MMJ Group Holdings Ltd (ASX:MMJ, OTC:MMJJF) is working towards broadening its investment mandate, removing a restriction that allows the company to invest only 25% of its total assets in non-cannabis companies.
MMJ is also working to create as much value as possible from a planned exit of investment in Weed Me and potential liquidation of Southern Cannabis Holding assets.
Weed Me is currently the best performing asset in MMJ’s portfolio, presently in a high revenue growth stage, and MMJ is working with the company to maximise exit value over the next 12 months.
Southern Cannabis Holdings is diversifying products to promote sales growth, while MMJ works with management to produce a liquidity event, also in the next 12 months.
Subject to shareholder approval, MMJ’s investment in Embark Health is being acquired by BevCanna (a listed investee company) in exchange for BevCanna shares following a merger between BevCanna and Embark Health.
During the four months ended October 31, 2021, MMJ’s Net Asset Value (before provision for deferred tax) decreased 11%. This was a favourable performance compared to the benchmark, which declined 35% over the same period reflecting in large part a decline of similar magnitude in the listed Canadian cannabis sector.
Cannabis Winter
While there has been some recovery among multi state operators in the US cannabis market this week, the sector overall continues to struggle to draw institutional investors.
MJ’s benchmark ‘MJ Alternative Harvest Index’ is still down roughly half from its high in February and Australian cannabis companies have not fared materially better. The company believes "we are in something of a ‘cannabis winter’ much like the downturn oil and commodity stocks experienced five years ago".
MMJ continues to believe in the long-term potential of the space and trusts that the fundamentals of the industry will in time drive the total market cap much higher.
Meanwhile, the company will continue to focus on high grading its cannabis assets and diversifying its portfolio with non-cannabis assets to help de-risk its exposure.
In its investment portfolio report, the company said, “Recently we have deployed capital into several new deals, majority of which are non-cannabis. We continue to scour the markets for non-cannabis exposure while bolstering our cannabis companies which are outperforming in this difficult environment.”
Publicly listed companies
Vintage Wine Estates anticipates closing the fiscal year with revenue of revenue of US$221 million, up 16% over the previous year. The company expects it will achieve 35% pro forma adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) growth over 2021.
Embark Health’s amalgamation with BevCanna is expected to close before the end of November, whereupon MMJ will own shares in publicly listed company BevCanna.
Harvest One recently reported fourth quarter and year-end financials. The company has grown 2.2% year over year and its annual net revenue ending June 2021 was C$7.96 million. Trade payables and liabilities are now at C$6.9 million vs C$14.55 million the year prior.
Entourage Health announced preliminary third quarter revenue ended September 2021 of C$14.7 million, a record quarter. This marks the company’s third consecutive quarter of revenue growth.
Privately held companies
Weed Me continued to produce record-breaking monthly revenues in August and September and is likely now one of the largest if not the largest privately held producers in Ontario.
Southern Cannabis Holdings continues to deliver steady financial results and management is focusing attention on their Prescription Vape and Online dispensary businesses which are expected to be higher growth.