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MMJ Group continues portfolio growth amid M&A phase-change in cannabis industry

MMJ is a global cannabis investment company with a portfolio of listed and unlisted holdings.

MMJ Group Holdings Ltd - MMJ Group continues portfolio growth amid M&A phase-change in cannabis industry
MMJ shares were up 1.92% to 26 cents in today's trade

MMJ Group Holdings Ltd (ASX:MMJ) has capitalised on the surging North American cannabis market, growing its net asset value (NTA) including cash to A$83 million or a price of A33.81 cents per share before tax.

At the beginning of the year, MMJ’s post-tax NTA was calculated at A22.35 cents illustrating the NTA growth in 2019.

Broad investment portfolio

The investment company’s portfolio covers emerging cannabis-related sectors including healthcare, tech, processing, cultivation and retail and has seen a 15% return on investment since June 30, 2018.

Public holdings are Harvest One Inc (CVE:HVT), Medipharm Labs Inc (CVE:LABS) and Fire & Flower Holdings (CVE:FAF) and the portfolio also includes nine unlisted investments.

A new wave of cannabis is looming and MMJ foresees a phase of mergers and acquisitions.

This phase may potentially be dominated by technology and new products as opposed to production and distribution.

Active capital management

In June the group enacted an active approach to capital management with an on-market buy-back of up to 10 million ordinary MMJ shares over the following 12 months.

Given the discount the shares are trading to NTA, the group’s board determined the buyback was a meaningful value-accretive use of its funds and would enhance shareholder returns.

The buyback began on June 27 and by July 31 MMJ had bought back 3.15 million shares for an average price of A27.2 cents.

MMJ has the capacity to acquire a further 6.85 million shares during the next 10 months which would reduce the number of shares on issue by a total of 10 million.

Dividend policy

A dividend policy distributing 20% of annual profit after tax, excluding unrealised gains and losses on investments, was also announced June 7.

First applied from financial year 2020, the dividend would be payable within three months of each half-year after completion of financial statements.

After being announced in April, MMJ executed an investment management agreement with Embark Ventures for it to act as manager of MMJ’s investments.

Expansion of public assets

Publicly listed business Fire & Flower had a 9.9% strategic buy-in from Couche-tard, with the Canadian multinational holding the right to potentially acquire up to 50.1% of FAF over the next several years.

Harvest One entered a supply agreement with GenCanna under which GenCanna will supply Harvest One with GMP certified CBD oil and finished products under the Dream Water, Satipharm and LivRelief brands for an initial term of two years.

Bevcanna (CSE:BEV), in which MMJ holds 1.25 million shares, went public on the Canadian Stock exchange on July 2 and currently trades at C51 cents.

“Strong market and financial discipline”

MMJ invested C$2.5 million in privately held Polish cannabis extraction company Sequoya Cannabis Limited in a move to enter the European Union’s large and lucrative medicinal cannabis market.

The investment forms part of MMJ’s strategy of managing a portfolio of investments along the cannabis value-chain.

Commenting on the investment, MMJ chairman Peter Wall said this was another example of MMJ’s strong market and financial discipline identifying opportunities and bottlenecks in the cannabis value-chain in markets and acting quickly.

Wall said: “The investment demonstrates MMJ’s capacity to secure investment in private cannabis businesses which are not generally available to Australian retail and institutional investors.”

Several MMJ private companies are also seeking additional funding to accelerate their businesses, along with leveraging MMJ’s portfolio platform in respect to technical and commercial aspects.

Quick facts: MMJ Group Holdings Ltd

Price: 0.235 AUD

ASX:MMJ
Market: ASX
Market Cap: $54.09 m
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