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MMJ News 17/10/2019

MMJ Group invests CAD3.6m in Embark Health Inc.

MMJ Group Holdings Limited (ASX: MMJ) (“MMJ”), an Australian-listed company that specialises in managing a portfolio of investments along the cannabis value-chain, has agreed to make a follow-on investment of CAD3.6m in Embark Health Inc. MMJ’s investment was part of a total equity raising of CAD10m by Embark Health to fund the build out of their three extraction facilities in Delta, BC, Woodstock, Ontario, and Phillipsburg, Kansas.

When the production facilities are operational, Embark Health Inc. will be a significant cannabis extraction producer servicing the Canadian and Global medical and recreational markets.

“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,” MMJ’s Chairman, Mr Peter Wall, said.

He said Embark Health was an opportunity for MMJ to capitalise on its earlier investment in the company and allow Embark Health to fund the completion of its extraction facilities.

“Embark Health has executed its business plan and is well positioned to become one of the largest cannabis extraction business in North America within twelve months.”

“The investment demonstrates MMJ’s expertise to secure a private negotiated investment in listed and unlisted cannabis businesses which are not generally available to Australian retail and institutional investors, Mr. Wall said.”

The completion of Embark Health’s capital raising values MMJ’s original investment at AUD9.8m compared to current book value of AUD3.3m representing three times original capital invested. Following completion, MMJ will hold approximately 12% of Embark Health.

The Opportunity

MMJ sees the Canadian cannabis industry as maturing into a second phase of the industry growth cycle.

The first phase was about capturing licensed cultivation rights through various LP’s and securing retail channels to sell dried cannabis.

The second phase is about extracting cannabis resins, oils, and isolates from plant biomass and using those to create branded products in the vapes, edibles, drinkables, and other cannabis 2.0 products.

MMJ believes this second phase will reveal a much larger market for cannabis products as consumption methods like vapes, edibles, and drinkables will drive most of the adoption and consumption in the mainstream. This market in Canada is expected to open in October 2019 when the federal government intends to legalise these new methods of consumption, with items on shelves beginning in December 2019.

As part of this broader consumption pattern MMJ has sought to secure extraction capacity worldwide. This strategy commenced with MMJ’s investment in Medipharm Labs (June 2018), Embark Health (July 2018) and Sequoya Cannabis (July 2019). The follow-on investment into Embark Health reaffirms our belief in the companies driving the next leg of growth in cannabis.

Embark is targeting completion of three extraction facilities during the next 12 months. Subsequently MMJ expects material rerating of its investment in Embark when compared to listed Canadian extraction companies which are fully licenced and operating.

On completion, Embark intends to have two state-of-the-art THC, CBD, and CBG extraction facilities to service Canada’s medical and recreational markets in Delta, BC and Woodstock, ON; in addition to optimising a C1- D1 hempseed extraction facility in Kansas:

  1. Delta, B.C. Facility. Embark is currently building a 40,000 sq. ft extraction facility in Delta, B.C. with the ability to process 5,000 lbs. of cannabis biomass per day into various oils, resins, isolates, etc. and a daily output of 100 kgs of CBD isolate.
  2. Woodstock, Ontario Facility. This facility is even larger than Delta at 105,000 sq. ft and will be processing up to 10,000 lbs. of biomass per day with a daily output of 200 kgs of CBD isolate. This facility is currently under construction as a joint venture with the Van Haeren Group and includes supply of plant biomass from the Van Haeren group’s cultivation operations.
  3. Phillipsburg, KS Facility. This facility (to be operational in late 2020) will extract hemp seeds and produce hemp protein isolates and cooking oil in addition to CBD isolate. This facility will process 5,000 lbs. of biomass per day.

Settlement of the new Embark Health investment is expected before 31 October 2019 and will be funded from MMJ’s existing cash reserves of AUD12m.

A market presentation providing an overview of Embark Health is attached to this announcement.

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