MMJ Set to Unlock Value in Bullish Canadian Cannabis Market

MMJ Set to Unlock Value in Bullish Canadian Cannabis Market

If you hadn’t already heard, cannabis is currently undergoing a breath-taking liberation across the globe as doctors, clinics and government departments all gradually realise its medicinal and commercial endowments.
Whereas some medical cannabis companies are only committed to bringing the non-psychoactive CBD elements of cannabis to market via a pharmaceutical focus, MMJ PhytoTech (ASX: MMJ) has set its sights on also becoming a large-scale cannabis producer targeting supply to what is already a very large recreational market across North America.

California, Nevada and Massachusetts all voted to legalise recreational cannabis yesterday, paving the way for increased commercial expansion there.

This all sits well for MMJ, whose growing operations are situated in Canada, a country on course to legalise cannabis in all its forms over the next 2-3 years, which means access to a Lost World of potential for any companies able to get state-of-the-art growing and processing operations ready at an early stage.
MMJ certainly fits this bill and is placing itself in a first-mover advantage position in a country where the recreational market alone is estimated to have a value of up to $5BN a year.
In fact the potential Canadian market is so big and supply/demand is so dynamic that MMJ could be producing in a US$8-9BN a year industry.

To put this in context, total alcohol sales in Canada were $21.5BN in 2015, so the medical and recreational marijuana industries have some catching up to do, but by the looks of it, it’s tracking in the right direction.
Of course how much market traction MMJ can gather remains to be seen. This company is in its early stages. So seek professional financial advice before making an investment decision in this stock.
Certainly when compared with its peers such as Aphria and Aurora, which have both seen large revaluations (we’ll look at that later) MMJ compares very favourably in all key areas.

It makes sense then that MMJ has pulled the trigger on an acquisition deal for its Satipharm and United Greeneries subsidiaries to list on the TSX Venture Exchange (TSX-V), in a move designed to fast track the growth of its core cannabis brands by directly accessing the red hot Canadian cannabis capital markets.
This corporate restructuring is set to unlock significant value by providing MMJ shareholders strategic exposure to the rapidly growing Canadian cannabis market and robust demand for cannabis-focused equities.
The plan is for MMJ’s subsidiaries United Greeneries Holdings Ltd and Satipharm will list on the TSX-V via a $42M CAD acquisition of TSX-V-listed shell company Harvest One (TSX-V NEX: WON.H ).
The deal will establish a well-financed, growth-driven cannabis company with two distinct operating brands focused on supplying burgeoning Canadian and international markets.

Post deal, MMJ will own 70% of Harvest One and 100% of Phytotech Therapeutics.
The deal highlights the growing interest in MMJ’s assets, after it fielded, but recently rejected, a similar reverse takeover offer by TSX listed Top Strike Resources.
It is expected that following the deal, MMJ could be strategically well positioned to tap into the Canadian equities markets where circa CAD$200M has been raised.

Interestingly, the principals behind Harvest One will provide MMJ with access to an extensive network within Canadian capital markets, having formerly been the principals of Potash One, which sold for C$430M in 2011.
Additionally, one of the principals was behind the original TSX-V listing and concurrent $7.6M equity financing of one of the early companies licensed to produce medical marijuana under Canada’s Marihuana for Medical Purposes regulations back in 2014.

With access to this much larger and more developed funding pool, MMJ wants to rapidly supply recreational and medical cannabis not only in Canada, but further abroad.
It is now focused on major expansion opportunities in Canadian medical and future recreational markets, estimated to grow to C$8-$9BN per annum by 2024.

MMJ’s ambitions in this area will also be helped along after the company recently raised $4M AUD in an oversubscribed share placement which was strongly supported by a number of well-regarded institutional backers.
With that funding in place – which adds to the funding the company is expected to receive via the TSX listing – MMJ is well positioned to grow and reap its first crop next year.
MMJ has ticked a number of boxes, and is on the verge of rolling out its aggressive expansion plan to capture a major share of the booming cannabis markets in Canada.

In addition, MMJ’s Satipharm subsidiary is set to start a campaign to drive sales of its CBD capsules this month, with a focus on Germany and Poland before entry into other EU countries in April 2017.
So with strong funding in place and a TSX listing on the cards that will give it better access to what could be a very lucrative domestic Canadian market, now could be a good time to put MMJ on the Medical Cannabis radar, just as the industry is set to fly high.
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