MMJ Group Holdings (ASX.MMJ) CFO, Jim Hallam provides an overview of its investments and talks about growth in the sector as medicinal and recreational use becomes legalised.
Jessica Amir: Hello I’m Jessica Amir for the Finance News Network. Today I’m with MMJ Group Holdings (ASX:MMJ) CFO, Jim Hallam. Hi Jim and welcome to the Network.
Jim Hallam: Thanks very much for having me Jessica.
Jessica Amir: First up Jim, for those who are unfamiliar with MMJ just give us a quick introduction.
Jim Hallam: MMJ is a listed investment company. We invest in cannabis worldwide primarily Canada and to a lesser extent, Australia. We’ve got 16,000 investors. In the last 12 months we have generated a return of about 37 per cent.
Jessica Amir: We’ve seen a lot of hype in cannabis stocks over the last couple of years, really because of the legalisation of recreational and medicinal cannabis. So how big is the market?
Jim Hallam: The market’s huge. Canada is estimated to have $20 billion worth of turnover per annum. Its largest 25 listed companies have got a market cap in excess of $50 billion. So in terms of Australia, it’s the biggest investment opportunity in the world. The main growth is going to come from recreational, but we’ve got a future kick, and that is when food and beverage infused cannabis becomes legal in Canada in October this year.
Jessica Amir: Great. Now to the fund Jim, just tell us about the composition?
Jim Hallam: The fund’s got about 11 assets. The biggest investment we’ve got is in Harvest One Cannabis Inc (CVE:HVT). We’re its biggest shareholder. We’ve got 26 per cent. This provides fantastic leverage for the future. The other two main investments we’ve got are Weed Me, which is an unlisted grower of cannabis and MediPharm Labs (CVE:LABS), which is an extraction business which is listed in Canada. And our other big asset is $24 million worth of cash that we’re going to reinvest during the next 12 to 18 months.
Jessica Amir: Thanks Jim, now can you tell us about the portfolio management?
Jim Hallam: We’re an active manager. We’re offering the opportunity for investors to invest in venture capital, private equity style. We’ve got about 11 investments in our portfolio. To date we’ve invested in 15. Four of those investments have gone to the public markets. We’ve sold a couple of investments. Our most notable sale has been MediPharm Labs. It’s a terrific example of how our investment style. We invest on an unlisted basis. That company then lists. We’ve had some additional warrants or options, which provide leverage for the investment. And we made six times our capital.
So that is a great example for any retail investor wanting to know the value add that we have. And the fact that we’re the only listed cannabis investor in Australia.
Jessica Amir: Now that flows to my next question about performance. Jim, what can you tell us?
Jim Hallam: The investment performance has been terrific. In the four years that MMJ has been operating the net asset value has increased from 20 cents a share to 40 cents a share. The last 12 months it’s increased by 37 per cent. Unfortunately the share price has not reflected that investment performance. The share price is 22 cents versus net asset value of 40 cents. So there’s a fantastic opportunity there for investors, existing investors, of which we’ve got 16,000 and new investors to come on board and take advantage of that deep discount.
Investors may be thinking 'what’s the problem here, why the variance?' It’s more about the fact that the business has had to restructure itself in the last 12 months. Shares have been suspended for a couple of periods due to the process of moving into a listed investment company.
In addition to that in December last year the company announced that it would be raising equity. Since the cannabis investment market in Canada has materially increased in that time the board has decided not to raise any equity at this time. And therefore we’re hoping that the uncertainty that may have been there and perceived by investors will in fact be removed and that investors will start to see the value that the shares hold vis-à-vis, the net asset value of the fund.
Jessica Amir: A more general question now Jim. How can active managers such as MMJ really add value?
Jim Hallam: We add value because we’re primarily focused on our listed market. We source opportunities which the retail investor and frankly the institutional investor cannot source in their own right. We seek out the unlisted investments. We often get warrants or options to invest further and take advantage of upside. We then participate in the initial public offering and then we’re quite pragmatic in terms of selling.
During the last three months the board’s realised that it had to increase its presence in Canada and decided to appoint a Canadian based investment management firm. That firm, being Embark Ventures, will substantially add to our active manager capability, our asset sourcing and in particular we will have the benefit of their deep network of contacts within the cannabis industry. Embark itself is made up of professionals who have been successful investors in the cannabis business.
Jessica Amir: Can you just clarify the relationship that you have with Embark?
Jim Hallam: It doesn’t add any material fixed costs to the business. And the majority of Embark’s remuneration will be directly tied to the increase in the value of the portfolio as well as the increase in the value of our shares. We’re looking forward to completing that arrangement during the next three to four weeks.
Jessica Amir: Jim Hallam, thank you so much for your time and thanks for the update.
Jim Hallam: Thanks very much Jessica for having me.