Tuesday, 03 March 2020 09:43

MMJ Group’s Growing Portfolio of Cannabis Assets

By Jonathan Jackson

VENDOR PRODUCT ANNOUNCEMENT. There’s little doubt the cannabis sector is primed for massive growth: legalisation continues across the globe, the benefits of cannabis and hemp are receiving greater recognition, and market acceptance is improving.

Canada has led the charge in change management and cannabis industry growth.

Canada, specifically, houses the largest cannabis companies in the world and was the first G7 nation to legalise cannabis at the federal level.

With that in mind, it was expected that Canadian pot sales would skyrocket when adult-use weed received the green light in licensed dispensaries.

However, persistent issues saw a downturn in the industry as companies folded and investors sold out.

Suffice to say cannabis stocks had a challenging year in 2019.

The majority of Canadian listed licence producers’ valuations fell last year. It didn’t help that the industry was rocked by scandals in 2019, as bad behaviour on the part of licensed cannabis cultivators generated more interest in Canada than any other problem.

CannTrust proved untrustworthy when it was caught growing cannabis in five unlicensed rooms at its Niagara facility.

California-based MedMen Enterprises and Canada-based Aurora Cannabis also said goodbye to its CEOs.

Yet, signs are emerging that a change of fortunes is in-store for the sector, with a number of listed cannabis companies turning the corner in 2020.

Stifel analyst Bill Alpert is of the view that cannabis stocks will rebound in the first half this year.

Stifel looks to be on the money.

Canada’s largest cannabis company, Canopy Growth saw its shares reverse its downward trend recently after its third-quarter financial results surpassed expectations.

It’s a good sign for North American investors as they look for opportunities. Australian investors can also get in on the action through ASX-listed MMJ Group (ASX MMJ).

MMJ has a growing portfolio of minority investments across the full range of emerging cannabis-related sectors, with a particular interest in extraction and retail brand businesses.

It is the only listed investment company offering Australian investors the opportunity to invest in unlisted and listed cannabis-related businesses locally and offshore.

Capped at just $21 million, this company has a proven track record in acquiring and realising significant value from its cannabis and hemp related investments and has investments in private cannabis and hemp businesses which are on a short path to public listing or sale.

Australian investors can buy into this portfolio, as the company currently undertakes a Share Purchase Plan to raise $5 million.

Eligible Shareholders have the opportunity to purchase up to $30,000 worth of new shares in MMJ issued at $0.11 per share a 10.9% discount, meaning new shareholders can get in below the current market price.

This is also a 51% discount to the last announced Net Tangible Asset Value per Share as at 31 January 2020, of $0.22.

A stake in this company would see investor buy into a company with a track record of strong market and financial discipline identifying opportunities and bottlenecks in the cannabis value-chain.

MMJ is focused on extraction companies and strong brands, which feed into cannabis 2.0. It believes its stock picking capabilities will be crucial to success in a maturing industry.

For investors looking at MMJ, they can be sure that the company will be investing in companies that are:

  • Well Capitalised
  • Possess Low Cost Production or Process
  • Focus on high value/high margin (Extraction, Branded retail, etc)

For instance, it would give investors leverage to the success of Harvest One Cannabis, a global cannabis company that develops health and wellness products and in which today’s company has a 26% stake.

Furthermore, this company has a strategic relationship with Embark Ventures, a specialist management company, which manages MMJ’s portfolio of investments.

Through its relationship with Embark Ventures, MMJ owns approximately 12% of Embark Health, an investment with a book value of AU$13.9m representing a return of two times MMJ’s investment in the Company.

Embark Health recently announced it was in the throes of creating the largest cannabis and CBD extraction business in Canada with facilities in British Columbia (BC) and Ontario (ON) and is looking to publicly list in Canada this year.

This move would give Australian investors further access to a growing Canadian cannabis market, which Deloitte estimates will be worth US$195 billion dollars by 2025.

MMJ is expecting a profitable 2020 ahead for the cannabis industry and is speculating that 2021 will be a banner year, but it will go through a consolidation before it reaches any significant heights.

The company’s non-executive director Michael Curtis says the surviving players will enjoy the benefits of that consolidation and investors will be able to take advantage of depressed valuations.

Curtis is cautiously bullish, which is excellent news for Australian investors looking to tap into this market.

As Curtis says, “MMJ can get to companies that retail investors can‘t.”

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