Shares in ASX member and cannabis cultivation business MMJ Phytotech Ltd (ASX: MMJ) are down 30% over the last six months as the company continues to post losses and recently announced that it intends to divest itself of what some shareholders might have thought were some of its key assets.
In December it was confirmed that the management team at MMJ have decided to sell its United Greeneries cannabis growing facilities in Canada alongside its Satipharm AG cannabis-based pharmaceutical business that is based out of Europe.
The buyer is a listed Canadian business named Harvest One that will pay C$2 million and issue 53,333,333 million shares in the capital of Harvest One to a wholly owned subsidiary of MMJ.
Harvest One is reported to be raising C$15 million by way of a private placement to fund the deal and invest an extra C$9 million to fund investments in the United Greeneries' Canadian cannabis cultivation facilities.
Canada is the world's market leader in the development of the medical (and recreational) cannabis cultivation industry, with Australia recently adopting legislation that may enable cannabis-based drugs to be used for medicinal purposes under certain conditions.
Any drugs given the green light for prescription use in Australia for example are likely to be orally ingested capsules that could be used for the prevention of pain or other common medical conditions.
However, given the unusual corporate goings on at MMJ, I would suggest investors ask themselves whether this company is being run on behalf of shareholders or management.
Lighting up its cash balance…
Moreover, investors might want to consider what chances the company now has of ever generating a profit given it lost $1.46 million for the quarter ending 30 September 201,6 with just $1.39 million in cash left on its balance sheet at that time. Over the quarter $1.225 million of the cash outflows were attributed to staff, administration and corporate costs, with zilch in the way of operating revenues other than $2,000 listed as interest received.
Subsequent to the end of the quarter the company reportedly completed a $4 million private placement (before costs) which should help its cash flow problems, but not for long when you consider cash outflows for the final quarter of 2016 are estimated to be around $1.92 million.
In my opinion you'd need to be higher than Sydney's house prices to consider buying shares in this business when you look at the financials and track record, but I may be wrong, as only time will tell.
