MMJ Group Holdings Ltd (ASX:MMJ, OTC:MMJJF) performed well in July with its net asset value declining just 1% (before provision of tax) in the month, far exceeding the benchmark of 11% over the same period.
Over the 12 months to July 31, 2021, MMJ’s investment return is a positive 12%, while its total portfolio stands at A$38 million.
MMJ is an Australian-listed, specialist investment company that gives investors exposure to a globally diversified portfolio focused on investing in private (typically pre-IPO) and public companies in high growth industries.
Can listings have positive share price effect?
MMJ’s investments are largely minority holdings in Australian and offshore cannabis-related businesses. However, the company has expanded its investment mandate to other high growth industries including natural resources, pharmaceuticals and software services technology.
Investments are managed by Parallax Ventures Inc, a specialist management company in Canada.
Most of its investments are unlisted: only 27% of companies are currently listed assets.
MMJ believes the weighting of listed to unlisted companies works in its favour as it has a positive impact on performance relative to current benchmarks.
The unlisted bias is a material contributor to the sustained discount (54% at year-end) that the MMJ share price trades to its Net Asset Value (NAV).
MMJ expects at least one of its investees to realise its value by listing during the 2022 financial year after several companies deferred their listing during the last financial year.
This should have a positive effect on MMJ’s share price.
MMJ is seeking to reduce the gap of its share price to NAV by:
- Diversifying its investment mandate to include non-cannabis investments in primarily listed or pre-IPO investment opportunities;
- Benefiting from the prospective rerating of the HVT share price where MMJ now has significant leverage to improvement in performance through its 22% shareholding and a further 17 million warrants; and
- Working with material MMJ investee businesses, Weed Me and Southern Cannabis Holdings, to achieve liquidity events during the next 12 months.
It should be noted that MMJ is cashed up with A$3 million in the bank along with a company tax refund receivable of A$4.6 million and a portfolio of listed equities (C$5 million), listed convertible loans (C$4 million) and unlisted loan securities (C$3 million) to make investments that are aimed at materially increasing net asset value.
MMJ believes its cannabis investments HVT, Weed Me, Entourage Health Corp and Southern Cannabis Holdings are well-placed to generate material investment returns over the medium term.
This view is based on growth in the Canadian cannabis market and expansion of the Australian medicinal cannabis market.
The cannabis retail market in Canada is now C$3.5 billlon annually and is expected to grow exponentially over the next decade, with producers and processors in MMJ’s portfolio set to take advantage of this growth.
Looking specifically at MMJ’s investees, Entourage Health Corp (formerly WeedMD) has entered a definitive agreement to acquire renowned craft cultivator CannTx Life Sciences Inc in an all-stock transaction.
Entourage reported Q1/2021 total revenue of C$12.9 million beating their provided guidance and also reported major improvement in SG&A expenses which are down 66% quarter over quarter. The company is now nearly at breakeven on an adjusted EBITDA basis.
In July, Harvest One announced two initiatives to expand branded product sales:
1. HVT signed a three-year renewable marketing and distribution agreement for international market expansion with WB Canna Co & Wellness, a leading cannabidiol (CBD) and wellness products distributor in the Caribbean, Central America and travel retail/cruise channel.
Partnering with WB Canna aligns with Harvest One’s growth strategies for its core brands, and further contributes to HVT’s growth and brand expansion initiatives for fiscal 2022.
HVT granted WB Canna exclusive distribution and marketing rights across 33 countries throughout the Caribbean and Central America inclusive of Mexico, Puerto Rico, and Colombia. This includes channels of duty-free, cruise and travel retail.
2. HVT’s wholly-owned subsidiary, Delivra Inc, has granted Valens Agritech Ltd, a leading manufacturer of cannabis products, an exclusive two-year licence to manufacture, distribute and sell infused LivRelief branded topicals in Canada.
HVT’s LivReliefTM CBD cream was the top-selling SKU in the Infused Topicals category in Ontario for the four-month period ended June 2021. During the same period, HVT’s LivRelief brand captured approximately 27% market share within the Infused Topicals category in Ontario based upon sales revenue.
HVT has also expanded its US footprint to include nearly 11,000 retail locations in Virginia, Arizona, Massachusetts, North Carolina and Montana. The primary focus of this expansion is to push non-infused Dream Water within the North American market.
Embark Health has created a hit product in Hazel hash stick and has received multiple re-orders, however, it is struggling to establish the bubble hash segment of its operations.
Embark is currently transitioning into a house of cannabis 2.0 brands.
WeedMe continues to break records in terms of monthly sales and is on track to list in the next 12-18 months.
J Supply Co will acquire Northern Helm in an all-stock transaction and intends to open 11 retail stores across the two brands by Autumn in the Northern Hemisphere.
Investment opportunities on horizon
MMJH currently has the right to make follow-on investments in several listed and unlisted companies, including:
- Sequoya (Europe);
- Entourage Health Corp (Canada);
- Embark Health (Canada);
- Harvest One Cannabis Inc (Canada); and
- Vintage Wines Estates, Inc (USA)
MMJ will release its audited financial statements for year ended June 30, 2021, by August 31, 2021.