MMJ Group Holdings Ltd (ASX:MMJ) has maintained its investment strategy in 2020 with company recycling capital raised from the sale of MediPharm Labs in 2018-2019 into investment opportunities provided by existing and new investees.
Investments included existing investees such as Weed Me Inc and Embark Health Inc while new investees were added in Weed MC Inc, Sequoya Cannabis Ltd and Bespoke A Limited Partnership.
Headquartered in New South Wales, the company has a portfolio of investments across the full range of emerging cannabis-related sectors including healthcare, technology, infrastructure, logistics, processing, cultivation, equipment and retail.
One of the board's key aims is for the share price to trade at a premium to Net Asset Value, given the potential returns from portfolio companies in private cannabis and hemp businesses that are on a short path to public listing or sale of the business.
MMJ’s asset manager, Embark Ventures Inc has added considerable value in sourcing new investments to diversify its cannabis portfolio whilst also providing resources to actively manage MMJ’s holdings in existing investments.
MMJ’s investments sit across most of the cannabis and hemp value chain.
Australia's premier listed cannabis investment vehicle
Since 2015 MMJ has created investment opportunities from its connections in Canada and Australia in the private investment sector and realised exits when to MMJ’s benefit.
During August 2020, MMJ’s material investments made significant announcements in terms of achievement of business objectives and funding their operations:
- Harvest One (HVT) (11% of MMJ’s portfolio)
Harvest One Cannabis Inc (CVE:HVT) completed the sale of the Duncan Facility and its related operations in line with its transition to a cannabis-focused consumer packaged goods company.
MMJ believes that the HVT share price materially undervalues the opportunities provided by its existing portfolio as the Canadian investment market recovers and provides the opportunity for investors to acquire MMJ shares at an attractive price to their intrinsic value.
- Axiomm Technologies Inc (2% of portfolio)
In August 2020, Embark Health executed an agreement to acquire all of the issued capital of Axiomm.
MMJ has executed documentation to sell its holding in Axiomm to Embark Health in return for Embark Health shares with a value of C$2.44 each for a total value of C$0.7 million.
Interestingly, MMJ generated a return of 1.1 times its investment despite the 56% decline in MMJ’s investment benchmark during FY2020.
Adding to portfolio
The company has remained focused on adding to its portfolio of investments across Australia, Canada and Europe.
The addition of WeedMD Inc (CVE:WMD) (OTCMKTS:WDDMF) (FSE:4WE) in September 2019 is proving valuable, with the company producing cannabis products for the medicinal and adult-use markets in Canada across its three branches - StarSeed Medical Inc, Color Cannabis and CX Industries.
WeedMe announced a C$2.5 million capital raising in March 2020 which strengthened its balance sheet to support its growth plans.
Notably, the impact of the COVID-19 pandemic up to June 30, 2020, did not have a financial impact on MMJ.
Non-executive chairman Peter Wall said: “The internal operations of MMJ have not been significantly impacted and we have not observed a material adverse impact on the operations of our material investments or any consequential material specific impact from COVID-19 on MMJ’s valuation, and/or any impact on recoverability of loans advanced during the year still receivable as at 30 June 2020.”
Material changes during the period in the fair value of investees include:
- Revaluation gain of A$5.4 million from investment in Embark based on the price of its latest material capital raising;
- Devaluation of A$1.5 million from investment in Weed Me following assessment of fair value based on MMJ assessment of fair value;
- Realised loss of A$3.6 million from residual investment in MediPharm Labs, however, MMJ has made a total return of A$25.3 million on its investment since acquisition; and
- Loss of A$2.8 million on investment in WeedMD based on decline in listed value of securities.
Strategy looking forwards
MMJ is confident it is well placed to continue to roll-out its investment strategy for the remainder of 2020 and into 2021.
Key elements of the strategy are:
- For MMJ’s asset manager Embark Ventures to work with MMJ’s investees to understand their respective funding requirements and add value to the existing portfolio; and
- To make further investments at currently depressed valuations in Canadian cannabis stocks which will materially add value to the portfolio during the next 12 months.