MMJ Group Holdings Ltd (ASX:MMJ) (OTCMKTS:MMJJF) securities have gained 5.25% on highlighting it is carrying $25 million cash and plans to close the gap between its asset value and market capitalisation with a performance driven-approach investors hope will help build portfolio and shareholder value.
The cannabis investment company has started a campaign to present its investment case to shareholders, with chief financial officer Jim Hallam detailing the company’s investments in a finance interview earlier this week.
MMJ shared a summary of Hallam’s comments with the market yesterday in an investment update after the CFO profiled both the company’s investments and upcoming investment management approach in the interview on Monday.
Share price trades at a discount to net asset value
MMJ’s cash holdings of about $25 million compare favourably to its market capitalisation which was 4.55% or about $2 million higher overnight at $52.93 million.
The group’s net asset value is about $92 million, putting last night’s market cap at about 57% of net asset value.
MMJ share price is now a 43% discount to its NAV.
The company reported yesterday its listed investments and cash reserves were more than 80% of its portfolio value.
MMJ sources hard-to-access investments and adds portfolio value
MMJ’s approach to portfolio management is to source private investments which are not “practically” available to retail and institutional investors based in one of its listed markets, Australia.
The group’s target geographic markets for investments extend outside Australia to progressive cannabis market Canada.
An example of the company’s approach is its acquisition then sell-down of a stake in Medipharm Labs Corp (CVE:LAB) (FRA:MLZ) (OTCMKTS:MEDIF) to realise about a six times return on initial investment.
The investment return contributed to MMJ’s current attractive cash levels.
Investments add value over time
Investment group MMJ also choses to reinvest capital in its investments to continue to benefit from their uplifts in value.
Among the group’s current holdings are Harvest One Cannabis Inc. (HVT), which makes up about 50% of its portfolio.
Harvest One had bought MMJ investment PhytoTech Therapeutics Ltd for C$8 million in cash and stock in a transaction completed in November 2018.
MMJ investee Harvest One is rolling out a business plan that is adding to shareholder returns, pushing up the Canadian dollar share price by 50 cents, or 135%, to 87 cents since the start of 2019.
Sydney-based MMJ’s pre-tax return on its HVT investment is sitting at 33% a year.
MMJ has set a performance-driven direction
Minority investments holder MMJ has proposed to appoint Embark Ventures (EBV) on a primarily performance-based contract to act as its portfolio.
Embark Ventures is linked to a Toronto-based MMJ non-executive director, former investment banker Michael Curtis, who did not participate in discussions or negotiations by MMJ directors about the appointment of a manager.
Finance professional Curtis is chief operating officer and director of an Embark company and was a corporate vice-president of the MMJ investee company Dosecann which was successfully divested last year.
MMJ reported yesterday it expects no material increase to operating costs from its Embark arrangement expected to be formalised in the next fortnight.
The group is operating without a chief executive officer and expects the portfolio relationship will give it access to a team of people able to focus on portfolio management.
Performance targets for the relationship have been outlined that specific Embark Ventures must achieve outcomes to improve both MMJ’s share price and NAV.
If it doesn’t, the venture will not be rewarded with performance fees.
Investors expect the relationship will better improve newsflow, with the CFO Hallam also set to front investors at an upcoming finance event later this month.
MMJ wrote: “EBV will provide MMJ with much greater asset management resources located in Canada without the need to directly employ more staff and overhead.
“Embark Ventures is already actively managing our existing portfolio to ensure that MMJ gets the best possible returns.”
A shareholder briefing will be held in Australia next month as an Embark Ventures representative visits the country to present to investors and the wider investment community.
MMJ securities closed up 0.1 cent, or 4.55%, to 23 cents on the ASX yesterday.