MMJ Group shares outperform benchmark in December on valuation uplift for cannabis investments
MMJ Group Holdings Ltd’s (ASX:MMJ) (OTCMKTS:MMJJF) (FRA:2P9) shares outshined the benchmark Alternative Harvest ETF in the month of December by rising 8% compared to a negative 10% for the benchmark. The benchmark consists of listed North American cannabis securities. MMJ’s positive performance was principally due to revaluation of its investments in Weed Me and Southern Cannabis Holdings. With 76% of the MMJ portfolio in unlisted cannabis securities, the rerating of the listed markets provides some optimism for valuation uplifts when the unlisted investees (principally Embark Health) achieve public listing. The Australian share market recognised the positive momentum during the December quarter with the MMJ share price increasing from 12 cents to a high of 18 cents before settling back to 12.5 cents at the end of the quarter. It is currently trading at 14 cents. MMJ portfolio update A number of larger MMJ investments provided updates on their operating performance and business plan initiatives: Southern Cannabis Holdings Southern Cannabis Holdings (SCH) achieved budgeted sales of $3.8 million for year ended December 31 2020 which represented a 111% increase over 2019. MMJ holds about 17% of SCH with a current book value of $3.7 million. Embark Health On December 10 2020, Embark Health Inc. announced it had entered into a definitive agreement with Mesa Exploration Corp in regard to a business combination between the two entities. Subject to the completion of conditions precedents, the transaction will result in a reverse takeover of Mesa by the shareholders of Embark and the date for the transaction is set for March 31 2021. This transaction will result in MMJ’s investment in Embark being valued using the listed TSX-V price of the listed entity. Embark is an emerging leader in cannabis extraction, with a focus on the formulation and production of advanced 2.0 products for the B2B and adult-use markets. The company continues to be at the forefront of production of solventless concentrate products including Bubble Hash, Traditional Pressed Hash, Rosin and Dry Sift. With the recent acquisition of Embark Nano (formerly Axiomm Technologies Ltd) Embark is preparing to launch the next generation of Cannabis 2.0 products. The acquired portfolio of products and formulations support the mass production and distribution of advanced 2.0 products including cannabis-infused beverages, topicals, edibles and water-soluble powders. MMJ holds about 12% of Embark with a current book value of $13.2 million.