Medicinal cannabis company MMJ PhytoTech (ASX: MMJ) has corralled a stake in Ontario-based Weed Me, securing MMJ’s position in Canada’s expanding cannabis sector.
MMJ will purchase C$2 million debentures in Weed Me, which are convertible into shares and warrants based on a pre-money valuation for Weed Me of about C$10 million.
The debentures have a two-year maturity date and will attract 8% per annum in interest.
MMJ has an existing 59% interest in Harvest Once Cannabis (TSXV: HVST), and once the transaction with Weed Me is finalised, MMJ’s exposure to Canada’s lucrative cannabis sector will be further enhanced.
According to MMJ, Canada’s cannabis market is one of the world’s most favourable operating jurisdictions, though still highly regulated.
Numerous licensed producers are poised to benefit from the recreational cannabis market when it is legalised in mid-2018.
Weed Me was incorporated in 2016 to become a licensed cannabis producer and currently has a medical purpose application under review.
The company anticipates cultivation approval within the next three months following completion of its 8,000-square foot growing facility, which it is fitting out.
Since incorporation, Weed Me has spent 18 months researching and developing its unique cultivation techniques, which MMJ managing director Andreas Gedeon claims are “low cost” and “robust”.
The facility will comprise small grow rooms with each light sprouting up to 3 pounds of cannabis six times annually.
Under two further phases, Weed Me plans to expand the facility to 20,400 sq ft by mid-2018 and to 120,000 sq ft by January 2019.
Additionally, Weed Me has an experienced team and industry partnerships to fast track into operation and distribution, with plans to list on the Toronto Stock Exchange or ASX between June and August next year.
Commenting on the acquisition, Mr Gedeon said MMJ’s board had assessed a number of investment opportunities globally.
“We believe the Weed Me business represents a compelling and well-timed opportunity to strengthen our position in the Canadian market,” he said, adding Weed Me would also benefit from MMJ’s technical and funding support.
Industry analyst Deloitte estimates Canada’s cannabis market place could be worth C$5 billion per year.
MMJ’s stock was up 3.66% at A$0.42 by mid afternoon trade.