On 9 January 2019, MMJ Group Holdings Ltd (ASX: MMJ), a global cannabis investment company announced that MediPharm Labs Inc had signed a multi-year cannabis extraction agreement with TerrAscend Corp, a biopharmaceutical and wellness company which is into providing quality products, brands, and services for the global cannabis market.
MMJ owns 4.4 million shares at CAD$0.85 per share and 2.9 million warrants (exercisable at CAD$1.20 per share by October 2020) in MediPharm Labs.
This agreement is considered as a positive development by MMJ as it has 4.5% shareholding in MediPharm Labs. On 8 January 2019, MediPharm Labs entered into a multi-year Cannabis extraction agreement with the TerrAscend Corp, licensed under the Cannabis Act (Canada). As per the agreement MediPharm is expected to process the dried cannabis and produce cannabis oil concentrate. Through this agreement, MediPharm will be laying a strong foundation for multi-year cannabis extraction. This agreement will help in increasing the asset utilization which in turn would help in generating recurring revenues.
The President and the CEO of MediPharm, Mr. Pat McCutcheon is also excited about having TerrAscend into their portfolio, and it believes that agreement will increase the efficiency and will also expand their revenue base by scaling the business of extracting 250,000 kgs of dried cannabis. He is also confident that with time they will also be able to enhance their extraction expertise and techniques. They will also be able to build oil sales strategies for generating revenues. He also assures that the company can service the future needs of TerrAscend based on its existing domestic and international opportunities.
Based on the strong track record in delivering high-quantity cannabinoid products and the expertise of extracting cannabis, TerrAscend chose MediPharm as their ideal partner for producing cannabis oil concentrate and support the product diversification in Canada and abroad.
As per the agreement, TerrAscend will supply MediPharm with the dried cannabis to process bulk resin and other premium oil derivative products sold under the TerrAscend brand.
For the financial year ending on 30 June 2018, MMJ made a net profit of $1.190 million. The balance sheet of MMJ looks healthy with a net asset base of $63.747 million and a debt-equity ratio of 0.02 indicating that the company is financially sound to manage the long-term obligations. MMJ Group Holdings Ltd owns a total current asset of $64.548 million and a total current liabilities $0.390 million which indicates that it can efficiently manage the working capital requirements and its short-term debt. The net cash and cash equivalent by the end of the fiscal year 2018 stood at $1.347 million.
By the end of the trading session on 9 January 2019, the share price of MMJ stood at A$0.245 with the market capitalization of A$55.24 million and a PE ratio of 1.83x. Today, 10 January 2019, shares are trading at A$0.240, down by 2% (as at 1:16 pm AEST).
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