European Cannabis Stocks Review: SEED Innovations Says Yooma Wellness Has Had A ‘Major Impact’ On Its NAV & MGC Pharma Announces New $10m Financing Agreement

THIS week saw two landmark cannabis reform bills put before US Congress, including the Cannabis Administration and Opportunity Act (“CAOA”) and the Secure and Fair Enforcement Act (SAFE).

While many expect CAOA’s federal legalisation proposals to be denied or severely watered down by Congress, its discussion alone could lead to less radical bills like SAFE, the MORE Act or the CLIMB Act being passed, all of which would have a dramatic impact on North American cannabis stocks.

Though the developments have already seen major fluctuations in the stock prices of the region’s biggest players throughout the week, these swings are yet to cross the pond with as much intensity, leading to a relatively subdued week for European cannabis stocks, relatively speaking.

SEED Innovations 

SEED Innovations saw its stock drop around 7% this week, following the release of its full year results on July 20. 

The multi-sector AIM-listed portfolio investment firm, which holds a significant stake in six cannabis companies worldwide, published its results for the 12 months to March 31,revealing a 21% decline in its net asset value (NAV). 

As of March 31, 2022, SEED’s NAV stood at £20.5m or 9.62p per share, down from £24.9m or 11.72p per share a year earlier, despite it adding ‘three new health and wellness companies to its portfolio’ over the period. 

SEED said that the ‘very disappointing’ performance of its investee company Yooma Wellness’ shares has had a ‘major impact’ on its NAV. 

According to SEED, after investing in Yooma’s C$10.3m fundraise at an average cost per share of C$0.39, by the end of SEED’s financial year this had dropped to C$0.13, noting that the ‘stock has seen a further dramatic decline since that time’. 

In all, the valuation of SEED’s holding in Yooma Wellness, which represents around 4.4% of the company’s issued share capital, is now down 90% year-on-year. 

Yooma’s Founder and Chairman Lorne Abony, also served as CEO at SEED innovations from January 2016 until May 2020.

The investment firm also noted that CiiTech, which SEED invested £175k in over the period, saw discussions about a planned reverse takeover by Fragrant Prosperity Holdings Limited fall through ‘primarily as a result of movements in equity capital markets’. 

It added that while it only holds a small investment in the company, given the failure of the RTO, it was ‘watching developments carefully to protect our investment’. 

SEED was more positive about its other cannabis investments, including German medical cannabis company Eurox, in which it invested €3 million in July 2021 for an 8.85% stake. 

In late March, Eurox raised a further €4.4 million at a 62% premium to its initial investment, increasing the inferred carrying value of its holding to €5 million. 

Furthermore, it highlighted progress made by Australian cannabis company Little Green Pharma, in which SEED has invested A$3m, which saw sales increase 50% in the 9 months to the end of March 2022, compared with the previous 12-month reporting period. 

Its chairman, Ian Burns, also addressed the ongoing depression of cannabis stocks globally, stating that despite their poor performance of late, the ‘board is still confident of the opportunity cannabis companies present to investors’. 

He added: “Despite an initial flurry of stock market activity in London immediately following regulatory approvals to list cannabis companies, sentiment towards these companies has not remained favourable, with a number of those that came to market failing to deliver the expectations of early investors. 

“Coupled with the very recent geopolitical turmoil impacting general stock market confidence, we have seen further downward pressure on our net asset value. 

“With a number of investments in medical cannabis companies within SEED’s portfolio, including Eurox and Little Green Pharma, we are acutely aware of the growing European medical cannabis market and the month-on-month growth of prescriptions. 

“Thematic investments regularly see peaks and troughs, and cannabis investing is not different. Whilst there is a clear disconnect between these growing prescription numbers and stock market demand for cannabis companies operating in these markets in recent months, we firmly believe that SEED is well positioned to benefit over time, particularly with the board and management’s expertise in the sector seeking out the right investments.”

MGC Pharmaceuticals

MGC Pharmaceuticals continued its recent rapid pace of market updates throughout the week, announcing the appointment of a new Chief Commercial Officer, releasing a quarterly update, and revealing a new major share purchase agreement with ZAM Software in the space of nine days. 

Furthermore, this morning MGC revealed that it has entered into a new convertible securities financing agreement for up to $10m with Mercer Street Global Opportunity Fund. 

According to the company, this ‘fully funds the current MGC Pharma business plan and replaces the unused amount of the convertible facility announced in September 2020’. 

CEO Roby Zomer added:  “The partnership with Mercer will allow us to fast track our commercial and clinical activities, and advance our company growth strategy.”

Despite the ongoing flurry of business developments, MGC’s share price failed to react significantly, though its share price managed to maintain gains seen a week earlier when it jumped 22%. 

On July 19, the company announced that it had appointed Robert Clements to the newly created position of CCO, completing ‘the restructure of the company executive team’ after its Chief Financial Officer, Angela-Marie Graham, also began her new role. 

Soon after, on July 25, MGC released its sales figures for the ‘June Quarter’, posting total sales revenues of $1.15m. 

It said this was ‘largely attributed to a substantial (118%) increase in sales’ of CannEpil, its proprietary medicine for epilepsy and the only cannabis-based medicine to be prescribed through Ireland’s medical cannabis access scheme. 

Cash receipts during the quarter came in at $1.55m, boosting its year-to-date revenues to $6.1m, marking a 134% increase year-on-year. 

Days later, it updated the market on the upcoming launch of its AI-driven personalised medication app Zam, which it expects to have ‘broad-ranging implications for the health sector’, announced on July 6. 

MGC revealed that it was acquiring a 40% stake in ZAM Software, based in the UK, for an issue of £700k of ordinary shares. 

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