Shares of Neptune Wellness Solutions (NASDAQ: NEPT) were soaring 19.4% higher as of 11:26 a.m. EDT on Friday. Neptune announced earlier in the day that it had signed a multiyear agreement to provide extraction and purification services to Canadian cannabis producer Tilray (NASDAQ: TLRY).
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The deal with Tilray is important to Neptune for a couple of key reasons. First, it will boost Neptune's revenue. While no financial details for the Tilray agreement were revealed, the minimum volume of cannabis and hemp biomass to be processed over the three-year term is 125,000 kilograms. Neptune expects to process 20% of the total volume in the first year.
Second, Tilray is well-known in the cannabis industry. Neptune CEO Jim Hamilton noted this, stating, "We are thrilled to be working with Tilray, a globally recognized leader in cannabis." Picking up Tilray as a customer could bring more attention to Neptune's extraction services and help it land additional customers.
And Tilray isn't the first big customer for Neptune. Last year, Neptune signed a multiyear extraction agreement with Canopy Growth.
The money from Neptune's latest deal with Tilray won't start flowing in immediately, though. Neptune doesn't anticipate receiving its first shipment of biomass from Tilray for extraction until September 2019.
Neptune could see more opportunities in the not-too-distant future. The Canadian market for cannabis edibles and other derivatives is expected to open in October 2019. This could drive higher demand for extraction services that Neptune provides.
In addition, Neptune is positioned for growth as the U.S. hemp cannabidiol (CBD) market expands. Jim Hamilton said in the company's Q3 conference call in February that Neptune is "actively engaging" in the U.S. The company announced in May that it was acquiring North Carolina-based hemp processor SugarLeaf Labs as part of its U.S. strategy.
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