MMJ Group Holdings Limited (ASX:MMJ) CFO, Jim Hallam provides an overview of the company's investments, the sourcing of early stage opportunities, its connections in Canada, and how value is realised.
Anna Napoli: Hello, I'm Anna Napoli for the Finance News Network, and joining me now from MMJ Holdings (ASX:MMJ) is CFO, Jim Hallam. Jim, welcome back.
Jim Hallam: Thanks very much, Anna.
Anna Napoli: MMJ Group Holdings (ASX:MMJ) is a pure play listed investment company specialising in cannabis. How's your business progressing?
Jim Hallam: In the last 12 months, we've converted from a cannabis operational company into a listed investment company. We've got shareholders funds of about $90 million, 16,000 investors. Most of our investments are offshore, and we've made a lot of progress now holding 11 investments, as I said, predominantly in Canada.
Our net asset value has increased about 40 per cent, it hasn't been reflected in the share price but the board is working hard to bridge that gap.
Anna Napoli: Thanks, Jim. Now to the private or unlisted companies in the fund. Can you tell us more, starting with sourcing eligible companies?
Jim Hallam: We source investments across the value chain from growing cannabis through to extraction of the oils. In October this year, the market in Canada will open up to CBD-infused beverage and food, as well as vape pens. We've got exposure to all of those in our existing portfolio, but we're seeking to widen that. We're looking for well-managed companies that need capital and which have a business plan which is going to be rolled out in the next 12 months to two years to get a lot of value.
Anna Napoli: What sort of investment criteria do you use?
Jim Hallam: Well, we want good management teams. We want companies that are early stage but, that are looking to go to initial public offering within 12 months to two years. We like to co-invest with other investors. We don't want to be the major investor in any of these companies so that when the companies themselves need additional capital, which they're going to because that's part of the business rollout. We can co-invest and up our investments as we move along.
Anna Napoli: What sort of competition for investment is there in the private or unlisted cannabis space?
Jim Hallam: Competition's strong, but we've been able to source 11 investments in that space. We're particularly excited about the tie-up with Embark Ventures. Embark Ventures is a team of professionals who are both investors and operators of cannabis businesses in Canada. They provide us with the understanding of the industry and how MMJ (ASX:MMJ) is going to extract value from our investments.
Anna Napoli: Thanks, Jim. Clearly expertise and knowledge is vital. Can you give us an example of an investment that's gone from pre-IPO to listing and the sort of value that that's created?
Jim Hallam: A terrific example is MediPharm Labs, which was a cannabis oil extraction business. The opportunity to invest in MediPharm Labs came to us in 2018 through our origination network. It was a private business. We invested $5 million. We saw a lot of value that would come post-listing, particularly when you get a premium from going from private to public. During the early part of 2019, our investment went from $1.20 to $6, and through that journey we decided to divest the majority of our holding. That's meant that we've generated a return of six times our original capital.
Anna Napoli: Jim, as the sector develops, and it's a very hot topic at the moment, cannabis, where are the best prospects?
Jim Hallam: The better prospects are proven cannabis growers, extraction businesses, and businesses that are going to sell branded cannabis products. That is, brands which are recognised by the consumer. Our major investment, Harvest One, is particularly focused on producing branded products. We're looking forward for that business plan to roll out successfully in the next 12 to 18 months.
Anna Napoli: Last question, Jim. What message would you like to leave with investors?
Jim Hallam: MMJ investors should feel confident that the MMJ board is working very hard to bridge the gap between its net asset value and its share price. Our proposed tie-up with Embark Ventures is going to increase our footprint in Canada and position us well in North America for the longer-term, should in fact the USA legalise cannabis on a federal level. We've demonstrated that there are opportunities to offer investors, private equity style returns in a market which is still at the early stages of delivering investment returns. We've made the commitment. We're going to follow through, and we believe that we'll be well-positioned in the next 12 months to two years to deliver outstanding returns to our investors.
Anna Napoli: Jim Hallam, thank you so much for your insights today.
Jim Hallam: Thank you very much, Anna.