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MMJ Group shares outshine benchmark as Canadian legal cannabis market grows past C$2.8 billion

With legal cannabis now cheaper in many Canadian localities than black market production, MMJ expects continued high rates of conversion out of the black market.

MMJ Group Holdings Ltd - MMJ Group shares outshine benchmark as Canadian legal cannabis market grows past C$2.8 billion
MMJ is seeing significant traction and growth momentum for four of its major holdings

MMJ Group Holdings Ltd’s (ASX:MMJ) shares outshined the benchmark Alternative Harvest ETF in the month of September by rising 1% from 9.3 cents to 9.4 cents.

The Alternative Harvest ETF declined about 18% during the same period from US$12.52 to US$10.39.

MMJ shares also did better than the broader market represented by the ASX 200 which declined about 4% from 6060.50 to 5815.90 during the month.

The shares are continuing to rise with a 17% gain in October from 9.4 cents to 11 cents currently.

Growth in Canadian legal cannabis market

While the broader cannabis sector declined significantly in the month of September, MMJ is seeing some uplift in the early weeks of October.

The market in October seems to be weighing excellent growth of the consumer market for Cannabis against the already well-known issue of oversupply.

In Canada as an example, the total cannabis market size is now at C$2.8 billion with only about 25% of the black market converted into legal.

With legal cannabis now cheaper in many localities than black market production, MMJ expects continued high rates of conversion out of the black market.

MMJ is seeing significant traction and growth momentum for four of its major holdings: Weed Me, Weed MD, Harvest One, and Embark Health.

Weed Me Inc.

Privately held Toronto based indoor cultivator - originally invested in 2018.

  • Weed Me’s monthly sales now exceed C$900k/month and continue to grow (as a comparison last year at times they were closer to C$100k/month).
  • Main products Cindy Jack and Lemon Z are consistently moving off shelves at the retail level.
  • This was a struggling company that needed a C$1 million convertible debenture rescue financing from MMJ last year and now it has turned around and has paid back $750,000 of the C$1 million. The primary reason MMJ came to an agreement to defer the last C$250,000 for another 2 months was because the company needed to buy more product from suppliers in order to meet sales orders.
  • Management has done an excellent job growing the business through what has been a challenging time for the industry as a whole. Overall, MMJ is pleased with the direction Weed Me is headed in and MMJ expects an eventual go-public transition over the next 12 months.

Harvest One Cannabis Inc. (CVE:HVT) (OTCMKTS:HRVOF)

Publicly listed cannabis holding company currently in transition to a focused cannabis consumer brands company. Long held MMJ investment held via shares and warrants.

  • MMJ believes that Harvest One has largely solved its capital issues for now after receiving proceeds from the sale of the Duncan facility of about C$8.2 million.
  • MMJ has also been repaid its $2 million loan plus interest back from the company when the Duncan sale closed. MMJ also received C$0.5 million worth of warrants as compensation in addition to the interest on the loan.
  • Harvest One is continuing to push through its strategic review (including any additional asset sales) so it can focus on becoming a consumer brands company in addition to finding new spots to reduce the monthly burn.
  • MMJ is pleased to see that the company is turning around the business and bringing costs in line with current market realities. MMJ expects the company will conclude its transformation early in the new year.

Embark Health Inc.

Privately held cannabis extraction company – originally invested in 2018 and held via shares and warrants.

  • Embark Health has spent the last 18 months securing a processing license from Health Canada and building out two facilities: one in Delta, BC and Woodstock, ON.
  • At Delta, Embark is up and running with a water extraction process and a CO2 extraction process to begin within weeks. The company’s organic solventless water extraction is garnering market attention as customer feedback on the initial runs have been very positive. The company has completed testing with several large producers with purchase orders incoming over the next several weeks.
  • At Woodstock, the building frame and foundation have now been laid. Embark expects the facility to be fully completed and licensed over the next 6 - 9 months.
  • MMJ is now expecting Embark to be cash flow positive by as early as November. After that, Embark will seek to list on a Canadian exchange late in 2020 or very early 2021.

WeedMD Rx Inc. (CVE:WMD)

Publicly listed Ontario-based large scale indoor and outdoor cultivator – originally invested in 2019 via convertible debentures.

  • Cost per gram continues to be among the lowest in the industry thanks to the massive outdoor grow program.
  • However, finding end markets for the large quantity of cannabis WeedMD produces remains the key challenge. This typically leaves the company with a large inventory position and a monthly cash burn.
  • In order to address the dwindling cash balance, WeedMD recently secured a C$30 million loan from their largest shareholder and customer, the LiUNA labor union. The new capital gives the company enough runway to address costs and ramp up sales through the medical channel.
  • While this places additional pressure on the capital structure, MMJ is comfortable with its position on the cap table via convertible debentures.

Quick facts: MMJ Group Holdings Ltd

Price: 0.11 AUD

ASX:MMJ
Market: ASX
Market Cap: $25.29 m
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