) and distributed through Aspec, which is their 4PL partner.
What is the real problem in the medical cannabis industry in Australia?
According to research reports from FreshLeaf Analytics and Prohibition Partners, the demand and uptake of legal medical cannabis products have increased significantly over the last few years. There are a few metrics that were used to measure demand/uptake.
Before we go into the metrics, there are a few background information required to understand those metrics. Unlike typical medicines where you can get prescription from a physician and buy it from a pharmacist, one can only access a medical cannabis product through 2 alternative pathways because as it stands, there are no medical cannabis product that has been approved by the Therapeutic Goods Administration (TGA) and included in the Australian Register of Therapeutic Goods (ARTG). The first pathway is through the Special Access Scheme – Category B (SAS-B) where physicians will have to apply for a special exemption with justifications so that patients can access the required medical cannabis product. The second pathway is through a Authorized Prescribers.
See below a few metrics used to measure medical cannabis demand and uptake.
- Number of Active Patients
See below graph.1 - Number of SAS-B Approvals
The number of SAS-B approval has increased from an average of 5,000 in previous months to 8,000 in Feb-21. These could be driven by doctors seeking re-approval of out-of-stock products and also new demand coming in. The numbers also masked the fact that some of the demand for low-dose cannabinoid products might have moved to access through pharmacies as these product category has been down-scheduled.1 - Number of Authorized Prescribers
See below graph.1
Correspondingly, the number of medical cannabis products have also increased significantly over the last few years. See below graph.1
As you can see, the challenge is actually the accessibility of medical cannabis products. And because of this, there has been a thriving grey/black market for cannabis products. Medibis aims to solve this problem through conventional pathways i.e. clinical trials and creating a body of knowledge to help physicians confidently prescribe cannabinoid products with the right formulation for the right medical cases.
Medibis has a 2 stage approach to building the business
There are 2 phases to Medibis’s business plan. Phase 1 is relatively clear and straight-forward but there is still significant uncertainty as to how Phase 2 will be delivered.
Phase 1 involves building a sales distribution pipeline for Medibis branded products and studying market demand in more detail. Medibis has secured a 3+2 years supply agreement with BOL Pharma for its custom cannabinoid products. It has also secured a partnership with Anspec, a local 4PL provider to help with product distribution. The seed funding raised will primarily used to fund Phase 1.
Phase 2 involves building a vertically integrated cultivation and manufacturing facility, initially aimed at a capacity of 4 tons per annum. The proposal is estimated to cost ~$25m, and funds would need to be acquired from further capital raising. The plan for Phase 2 is not yet finalized as it may depend on how Phase 1 performs. Medibis is open to various other operating options such as :
- Contract growing agreements with existing facilities
- Leasing ringfenced portion of an existing facility
There have been a few tractions to date in preparation for Phase 2:
- Securing a conditional land purchase agreement
- Securing a conditional service agreement with FKG, a construction company
- Securing the “Major Project Status” for its plan to build a medical cannabis cultivation and manufacturing facility in QLD
There are currently 25 projects across Australia with a “Major Project Status” with a majority of the projects mining-related, but there are 6 of those projects working in developing medical cannabis cultivation and manufacturing. Medibis is one of them.
Medibis is focused on improving product accessibility, but lack of clear product differentiation is a concern
There is no clear differentiation between the cannabinoid products Medibis has proposed to sell for Phase 1 and the existing offerings in the market. Medibis planned to sell products with various formulations and THC/CBD concentrations in the oil-based format. 65% of existing medical cannabis products are oil-based.1 The key point of difference is the fact the product formulations is from an established supplier from Israel, BOL Pharma and there is currently no formulations from Israel in Australia. The differentiation might be obvious to insiders, but may not be obvious from a customers’ perspective.
To compensate for that, Medibis is planning to focus on creating a body of knowledge about medical cannabis through secondary research and funding clinical trials. The idea is to make these resources widely available to educate physicians about medical cannabis use cases and how/when they can be prescribed to patients. The quality of the materials produced is important to give physicians the confidence to prescribe medical cannabis products to effectively treat certain conditions that existing medication is performing poorly.
Founding team has limited startup and medical experience, but compensate with getting help from external expertise
Angus and Andrew has extensive experience in Electrical and Instrumentation (E&I) commissioning and project management in the mining industry. Their technical expertise will help in delivering Phase 2 of the project where key parts of the project will involve the planning, design, development and construction of a medical cannabis cultivation and manufacturing facility. However, the founding team lacks experience in the medical, pharmaceutical, clinical research and commercial development field.
To compensate for this, Angus has partnered with a few medical consultants specialized in biotech commercialization, clinical research and pharmaceutical supply chain. They have also seek help from advisors that will help them in commercial development and pharmaceutical export. However, the current arrangement meant that the consultants may not be fully aligned with the interest of the business as these consultants have other priorities. This may also pose key personnel risk to the business due to the founders’ lack of medical background.
Summary
There are still significant uncertainty and risk around Medibis plan to build a successful business in the medical cannabis market. There are some traction in terms of establishing partnerships and supply chain for Phase 1 of the business. But the profit model is not clear. Some ground work have been done in preparation for Phase 2, but there are still uncertainty in terms of future funding required to deliver Phase 2 and concern that access to medical and recreational cannabis in Australia may not materialize in the short term which is essential to drive growth. There is also concern that with a few major projects in the pipeline in the next few years, it may create excess capacity in the market.
The founding team’s lack of medical and pharmaceutical background was compensated by partnering with local medical consultants but may still pose key personnel risk. The traction to date however shows that the team is capable of securing commercial partnerships and delivering key outcomes.
There are many competitors in the medical cannabis market in Australia, and many have struggled to grow revenue and dominate the market. This could signal further challenges ahead for new players coming into the market but also opportunity for new entrants such as Medibis to try something new. See this link for a list of Top 20 players in the Australian market.
It’s a good problem that Medibis is trying to solve but it’s traction to date might not be enough to justify it’s $9m pre-raise valuation due to the uncertainties around its business plan, the team and current operating climate. This is an opportunity to be a part of a medical cannabis business very early in the journey but there are many more established players that are listed on the ASX to invest in if your risk appetite is smaller.
1 Australian Medicinal Cannabis Market: Patient, Product and Pricing Analysis (FreshLeaf Analytics)
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Table of Content
- Detailed Breakdown of Scorecard
- Characteristics of Good Problem
- Characteristics of Ideal Solution
- Traction to Date
- Business Defensibility
- Characteristics of Founding Team
- Peter Thiel 7 Questions for Product Innovation
- Berkus Method for Assessing Risk
Detailed Breakdown of Scorecard
1. Characteristics of a Good Problem
| Questions | Score | Comments |
|---|---|---|
| Size Is the problem popular? | 3 | The market for medical cannabis products is expected to reach ~$200m in 2021, double that of 2020 (~$100m).1 This excludes the black market demand. The main use cases for medical cannabis products are pain-related, depression/anxiety and cancer/chemotherapy. The market for cannabis products in Australia is expected to grow to ~US$1.23b in 2024 with 65% of the growth driven by recreational sales.2 |
| Growth Is the problem growing? | 4 | See above. SAS-B approval for medicinal cannabis has grown from an average of 5000 a month in 2020 to 8000 a month in Feb-21. Authorized prescribers have also increased sharply over the last year from <50 to >180.1 SAS-B and Authorized Prescribers are the 2 pathways at the moment for patients to access medicinal cannabis legally. |
| Urgency Does it need to be fixed ASAP? | 3 | |
| Costly Does it require capital to solve? | 3 | Significant capital is required to set up a vertically integrated operations from farm-to-pharma. Medibis estimated that they would require $25m to set up a facility in QLD to cultivate and manufacture medical cannabis products. The scale of the facility is unknown at this stage. Elsewhere, it was reported that Elixinol Global spent ~$10m for the purchase of land and construction of a greenhouse facility in NSW, capable of cultivating 2000-5000 tons of medical cannabis per year.2 |
| Mandatory Can the problem be enforced? | 3 | The supply of medical cannabis is highly regulated in Australia through the TPG. Improving the access to medical cannabis product is a key issue to solve. |
| Frequency of Occurrence Is the problem encountered often? | 3 |
1 Australian Medicinal Cannabis Market: Patient, Product and Pricing Analysis (FreshLeaf Analytics)
2 The Oceania Cannabis Report 2nd Edition (Prohibition Partners)
2. Characteristics of Ideal Solution
| Questions | Score | Comments |
|---|---|---|
| Is the solution innovative and 10x better than existing competition? | 2 | For Phase 1 of the business, Medibis have secured a 3+2 year supply agreement with BOL Pharma for high quality medical cannabis products. BOL Pharma is an IMC-GMP-certified cultivator and manufacturer of cannabinoid-based products. Its products are formulated using whole plant ingredients and blended with olive oil as a carrier. The key differentiation that Medibis is providing through its products is the fact that its products have higher concentration, and is backed by an established Israeli company. The cannabinoid delivery format using oil is not something new, as ~65% of existing medical cannabis products in the market is delivered using oil-based method. In summary, there are not a lot of innovation that Medibis is providing to the market at this stage. |
| Is the solution scalable? Increase in revenue does not require proportional increase in cost. | 2 | Phase 1 of the business is just a distribution business with potentially low profit margin. Phase 2 of the business which involves higher capital outlay at the start to build a vertically integrated cultivation and manufacturing facility may be more scalable as the end-to-end value chain from cultivation to sale can be absorbed by Medibis. |
| Is there a product-market fit? Are customers willing to pay for the product? Is there a clear value-proposition for the customers? Does the solution improve the unit economics of solving the problem? | 4 | Yes. It has been proven that there is a market for medicinal cannabis products and customers are willing to pay for them. It seems that medicinal cannabis can be effective in managing pain and depression/anxiety. These can only be prescribed by medical practitioners and has to go through the Special Access Scheme (Cat B) or Authorized Prescriber prescription process. Hence, unless it works, it might not be approved by the Therapeutic Goods Administration (TGA). |
| Is there a clear target customers for the solution both immediate and in the future? | 3 | Yes. The main use cases for medical cannabis products at the moment are pain-related, depression/anxiety and cancer/chemotherapy. |
| Is the business model clear and profitable? | 2 | Medibis did not provide an indication of the revenue and profit model for their proposed business. |
3. Traction to Date
| Questions | Score | Comments |
|---|---|---|
| Does the company have a functional MVP? Are early customers willing to pay for the MVP? Are there any industry recognition or benchmark that shows the MVP is superior? | 2 | The ultimate value of Medibis comes from its plan to build a vertically integrated medical cannabis business i.e. from cultivation to manufacturing to sales. Aside from securing the cultivation license, getting a “Major Project Status” (1 of 25 in Australia), securing a conditional land purchase agreement and services agreement with construction company FKG, there is no concrete traction as to how Medibis plans to be a vertically integrated medical cannabis business. It has pointed 3 options that it is considering depending on the results from Phase 1. Also note that, currently 6 out of 25 projects granted “Major Project Status” in Australia are medical cannabis cultivation and manufacturing projects.1 |
| Is the company quick at iterating on their MVP? Does the company have a good feedback channel? | 2 | |
| Is the company securing sales for their products at a good rate? Is the products getting exposure and demand from potential customers? Is the company securing strategic partnerships to gain exposure or expand market share? | 3 | Medibis is pre-revenue. It plans to secure its first sales in the next 3 months. The market seems to be quite saturated at the moment with ~190 approved products. Medibis might face some challenges in marketing it’s products initially. However, Medibis pointed out that it has secured multiple agreements to supply to a variety of manufacturers, distributors and retailers in the market. It has also secured a 4pl import, storage and distribution agreement with Anspec. |
| Does the company have a solid plan / deliverable to progress to the next stage i.e. commercialise the product, expand to other markets etc.? Is the planned use of fund inline with accomplishing the capital raise deliverable? Does the company know what their biggest challenges are for the next stage and has a plan to address them? | 2 | See above. |
1 https://business.gov.au/grants-and-programs/major-project-status/current-major-projects
4. Business Defensibility
| Questions | Score | Comments |
|---|---|---|
| Is it easy for competitors to re-create similar / more superior solution? Is the technology developed by the company protected? | 2 | See the “Characteristics of Ideal Solution” section. There are no major differentiation between Medibis’s Phase 1 products and the ones already in the market. |
| Is it easy for existing customers to switch to a competitor? | 2 | Yes. There are limited barriers/stickiness that prevents a patient from switching to a new product. |
| Is there a favorable network effect as the customer base scale? | 3 | The only thing that came to mind is branding and reliability as most physicians are conservative in their prescriptions and if a product is used by many and proved reliable then it might create some sort of a network effect. |
| Is there an element of “hook” in the solution? | 2 |
5. Characteristics of Founding Team
| Questions | Score | Comments |
|---|---|---|
| Does the founding team has a unique experience with the problem? Is the reward structure of the company focused on motivating outcomes? | 2 | Both the founding members of Medibis, Angus Chapel and Andrew Calvert are from the electrical and instrumentation implementation background. A majority of their experience is in the design and commissioning of mining/minerals projects. Medibis seems to be their first venture into medical cannabis. |
| Does the team have deep experience in the industry / business segment? Does the team have the ideal number of founders with varying skillsets? Does the team have a good balance of commercial and tech skillsets depending on the stage the company is at? | 2 | The founding members did not have any background/experience in the medical or medical cannabis industry prior to Medibis. To compensate for the lack of experience, they have secured a few consultants, Dr Evan Stephens (biotech commercialisation and clinical research), Dr Drew Dwyer (clinical research) and Cathy Todd (clinical pharmacist) to help them. From the org chart, the medical consultants seem to be working as part of Medibis, but further research shows that at this point, they are only providing consultancy services to Medibis, which may pose key personnel risk and puts question on their motivation/interest as they all have other priorities i.e. full time job. |
| Does the team work well together? Has the team previously worked together? | 3 | The founding members have known each other personally and professionally for 15 years. However, the other key personnels that provide medical expertise in this field are external and it is unsure how the new partnerships might work. |
| Does the team has an impressive list of advisers who are leaders in the industry? | 3 | The founding team managed to secure two advisors which seems to provide key expertise to the business, not covered by the team. Matt Bell is an established lawyer and will provide expertise in corporate and commercial management. Steffen Retzlaff is an experienced pharmaceutical operator in Germany/Europe and will provide expertise in European marketing, brand development, distribution partnerships and research activities which are all key to Medibis’s export plans. |
| Does the team have prior startup experience and successful exits? | 2 | The founding team does not seem to have any prior startup/exits experience. |
Peter Thiel 7 Questions for Product Innovation
| Questions | Score | Comments |
|---|---|---|
| Engineering: Are they creating breakthrough tech instead of incremental improvements? | 2 | See the “Characteristics of Ideal Solution” section |
| Timing: Is now the right time to start the business? | 3 | See the “Characteristics of Good Problem” section |
| Monopoly: Are they starting with a big share of a small market? | 2 | See “Traction to Date” section |
| People: Do they have the right team? | 3 | See “Characteristics of Founding Team” section |
| Distribution: Do they have a way to not just create but deliver the product? | 3 | They have a relatively de-risked plan which consists of 2 phases. Phase 1 is to first establish a sales and distribution channel to the market through established products imported from BOL Pharma based in Israel. This revenue model is typically lower margin as the value chain involves multiple parties which need to be compensated. However, this phase allows the business to build its branding and “test” the market demand/competition. Phase 2 is where most of the potential of the business will be derived. Phase 2 involves building a vertically integrated supply chain of medical cannabis products from cultivation to distribution. This is a much higher margin business model but require significant initial capital to set up the cultivation and manufacturing facility. The founding team have multiple options in place to execute Phase 2 depending on how Phase 1 proceed. If Phase 1 shows limited demand, then the team might decide to pursue options where they might share supply facility with existing local manufacturers instead of building their own facility. This will however significantly limit the potential of the business. |
| Durability: Will their market be defensible 10 years into the future? | 2 | See the “Business Model Defensibility” section |
| Secret: Have they identified a unique opportunity that others don’t see? | 3 | Medibis’s point of differentiation is in its focus on solving the current “accessibility” problem of medical cannabis. It plans to focus its attack on the customers’ access end by building a body of knowledge i.e. primary and secondary clinical studies that will help support physicians to prescribe medical cannabis. The industry also seems to have recognized this point and focus their effort on this as we see the significant increase in the number of authorized prescribers in Australia, which is one of the 2 major routes to medical cannabis prescription. By quoting Angus, “There are so many medical products that come out every year, how are the doctors supposed to keep up to the new information if we don’t bring those information to them in a reliable manner?” |
Berkus Method
| Metrics | Score | Score Description |
|---|---|---|
| Valuable Business Model – Base value | 3 | Key business resources are comprehensible and the value proposition is clear. |
| Available Prototype – Reducing technology risks | 2 | An MVP is in the test run, the problem the product should solve is defined and there are first results of trial runs. |
| Abilities of Founding Team – Reducing implementation risks | 2 | The founders have little or no academic background as well as little or no previous experience at all. |
| Strategic Relationships – Reducing market risks | 2 | There are a few verbal strategic relationships with big corporates or institutions announced. |
| Existing Customers – Reducing production risks | 1 | There are no existing customers yet. |
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Questions to Startup
- Angus and Andrew were both previously working on E&I commissioning and project management. What are some of the key reasons that drove you into the medical cannabis business?
- There seems to be no information about the profit model of the business, for both Phase 1 and 2. Are you able to share some information about the expected gross margin of the business in Phase 1 and Phase 2 of the business respectively? It would be very helpful to understand the expected profitability of the business in each phase, considering the business is currently pre-revenue and this information cannot be implied from the P&L statement.
- The key focus in Phase 1 of the business seems to be in sales and marketing. Aside from setting up the distribution pipeline, there was no solid information from the offer document about the sales and marketing plan of the products from BOL Pharma. Are you able to share how Medibis plan to differentiate its products from existing ones in the market?
Based on public knowledge, it seems there are currently only 2 pathways to prescription – SAS-B and AP. But these 2 pathways require a physician to prescribe them, and typically physicians are relatively conservative in their prescriptions i.e. only prescribing reputable products which has proven to work through time. How do you plan to navigate this? - What is the expected timeline of the Phase 1 and Phase 2 plan? Can you elaborate more on what the “Major Project Status” means and what the plans are for Phase 2 i.e. planned capacity etc.? There are currently 5 other medical cannabis cultivation and manufacturing projects backed by major players in the industry with the “Major Project Status”, with 2 expected to be based in QLD. Do you consider this to significantly expand the supply pipeline, resulting in excess supply capacity?
** Refer to the link to follow the discussion.
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Offer Document
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The Startup Investigator
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