Disposal of PTL and Becoming an Investment Entity
Disposal of PTL and Becoming an Investment Entity
Perth, June 25, 2018 AEST (ABN Newswire) - MMJ PhytoTech Limited (ASX:MMJ) (MMJ or the Company) is pleased to advise that it has entered into a binding share sale agreement (SSA) pursuant to which it has conditionally agreed to sell its wholly-owned subsidiary PhytoTech Therapeutics Ltd (PTL) to Harvest One Cannabis Inc. (CVE:HVT) (HVT) for a maximum total consideration of CAD$8 million (Disposal).

The Disposal will be conditional upon (amongst other things) MMJ seeking all necessary shareholder and regulatory approvals required to undertake the Disposal.

ASX has advised that it considers that the Disposal will result in MMJ and the business which remains becoming an Investment Entity (defined below) and will therefore amount to a significant change in the nature of the Company's current activities. As such, MMJ will be required to obtain approval from its shareholders and to re-comply with Chapters 1 and 2 of the ASX Listing Rules.

In the event the Company does not obtain shareholder approval for the Disposal and the re-compliance conditions in Chapters 1 and 2 of the ASX Listing Rules are not met, the Disposal will not proceed and the Company will continue to own, control and operate PTL along with managing its existing investments.

As part of this re-compliance process, MMJ will issue a prospectus as required by ASX Listing Rule 1.1 Condition 3, however, MMJ does not intend to conduct a capital raising.


MMJ was incorporated on 14 August 2014 and admitted to the official list of the ASX on 22 January 2015.

Since listing until late last year, MMJ's strategy had focused on establishing a vertically integrated "Farm to Pharma" business model, building operations across all parts of the supply chain, including growing operations, development of cannabinoids-based drug-products, production and commercialisation of medical cannabis products and distribution in regulated markets worldwide.

On 10 October 2017, MMJ announced its intention to begin shifting its operational focus toward that of a global cannabis investment company, targeting the full range of emerging cannabis-related sectors including healthcare products, technology, infrastructure, logistics, processing, cultivation, equipment, research & development, hemp food products and retail.

MMJ's existing investments are as follows:

- PhytoTech Therapeutics Ltd or PTL (100%-owned by MMJ), the subject of the Disposal - company focused on developing and commercialising cannabis-based therapeutics products (using unique oral delivery technologies under licences that have the potential to deliver safe, effective and measured doses of cannabis derived ingredients to patients) and in conducting research & development and clinical development activities.

- Harvest One Cannabis Inc. (TSXV:HVT) (MMJ owns 53.33 million shares, 30.7% shareholding; 24.8% shareholding fully-diluted, before the issuance of shares to MMJ proposed as part of the Disposal, if all outstanding warrants and options are converted into shares) - Canadian cannabis cultivation and products company.

- Weed Me Inc. (MMJ owns a CAD$2 million secured note convertible into 3.46 million shares at CAD$0.577/share and 3.46 million warrants at CAD$0.866/share; currently enables MMJ to take a 17.4% shareholding; 29.6% shareholding fully-diluted and subject to exercise of and payment for warrants by MMJ) - Canadian cannabis cultivation company.

- Fire & Flower Inc. (MMJ owns 1.25 million shares for a ~2% shareholding plus 1.25 million warrants at an exercise price of CAD$1.05 per share; 2.7% shareholding fully-diluted and subject to exercise of and payment for warrants by MMJ) - Canadian corporate retail cannabis store chain.

- Cannabis Access (MMJ owns 16.7% shareholding) - the leading online portal for medical cannabis access in Australia.

- Martha Jane Medical Limited (MMJ owns 12.5% shareholding) - holder of an Australian medical cannabis licence and progressing applications for other classes of Australian cannabis licences.

- Bien Ventures Ltd (MMJ owns 12.7% shareholding plus 2.8 million warrants at an exercise price of CAD$0.35; 18.1% shareholding fully-diluted and subject to exercise of and payment for warrants by MMJ) - an intellectual property, branding and licensing company.

- BevCanna Enterprises Inc. (MMJ owns 3.6% shareholding) - intends to become a fully vertically-integrated premium-based cannabis infused beverage manufacturer.


The Disposal will:

- enable MMJ to focus its resources on actively managing a portfolio of minority investments;

- enable integration of PTL's operations with Satipharm, HVT's medical cannabis arm, which is expected to generate synergies and growth opportunities that could not be captured by PTL as a standalone research & development company; and

- benefit MMJ's shareholders by providing capital and freeing up management time to pursue investment opportunities whilst retaining exposure to PTL's future success through MMJ's shareholding in HVT.

MMJ has sought in-principle advice from ASX in respect of the Disposal and ASX has advised the Company that:

- Listing Rule 10.1 applies to the Disposal (as PTL is deemed to be a substantial asset being disposed to HVT, which ASX considers a person of influence) and that the Company will need to seek shareholder approval for the Disposal pursuant to Listing Rule 10.1;

- as a result of the Disposal, the Company will shift to become an investment entity as defined in the ASX Listing Rules (Investment Entity) and this constitutes a change in the nature of the Company's activities pursuant to Listing Rule 11.1; and consequently;

- the Company will be required under Listing Rule 11.1.3 to comply with all of the requirements of Chapters 1 and 2 of the Listing Rules as an Investment Entity.

An "Investment Entity" is an entity whose principal activities relate to investing in listed or unlisted securities and whose objectives do not include exercising control over or managing any entity, or the business of any entity, in which it invests.

MMJ will (amongst the other ASX requirements) need to demonstrate, at the time of re-compliance, that it has net tangible assets of at least $15 million. As set out in Schedules 1 and 2 to this announcement, MMJ considers it will satisfy this requirement.

Shareholders should note that once the Company re-complies as an Investment Entity on the ASX, it will need to comply with additional regulatory requirements for Investment Entities. This includes the requirement to report to ASX the net tangible asset backing of its quoted securities at the end of each month.


As mentioned above, pursuant to the SSA, MMJ has agreed to sell 100% of the issued share capital of its wholly-owned subsidiary PTL to HVT for total consideration of CAD$8 million payable as follows:
Cash (CAD$)      HVT shares*(CAD$)      Total (CAD$) 
$1m              $7m                    $8m 
*The issue price for the HVT shares will be based on the 10-day volume weighted average price of those shares immediately prior to settlement of the Disposal.

The Disposal is conditional upon, amongst other things, the following conditions:

a) MMJ obtaining all necessary shareholder approvals under the Corporations Act, the ASX Listing Rules or any other law to allow MMJ to complete the Disposal, including, but not limited to:

i) ASX Listing Rule 11.1.2 approval authorising the change of nature and scale of activities of MMJ (as applicable); and

ii) ASX Listing Rule 10.1 approval for the Disposal to HVT;

b) the parties obtaining all necessary third-party approvals or consents to give effect to the matters set out in the SSA;

c) the parties obtaining all necessary regulatory approvals pursuant to the ASX Listing Rules, Corporations Act or any other law to allow the parties to complete the matters set out in the SSA, including but not limited to, conditional approval to the reinstatement of MMJ's quoted securities to trading on ASX as an Investment Entity following completion of the Disposal on conditions satisfactory to MMJ and the conditional approval of the TSX Venture Exchange for the listing of the HVT shares issuable under the SSA.

Under the terms of the SSA, the Disposal will otherwise take place on terms and conditions that are considered standard for a transaction of this nature.

The Disposal is consistent with MMJ's strategic intent to operate as a global cannabis investment company with a portfolio of minority investments, rather than having control over its investments.

At present, PTL requires significant MMJ management time and resources to ensure that it is successful in its business strategy and can become a viable, self-funding business in the future. Advanced clinical research and development is not a core capability of MMJ's management team. MMJ has invested approximately $4.7 million in PTL to date and, whilst PTL remains as a 100% subsidiary of MMJ, it is expected to continue to require funding and operate at an annual net loss for MMJ over the next few years.

Funds raised from the Disposal will provide MMJ with flexibility to pursue investment opportunities in the cannabis sector.

Relationship between MMJ and HVT

Initially, following the successful listing of MMJ's core cannabis brands, United Greeneries Holdings Ltd (UG) and Satipharm AG (SAT) on the TSXV through HVT in April 2017, MMJ included HVT in its consolidated group accounts as an entity that MMJ had control over. However, circumstances have subsequently changed so that MMJ no longer considers that it exerts control over HVT on the basis that:

- MMJ's shareholding in HVT has reduced to 30.7% (24.8% fully-diluted; refer table below); and

- the Boards of both MMJ and HVT have changed so that MMJ and HVT have only one common director on their Boards, being Peter Wall.

HVT will be included as an investment but no longer consolidated in the accounts of MMJ and the effect of this has been reflected in Schedules 1 and 2 (see link below).

MMJ's fully-diluted shareholding in HVT is as follows:
Event             MMJ Shares    Total Fully-      MMJ Fully-Diluted 
                  in HVT*       Diluted HVT       Shareholding in HVT 
                                Shares on Issue 
Current           53,333,333    214,929,148       24.8% 
After Settlement  61,310,077    222,905,892       27.5%  
*Note: 2% of the Disposal consideration (cash and/or HVT shares) when due and payable to MMJ is to be paid/issued to Yissum Research Development Company of the Hebrew University of Jerusalem Ltd (Yissum) based on an agreement in place between PTL and Yissum. The number of HVT shares to be issued to MMJ and Yissum in the table above assumes a HVT share price of CAD$0.86/share.

As stated above, ASX are requiring the Company's shareholder approval pursuant to ASX Listing Rule 10.1 in respect of the Disposal due to the circumstances of the relationship between the MMJ and HVT.

To view the full release with tables, please visit:

About MMJ Group Holdings Ltd

Phytotech Medical ASX:PYL

MMJ Group Holdings Ltd (ASX:MMJ) is a global cannabis investment company. MMJ owns a portfolio of minority investments and aims to invest across the full range of emerging cannabis-related sectors including healthcare, technology, infrastructure, logistics, processing, cultivation, equipment and retail. For MMJ's latest investor presentation and news, please visit: http://www.mmjphytotech.com.au/investors/



Investor and Media Enquiries:
Jason Conroy
Chief Executive Officer
T: +61-2-8098-0819
E: info@mmjgh.com.au

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