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Why cannabis company MGC Pharmaceuticals rocketed 38% higher today

Cannabis shares

One of the best performers on the Australian share market on Wednesday has been the MGC Pharmaceuticals Ltd (ASX: MXC) share price.

At one stage today the cannabis company’s shares were up as much as 38% to 5.8 cents.

They have since given back some of these gains, but are still a sizeable 21% higher at 5.1 cents in afternoon trade.

Why is the MGC Pharmaceuticals share price rocketing higher?

This morning MGC Pharmaceuticals announced that it has signed a marketing, sales, and distribution agreement to provide its cannabidiol (CBD) and hemp-enhanced Nutraceutical product line into the Chinese health products market through a tailored campaign designed with Chinese specialist e-commerce retailer YuShop Global.

These products include CBD Hemp protein powder, BCAA CBD capsules, CBD Water Soluble Solution and CBD herbal V-Pen.

The release explains that this is a Business to Customer (B2C) services agreement, with YuShop responsible for collecting and transferring sales proceeds to MGC Pharma immediately post completion of transactions.

There are no specified minimum contract amounts or volumes under this agreement.

What is YuShop?

YuShop is a specialist in the import and commercialisation of innovative health and wellness consumables. It provides its merchant partners a turn-key solution for marketing, importing, and selling their products directly to the middle-class and affluent Chinese consumer through their cross-border digital commerce platform.

It provides MGC Pharmaceuticals access to over 1,500 retail channel partner outlets as well as online, app-based, storefronts that will make the Nutraceutical product line available to the market of over 350 million middle-class Chinese vitamin and supplements consumers.

According to management, the Chinese consumer market is forecast to purchase over US$20 billion of vitamins and supplements in 2020, with foreign products being in high demand because of the perceived superior quality and reduced counterfeit products often associated with domestic brands.

Should you invest?

Whilst I think this is a promising development for the company, only time will tell whether it is the next Blackmores Limited (ASX: BKL).

I would suggest investors sit this one out for a couple of quarters and see how sales of its products grow. In the meantime, I would focus on other China-focused exporters such as A2 Milk Company Ltd (ASX: A2M) or Bellamy’s Australia Ltd (ASX: BAL).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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