MMJ Group Holdings Ltd (ASX:MMJ) has developed a portfolio of minority investments in the global cannabis industry, posting strong net returns of 44% for the financial year to April 30, as well as 32% for the quarter and 7% for the month.
Aiming to capitalise on the emerging industry through investments in cannabis-related sectors, the company has made 15 primary acquisitions and 8 sales of investments to date.
A strong cash position of $26 million will continue to provide capital for MMJ to exclusively invest in the burgeoning industry.
The company has also taken advantage of recent improvements in Canadian-listed cannabis markets to further boost its cash reserves, cancelling an equity raising announced in February.
Currently MMJ’s portfolio consists of 11 investments with a book value of $71.5 million, 77% of which are publicly listed and 95% based in Canada.
The portfolio includes several companies which will benefit from the pending Canadian legalisation of cannabis-based food and beverages in October 2019.
MMJ's investment portfolio
The company takes a venture capital approach to managing its portfolio, targeting investments of up to $5 million in cannabis sector leaders within supportive jurisdictions like Canada and Australia.
Businesses from across a broad spectrum of sectors are being targeted, including healthcare, technology, infrastructure, logistics, processing, cultivation, equipment and retail.
Last month MMJ proposed appointing Embark Ventures as manager of its cannabis investments, providing a cost-effective way to accelerate MMJ’s investment operations in the medium term without adding material fixed costs.
Embark Ventures’ parent Embark Group also includes Embark Health Inc, in which MMJ holds an investment worth $3.8 million.
The appointment is part of MMJ’s strategy to secure a meaningful investment presence in its key market of North America.
An example of MMJ’s value-focused strategy is its investment in and exit from MediPharm Labs, a company in which MMJ saw potential as a leader in cannabis oils extraction.
After investing CAD$5 million in shares and warrants last year and seeing strong share price growth, MMJ sold its holding to realise a return of six times the capital invested.
MMJ's share price is trading at a discount to net present value
Other notable investments include MMJ’s acquisition of two cannabis businesses in 2015 and its investment in Dosecann, a Canadian cannabis-focused healthcare company.
The 2015 acquisitions of United Greeneries Holdings Ltd and Satipharm AG were both sold to Harvest One (HVT) in April 2017 through a reverse takeover.
MMJ’s holding in HVT was reduced from 60% to 26%, through a series of share issues, exercise of convertible debt and consideration paid.
The reverse takeover generated a pre-tax return for MMJ of 33% per year, representing 2.5 times capital invested.
Returns of 2.2 times capital invested were generated from MMJ’s January 2018 investment in Dosecann after Cannabis Wheaton Income Corp (TSX-V:CBW) acquired 100% of Dosecann four months later.
MMJ accepted the takeover consideration in the form of Cannabis Wheaton shares and warrants, which was entirely divested then reinvested in the private market.