MMJ Group Holdings Limited (ASX:MMJ) (FRA:2P9) (OTCMKTS:MMJJF) is entering the lucrative European Union, which has a large and growing medicinal cannabis market, by investing C$2.5 million in privately-held Polish cannabis extraction company Sequoya Cannabis Limited.
The company worked with its specialist management company Embark Ventures to structure the transaction, with Sequoya being the second investment originated for MMJ.
This investment forms part of MMJ Group's strategy of managing a portfolio of investments along the cannabis value-chain.
MMJ Group chairman Peter Wall said: “This is another example of MMJ’s strong market and financial discipline identifying opportunities and bottlenecks in the cannabis value-chain in markets and acting quickly."
Wall said: “The investment demonstrates MMJ’s capacity to secure investment in private cannabis businesses which are not generally available to Australian retail and institutional investors.”
Sequoya’s immediate focus is to become a substantial GMP certified hemp cannabidiol (CBD) supplier, with longer term plans to expand into the legal medical marijuana market across Europe.
Its cannabis extraction operations will be established in Krakow, Poland, with plans to become a leading supplier of CBD extracts and isolate within the European Union.
CBD production from hemp is legal across Europe with no cross-border tariffs within the European Union.
Additionally, no specific permits are required for producing hemp-derived CBD in Poland.
Sequoya is also focusing on extraction which is the highest value opportunity within the cannabis ecosystem, and it is building a large-scale production plant in a low-cost jurisdiction which has easy no-tariff access to high value markets such as Germany and northern Europe.
MMJ’s investment consists of a C$2.5 million convertible note issued by the Canadian holding company, which may be converted into about 34% of Sequoya’s issued capital within two years.
This investment will be held through wholly-owned subsidiary Phytotech Medical (UK) Pty Ltd.
The company has secured the rights to make further investments in Sequoya through:
- Warrants that allow MMJ to acquire further shares following the conversion of the debenture for a period of two years following the date of issue; and
- An option to invest a further C$2.5 million to finance the next stage of Sequoya’s business plan.