By Lynda Kiernan
MMJ Group Holdings Limited announced that Weed Me, a Canadian indoor cannabis grower with facilities in Ontario, has completed a C$2.5 million (US$1.8 million) capital raising.
Founded in 2016, Weed Me also holds cultivation, processing, and sales licenses under the Cannabis Act from Health Canada.
As an Australian-listed company specializing in managing a portfolio of investments along the entire cannabis value chain, MMJ has been an investor in Weed Me since December 2017. The company represents one of the largest investments for MMJ – an investor with a mission to invest across a range of cannabis and hemp-related categories including cultivation, processing, technology, infrastructure, logistics, and retail.
Under the terms of the deal, MMJ’s investment in Weed Me gives it 3.46 million shares with a book value of A$2.8 million (US$1.8 million), representing 14 percent of Weed Me’s issued capital, and 3.46 million warrants – each convertible at C.8666.
“We congratulate the management of Weed Me in securing funding in challenging market conditions and believe that its reflects the quality of its business plan and its substantial cultivation assets,” said Peter Wall, non-executive chairman, MMJ. ”…and we are committed to working closely with Weed Me to deliver superior returns.”
Headwinds and Potential
The Canadian cannabis industry had a hard 2019, with sales falling short of Deloitte’s expectations of C$4.3 billion (US$3.12 billion) – coming in at C$1.2 billion (US$870 million).
Aside from this slow growth in sales, regulatory issues have also put pressure on the industry. Adult-use sales were made legal in October 2018, however, a year later, Ontario, the most highly-populated province in the country, has only 24 approved dispensaries, or one for every 604,000 people, according to The Motley Fool. Situations such as these have resulted in significant inventory build-up and bottlenecks, causing inventory write-downs across the industry.
However, for companies such as Weed Me that not only grow cannabis, but have a license to sell, recent developments in Ontario may provide a path of growth for 2020 and beyond.
In February of this year the province of Ontario announced that it has agreed to participate in a review of legalizing cannabis lounges, and its consumption in public places such as at festivals and concerts.
If approved, this move would give consumers the ability to partake outside of the home, and the advent of legal lounges could make investing in the industry more appealing given the potential for greater sales and consumption.
Another development occurred in October 2019 when Canada legalized cannabis-based edibles and beverages. Deloitte stated in its report, Nurturing new growth: Canada gets ready for Cannabis 2.0, that this opens up a market for products that may appeal more to reluctant consumers, or “cannabis-curious” consumers.
“The edibles market alone is estimated to be worth at least $1.6 billion a year in Canada, with cannabis-infused beverages adding a further $529 million,” said Jennifer Lee, a partner and Deloitte Canada’s Cannabis National Leader, and Consumer Advisory and Analytics Practice National Leader. “According to our research and stakeholder interviews, much of this economic boost will be on top of current cannabis product spending. The introduction of cannabis-infused edibles will clearly threaten the alcohol industry as consumers are using the product for similar usage occasions.”
– Lynda Kiernan is Editor with GAI Media and daily contributor to the GAI News and Agtech Intel platforms. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.